As filed with the Securities and Exchange Commission on August 19, 1999
Registration No. 333-
===============================================================================

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

ST. MARY LAND & EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)

Delaware 1311 41-0518430
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(303) 861-8140
(Address, including Zip Code, and telephone number, including area code,
of registrant's principal executive offices)

Mark A. Hellerstein
President and Chief Executive Officer
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(303) 861-8140
(Name, address, including Zip Code, and telephone
number, including area code, of agent for
service)

copies to:

Roger C. Cohen Gregory C. Hill
Ballard Spahr Andrews & Ingersoll, LLP Locke Liddell & Sapp LLP
1225 17th Street, Suite 2300 3400 Chase Tower
Denver, Colorado 80202-5596 600 Travis
(303) 299-7304 Houston, Texas 77002-3095
(713) 226-1187

Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this registration statement becomes
effective and the effective time of the merger of a wholly owned subsidiary of
the registrant with and into King Ranch Energy, Inc. as described in the
Agreement and Plan of Merger dated July 27, 1999.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _____

If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] _____

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
Proposed Proposed
Title of each maximum maximum
class of offering aggregate Amount of
securities to Amount to be price per offering registration
be registered registered unit price(2) fee (3)
- ------------- --------------- -------------- -------------- ------
<S> <C> <C> <C> <C>
Common stock,
$.01 par value 2,666,252 shares(1) N/A $46,782,000 $13,006
</TABLE>

(1) The maximum number of shares of St. Mary Land & Exploration Company
common stock issuable in connection with the merger in exchange for shares of
King Ranch Energy, Inc. common stock.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act, based on the book value
as of June 30, 1999 of the shares of King Ranch Energy, Inc. common stock to
be received by St. Mary Land & Exploration Company in the merger.

(3) Calculated pursuant to Section 6(b) of the Securities Act as .000278 of
$46,782,000.

The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

ST. MARY LAND & EXPLORATION COMPANY/KING RANCH, INC.
JOINT PROXY/CONSENT STATEMENT

---------------------------------------------------

ST. MARY LAND & EXPLORATION COMPANY PROSPECTUS

The boards of directors of St. Mary Land & Exploration Company and
King Ranch, Inc. have approved a merger agreement whereby St. Mary will
acquire King Ranch Energy, Inc., which is King Ranch's oil and gas business
subsidiary. Before the merger all shares of King Ranch Energy common stock
will be distributed on a pro rata basis to the King Ranch stockholders
provided that all other conditions to the merger have been satisfied. In the
merger, King Ranch stockholders will receive 6.4988 shares of St. Mary common
stock for each share of King Ranch Energy common stock owned, plus cash in
lieu of fractional shares.

We cannot complete the merger unless St. Mary's stockholders vote to
approve the issuance of common stock in the merger and King Ranch Energy's
stockholders consent to the merger agreement. The meeting for the vote and the
forum for consent will be held as follows:

<TABLE>
<S> <C>
For St. Mary stockholders: For King Ranch Energy stockholders:

Thursday, September 30, 1999 ___________, September ____, 1999
10:00 a.m., local time _______ p.m., local time
Norwest Bank Forum Room _____________________________
1740 Broadway Houston, Texas
Denver, Colorado
</TABLE>

To vote at the St. Mary meeting please either attend the meeting or
complete and sign the enclosed proxy card and return it promptly in the
accompanying envelope. The St. Mary board of directors recommends voting "FOR"
approval of the St. Mary common stock issuance. To consent at the King Ranch
forum please sign and deliver the enclosed consent form at the forum. The King
Ranch board of directors recommends consenting to the merger agreement.

- ----------------- -----------------
Thomas E. Congdon Abraham Zaleznik
Chairman of the Board Chairman of the Board
St. Mary Land & Exploration Company King Ranch, Inc.

See "Risk Factors" beginning on page 9.

Neither the SEC nor any state securities regulators have approved the
merger or the St. Mary common stock to be issued as discussed in this document
or determined if this document is accurate or adequate. Any representation to
the contrary is a criminal offense.

This document is dated August _____, 1999 and is first being mailed
with accompanying forms of proxy and consent to stockholders on August _____,
1999.

[For St. Mary booklet only]
[St. Mary logo]

ST. MARY LAND & EXPLORATION COMPANY
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

DATE:

Thursday, September 30, 1999

TIME:

10:00 a.m., local time

PLACE:

Norwest Bank Forum Room
1740 Broadway
Denver, Colorado

PURPOSE:

To vote on a proposal to issue a total of 2,666,252 shares of St. Mary
common stock under the merger agreement whereby St. Mary is to acquire King
Ranch Energy, Inc.

Only stockholders of record on August 13, 1999 may vote at the meeting.

Your vote is important. Please either attend the meeting or promptly
complete, sign, date and return your proxy card in the enclosed envelope. Any
stockholder who returns their proxy can revoke it at any time before the vote is
taken at the meeting.

By Order of the Board of Directors

------------------------------------
Richard C. Norris
Secretary

Denver, Colorado
August _____, 1999

[For King Ranch booklet only]

[King Ranch, Inc. Letterhead]

NOTICE OF DISTRIBUTION
AND STOCKHOLDER FORUM

As you know, on July 27, 1999, King Ranch entered into a merger
agreement with St. Mary Land & Exploration Company, pursuant to which St. Mary
has agreed to acquire King Ranch Energy. As contemplated by this merger
agreement, shares of King Ranch Energy common stock will be distributed on a pro
rata basis to King Ranch stockholders of record as of [______________], 1999.
The distribution will take place on [____________], 1999, provided that all
other conditions to the merger have been satisfied. Prior to the distribution,
shares of King Ranch Energy common stock will be divided into two classes, which
will have corresponding rights and preferences with the two existing classes of
King Ranch common stock. In the distribution, holders of voting common stock of
King Ranch will receive shares of voting common stock of King Ranch Energy, and
holders of non-voting common stock of King Ranch will receive shares of
non-voting common stock of King Ranch Energy. Physical stock certificates will
not be delivered to King Ranch stockholders, but will be held in escrow by King
Ranch pending the closing of the merger.

On [____________], 1999, immediately following the distribution, we
will hold a stockholders forum at [_________________________], Houston, Texas,
at [______] a.m., which shall be held for the following purposes:

- Answer any questions that you or your advisors may have about
the distribution of King Ranch Energy common stock and the
acquisition of King Ranch Energy by St. Mary.

- Obtain the written consent of the holders of a majority of the
King Ranch Energy voting common stock to the merger of King
Ranch Energy and St. Mary.

For purposes of convenience, you may submit your written consent to
King Ranch prior to the stockholder forum by completing, signing and
returning the written consent in the enclosed envelope. Voting instructions
are included on the written consent. If you submit a written consent prior to
the King Ranch Energy stockholder forum, the written consent will not be
effective until immediately after such stockholder forum. Any such consent
may be withdrawn at any time prior to its effectiveness by providing written
notice of withdrawal.

By order of the Board of Directors,

Jack Hunt
Chief Executive Officer
[_____________], 1999

TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Summary............................................................... 1

Risk Factors.......................................................... 9

The St. Mary Stockholders Meeting .................................... 11
Date, Time and Place ........................................ 11
Purpose...................................................... 11
Record Date and Shares Entitled to Vote ..................... 11
Vote Necessary to Approve the St. Mary Stock Issuance ....... 12
Proxies ..................................................... 12
Proxy Solicitation........................................... 12
Appraisal Rights............................................. 13
Stock Ownership of Principal Stockholders and Management .... 13

The Distribution and the King Ranch Energy Stockholders Forum......... 13
Date, Time and Place of Stockholders Forum .................. 13
Purposes of Stockholders Forum .............................. 14
Record Date and Shares Entitled to Consent .................. 14
Consent Necessary for the Merger Agreement .................. 14
Written Consents ............................................ 14
Consent Solicitation ........................................ 14
Appraisal Rights ............................................ 15
Interests of Certain Persons in the Merger .................. 17
Stock Ownership of Principal Stockholders and Management .... 18

The Merger Transaction ............................................... 19
Background of the Merger .................................... 19
Our Reasons for the Merger .................................. 26
Factors Considered by, and Recommendation of,
the St. Mary Board of Directors .................... 27
Factors Considered by, and Recommendation of,
the King Ranch Board of Directors .................. 29
Opinions of Financial Advisors .............................. 32
Comparison of King Ranch and St. Mary
Stockholder Rights ................................. 50
Accounting Treatment ........................................ 57
Material Federal Income Tax Consequences of the Merger ...... 57
Regulatory Matters .......................................... 61
Termination of King Ranch Energy Employees .................. 62

The Merger Agreement ........................................................ 62
Structure of the Merger ............................................ 62
Timing of Closing .................................................. 62
Merger Consideration ............................................... 62
Restrictions on the Transfer of St. Mary Common Stock
to be Issued in the Merger ................................ 63
St. Mary Board of Directors after the Merger ....................... 64
Representations and Warranties ..................................... 65
Covenants .......................................................... 66
Other Agreements ................................................... 67
Indemnification .................................................... 69
Conditions to Closing .............................................. 69
Termination of the Merger Agreement ................................ 71
Other Expenses ..................................................... 72
Amendments and Waivers ............................................. 72

The Companies ............................................................... 73
Business of St. Mary ............................................... 73
Selected Historical Consolidated Financial Data of St. Mary ........ 73
King Ranch ......................................................... 75
Business of King Ranch Energy ...................................... 76
Selected Historical Consolidated Financial Data of King
Ranch Energy .............................................. 82
King Ranch Energy Management's Discussion and Analysis
of Financial Condition and Results of Operations .......... 83
King Ranch Energy Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure ........ 90

Legal Matters ............................................................... 90
Experts ..................................................................... 91
Where You Can Find More Information ......................................... 91
Future St. Mary Stockholder Proposals ....................................... 93
Cautionary Information About Forward-Looking Statements ..................... 93
SEC Position on Indemnification for Securities Act Liabilities .............. 95

Unaudited Pro Forma Condensed Combined Financial Statements ................. 95

Index to King Ranch Energy Consolidated Financial Statements................. F-1

Annexes
Annex A - Agreement and Plan of Merger.............................. A-1
Annex B - Opinion of Deutsche Bank Securities Inc................... B-1
Annex C - Opinion of Nesbitt Burns Securities Inc................... C-1
Annex D - Section 262 of the Delaware General Corporation Law....... D-1

</TABLE>
ii

SUMMARY

This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should carefully read this document and the documents we refer you
to. See "Where You Can Find More Information" on page 91.

THE COMPANIES

St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(303) 861-8140

St. Mary is a publicly-held independent energy company engaged in the
exploration, development, acquisition and production of natural gas and crude
oil. St. Mary's operations are focused in the following five core U.S. operating
areas:

- the Mid-Continent region in western Oklahoma and northern Texas,

- the ArkLaTex region that spans northern Louisiana and portions
of eastern Texas, Arkansas and Mississippi,

- southern Louisiana,

- the Williston Basin in eastern Montana and western North Dakota,
and

- the Permian Basin in eastern New Mexico and western Texas.

King Ranch Energy, Inc.
1415 Louisiana, Suite 2300
Houston, Texas 77002
(713) 752-0101

King Ranch Energy is the oil and gas exploration and production
business subsidiary of King Ranch, with operations located primarily in the
following areas:

- onshore in:

- Texas,

- Oklahoma,

- Louisiana,

- North Dakota, and

- Utah, and

- in the Gulf of Mexico, offshore Texas and Louisiana.

King Ranch is a privately-held company engaged primarily in ranching,
agricultural and energy development businesses. It owns the historic 825,000
acre "King Ranch" in South Texas.

THE MERGER TRANSACTION (SEE PAGE 20)

Before the merger all shares of King Ranch Energy common stock will be
distributed on a pro rata basis to King Ranch stockholders provided that all
other conditions to the merger have been satisfied. In the distribution, each
King Ranch stockholder will receive the same number of shares of voting and/or
non-voting King Ranch Energy common stock as such stockholder currently holds in
King Ranch. In the merger, St. Mary will acquire King Ranch Energy and St. Mary
will issue shares of St. Mary common stock in exchange for King Ranch Energy
common stock. The merger agreement is attached to this document as Annex A. We
encourage you to read the merger agreement since it is the legal document that
governs the merger.

WHAT KING RANCH STOCKHOLDERS WILL RECEIVE IN THE MERGER

As a result of the merger, King Ranch stockholders will receive
6.4988 shares of St. Mary common stock for each share of King Ranch Energy
common stock that they own, plus cash in lieu of any fractional shares. The
total of 2,666,252 shares of St. Mary common stock to be issued will
represent approximately 19.4% of the outstanding shares of St. Mary common
stock after the merger.

ST. MARY STOCKHOLDERS MEETING (SEE PAGE 11)

The St. Mary stockholders meeting to vote on the issuance of St. Mary
common stock in the merger will take place on September 30, 1999 in Denver,
Colorado. The time and address of the meeting is on page 10.

VOTING RECOMMENDATION TO ST. MARY STOCKHOLDERS

The St. Mary board of directors believes that the merger is advisable
and in the best interests of St. Mary and its stockholders and recommends that
St. Mary stockholders vote "For" approval of the issuance of St. Mary common
stock in the merger.

ST. MARY STOCKHOLDER VOTE REQUIRED TO APPROVE THE STOCK ISSUANCE

Approval of the issuance of St. Mary common stock in the merger
requires the affirmative vote of the holders of a majority of the shares of St.
Mary common stock represented in person or by proxy at the St. Mary stockholders
meeting. St. Mary directors, executive officers and their affiliates have the
power to vote a total of approximately 2.1% of the shares of St. Mary common
stock entitled to vote at the meeting. Thomas E. Congdon, St. Mary's Chairman of
the Board, and members of his immediate family own approximately 12% of the
shares entitled to vote at the meeting. While no formal arrangements exist,
these extended family members may be inclined to act in concert with Mr. Congdon
on approving the merger.

KING RANCH STOCKHOLDERS FORUM (SEE PAGE 13)

The King Ranch stockholders forum to discuss the merger and obtain
consents to the merger will take place on September ______, 1999 in Houston,
Texas. The time and address of the forum is on page ________.

CONSENT RECOMMENDATION TO KING RANCH ENERGY STOCKHOLDERS

The King Ranch board of directors believes that the merger agreement is
advisable and in the best interests of King Ranch and King Ranch Energy and
recommends that King Ranch Energy stockholders consent to the merger agreement.

KING RANCH ENERGY STOCKHOLDER CONSENT REQUIRED FOR THE MERGER AGREEMENT

Following the distribution, and once all other conditions to the
merger have been satisfied, the holders of King Ranch Energy voting common
stock will be asked to consent to the merger. The holders of a majority of
the shares of King Ranch Energy voting common stock must consent to the
merger. King Ranch directors, executive officers and their affiliates will
have the power to vote a total of approximately 13.8% of the shares of King
Ranch Energy voting common stock. King Ranch has obtained from Stephen J.
Kleberg, John D. Alexander, Jr., and James H. Clement, Jr., members of the
King Ranch board of directors, who will have the right to vote a total of
13.8% of the shares of King Ranch Energy voting common stock, commitments to:

- consent to the merger agreement, and

- recommend, subject to their fiduciary obligations, to
the members of their immediate families who will hold
King Ranch Energy voting common stock that they
consent to the merger agreement.

OPINIONS OF FINANCIAL ADVISORS (SEE PAGE 32)

In deciding to approve the merger, each board of directors
considered the opinion of its financial advisor. St. Mary received an opinion
from Deutsche Bank Securities Inc. that the share exchange ratio whereby the
shares of King Ranch Energy common stock will be converted into the right to
receive 2,666,252 shares of St. Mary common stock is fair to St. Mary from a
financial point of view. King Ranch received an opinion from Nesbitt Burns
Securities Inc. that the consideration to be received in the merger by the
King Ranch stockholders is fair to the King Ranch stockholders from a
financial point of view. These opinions are attached to this document as
Annex B and Annex C. We encourage you to read these opinions.

ST. MARY STOCK TRANSFER RESTRICTIONS UNDER THE MERGER AGREEMENT (SEE PAGE 63)

The merger agreement provides that King Ranch stockholders will
generally not be able to sell any of the shares of St. Mary common stock issued
to them in the merger for two years after the completion of the merger, except
in connection with an acquisition of St. Mary. However, if during those two
years Thomas E. Congdon or his affiliates sell any shares of St. Mary common
stock, the King Ranch stockholders will then be able to sell a percentage of
their St. Mary shares which corresponds to the percentage sold by the Congdon
group.

ST. MARY MARKET PRICE INFORMATION

St. Mary common stock is publicly traded and quoted on the Nasdaq
National Market System under the symbol "MARY." On July 27, 1999, the last full
trading day before the public announcement of the merger agreement, the closing
price per share of St. Mary common stock as reported on the Nasdaq National
Market system was $22.625. On August ______, 1999, the most recent practicable
trading day before the printing of this document, the closing price per share of
St. Mary common stock as reported on the Nasdaq National Market system was
$_________. We encourage you to check publicly available sources for the current
market price of St. Mary common stock. Shares of King Ranch Energy common stock
are not publicly traded and there are not public sources of the market value of
King Ranch Energy common stock.

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following selected unaudited pro forma combined financial data has
been derived from and should be read with the Unaudited Pro Forma Condensed
Combined Financial Statements and related notes beginning on page 95. This
information is based on the historical financial statements of St. Mary and King
Ranch Energy. It gives effect to the merger using the purchase method of
accounting for business combinations as if the merger had been completed at the
beginning of the periods presented and as of June 30, 1999.

This information is for illustrative purposes only. The companies may
have performed differently had they merged as of the assumed dates. Therefore,
you should not rely on this information as being indicative of the historical
results that would have been achieved had the

companies merged as of the assumed dates or the future results that the
combined company will experience after the merger.

<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, December 31,
1999 1998
----------- ------------
(thousands of dollars,
except per share amounts)
<S> <C> <C>
Total operating revenues .......................... $ 50,894 $ 118,151
Total operating expenses .......................... $ 42,818 $ 125,525
Net income (loss) from continuing operations ...... $ 5,053 $ (5,105)
Basic net income (loss) per share from continuing
operations ............................... $ 0.37 $ (0.37)
Diluted net income (loss) per share from continuing
operations ............................... $ 0.37 $ (0.37)
Cash dividends per share .......................... $ 0.10 $ 0.20
</TABLE>

<TABLE>
<CAPTION>
June 30,
1999
----------------------
(thousands of dollars)
<S> <C>
Total assets ............................... $ 234,329
Long-term debt ............................. $ 20,087
Total stockholders' equity.................. $ 178,905
</TABLE>

COMPARATIVE PER SHARE DATA

The following table presents comparative per common share data for St.
Mary and King Ranch Energy on an historical basis, and on a pro forma combined
basis to reflect the merger under the purchase method of accounting as if the
merger had been completed at the beginning of the periods presented and as of
June 30, 1999.

Six Months Year
Ended Ended
June 30, December 31,
1999 1998
----------- --------------
<S> <C> <C>
Net income (loss) per common share

St. Mary historical
Basic .............................. $ 0.19 $ (0.81)
Diluted ............................ $ 0.19 $ (0.81)
King Ranch Energy historical ............ $ (1,568) $ (7,119)

St. Mary/King Ranch Energy pro forma combined
Basic .............................. $ 0.37 $ (0.37)
Diluted ............................ $ 0.37 $ (0.37)
King Ranch Energy pro forma equivalent(1)
Basic .............................. $ 987 $ (987)
Diluted ............................ $ 987 $ (987)
</TABLE>

<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, December 31,
1999 1998
------------ -------------
<S> <C> <C>
Cash dividends per common share
St. Mary historical ......................... $ 0.10 $ 0.20
King Ranch Energy historical ................ $ -- $ 4,655
St. Mary/King Ranch Energy pro forma combined $ 0.10 $ 0.20
King Ranch Energy pro forma equivalent(1) ... $ 266.63 $ 533.25
</TABLE>

<TABLE>
<CAPTION>
June 30,
1999
----------
<S> <C>
Book value per common share
St. Mary historical ......................... $ 12.31
King Ranch Energy historical ................ $ 46,782
St. Mary/King Ranch Energy pro forma combined $ 12.84
King Ranch Energy pro forma equivalent(1) ... $ 34,235
</TABLE>

- ----------
(1) The King Ranch Energy pro forma equivalent represents the St. Mary/King
Ranch pro forma combined book value, cash dividend or net income (loss)
per common share multiplied by an Exchange Ratio of 2,666.252.

REGULATORY REQUIREMENTS (SEE PAGE 61)

The merger is exempt from the pre-merger reporting and waiting period
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

APPRAISAL RIGHTS (SEE PAGE 15)

Under Delaware law St. Mary stockholders do not have dissenters'
appraisal rights in connection with the merger. Under Delaware law King Ranch
Energy stockholders who do not consent to the merger have a right to obtain in
cash the appraised fair value of their pro rata interest in King Ranch Energy in
lieu of the shares of St. Mary common stock to be issued to them under the
merger agreement.

Under the merger agreement, if dissenters' appraisal rights are
exercised with respect to more than 5% of the shares of King Ranch Energy common
stock, St. Mary will not have to complete the merger. However, if appraisal
rights are exercised with respect to more than 5% but less than 10% of the
shares, King Ranch has the option of satisfying this condition by paying the
appraised fair value in excess of $19.76 per corresponding share of St. Mary
common stock.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 57)

The merger has been structured as a "tax-free reorganization" for
Federal income tax purposes. Therefore, after receipt of King Ranch Energy
common stock, King Ranch stockholders generally should not recognize any gain or
loss for Federal income tax purposes on the receipt of St. Mary common stock in
exchange for their pro rata interests in King Ranch Energy under to the merger
agreement. In addition, King Ranch Energy and St. Mary, as well as the St. Mary
stockholders, will not recognize gain or loss as a result of the merger.

In order for St. Mary to proceed with the merger, all shares of King
Ranch Energy common stock will be distributed to the King Ranch stockholders
before the exchange of King Ranch Energy common stock for St. Mary common stock
at the merger closing. This

distribution will result in a taxable gain to a subsidiary of King Ranch,
which is not expected to be material to King Ranch on a consolidated basis.

Opinions from King Ranch's outside counsel and the independent
accounting firm of Ernst & Young LLP concerning the Federal income tax
consequences of the merger have been filed with the SEC as exhibits to the
registration statement relating to this document.

RISK FACTORS

In addition to the other information contained in this document, the
following matters should be considered carefully.

ST. MARY MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE KING RANCH ENERGY'S BUSINESS
OPERATIONS

The integration and consolidation of the assets and operations of St.
Mary and King Ranch Energy after the merger will present significant management
challenges for St. Mary. St. Mary cannot assure you that it will be able to
successfully integrate the St. Mary and King Ranch Energy business operations or
that the combined company will realize any of the anticipated benefits of the
merger.

THE ST. MARY STOCK TO BE ISSUED UNDER THE MERGER AGREEMENT GENERALLY CANNOT BE
TRANSFERRED FOR TWO YEARS

The merger agreement provides that the King Ranch stockholders will
generally not be able to sell any of the shares of the St. Mary common stock
issued to them in the merger for two years after the completion of the merger,
except in connection with any acquisition of St. Mary or dispositions by Thomas
E. Congdon, St. Mary's Chairman of the Board, and his affiliates. We cannot
assure the King Ranch stockholders that the public trading market price of St.
Mary common stock after the two-year restriction period has elapsed will be the
same or greater than the current market price.

ST. MARY MAY INADVERTENTLY ACQUIRE PROPERTIES WITH ENVIRONMENTAL CONTAMINATION
OR OTHER PROBLEMS

St. Mary intends to continue making acquisitions of oil and gas
properties such as those which are owned by King Ranch Energy. Although St. Mary
performs a review of acquired properties that it believes is consistent with
industry practices, existing or potential environmental problems with properties
may not be discovered until after an acquisition has been completed. The merger
agreement for St. Mary's acquisition of King Ranch Energy provides that King
Ranch must indemnify St. Mary if its representations and warranties about the
environmental status of King Ranch Energy's properties are inaccurate.

ST. MARY MAY NOT BE ABLE TO ADEQUATELY REPLACE ITS OIL AND GAS RESERVES

Except to the extent that St. Mary conducts successful exploration or
development activities or acquires properties containing proved oil and gas
reserves, the estimated net proved reserves of St. Mary will generally decline
as reserves are produced. We cannot assure you that St. Mary's planned
development and exploration projects and acquisition activities will result in
significant additional reserves or that St. Mary will have continuing success
drilling productive wells.

Many of St. Mary's oil and gas properties are operated by third parties
and as a result St. Mary has limited control over the nature and timing of
exploration and development of those properties or the manner in which
operations are conducted. A significant portion of St. Mary's cash flow is
attributable to royalty interests on its southern Louisiana fee properties. A
fee property means that St. Mary holds the most extensive interest that can be
owned in land, including surface and mineral (including oil and gas) rights.
Without continued exploration and development of the fee properties, which St.
Mary has only a limited ability to control, production and cash flow from these
properties will decline.

ST. MARY'S TECHNOLOGY SYSTEMS MAY NOT BE READY FOR THE YEAR 2000

St. Mary has not completed a comprehensive analysis of the operational
problems and costs that would be reasonably likely to result from any failure of
the technology systems of St. Mary or of other parties with which St. Mary has
significant relationships to be Year 2000 compliant by January 1, 2000. St. Mary
has completed significant upgrades and testing of its systems and believes that
they are Year 2000 compliant. Responses from our major business partners also
indicate that they will be Year 2000 compliant. However, we cannot assure you
that the Year 2000 issue will not have a material adverse effect on St. Mary's
financial condition, results of operations or cash flows.

ST. MARY'S SHAREHOLDER RIGHTS PLAN MAY MAKE IT MORE DIFFICULT FOR A THIRD PARTY
TO ACQUIRE ST. MARY

In July 1999 the St. Mary board of directors adopted a shareholder
rights plan. The plan makes it more difficult for a third party to acquire
control of St. Mary without approval of the board of directors, even if the
acquisition would be at a premium to the current market price of St. Mary common
stock. Under the plan the St. Mary board of directors may decide in accordance
with its fiduciary obligations that the terms of a potential acquisition do not
reflect the long-term value of St. Mary and pursuant to the plan may thereafter,
if the terms are not improved, make the acquisition impracticable for the
potential acquirer.

THE ST. MARY STOCKHOLDERS MEETING

The St. Mary board of directors is using this document as a proxy
statement to solicit proxies from the holders of St. Mary common stock for use
at the St. Mary stockholders meeting for the purpose of voting on the issuance
of St. Mary common stock in the merger. The St. Mary board of directors
recommends that St. Mary stockholders vote "For" approval of the stock issuance
in the merger.

We are first mailing this document and accompanying forms of proxy to
the St. Mary stockholders on or about August ____, 1999.

DATE, TIME AND PLACE

Thursday, September 30, 1999
10:00 a.m., local time
Norwest Bank Forum Room
1740 Broadway
Denver, Colorado

PURPOSE

The purpose of the St. Mary stockholders meeting is to vote on a
proposal to issue a total of 2,666,252 shares of St. Mary common stock under the
merger agreement.

St. Mary common stock trades on the Nasdaq National Market. Stockholder
approval of the St. Mary stock issuance is required by Nasdaq rules because the
number of shares of St. Mary common stock that are to be issued in the merger is
more than 20% of the number of shares of St. Mary common stock that will be
outstanding immediately before the completion of the merger.

RECORD DATE AND SHARES ENTITLED TO VOTE

The record date for shares entitled to vote is August 13, 1999.
Stockholders entitled to vote are St. Mary stockholders at the close of business
on the record date. As of the record date there were 11,097,968 shares of St.
Mary common stock entitled to vote.

A quorum of stockholders is necessary to hold a valid meeting. The
presence in person or by proxy at the meeting of the holders of one-third of the
shares of St. Mary common stock entitled to vote at the meeting is a quorum.
Abstentions and broker "non-votes" count as present for establishing a quorum. A
broker non-vote occurs on a matter when a broker is not permitted to vote on
that matter without instruction from the beneficial owner of the shares and no
instruction is given. Shares held by St. Mary in its treasury are not entitled
to vote and do not count toward a quorum.

A total of approximately 2.1% of the shares of St. Mary common stock
entitled to consent to the merger will be beneficially owned by St. Mary
directors, executive officers and their affiliates. These individuals have
indicated that they will vote in favor of the issuance of St. Mary common stock
in the merger as recommended by the St. Mary board of directors.

VOTE NECESSARY TO APPROVE THE ST. MARY STOCK ISSUANCE

Approval of the St. Mary stock issuance in the merger requires the
affirmative vote by the holders of a majority of shares of stock represented in
person or proxy at the meeting. Abstentions and broker non-votes will have the
same effect as a vote against the stock issuance.

PROXIES

You may vote in person at the meeting or by proxy. We recommend that
you vote by proxy even if you plan to attend the meeting. You can always change
your vote at the meeting.

Voting instructions are included on your proxy card. If you properly
give your proxy and submit it to us in time to vote, one of the individuals
named as your proxy will vote your shares as you have directed. You may also
abstain from voting.

To vote by proxy, complete, sign, date and return your proxy card in
the enclosed envelope. If you submit your proxy but do not make a specific
choice, your proxy will follow the recommendations of the St. Mary board of
directors and vote your shares "For" approval of the issuance of St. Mary common
stock in the merger, and in its discretion as to any other business that may
properly come before the meeting.

You may revoke your proxy before it is voted by:

- submitting a new proxy with a later date,

- notifying St. Mary's Secretary in writing before the meeting
that you have revoked your proxy, or

- voting in person at the meeting.

If you plan to attend a meeting and wish to vote in person, we will
give you a ballot at the meeting.

PROXY SOLICITATION

St. Mary will pay its own costs of soliciting proxies. In addition to
this mailing, St. Mary employees may solicit the proxies personally,
electronically or by telephone.

APPRAISAL RIGHTS

St. Mary is a Delaware corporation. Under Delaware law, St. Mary
stockholders do not have dissenters' appraisal rights in connection with the
merger since the merger involves a wholly owned subsidiary of St. Mary.

STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

For information about St. Mary stock ownership of principal
stockholders and management, you should read St. Mary's 1998 Annual Report on
Form 10-K incorporated by reference into this document. See "Where You Can Find
More Information" on page 91.

THE DISTRIBUTION AND
THE KING RANCH ENERGY STOCKHOLDERS FORUM

As contemplated by the merger agreement, shares of King Ranch Energy
common stock will be distributed on a pro rata basis to King Ranch
stockholders prior to the merger. Prior to the distribution, shares of King
Ranch Energy common stock will be divided into two classes, which will have
corresponding rights and preferences with the two existing classes of King
Ranch common stock. In the distribution, each King Ranch stockholder will
receive the same number of shares of voting and/or non-voting King Ranch
Energy common stock as such stockholder currently holds in King Ranch.
Following the distribution, but immediately prior to the merger, each King
Ranch stockholder will hold the same number of shares of stock of King Ranch
and King Ranch Energy. Physical stock certificates will not be delivered to
King Ranch stockholders, but will be held in escrow by King Ranch pending the
closing of the merger.

The King Ranch board or directors is using this document as a consent
solicitation statement to solicit consents from persons who will hold shares of
King Ranch Energy voting common stock after the distribution. The King Ranch
board of directors recommends that such King Ranch Energy stockholders consent
to the merger agreement.

This document is also a prospectus for the St. Mary common stock to be
issued to the King Ranch Energy stockholders under the merger agreement. We are
first mailing this document and accompanying form of consent to the King Ranch
stockholders on or about August ____, 1999.

DATE, TIME AND PLACE OF STOCKHOLDERS FORUM

________________, September _____, 1999

____ p.m., local time

____________________________
Houston, Texas

PURPOSES OF STOCKHOLDERS FORUM

The purposes of the King Ranch Energy stockholders forum are to:

- Answer any questions that King Ranch stockholders or their
advisors may have about the distribution of King Ranch
Energy common stock and the acquisition of King Ranch Energy
by St. Mary, and

- Obtain the written consent of the holders of a majority of
the King Ranch Energy voting common stock to the merger of
King Ranch Energy and St. Mary.

RECORD DATE AND SHARES ENTITLED TO CONSENT

The record date for the distribution of shares of King Ranch Energy to
King Ranch stockholders is August __, 1999. Following the distribution, 42,938
shares of voting common stock and 367,328 shares of non-voting common stock of
King Ranch Energy will be outstanding. Record holders of King Ranch Energy
voting common stock on the date of the stockholders forum will be entitled to
consent to the merger agreement.

A total of approximately 13.8% of the shares of King Ranch Energy
voting common stock will be beneficially owned by King Ranch directors,
executive officers and their affiliates. King Ranch has obtained from Stephen
J. Kleberg, John D. Alexander, Jr., and James H. Clement, Jr., members of the
King Ranch board of directors who will have the right to vote a total of
13.8% of the shares of King Ranch Energy voting common stock, commitments to:

- consent to the merger agreement, and

- recommend, subject to their fiduciary obligations, to the
members of their immediate families who will hold King Ranch
Energy voting common stock that they consent to the merger
agreement.

CONSENT NECESSARY FOR THE MERGER AGREEMENT

Approval of the merger agreement requires the written consent of the
holders of a majority of the shares of King Ranch Energy voting common stock.

WRITTEN CONSENTS

You will be asked to submit a written consent at the King Ranch
Energy stockholders forum. For purposes of convenience, you may submit your
written consent to King Ranch prior to the stockholders forum by completing,
signing and returning the written consent in the enclosed envelope.
Instructions are included on the written consent.

If you submit a written consent prior to the King Ranch Energy
stockholder forum, the written consent will not be effective until immediately
after the forum. Any such consent may be withdrawn at any time prior to its
effectiveness by providing written notice of withdrawal to Stephen Pettit at
1415 Louisiana, Suite 2300, Houston, Texas 77002.

CONSENT SOLICITATION

King Ranch will pay the costs of soliciting consents. In addition to
this mailing, King Ranch employees may solicit the consents personally,
electronically or by telephone.

APPRAISAL RIGHTS

King Ranch Energy is a Delaware corporation. Under Delaware law, King
Ranch Energy stockholders who do not consent to the merger will be entitled to
dissenters' appraisal rights which unless waived give them the right to obtain
in cash the appraised fair value of their shares of King Ranch Energy common
stock in lieu of the shares of St. Mary common stock to be issued under the
merger agreement.

The following is a brief summary of the statutory procedures under
Section 262 of the Delaware General Corporation Law which must be strictly
followed by a stockholder who wishes to perfect appraisal rights in connection
with the merger. This summary is qualified in its entirety by reference to
Section 262 of the Delaware General Corporation Law which is attached to this
document as Annex D. If a stockholder fails to comply with the procedural
requirements of the Delaware General Corporation Law, appraisal rights will be
forfeited.

If a King Ranch Energy stockholder were to assert appraisal rights,
then within 120 days after the completion of the merger, St. Mary or the King
Ranch Energy stockholder would be entitled to file a petition in the Delaware
Chancery Court demanding a determination of the fair value of the King Ranch
Energy shares as to which a timely demand for appraisal had been made. St. Mary
is under no obligation to, and there is no present intention that St. Mary will,
file a petition with respect to the appraisal of the fair value of any shares.
Accordingly, it would be the obligation of a dissenting King Ranch Energy
stockholder to initiate all necessary action to perfect any appraisal rights
within the time prescribed in Section 262. King Ranch Energy stockholders who
elect to exercise appraisal rights should mail or deliver their written demands
to:

Richard C. Norris, Secretary
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203

Within 10 days after the completion of the merger, St. Mary shall
notify each King Ranch Energy stockholder entitled to appraisal rights that the
merger has been completed, which notice shall set forth the effective date of
the merger and shall include a copy of the applicable provisions of the Delaware
General Corporation Law. Within 20 days after the date of mailing of such
notice, King Ranch Energy stockholders who are eligible to exercise their
appraisal rights and desire to do so must deliver a written demand for appraisal
to St. Mary at the address set forth in the immediately preceding paragraph.
Although appraisal rights will only be available to King Ranch Energy
stockholders who do not consent to the merger, the failure to consent to the
merger will not constitute such demand.

The written demand for appraisal should specify the holder's name and
mailing address, the number of shares covered by the demand, and that the holder
is thereby demanding appraisal of such shares.

If a petition for an appraisal were timely filed, after a hearing on
such petition, the Delaware Chancery Court would appraise the "fair value" of
the appraisal shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
The fair value of the appraisal shares as determined under Section 262 could be
more than, the same as, or less than the value of the shares of St. Mary common
stock such holders would receive pursuant to the merger agreement if they did
not seek appraisal of the appraisal shares. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings. The Delaware Chancery
Court would determine the amount of interest, if any, to be paid upon the
amounts to be received in respect of the appraisal shares. The costs of the
action may be determined by the Delaware Chancery Court and charged to the
parties as the Delaware Chancery Court deems equitable.

Any King Ranch Energy stockholders who seek appraisal would not, after
the consummation of the merger, be entitled to vote the appraisal shares for any
purpose or be entitled to the payment of dividends or other distributions on the
appraisal shares.

If the King Ranch Energy stockholders who seek appraisal properly
demanded appraisal of their appraisal shares but failed to perfect, or
effectively withdrew or lost, their right to appraisal, as provided in the
Delaware General Corporation Law, the appraisal shares would be converted into
the right to receive the shares of St. Mary common stock in accordance with the
merger agreement. A stockholder will fail to perfect, or effectively lose or
withdraw, his or her right to appraisal if among other things no petition for
appraisal is filed within 120 days after the completion of the merger, or if the
stockholder withdraws his or her demand for appraisal. No

appraisal proceeding pending in the Delaware Court of Chancery will be
dismissed without the approval of the court, and any such approval would be
conditioned upon such terms as the court deems just.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of the King Ranch board of directors
for the consent to the merger agreement, King Ranch stockholders should be aware
that certain members of King Ranch and King Ranch Energy management and the King
Ranch board of directors have interests in the merger that may be different
from, or in addition to, the interests of the stockholders of King Ranch and
King Ranch Energy generally.

REPRESENTATION ON THE ST. MARY BOARD OF DIRECTORS

St. Mary has agreed that upon the completion of the merger it will
cause Jack Hunt and William Gardiner to become members of the St. Mary board
of directors for a period of two years. Mr. Hunt is President and Chief
Executive Officer and a director of King Ranch. Mr. Gardiner is Chief
Financial Officer of King Ranch. Should Mr. Hunt or Mr. Gardiner become
unavailable to act as a St. Mary director, John Alexander and James Clement
will take their place.

TERMINATION OF KING RANCH ENERGY EMPLOYEES; SEVERANCE ARRANGEMENTS

St. Mary does not intend to employ almost all of the King Ranch Energy
employees following the merger but rather intends to utilize St. Mary employees
or new employees to manage the business and properties of King Ranch Energy.
King Ranch Energy has existing severance agreements with six senior management
employees, including Thomas F. Fiorito, President, and William Silk, Jr., Senior
Vice President of Exploration and Production, which provide for lump sum
payments of varying amounts upon the termination of their employment which will
occur upon completion of the merger.

Following the execution of the merger agreement, the employment of a
substantial number of King Ranch Energy employees was terminated, including
four of its senior management employees, and all such employees received a
severance package. See "The Merger Transaction--Termination of King Ranch
Energy Employees" and "The Merger Agreement--Other Agreements--King Ranch
Energy Employee Severance Payments."

INDEMNIFICATION OF OFFICERS AND DIRECTORS

Under the merger agreement, the provisions in the King Ranch Energy
certificate of incorporation and bylaws for the indemnification of King Ranch
Energy officers and directors, including Jack Hunt and Abraham Zaleznik, who are
also directors of King Ranch, will survive the merger for a period of two years.

STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table contains information about the ownership of King
Ranch voting common stock as of the record date by:

- each person who is the beneficial owner of more than 5% of
the outstanding shares of King Ranch common stock,

- each King Ranch director,

- each King Ranch executive officer, and

- all King Ranch directors and executive officers as a group.

<TABLE>
<CAPTION>
Shares Percentage
Stockholder Beneficially Owned of Total
- ----------- ------------------ ----------
<S> <C> <C>
John D. Alexander, Jr. 4,501(1) 10.5%

James H. Clement, Jr. 498(2) 1.2%

Stephen J. Kleberg 927 2.2%

Ogden M. Phipps 1,501(3) 3.5%

Yarborough KRI L.P 3,049 7.1%
200 North Loraine, Suite 1400
Midland, Texas 79701

Richard Greer Sugden 2,809 6.5%
P.O. Box 70
Wilson, Wyoming 83014

The Helen K. Groves Revocable Trust 2,164 5.0%
700 N. St. Mary's, Suite 1200
San Antonio, Texas 78205

Directors and Executive Officers as a Group 5,926 13.8%
</TABLE>

- ----------------------

(1) Includes 2,357 shares of King Ranch voting common stock held by
private trusts or custodianships for minors which Mr. Alexander serves
as a trustee or custodian, and beneficial ownership of such shares is
not acknowledged.

(2) Includes 249 shares of King Ranch voting common stock held by a
family limited partnership of which Mr. Clement serves as a manager.

(3) All 1,501 shares of King Ranch voting common stock are held by
private trusts or custodianships for minors which Mr. Phipps serves as
a trustee or custodian, and beneficial ownership of such shares is not
acknowledged. Mr. Alexander also serves as a trustee or custodian of
these private trusts or custodianships for minors, and the 1,501 shares
of King Ranch voting common stock are included in the 2,357 shares
referenced in footnote 1 above.

THE MERGER TRANSACTION

BACKGROUND OF THE MERGER

The managements of each of St. Mary and King Ranch Energy
continually review their company's positions in light of the changing
competitive environment of the oil and gas industry with the objective of
determining what alternatives are available to further enhance shareholder
value. In recent years the managements of both St. Mary and King Ranch Energy
have had conversations with a number of other companies regarding a range of
options to improve their competitive positions, including acquisitions or
dispositions of assets, possible partnerships, alliances or other significant
transactions.

On January 9, 1998, Mark A. Hellerstein, St. Mary's President and
Chief Executive Officer, met with representatives of Deutsche Bank Securities
Inc. At the meeting, Deutsche Bank Securities indicated that they were aware
of a sizeable Houston-based oil and gas exploration and production company
that was interested in a possible stock-for-stock business combination
transaction. At that time King Ranch Energy was privately considering
identifying a comparable company with which to enter into a strategic
alliance on a tax-free basis.

On January 28, 1998, St. Mary entered into an oral agreement to
retain Deutsche Bank Securities as financial advisor to St. Mary in a
possible business combination transaction with the company previously
referred to by Deutsche Bank Securities. Deutsche Bank Securities indicated
that the company was King Ranch Energy, and arranged a dinner meeting between
St. Mary and King Ranch Energy senior executives on February 4, 1998.

On February 4, 1998, Mr. Hellerstein, Ronald D. Boone, St. Mary's
Executive Vice President and Chief Operating Officer, David L. Henry, then
St. Mary's Chief Financial Officer, and Douglas W. York, St. Mary's Vice
President of Acquisitions and Reservoir Engineering, had a dinner meeting at
the South Texas location of the King Ranch with Jack Hunt, King Ranch's Chief
Executive Officer, and William Gardiner, King Ranch's President and Chief
Financial Officer. This meeting served primarily as an initial orientation in
which the representatives of both St. Mary and King Ranch Energy presented an
overview of their companies and what each company could contribute to a
combination. Mr. Hunt and Mr. Gardiner discussed various structural and other
issues that would be important to King Ranch Energy in a business combination
transaction.

On March 12, 1998, St. Mary formalized its retention of Deutsche
Bank Securities as financial advisor for a possible transaction with King
Ranch Energy. At that time Deutsche Bank Securities provided St. Mary with
preliminary information regarding King Ranch Energy based on their meetings
with King Ranch Energy management personnel and Mr. Gardiner.

On March 25, 1998, St. Mary senior executives met with
representatives of King Ranch Energy in Houston. Representing King Ranch
Energy were Thomas F. Fiorito, President, William Silk, Jr., Senior Vice
President of Exploration and Production, Brian P. Romere, Vice

President of Finance and Controller, Larry L. Worden, then Vice President and
General Counsel of King Ranch, and Mr. Gardiner. Representing St. Mary were
Mark A. Hellerstein, Ronald D. Boone, David L. Henry and Douglas W. York. At
the meeting the King Ranch Energy executives presented a detailed overview of
King Ranch Energy, including its history, pending oil and gas acquisitions,
core areas, prospects, current drilling activity and its current business
plan. After the King Ranch Energy presentation, St. Mary representatives
indicated that for discussions to progress, they would need to conduct a
detailed review of King Ranch Energy's oil and gas properties. The King Ranch
Energy executives responded that before involving other King Ranch Energy
employees in the negotiation process, a mutually acceptable range for the
possible company valuations and for the relative ownerships by the King Ranch
Energy and St. Mary shareholders of a combined company would need to be
established.

On April 14, 1998, Mr. Hellerstein and Mr. Boone met with Mr. Hunt
and Mr. Gardiner in Houston. At that meeting Mr. Hellerstein and Mr. Boone
presented a written proposal outlining a framework for a merger transaction
between St. Mary and King Ranch Energy. The St. Mary proposal outlined among
other things a stock-for-stock merger based on the net asset value of King
Ranch Energy as determined by outside petroleum engineers, and the additional
issuance of warrants to acquire St. Mary common stock.

On April 17, 1998, Deutsche Bank Securities made a presentation on
the St. Mary merger proposal to Mr. Gardiner prior to a King Ranch Energy
board of directors meeting.

On May 28, 1998, Deutsche Bank Securities contacted Mr. Hunt. Mr.
Hunt indicated that he was not comfortable with the warrant component of St.
Mary's April 14 proposal and that he was also concerned that King Ranch
Energy would have to establish retention bonuses for employees if St. Mary
were allowed a full technical review of King Ranch Energy's oil and gas
properties. Mr. Hunt concluded that in view of the lack of an acceptable
valuation range for a merger with St. Mary, further pursuit of a possible
merger was a relatively low priority for King Ranch Energy.

On July 16, 1998, at a regular meeting of the St. Mary board of
directors Mr. Hellerstein reported that St. Mary management had decided that
the warrant value component of its proposed acquisition of King Ranch Energy
should not be replaced with stock value and that therefore they would
discontinue an active pursuit of a merger transaction with King Ranch Energy.

In September 1998, King Ranch retained Nesbitt Burns Securities Inc.
to explore possible strategic alternatives with respect to King Ranch Energy.

On October 23, 1998, Deutsche Bank Securities informed Mr.
Hellerstein that King Ranch Energy had retained Nesbitt Burns to identify
suitable merger candidates and also had retained Ryder Scott Company, L.P. to
analyze King Ranch Energy's oil and gas reserves.

On November 11, 1998, Mr. Hellerstein met with representatives of
Nesbitt Burns. Nesbitt Burns indicated that they were planning to hold
discussions with a group of companies on a possible transaction with King
Ranch Energy, but were waiting on King Ranch Energy's oil and gas reserve
engineering analysis before formally beginning that process. In addition,
Nesbitt Burns explained that King Ranch Energy was interested in a
stock-for-stock transaction and that King Ranch Energy expected the relative
ownership by King Ranch Energy shareholders of the combined entity to be
based on the net relative asset values of King Ranch Energy and the acquiring
company.

On November 18, 1998, at a regular meeting of the St. Mary board of
directors, Mr. Hellerstein reported that it was St. Mary management's
impression that the likelihood of completing an acquisition of King Ranch
Energy on terms acceptable to St. Mary was diminished in view of King Ranch
Energy's retention of Nesbitt Burns to contact a number of companies.

On January 11, 1999, Deutsche Bank Securities informed Mr.
Hellerstein that Nesbitt Burns did not include St. Mary on the list of
companies identified by Nesbitt Burns as possible suitable candidates for a
transaction with King Ranch Energy.

On February 23, 1999, Deutsche Bank Securities informed Mr.
Hellerstein that Nesbitt Burns had contacted Deutsche Bank Securities and
indicated that King Ranch Energy was not satisfied with the other companies
with which preliminary discussions had been held and that St. Mary's prior
interest compared favorably to the interests of those other companies.

On March 3, 1999, Mr. Hellerstein, Milam Randolph Pharo, St. Mary's
Vice President - Land and Legal, and Richard C. Norris, St. Mary's Vice
President - Finance, met with Nesbitt Burns. Nesbitt Burns indicated that
King Ranch Energy was holding discussions with a small number of companies
concerning an acquisition and that if St. Mary remained interested in
acquiring King Ranch Energy, time was of the essence. Nesbitt Burns also
explained that King Ranch Energy remained interested in a relative net asset
value transaction and that the King Ranch Energy needed an estimated
valuation from St. Mary before proceeding further. Mr. Hellerstein responded
that St. Mary remained willing to enter into a relative net asset value
stock-for-stock transaction, but that a specific quantitative analysis could
not be given until St. Mary had additional technical information concerning
King Ranch Energy's oil and gas reserves. Nesbitt Burns then indicated that
St. Mary representatives would be allowed to visit King Ranch Energy's data
room in Houston for two days.

On March 8-10, 1999, St. Mary exchanged data with Nesbitt Burns
concerning oil and gas reserves and net asset book values. As a result, St.
Mary became concerned about the valuation of the reserves of the significant
Flour Bluff field acquired by King Ranch Energy in February 1999.

On March 16 and 17, 1999, Mr. Boone and St. Mary technical personnel
visited King Ranch Energy's offices in Houston to review King Ranch Energy
geologic prospects. In

addition, Mr. York further reviewed the reserve engineering. St. Mary's
preliminary analysis raised some concerns about King Ranch Energy's geologic
prospects, but in general St. Mary was of the initial impression that the
properties involved opportunities for St. Mary to enhance production and
reserves.

On March 25, 1999, at a regular St. Mary board of directors meeting
Mr. Hellerstein updated the directors as to the status of discussions between
St. Mary and King Ranch Energy and discussed the anticipated strategic
benefits from the potential acquisition. Mr. Hunt and Mr. Gardiner then met
with the St. Mary directors at a luncheon meeting. Mr. Hellerstein advised
Mr. Hunt that St. Mary planned in approximately two weeks to deliver a
written proposal outlining the terms of a merger.

On April 12, 1999, Mr. Hellerstein met with Nesbitt Burns to discuss
a King Ranch Energy transaction and St. Mary's net asset value calculations.
For expediency in preparing the proposal letter outlining the terms of a
merger, St. Mary had decided to use the Flour Bluff reserve amounts it had
estimated in February 1999 in connection with a possible acquisition of King
Ranch Energy but it agreed with Nesbitt Burns that the Flour Bluff reserves
would be re-estimated by Ryder Scott prior to the determination of final net
asset values for purposes of a final merger agreement.

On April 14, 1999, Mr. Hellerstein sent the proposal letter to Mr.
Hunt which outlined terms for a merger transaction. The letter contemplated
that the merger would be a stock-for-stock transaction based on the relative
net asset valuations of St. Mary and King Ranch Energy which in turn would be
based on the valuation of their proved and probable oil and gas reserves as
of December 31, 1998.

On April 21, 1999, Mr. Hunt called Mr. Hellerstein and indicated
that King Ranch Energy was generally comfortable with the basic merger
framework set forth in the April 14 proposal letter, but that some changes
would be necessary which Nesbitt Burns would discuss with St. Mary. Mr. Hunt
asked for two additional weeks to consider a formal letter of intent and to
arrange for a meeting of the King Ranch, Inc. board of directors. Reciprocal
confidentiality agreements with respect to the exchange of information
between the parties were entered into in February 1999 and April 1999.

On April 30, 1999, Mr. Hunt sent a letter to Mr. Hellerstein which
included a draft letter of intent setting forth general terms of the proposed
merger which generally followed St. Mary's proposal letter of April 14. In
the following week, St. Mary and King Ranch Energy and their counsel
negotiated the provisions of the letter of intent.

On May 3, 1999, Mr. Congdon, Mr. Hellerstein and Mr. Boone attended
a meeting of the King Ranch, Inc. board of directors. At that meeting the St.
Mary senior executives presented an overview of St. Mary and answered
questions. Mr. Congdon and Mr. Hellerstein met that afternoon with Mr. Hunt
and Mr. Gardiner to further negotiate the provisions of the letter of intent.

On May 7, 1999, St. Mary and King Ranch finalized and executed the
letter of intent, which was non-binding and subject to the negotiation and
execution of a final merger agreement. The letter of intent contemplated that
the shares of King Ranch Energy would be distributed to King Ranch
stockholders immediately prior to the merger, in part to address St. Mary's
significant concerns over having a single holder of the shares to be issued
as consideration for King Ranch Energy.

On May 10, 1999 officers of St. Mary and King Ranch, and their
financial and legal advisors, met by telephone to establish procedures for
each company to carry out a due diligence investigation of the other. During
the succeeding thirty days senior management of St. Mary spent extensive time
at the offices and on the properties of King Ranch Energy reviewing the
geologic, engineering, environmental, land, financial and legal aspects of
King Ranch Energy's business and assets. During this period St. Mary also met
with King Ranch Energy's independent petroleum engineers to review reserve
valuations. Management of King Ranch during this period also visited the
offices of St. Mary and met with its independent engineers for due diligence
purposes.

On May 21, 1999, at a regular meeting of the St. Mary board of
directors, Mr. Hellerstein informed the directors that the non-binding letter
of intent had been executed and discussed the terms of the merger
contemplated by the letter of intent.

On June 3, 1999, Ballard Spahr Andrews & Ingersoll, LLP, counsel to
St. Mary, delivered a draft of the merger agreement to Locke Liddell & Sapp
LLP, counsel to King Ranch. On June 11, 1999, Locke Liddell & Sapp provided
written comments on this draft to Ballard Spahr and in the following weeks
St. Mary and King Ranch Energy and their counsel continued to resolve the
legal provisions of the merger agreement.

On June 17, 1999 Mr. Hellerstein, Mr. Boone and a representative of
Deutsche Bank Securities met in Houston with Mr. Hunt, Mr. Gardiner and a
representative of Nesbitt Burns to discuss St. Mary's due diligence findings
on King Ranch Energy. At that meeting St. Mary proposed a material reduction
in the number of St. Mary shares to be issued for King Ranch Energy based
principally on St. Mary's evaluation of King Ranch Energy's oil and gas
reserves and 1999 capital expenditures. No agreement was reached on any
adjustment. It was agreed that King Ranch would consider St. Mary's proposal,
and the extensive materials it had presented in support of that proposal, and
respond subsequently.

On June 23, 1999 Nesbitt Burns delivered to Deutsche Bank Securities
a response to the June 17 St. Mary purchase price adjustment proposal along
with extensive materials in support of that response. The response involved a
substantial increase in the purchase price for King Ranch Energy from that
proposed by St. Mary on June 17.

On July 2, 1999 St. Mary senior engineering personnel and a
representative of Deutsche Bank Securities met with senior King Ranch Energy
personnel to discuss technical differences in

the evaluations by the parties of King Ranch Energy's oil and gas reserves.
This meeting resulted in agreement on a number of matters relating to the
reserves.

On July 12, 1999 Mr. Hunt and Mr. Gardiner met in Denver with Mr.
Hellerstein, Mr. Boone and a representative of Deutsche Bank Securities to
discuss the remaining purchase price and related issues. Agreement was
reached that day on those issues, subject to the approval of the boards of
directors of both companies, and that agreement is reflected in the merger
agreement.

On July 14, 1999 St. Mary's legal counsel met with King Ranch's
legal counsel to work on completing the merger agreement to reflect the
agreements reached by the parties on July 12 and also to complete the
agreements previously reached on other matters. Revision of the merger
agreement to reflect these matters identified various other less substantive
issues.

On July 23, 1999, Mr. Hellerstein sent a letter to Mr. Hunt, which
reaffirmed St. Mary's concerns over having a single holder of the shares to
be issued as consideration for King Ranch Energy, which concerns were
relevant in evaluating whether St. Mary would proceed with the transaction,
and in which Mr. Hellerstein expressed appreciation that King Ranch had
agreed to distribute the shares of King Ranch Energy common stock to its
stockholders to facilitate the transaction. This letter confirmed to the King
Ranch board of directors that the distribution of King Ranch Energy common
stock to the King Ranch stockholders was a material consideration for St.
Mary to proceed with the merger.

On July 23, 1999 there was a telephone conference among Mr.
Hellerstein, Mr. Boone, Mr. Hunt and Mr. Gardiner, along with the legal and
financial advisors of both companies, during which final agreement was
reached on all remaining open matters. A merger agreement reflecting that
final agreement was circulated by the parties on July 25, 1999.

At a special meeting of the St. Mary board of directors on July 23,
1999, Mr. Hellerstein and Mr. Boone reviewed the strategic benefits of a
merger with King Ranch Energy and the status of the transaction, Deutsche
Bank Securities reviewed its fairness opinion with the St. Mary board, and
Ballard Spahr made a presentation on the terms and conditions of the merger
agreement. After due consideration, the St. Mary board of directors
unanimously approved the merger agreement and the related merger matters
described in this document, subject to receipt of the final Deutsche Bank
Securities fairness opinion. On July 27, 1999 Deutsche Bank Securities
delivered its final fairness opinion to the St. Mary board of directors and
the board adopted a resolution giving final approval to the merger.

At a special meeting of the King Ranch board of directors on July
27, 1999, Mr. Hunt and Mr. Gardiner reviewed the strategic benefits of a
merger of King Ranch Energy with St. Mary and the status of the transaction,
Nesbitt Burns delivered its fairness opinion to the King Ranch board, and
Locke Liddell & Sapp made a presentation on the terms and conditions of the
merger agreement. After due consideration, the King Ranch board of directors
approved the merger agreement, subject to stockholder approval, and
determined to recommend that the King Ranch stockholders vote to approve the
merger agreement.

Following the approval of their boards of directors, St. Mary and
King Ranch executed the merger agreement and St. Mary issued a press release
after the close of markets on July 27, 1999.

OUR REASONS FOR THE MERGER

We believe that by combining the two companies we can create
substantially more stockholder value than could be achieved by the companies
on their own. This is the fundamental reason for the merger.

Simply having a bigger company is not a reason for us to merge. To
create stockholder value, the combined company must be better. As we explain
below, we believe that by combining the assets and businesses of St. Mary and
King Ranch Energy we can increase profits and returns.

The expected benefits of the merger fall broadly into three
categories:

- exploration and production enhancements,

- savings through the reduction of personnel and other operating
synergies, and

- capital productivity improvements.

We believe these benefits depend on the merger and are not available to the
companies on their own.

EXPLORATION AND PRODUCTION ENHANCEMENTS

St. Mary continually seeks acquisitions of oil and gas properties or
companies that would afford opportunities to expand St. Mary's existing core
areas where it has proprietary geologic knowledge or to gain a significant
acreage and production foothold in a new U.S. basin which is suitable for
enhanced exploration and production using St. Mary's technical expertise.

For St. Mary, the acquisition of King Ranch Energy represents an
opportunity to obtain complementary properties to its existing core areas,
expansion of its Gulf Coast properties and a foothold in the offshore Gulf of
Mexico. Specifically, St. Mary management believes that with King Ranch
Energy's inventory of leaseholds and seismic surveys there are significant
opportunities for St. Mary to increase production and reserves from King
Ranch Energy using St. Mary exploration and reservoir expertise.

OPERATING SYNERGIES

We believe we can run the combined company efficiently. By operating
synergies we mean increases in production and revenues, decreases in unit
costs and overall overhead expense, and other benefits made possible by
combining operations.

These benefits should come from streamlining the combined
organization, which we can run with less management, administrative and
overhead cost than two separate organizations.

Specifically, although King Ranch Energy's offshore and Gulf Coast properties
may require additional technical personnel to operate, most of King Ranch
Energy's other onshore properties can be managed by St. Mary through its
existing offices and existing personnel. Thus, it is practicable for St. Mary
to plan not to continue over the long term the employment of most of King
Ranch Energy's management and administrative employees. Although St. Mary
plans to add approximately 15 people on a permanent basis, it expects to
reduce the overhead associated with the King Ranch properties by half.
Additional synergy benefits should come from exploring for oil and gas more
efficiently in regions where the companies operate separately today.

CAPITAL PRODUCTIVITY IMPROVEMENTS

We also believe the combined company can use its capital more
profitably than either company on its own. St. Mary expects that by combining
the assets of King Ranch Energy with those of St. Mary it will have a
stronger presence in those U.S. basins with optimal potential for future oil
and gas discoveries and production. As a result, we believe the combined
company will be able to maintain or improve earnings while spending less on
capital projects overall.

FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE ST. MARY BOARD OF DIRECTORS

At a meeting of the St. Mary board of directors held on July 23,
1999, after due consideration, the St. Mary board unanimously:

- determined that the merger agreement and the issuance of St.
Mary common stock in the merger are advisable and in the best
interests of St. Mary and its stockholders,

- approved the merger agreement and the related transactions, and

- determined to recommend that the St. Mary stockholders approve
the issuance of St. Mary common stock in the merger.

Therefore, the St. Mary board recommends that the St. Mary
stockholders vote "For" the approval of the issuance of St. Mary common stock
in the merger.

In approving the transaction and making this recommendation, the St.
Mary board consulted with St. Mary's management as well as St. Mary's outside
legal counsel and financial advisor, and considered the following material
factors:

- All the reasons described above under "Our Reasons for the
Merger," including the exploration and production enhancements,
relative net asset valuations and cash flow, operating synergies
and capital productivity improvements expected to be available
to the combined company,

- Alternatives to the merger by presently pursuing a comparable
acquisition of or a business combination or joint venture with
an entity other than King Ranch Energy and the St. Mary board's
conclusion that a transaction with King Ranch Energy is more
feasible, and is expected to yield greater benefits, than the
likely presently available alternatives. The St. Mary board
reached this conclusion for reasons including King Ranch
Energy's interest in pursuing a transaction with St. Mary, St.
Mary's view that the transaction could be acceptably completed
from a timing standpoint, and St. Mary management's assessment
of the alternatives and the expected benefits of the merger and
compatibility of the companies as described under "Our Reasons
for the Merger" above,

- The fact that those persons who are St. Mary stockholders before
the merger would hold 80.6% of the outstanding stock of the
combined company after the merger,

- Comparisons of historical and projected financial measures for
St. Mary and King Ranch Energy, including earnings, return on
capital employed and cash flow, and comparisons of historical
operational measures for St. Mary and King Ranch Energy,
including oil and gas reserve replacement, and oil and gas
production,

- Current industry, economic and market conditions, including
current prices for crude oil. The St. Mary board considered that
oil and gas prices generally fluctuate and that when prices
fall, companies must improve the performance of their internal
operations to maintain profitability. The St. Mary board
considered it likely that a recurrence of low prices would lead
to further consolidation in the oil and gas industry because, as
explained under "Our Reasons for the Merger," combining
operations can help companies save money, strengthen the
combined balance sheet and operate more efficiently,

- The ability to complete the merger as a tax-free reorganization
for U.S. federal income tax purposes,

- The terms and conditions of the merger agreement, including the
conditions to closing and the termination fees payable under
certain circumstances (see "The Merger Agreement--Conditions to
Closing" and "The Merger Agreement--Termination of the Merger
Agreement"),

- The analyses and presentations of Deutsche Bank Securities, and
Deutsche Bank Securities's written opinion to the effect that,
as of July 23, 1999, and based upon and subject to the various
matters set forth in its opinion, the share exchange ratio
whereby the shares of King Ranch Energy common stock will be
converted into the right to receive 2,666,252 shares of St. Mary
common stock is fair to St. Mary from a financial point of view,

- The composition of the combined company's board of directors,
and

- The challenges of combining the businesses of two major
corporations of this size and the attendant risk of not
achieving the expected cost savings and other benefits, as
discussed under "Cautionary Information About Forward-Looking
Statements", and of diverting management focus and resources
from other strategic opportunities and operational matters for
an extended period of time.

In view of the wide variety of factors considered in connection with
its evaluation of the merger and the complexity of these matters, the St.
Mary board of directors did not find it useful to and did not attempt to
quantify, rank or otherwise assign relative weights to these factors. The St.
Mary board relied on the experience and expertise of Deutsche Bank
Securities, its financial advisor, for quantitative analysis of the financial
terms of the merger. See "Opinion of Financial Advisor--Opinion of St. Mary
Financial Advisor." In addition, the St. Mary board did not undertake to make
any specific determination as to whether any particular factor, or any aspect
of any particular factor, was favorable or unfavorable to the St. Mary
board's ultimate determination, but rather the St. Mary board conducted an
overall analysis of the factors described above, including thorough
discussions with and questioning of St. Mary's management and legal,
financial and accounting advisors. In considering the factors described
above, individual members of the St. Mary board may have given different
weight to different factors.

The St. Mary board considered all these factors as a whole, and
overall considered the factors to be favorable to and to support its
determination. However, the general view of the St. Mary board was that the
last factor constituted an uncertainty or risk relating to the transaction,
and that the other reasons and factors described above were generally
favorable.

FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE KING RANCH BOARD OF
DIRECTORS

At a meeting of the King Ranch board of directors held on July 27,
1999, after due consideration, the King Ranch board:

- determined that the merger agreement and the consideration of
St. Mary common stock to be received in the merger are advisable
and in the best interests of King Ranch and the King Ranch
stockholders,

- approved the merger agreement and the related transactions, and

- determined to recommend that the King Ranch stockholders, who
will hold shares of King Ranch Energy voting common stock
following the distribution, consent to the merger agreement.

Therefore, the King Ranch board recommends that the holders of King
Ranch Energy voting common stock consent to the merger agreement.

In approving the transaction and making this recommendation, the
King Ranch board consulted with King Ranch Energy's management as well as
King Ranch's outside legal counsel and financial advisor, and considered the
following material factors:

- All the reasons described above under "Our Reasons for the
Merger," including the exploration and production enhancements,
relative net asset valuation and cash flow, operating synergies
and capital productivity improvements expected to be available
to the combined company,

- Alternatives to the merger by presently pursuing a comparable
acquisition of or a business combination or joint venture with
an entity other than St. Mary and the King Ranch board's
conclusion that a transaction with St. Mary is more feasible,
and is expected to yield greater benefits, than the likely
presently available alternatives. The King Ranch board reached
this conclusion for reasons including St. Mary's interest in
pursuing a transaction with King Ranch Energy, King Ranch's view
that the transaction could be acceptably completed from a timing
standpoint, and King Ranch Energy management's assessment of the
alternatives and the expected benefits of the merger and
compatibility of the companies as described under "Our Reasons
for the Merger" above,

- The fact that 19.4% of the outstanding stock of the combined
company would be the consideration for King Ranch Energy,

- Current industry, economic and market conditions, including
current prices for crude oil. The King Ranch board considered
that oil and gas prices generally fluctuate and that when prices
fall, companies must improve the performance of their internal
operations to maintain profitability. The King Ranch board
considered it likely that a recurrence of low prices would lead
to further consolidation in the oil and gas industry because, as
explained under "Our Reasons for the Merger," combining
operations can help companies save money, strengthen the
combined balance sheet and operate more efficiently,

- The ability to complete the merger as a tax-free reorganization
for U.S. federal income tax purposes,

- The fact that the distribution of King Ranch Energy common stock
to the King Ranch stockholders will result in a taxable gain to
a subsidiary of King Ranch which should not be material to King
Ranch on a consolidated basis,

- The terms and conditions of the merger agreement, including the
conditions to closing and the termination fees payable under
certain circumstances (see "The Merger Agreement--Conditions to
the Completion of the Merger" and "The Merger Agreement--
Termination of the Merger Agreement"),

- The analyses and presentations of Nesbitt Burns, and Nesbitt
Burn's written opinion to the effect that, as of July 27, 1999,
and based upon and subject to the various matters set forth in
its opinion, the number of shares of St. Mary common stock to be
received in the merger by the King Ranch stockholders is fair to
the King Ranch stockholders from a financial point of view,

- The composition of the combined company's board of directors,

- The risks of the July 27, 1999 termination of a number of King
Ranch Energy employees prior to stockholder approval of the
merger agreement, and

In view of the wide variety of factors considered in connection with
its evaluation of the merger and the complexity of these matters, the King
Ranch board of directors did not find it useful to and did not attempt to
quantify, rank or otherwise assign relative weights to these factors. The
King Ranch board relied on the experience and expertise of Nesbitt Burns, its
financial advisor, for quantitative analysis of the financial terms of the
merger. See "Opinion of Financial Advisor--Opinion of King Ranch Financial
Advisor." In addition, the King Ranch board did not undertake to make any
specific determination as to whether any particular factor, or any aspect of
any particular factor, was favorable or unfavorable to the King Ranch board's
ultimate determination, but rather the King Ranch board conducted an overall
analysis of the factors described above, including thorough discussions with
and questioning of King Ranch Energy's management and legal, financial and
accounting advisors. In considering the factors described above, individual
members of the King Ranch board may have given different weight to different
factors.

The King Ranch board considered all these factors as a whole, and
overall considered the factors to be favorable to and to support its
determination. However, the general view of the King Ranch board was that the
last two factors constituted uncertainties or risks relating to the
transaction, and that the other reasons and factors described above were
generally favorable.

OPINIONS OF FINANCIAL ADVISORS

OPINION OF ST. MARY'S FINANCIAL ADVISOR

Deutsche Bank Securities Inc. has acted as financial advisor to St.
Mary in connection with the merger. At the July 23, 1999 meeting of the St.
Mary board of directors, Deutsche Bank delivered its oral opinion,
subsequently confirmed in writing as of the July 27, 1999, to the St. Mary
board of directors to the effect that, as of the date of such opinion, based
upon and subject to the assumptions made, matters considered and limits of
the review undertaken by Deutsche Bank, the share exchange ratio between St.
Mary and the King Ranch Energy stockholders was fair, from a financial point
of view, to St. Mary stockholders.

THE FULL TEXT OF DEUTSCHE BANK'S WRITTEN OPINION, DATED JULY 27,
1999, WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY DEUTSCHE bANK IN CONNECTION
WITH THE OPINION, IS ATTACHED AS APPENDIX B TO THIS DOCUMENT AND IS
INCORPORATED HEREIN BY REFERENCE. ST. MARY STOCKHOLDERS ARE URGED TO READ
DEUTSCHE BANK'S OPINION IN ITS ENTIRETY. THE SUMMARY OF DEUTSCHE BANK'S
OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF DEUTSCHE BANK'S OPINION.

In connection with Deutsche Bank's role as financial advisor to St.
Mary, and in arriving at its opinion, Deutsche Bank has, among other things:

- reviewed certain publicly available financial information and
other information concerning King Ranch Energy and St. Mary,

- reviewed certain internal analyses and other information
furnished to it by King Ranch Energy and St. Mary,

- held discussions with the members of the senior managements of
St. Mary and King Ranch Energy regarding the businesses and
prospects of their respective companies and the joint prospects
of a combined company,

- reviewed the reported prices and trading activity for the common
stock of St. Mary,

- compared certain financial data for King Ranch Energy and
St. Mary, and certain stock market information for St. Mary,
with similar information for selected companies whose
securities are publicly traded,

- reviewed the financial terms of selected recent business
combinations which it deemed comparable in whole or in part,

- reviewed the terms of the merger agreement and certain related
documents, and

- performed such other studies and analyses and considered such
other factors as it deemed appropriate.

In preparing its opinion, Deutsche Bank did not independently verify
any information, whether publicly available or furnished to it, concerning
King Ranch Energy or St. Mary, including, without limitation, any financial
information, forecasts or projections considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, Deutsche
Bank relied upon the accuracy and completeness of all such information.
Deutsche Bank did not conduct a physical inspection of any of the properties
or assets, and did not prepare or obtain any independent evaluation or
appraisal of any of the assets or liabilities, of King Ranch Energy or St.
Mary. With respect to the financial forecasts and projections, including
analyses and forecasts of certain cost savings, operating efficiencies,
revenue effects and financial synergies expected by St. Mary to be achieved
as a result of the merger, made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of
the management of St. Mary. In rendering its opinion, Deutsche Bank expressed
no view as to the reasonableness of such forecasts and projections, including
such synergies, or the assumptions on which they are based. Deutsche Bank's
opinion was necessarily based upon economic, market and other conditions as
in effect on, and the information made available to Deutsche Bank as of, the
date of its opinion.

For purposes of rendering its opinion, Deutsche Bank has assumed
that in all respects material to its analysis:

- the representations and warranties of each party in the merger
agreement are true and correct,

- each party to the merger agreement will perform all of the
covenants and agreements to be performed by it under the merger
agreement,

- all conditions to the obligations of each party to the merger
agreement to consummate the merger will be satisfied without any
waiver thereof, and

- all approvals and consents required in connection with the
consummation of the transactions contemplated by the merger
agreement will be obtained.

In addition, Deutsche Bank has been advised by St. Mary, and
accordingly has assumed for purposes of its opinion, that the merger will be
tax-free to each St. Mary and King Ranch.

Set forth below is a brief summary of certain financial analyses
performed by Deutsche Bank in connection with its opinion and reviewed with
the St. Mary board of directors at its

meeting on July 23, 1999.

ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Deutsche Bank
compared certain financial information and commonly used valuation
measurements for King Ranch Energy to corresponding information and
measurements for a group of four publicly traded exploration and production
companies (consisting of Bellwether Exploration Company, Callon Petroleum
Company, PANACO, Inc. and Remington Oil & Gas Corporation (collectively, the
"Selected KRE Comparable Companies")). Deutsche Bank also compared certain
financial information and commonly used valuation measurements for St. Mary
to corresponding information and measurements for a group of six publicly
traded exploration and production companies (consisting of Key Production
Company, Inc., Belco Oil & Gas Corp., HS Resources, Inc., Patina Oil & Gas
Corporation, Tom Brown, Inc. and Titan Exploration, Inc. (collectively, the
"Selected St. Mary Comparable Companies")).

Such financial information and valuation measurements included:

- common equity market valuation,

- capitalization ratios,

- operating performance,

- ratios of common equity market value as adjusted for debt and
cash ("Total Enterprise Value") to earnings before interest
expense, income taxes, depreciation, amortization and
exploration ("EBITDAX") and to SEC pre-tax PV-10, which is the
value of future net cash flows from proved reserves before taxes
discounted at 10% at December 31, 1998, and year end proved
reserves, and

- ratios of common equity market prices per share ("Equity
Value") to operating cash flow per share.

To calculate the trading multiples for King Ranch Energy and the
Selected KRE Comparable Companies and for St. Mary and the Selected St. Mary
Comparable Companies, Deutsche Bank used publicly available information
concerning historical and projected financial performance, including
published historical financial information and operating cash flow estimates
reported by the Institutional Brokers Estimate System ("IBES"). IBES is a
data service that monitors and publishes compilations of earnings and cash
flow estimates by selected research analysts regarding companies of interest
to institutional investors.

Deutsche Bank compared the King Ranch Energy multiples of Total
Enterprise Value implied by the share exchange ratio with the following
calculated multiples for Selected KRE Comparable Companies:

Selected KRE Comparable Companies
King Ranch Low Median High
Energy Implied --- ------ ----
--------------
<S> <C> <C> <C> <C>
12/31/98-Latest Twelve Month 2.01x 5.09x 6.99x 8.96x
EBITDAX
1998 Year End SEC Pre-Tax PV-10 1.06x 1.50x 1.73x 2.00x
1998 Year End Proved Reserves $0.94 $1.10 $1.30 $1.54
</TABLE>

Deutsche Bank further calculated that the multiple of Equity Value
to 1999 estimated operating cash flow per share was 2.35x for King Ranch
Energy compared to a range of 1.02x to 6.43x, with a median of 3.91x, for the
Selected KRE Comparable Companies.

Deutsche Bank compared St. Mary actual multiples of Total Enterprise
Value with the following calculated multiples for Selected St. Mary
Comparable Companies:

Selected St. Mary Comparable Companies
St. Mary Actual Low Median High
--------------- --- ------ ----
<S> <C> <C> <C> <C>
12/31/98-Latest Twelve Month 5.22x 5.65x 7.04x 11.02x
EBITDAX
1998 Year End SEC Pre-Tax PV-10 2.13x 0.87x 1.40x 2.09x
1998 Year End Proved Reserves $1.44 $0.60 $0.97 $1.45
</TABLE>

Deutsche Bank further calculated that the multiple of Equity Value
to 1999 estimated operating cash flow per share was 2.35x for St. Mary
compared to a range of 1.00x to 10.39x, with a median of 5.78x, for the
Selected St. Mary Comparable Companies.

None of the companies utilized as a comparison is identical to King
Ranch Energy or St. Mary. Accordingly, the analysis of the publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments concerning differences in financial
and operating characteristics of the comparable companies and other factors
that could effect the public trading value of the comparable companies.

ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Deutsche Bank reviewed
the financial terms, to the extent publicly available, of 9 proposed, pending
or completed mergers and acquisition transactions of greater than $10 million
since January 1, 1996 involving exploration and production companies with a
similar asset mix to King Ranch Energy (the "Selected KRE Corporate
Transactions"). Deutsche Bank utilized estimated reserve value and proved
reserves to determine reserve value to proved reserves in order to estimate a
total enterprise value

for King Ranch Energy and compared them to corresponding reserve value to
proved reserves for the merger, based on the share exchange ratio. Deutsche
Bank calculated that total enterprise value divided by estimated proved
reserves was $.84 for the merger compared to a range of $0.80 to $1.66,
with a median of $1.02, for the Selected KRE Corporate Transactions.

Deutsche Bank reviewed the financial terms, to the extent publicly
available, of 55 proposed pending or completed asset sale transactions of
greater than $10 million since January 1, 1996 involving producing properties
within the three operating regions of King Ranch Energy (the "Selected KRE
Asset Transactions"). Deutsche Bank utilized estimated reserve value and
proved reserves to determine a multiple of reserve value to proved reserves
in order to estimate a total enterprise value for King Ranch Energy and
compared them to corresponding reserve value to proved reserves for the
merger, based on the share exchange ratio. Deutsche Bank calculated that the
total enterprise value to estimated proved reserves was $.84 for the merger
compared to the following multiples for the Selected KRE Asset Transactions:

Operating Region 25th Percentile Median 75th Percentile
---------------- --------------- ------ ---------------
<S> <C> <C> <C>
Gulf of Mexico - Offshore $0.86 $0.99 $1.24
Texas - Onshore $0.58 $0.75 $0.80
Oklahoma / Rocky Mountains - $0.51 $0.71 $0.83
Utah/North Dakota
</TABLE>

Deutsche Bank reviewed the financial terms, to the extent publicly
available, of 8 proposed, pending or completed mergers and acquisition
transactions of greater than $10 million since January 1, 1996 involving
exploration and production companies with a similar asset mix to St. Mary
(the "Selected St. Mary Corporate Transactions"). Deutsche Bank utilized
estimated reserve value and proved reserves to determine a total enterprise
value multiple of proved reserves and compared them to the corresponding
multiple for St. Mary. Deutsche Bank calculated that the multiple of total
enterprise value to year end proved reserves was 1.44 for St. Mary compared
to a range of 0.61 to 1.36, with a median of 1.00, for Selected St. Mary
Corporate Transactions.

Deutsche Bank reviewed the financial terms, to the extent publicly
available, of 40 proposed pending or completed asset sale transactions of
greater than $10 million since January 1, 1996 involving producing properties
within the five operating regions of St. Mary (the "Selected St. Mary Asset
Transactions"). Deutsche Bank utilized estimated reserve value and proved
reserves and compared them to corresponding multiples for St. Mary. Deutsche
Bank calculated that the multiple of total enterprise value to year end
proved reserves was 1.44 for St. Mary compared to the following multiples
for the Selected St. Mary asset Transactions:

<TABLE>
<CAPTION>
Operating Region 25th Percentile Median 75th Percentile
---------------- --------------- ------ ---------------
<S> <C> <C> <C>
Rockies - Williston Basin $0.42 $0.67 $0.78
Mid-Continent $0.69 $0.92 $1.03
Permian Basin $0.65 $0.75 $0.80
ArkLaTex Region $0.69 $0.72 $0.77
South Louisiana $0.85 $1.07 $1.28
</TABLE>

All multiples for each of the Selected KRE Corporate Transactions,
Selected KRE Asset Transactions, the Selected St. Mary Corporate Transactions
and the Selected St. Mary Asset Transactions were based on John S. Herold
Inc. data and public information available at the time of announcement of
such transactions, without taking into account differing market and other
conditions during the three and one half-year period during which such
transactions occurred.

Because the reasons for and circumstances surrounding each of the
precedent transactions analyzed were so diverse, and due to the inherent
differences between the operations and financial conditions of King Ranch
Energy and St. Mary and the companies involved in each of the Selected KRE
Corporate Transactions, Selected KRE Asset Transactions, the Selected St.
Mary Corporate Transactions and the Selected St. Mary Asset Transactions,
Deutsche Bank believes that a comparable transaction analysis is not simply
mathematical. Rather, it involves complex considerations and qualitative
judgments, reflected in Deutsche Bank's opinion, concerning differences
between the characteristics of these transactions and the merger that could
affect the value of the subject companies and businesses and King Ranch
Energy and St. Mary.

CONTRIBUTION ANALYSIS. Deutsche Bank analyzed the relative
contributions of St. Mary and King Ranch Energy, as compared to St. Mary and
King Ranch Energy's relative ownership after the merger of approximately
80.64% and 19.36% respectively of the outstanding capital of the combined
company, to the pro forma income statement of the combined company, based on
managements' projections for their respective companies. The analysis showed
that on a pro forma combined basis (excluding (1) the effect of any synergies
that may be realized as a result of the merger, and (2) non-recurring
expenses relating to the merger), based on 1999 and 2000 estimates for St.
Mary and King Ranch Energy, St. Mary and King Ranch Energy would account for
approximately the following percentages of the combined company for the
following:

<TABLE>
<CAPTION>
St. Mary King Ranch
---------- ----------
<S> <C> <C>
1999E EBITDAX 62.00% 38.00%
2000E EBITDAX 70.30% 29.70%
2001E EBITDAX 75.50% 24.50%
1999E Operating Cash Flow
Per Share 58.90% 41.10%
2000E Operating Cash Flow
Per Share 65.00% 35.00%

</TABLE>

<TABLE>
<CAPTION>
St. Mary King Ranch
---------- ----------
<S> <C> <C>
2001E Operating Cash Flow
Per Share 74.10% 25.90%

1999E Production 63.10% 36.90%
2000E Production 71.40% 28.60%
2001E Production 74.70% 25.30%
</TABLE>

DISCOUNTED CASH FLOW ANALYSIS. Deutsche Bank performed a discounted
cash flow analysis for both King Ranch Energy and St. Mary. Deutsche Bank
calculated the discounted cash flow values for each of King Ranch Energy and
St. Mary as the sum of the net present values of (1) the estimated future
cash flow that King Ranch Energy or St. Mary will generate for the period
described below, plus (2) the value of King Ranch Energy or St. Mary at the
end of such period. The estimated future cash flows were based on the
financial projections for King Ranch Energy for the years 1999 through 2005
prepared by King Ranch Energy's management and for St. Mary for the years
1999 through 2004 prepared by St. Mary's management. The terminal value of
King Ranch Energy was calculated based on projected EBITDAX for 2005 and a
range of multiples of 3.0x, 4.0x and 5.0x. The terminal value of St. Mary was
calculated based on projected EBITDAX for 2004 and a range of multiples of
4.0x, 5.0x and 6.0x. Deutsche Bank used discount rates ranging from 10.0% to
14.0%. Deutsche Bank used such discount rates based on its judgment of the
estimated weighted average cost of capital of Selected KRE Comparable
Companies and Selected St. Mary Comparable Companies, and used such multiples
based on its review of the trading characteristics of the common stock of
Selected KRE Comparable Companies and Selected St. Mary Comparable Companies.
This analysis indicated a range of values of $63.0 million to $77.6 million
for the King Ranch Energy depletion case and a range of values of $183.6
million to $371.9 million for St. Mary.

The foregoing summary describes all analyses and factors that
Deutsche Bank deemed material in its presentation to St. Mary board of
directors, but is not a comprehensive description of all analyses performed
and factors considered by Deutsche Bank in connection with preparing its
opinion. The preparation of a fairness opinion is a complex process involving
the application of subjective business judgment in determining the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, is not readily
susceptible to summary description. Deutsche Bank's analyses must be
considered as a whole and considering any portion of such analyses and of the
factors considered without considering all analyses and factors could create
a misleading view of the process underlying the opinion. In arriving at its
fairness determination, Deutsche Bank did not assign specific weights to any
particular analyses.

In conducting its analyses and arriving at its opinions, Deutsche
Bank utilized a variety of generally accepted valuation methods. The analyses
were prepared solely for the purpose of enabling Deutsche Bank to provide its
opinion to the St. Mary board of directors as to the fairness to St. Mary of
the share exchange ratio and does not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold,
which are inherently

subject to uncertainty. In connection with its analyses, Deutsche Bank made,
and was provided by St. Mary management with, numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond St. Mary's or King Ranch Energy's
control. Analyses based on estimates or forecasts of future results are not
necessarily indicative of actual past or future values or results, which may
be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of St. Mary, King Ranch Energy
or their respective advisors, neither St. Mary nor Deutsche Bank nor any
other person assumes responsibility if future results or actual values are
materially different from these forecasts or assumptions.

The terms of the merger were determined through negotiations between
St. Mary and King Ranch and were approved by the St. Mary board of directors.
Although Deutsche Bank provided advice to St. Mary during the course of these
negotiations, the decision to enter into the merger was solely that of the
St. Mary board of directors. As described above, the opinion and presentation
of Deutsche Bank to the St. Mary board of directors were only one of a number
of factors taken into consideration by the St. Mary board of directors in
making its determination to approve the merger. Deutsche Bank's opinion was
provided to the St. Mary board of directors to assist it in connection with
its consideration of the merger and does not constitute a recommendation to
any holder of St. Mary Common Stock as to how to vote with respect to the
merger.

St. Mary selected Deutsche Bank as financial advisor in connection
with the merger based on Deutsche Bank's qualifications, expertise,
reputation and experience in mergers and acquisitions. St. Mary has retained
BT Alex. Brown Incorporated pursuant to an engagement letter agreement dated
March 11, 1999. Deutsche Bank is the successor to the investment banking and
client advisory businesses of BT Alex. Brown and has assumed BT Alex. Brown's
rights and responsibilities under the engagement letter. As compensation for
Deutsche Bank's services in connection with the merger, St. Mary has paid
Deutsche Bank a cash fee of $175,000 and has agreed to pay an additional cash
fee of $675,000 if the merger is consummated. Regardless of whether the
merger is consummated, St. Mary has agreed to reimburse Deutsche Bank for
reasonable fees and disbursements of Deutsche Bank's counsel and all of
Deutsche Bank's reasonable travel and other out-of-pocket expenses incurred
in connection with the merger or otherwise arising out of the retention of
Deutsche Bank under the engagement letter. St. Mary has also agreed to
indemnify Deutsche Bank and certain related persons to the full extent lawful
against certain liabilities, including certain liabilities under the federal
securities laws arising out of its engagement of the merger.

Deutsche Bank is an internationally recognized investment banking
firm experienced in providing advice in connection with mergers and
acquisitions and related transactions. Deutsche Bank has previously advised
and executed natural gas hedging transactions for St. Mary. Deutsche Bank and
its affiliates may actively trade securities of St. Mary for their own
account or the account of their customers and, accordingly, may from time to
time hold a long or short position in such securities.

OPINION OF KING RANCH'S FINANCIAL ADVISOR

King Ranch retained Nesbitt Burns to act as its financial advisor
with respect to considering strategic alternatives for King Ranch Energy. On
July 27, 1999, the King Ranch board held a meeting to evaluate the proposed
merger. At this meeting Nesbitt Burns rendered its opinion that, as of that
date and based upon and subject to the limitations and assumptions set forth
in its opinion, the consideration to be received by the shareholders of King
Ranch in connection with the merger was fair from a financial point of view
to the shareholders of King Ranch.

THE FULL TEXT OF THE OPINION, WHICH DESCRIBES, AMONG OTHER THINGS,
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS
ON THE REVIEW UNDERTAKEN BY NESBITT BURNS IS ATTACHED AS APPENDIX C TO THIS
DOCUMENT AND IS INCORPORATED IN THIS DOCUMENT BY REFERENCE. THE SUMMARY OF
THE FAIRNESS OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE OPINION. THE KING RANCH SHAREHOLDERS ARE
URGED TO READ NESBITT BURNS' OPINION CAREFULLY AND IN ITS ENTIRETY. THE
FAIRNESS OPINION WAS PROVIDED TO THE KING RANCH BOARD AND ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED
BY THE KING RANCH SHAREHOLDERS AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY SHAREHOLDER AS TO HOW TO WHETHER TO CONSENT TO THE MERGER.

In arriving at its opinion, Nesbitt Burns, among other things:

- reviewed certain publicly available business and financial
information relating to King Ranch, King Ranch Energy and
St. Mary,

- reviewed certain internal financial and operating information,
including financial forecasts of the respective results of
operations of King Ranch Energy and St. Mary as well as
certain estimates of the expected operational and financial
benefits expected to result from the merger, prepared and
provided by the managements of King Ranch, King Ranch Energy
and St. Mary,

- held discussions with certain senior officers, directors and
other representatives and advisors of King Ranch, King Ranch
Energy and St. Mary concerning their respective strategic
objectives, businesses, operations, assets, financial
condition and prospects before and after giving effect to the
merger and the expected synergies described in the bullet
point set forth above,

- reviewed the reported prices and trading activity for St. Mary
common stock,

- considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected
which Nesbitt Burns considered relevant in evaluating the
transaction contemplated by the merger agreement,

- analyzed certain financial, stock market and other publicly
available information

relating to the businesses of other companies whose operations
Nesbitt Burns considered relevant in evaluating those of King
Ranch Energy and St. Mary,

- participated in discussions and negotiations among
representatives of King Ranch, King Ranch Energy and St. Mary
and their respective legal and financial advisors,

- reviewed the draft merger agreement and certain related
agreements, and

- conducted such other analyses, inquiries and examinations and
considered such other financial, engineering, economic and
market criteria as Nesbitt Burns deemed appropriate in
arriving at its opinion.

In rendering its opinion, Nesbitt Burns assumed and relied upon,
without independent verification, the accuracy, fair representation and
completeness of all financial and other information, data, advice, opinions
and representations publicly available or furnished to or otherwise reviewed
by or discussed with Nesbitt Burns and its opinion is conditioned upon such
accuracy, fairness and completeness. With respect to financial forecasts, the
expected synergies and other information provided to or otherwise reviewed by
or discussed with Nesbitt Burns by management of King Ranch, King Ranch
Energy or St. Mary, Nesbitt Burns assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of
King Ranch's, King Ranch Energy's or St. Mary's management as to the expected
future financial performance of King Ranch Energy or St. Mary, as the case
may be. Subject to the exercise of professional judgment and except as
expressly described in the fairness opinion, Nesbitt Burns has not assumed
any responsibility or attempted to verify independently the accuracy or
completeness of any such information, data, advice, opinions and
representations. Nesbitt Burns has further assumed that the merger will be
accounted for as a purchase under generally accepted accounting principles
and that it will qualify as a tax-free reorganization for U.S. Federal income
tax purposes.

Nesbitt Burns has not made or been provided with an independent
evaluation of the assets or liabilities (contingent or otherwise) of King
Ranch, King Ranch Energy, or St. Mary nor did it make any physical inspection
of the properties or assets of King Ranch, King Ranch Energy or St. Mary. The
Nesbitt Burns opinion is based upon the condition and prospects, financial
and otherwise, of King Ranch Energy and St. Mary as they were reflected in
the information and documents reviewed by Nesbitt Burns and as they were
represented to Nesbitt Burns in discussions with management of King Ranch,
King Ranch Energy and St. Mary.

For the purpose of rendering the opinion, Nesbitt Burns assumed that
the final form of the transaction documents, including the merger agreement,
is substantially similar to the form in which they were reviewed by Nesbitt
Burns and that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the merger, no
restriction, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on
the contemplated benefits of the merger.

The fairness opinion was necessarily rendered on the basis of
information available, including financial and securities markets, economic
and general business and financial

conditions and other conditions and circumstances existing and disclosed to
Nesbitt Burns, as of the date of the opinion.

The fairness opinion does not address the merits of the underlying
decision by King Ranch to engage in the merger and is not intended to be and
does not constitute a recommendation to any stockholder of King Ranch Energy
as to whether such stockholder should consent to the proposed merger or any
matter related thereto. Nesbitt Burns is not expressing any opinion as to the
prices at which the St. Mary common stock will trade following the
announcement or consummation of the Merger.

ANALYSES OF NESBITT BURNS

In performing its analyses, Nesbitt Burns made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of any party involved. Any estimates contained in the analyses performed by
Nesbitt Burns are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
these analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. Accordingly, these
analyses and estimates are inherently subject to substantial uncertainty. In
addition, the Nesbitt Burns opinion was among several factors taken into
consideration by the King Ranch board in making its determination to approve
the merger agreement and the merger. Consequently, the analyses described
below should not be viewed as determinative of the decision of the King Ranch
board or management of King Ranch with respect to the fairness of the
consideration.

The following is a summary of the material financial analyses
presented by Nesbitt Burns to the King Ranch board on July 27, 1999 in
connection with the rendering of its opinion on that date. The summary below
is not a complete description of the analyses underlying the Nesbitt Burns
opinion or the presentation made by Nesbitt Burns to the King Ranch board,
but summarizes the material analyses performed and presented in connection
with such opinion. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those
methods to the particular circumstances. Therefore, a fairness opinion is not
readily susceptible to partial analysis or summary description. In arriving
at its opinion, Nesbitt Burns did not attribute any particular weight to any
analysis or factor that it considered, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor.
Accordingly, Nesbitt Burns believes that its analyses and the summary of its
analyses must be considered as a whole and that selecting portions of its
analyses and factors focusing on the information presented below in tabular
format, without considering all analyses and factors or the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of the process underlying its analyses and opinion. The tables alone do
not constitute a complete description of the financial analyses.

ANALYSIS OF SELECTED ASSET ACQUISITION TRANSACTIONS. In order to
approximate the value of King Ranch Energy, Nesbitt Burns reviewed publicly
available information for eighteen asset acquisitions that had been announced
between April 1998 and July 1999. Each transaction involved primarily Gulf
Coast oil and gas properties and the value of each transaction was below
$250 million. The following transactions were reviewed (in each case the
first-named company is the acquiror and the second-named company is the
seller of the assets): Mitchell Energy & Development Corp./Occidental
Petroleum Corp.; Union Pacific Resources Group Inc./Occidental Petroleum
Corp.; Swift Energy Company/Sonat Inc.; Enron Oil & Gas Co./Union Pacific
Resources Group Inc.; Collins & Ware Inc./Union Pacific Resources Group Inc.;
Chancellor Group, Inc./Union Pacific Resources Group Inc.; Clayton Williams
Energy, Inc./Sonat Inc.; Samson Investment Co./Nuevo Energy Company; The
Houston Exploration Company/Chevron Corp.; EnerVest Management Co. L.C./Coho
Energy, Inc.; Canadian Occidental Petroleum Ltd./Royal Dutch and Shell Group;
Castle Energy Corp./United Energy plc; Coastal Corp./Titan Exploration, Inc.;
Coastal Corp./undisclosed seller; Louis Dreyfus Natural Gas Corp./undisclosed
seller; Phillips Petroleum Co./Kelley Oil & Gas Corp.; Prize Energy
Corp./Pioneer Natural Resources Co.; and undisclosed seller/MCN Energy
Group Inc. Nesbitt Burns considered the assets transferred in these
transactions to be similar, but not identical, to the assets of King Ranch
Energy.

For each of these transactions Nesbitt Burns derived the implied
value per thousand cubic feet equivalent ("MCFE") of proved reserves, using a
6.0 MCF of natural gas to 1.0 barrel of oil conversion ratio as of the
completion date of each transaction. The weighted average of the implied
reserve values per MCFE for the eighteen transactions was determined by
dividing the sum of proved reserves sold in each of these transactions by the
sum of the values attributed to the reserves in each transaction. Nesbitt
Burns applied the multiples of equivalent reserves to King Ranch Energy's
proved reserves of 65 billion cubic feet equivalent ("ABCFE") as determined as
of December 31, 1998 by third party engineers for purposes of the merger
analysis. Nesbitt Burns determined an asset reference value range implied by
these multiples. After deducting current obligations of King Ranch Energy and
due diligence value adjustments to King Ranch Energy of $11.8 million and
$4.0 million, respectively, and adding current assets of King Ranch Energy of
$10.9 million, the indicated equity reference value range of King Ranch
Energy was $23.8 million to $84.6 million. The following table sets forth the
low, high and weighted average implied reserve values per MCFE of these
transactions and the implied equity value of King Ranch Energy derived
therefrom:

- --------------------------------------------------------------------------------
Implied Value of Proved Implied King Ranch Energy
Reserves per MCFE Equity Value (in $ millions)
- --------------------------------------------------------------------------------
<S> <C> <C>
Low $0.44 23.8
- --------------------------------------------------------------------------------
Weighted Average $0.73 42.7
- --------------------------------------------------------------------------------
High $1.37 84.6
- --------------------------------------------------------------------------------

</TABLE>

ANALYSIS OF SELECTED CORPORATE TRANSACTIONS. In order to approximate
the stand-alone value of King Ranch Energy, Nesbitt Burns also reviewed
publicly available information for nine

change of control transactions that had been announced between April 1996 and
July 1999. Each transaction involved oil and gas companies with substantial
interests in the Gulf Coast and the value of each transaction was below
$200 million. The following transactions were reviewed (in each case the
first-named company is the acquiror and the second-named company is the
acquired company or parent of the acquired corporate entity): Burlington
Resources Inc./Gulfstream Resources; Forcenergy Inc./ Great Western
Resources; Domain Energy Corp./ El Paso Natural Gas Co.; Alliance
Resources plc/LaTex Resources Inc.; Forcenergy Inc./ Convest Energy Corp. and
Edisto Resources Corp.; PANACO, Inc./ Goldking Companies, Inc.; Seagull
Energy Corp./BRG Petroleum Inc.; Texoil, Inc./Cliffwood Oil & Gas Corp.; and
Energen Corporation and Westport Oil and Gas/ TOTAL S.A. Nesbitt Burns
considered these transactions to be similar to the merger but none of these
transactions are identical to the merger.

For each of these transactions Nesbitt Burns derived the implied
reserve values per MCFE as of the completion date of each transaction. The
weighted average of the implied reserve values per MCFE for the nine
transactions was determined by dividing the sum of proved reserves of the
target by the sum of value attributed to the reserves in each transaction.
Nesbitt Burns applied the multiples of equivalent reserves to King Ranch
Energy's proved reserves of 65.4 BCFE as determined as of December 31, 1998
by third party engineers for purposes of the merger analysis. Nesbitt Burns
determined an asset reference value range implied by these multiples. After
deducting current obligations of King Ranch Energy and due diligence value
adjustments to King Ranch Energy of $11.8 million and $4.0 million,
respectively, and adding current assets of King Ranch Energy of $10.9 million,
the indicated equity reference value range of King Ranch Energy was
$21.8 million to $83.3 million. The following table sets forth the low, high
and weighted average implied value per unit of proved reserves of these
transactions and the implied equity value of King Ranch Energy derived
therefrom:

- --------------------------------------------------------------------------------
Implied Value per MCFE of Implied King Ranch Energy
Proved Reserves Equity Value (in $ millions)
- --------------------------------------------------------------------------------
<S> <C> <C>
Low $0.41 21.8
- --------------------------------------------------------------------------------
Weighted Average $0.87 51.9
- --------------------------------------------------------------------------------
High $1.35 83.3
- --------------------------------------------------------------------------------

</TABLE>

COMPARABLE COMPANY ANALYSIS - KING RANCH ENERGY. Nesbitt Burns
compared selected operating results of King Ranch Energy to the publicly
available corresponding data for the following companies that Nesbitt Burns
determined were comparable to King Ranch Energy based on their size, location
and nature of operations:

- - Bellwether Exploration Co. - Newfield Exploration Co.

- - Callon Petroleum Corp. - PANACO Inc.

- - Chieftan International - Stone Energy Corp.

- - Meridian Resource Corp. - Swift Energy Co.

- - Edge Petroleum Corp.

Nesbitt Burns calculated and analyzed ratios based on certain
relevant historical publicly available data and upon projected financial
criteria as published by various third-party equity research analysts. The
following ratios were determined:

- Enterprise value/LTM EBITDAX,

- Enterprise value/1999 estimated EBITDAX,

- Enterprise value/MCFE (proved SEC reserves as of 12/31/98),

- Enterprise value/SEC-10 (based on proved reserves as of
12/31/98),

- Price/1999 estimated cash flow, and

- Price/2000 estimated cash flow.

For purposes of this section, "LTM EBITDAX" means the latest twelve
months of earnings before deducting interest income and expense, income
taxes, depreciation, depletion, amortization, and exploration expenses; and
"SEC-10" means future after-tax cash flows of proved reserves determined by
year-end commodity prices, operating expenses and development costs
discounted at 10%. Certain multiples were adjusted based on Nesbitt Burns'
market research to account for King Ranch Energy's industry-low reserve life
index.

Nesbitt Burns applied appropriate benchmark multiples to King Ranch
Energy's LTM and 1999 estimated EBITDAX, year-end SEC proved reserves, SEC-10
value and 1999 and 2000 estimated cash flow. Nesbitt Burns determined an
asset reference value range for King Ranch Energy implied by these multiples.
After deducting current obligations of King Ranch Energy and due diligence
value adjustments to King Ranch Energy of $11.8 million and $4.0 million,
respectively, and adding current assets of King Ranch Energy of $10.9 million,
the indicated equity reference value range of King Ranch Energy was
$10.0 million to $203.1 million. The following table sets forth the low, mean
and high implied equity value of King Ranch Energy for each of the above
ratios based on the nine comparable companies:

Implied King Ranch Energy Equity Value (in $ millions)

- --------------------------------------------------------------------------------------------
EV/LTM EV/1999E EV/SEC- P/CF P/CF
BITDAX EBITDAX EV/MCFE 10 1999E 2000E
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low 55.2 54.9 50.3 62.0 27.0 10.0
- --------------------------------------------------------------------------------------------
Mean 83.2 68.8 88.0 91.2 123.5 59.1
- --------------------------------------------------------------------------------------------
High 111.3 82.8 137.6 135.5 203.1 91.3
- --------------------------------------------------------------------------------------------

</TABLE>

COMPARABLE COMPANY ANALYSIS - ST. MARY. Nesbitt Burns compared
selected operating results of St. Mary to the publicly available corresponding
data for the following companies that Nesbitt Burns determined were comparable
to St. Mary based on their size, location and nature of operations:

- - Bellwether Exploration Co. - Titan Exploration Inc.

- - Callon Petroleum Corp. - Tom Brown Inc.

- - Basin Exploration Inc. - Stone Energy Corp.

- - Comstock Resources Inc. - Swift Energy Co.

- - Key Production Company

Nesbitt Burns calculated and analyzed the same ratios for St. Mary
and these nine companies based on certain relevant historical publicly
available data and upon projected financial criteria as published by
independent third-party equity research analysts.

Nesbitt Burns applied these benchmark multiples to St. Mary's LTM
and 1999 estimated EBITDAX, year-end SEC proved reserves, SEC-10 value and
1999 and 2000 estimated cash flow. Nesbitt Burns determined an asset
reference value range implied by these multiples. After deducting current and
long-term obligations $41.7 million and adding current and other assets of
St. Mary and due diligence adjustments to St. Mary of $42.4 million and
$12.4 million, respectively, the indicated equity reference value range of
St. Mary was $8.28 to $44.00 per share. The following table sets forth the
low, mean and high implied equity value of St. Mary for each of the ratios
based on the nine comparable companies on an aggregate and per share basis:

Implied St. Mary Equity Value (in $ millions)

- --------------------------------------------------------------------------------------------
EV/LTM EV/1999E EV/SEC- P/CF P/CF
EBITDAX EBITDAX EV/MCFE 10 1999E 2000E
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low 197.5 196.4 92.0 103.0 107.0 116.4
- --------------------------------------------------------------------------------------------
Mean 343.2 301.7 235.9 177.7 234.8 266.1
- --------------------------------------------------------------------------------------------
High 488.6 413.6 432.9 313.3 400.4 481.1
- --------------------------------------------------------------------------------------------

</TABLE>

Implied St. Mary Equity Value per Share

- ---------------------------------------------------------------------------------------------
EV/LTM EV/1999E EV/SEC- P/CF P/CF
EBITDAX EBITDAX EV/MCFE 10 1999E 2000E
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low $17.78 $17.69 $8.28 $9.28 $9.64 $10.48
- ---------------------------------------------------------------------------------------------
Mean $30.91 $27.17 $21.25 $16.00 $21.15 $23.97
- ---------------------------------------------------------------------------------------------
High $44.00 $37.25 $38.99 $28.22 $36.06 $43.33
- ---------------------------------------------------------------------------------------------

</TABLE>

COMPARABLE COMPANY ANALYSIS - KING RANCH ENERGY PRO FORMA. The
above equity values for each company indicated the following range of implied
King Ranch Energy pro forma ownership in St. Mary:

Pro Forma Ownership

- --------------------------------------------------------------------------------------------
EV/LTM EV/1999E EV/SEC- P/CF P/CF
EBITDAX EBITDAX EV/MCFE 10 1999E 2000E
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low 18.6% 16.7% 24.1% 30.2% 20.1% 7.9%
- --------------------------------------------------------------------------------------------
Mean 19.5% 18.6% 27.2% 33.9% 34.5% 18.2%
- --------------------------------------------------------------------------------------------
High 21.8% 21.8% 35.3% 37.6% 33.6% 15.9%
- --------------------------------------------------------------------------------------------

</TABLE>

DISCOUNTED CASH FLOW ANALYSIS - KING RANCH ENERGY. Nesbitt Burns
conducted a discounted cash flow analysis for the purpose of determining the
equity reference value range of King Ranch Energy. Nesbitt Burns calculated
the net present value of estimates of future after-tax cash flows through
2014 for King Ranch Energy's oil and gas reserve assets based on reserve
estimates by independent engineers.

Nesbitt Burns evaluated two scenarios in which the principal
variables were oil and gas prices. The two pricing scenarios were based on
benchmarks for spot sales of West Texas Intermediate crude oil and for spot
price sales of Henry Hub gas ("Pricing Case I" and "Pricing Case II").
Nesbitt Burns applied appropriate quality and transportation adjustments to
these benchmarks. Benchmark oil prices for Pricing Cases I and II were
projected to be $17.00 and $19.00 per barrel, respectively, for 1999 and were
escalated annually thereafter at the rate of 3.0%. Benchmark gas prices for
Pricing Cases I and II were projected to be $2.20 and $2.40 per MCFE,
respectively, for 1999 and were escalated annually thereafter at the rate of
3.0%. Operating and capital costs were escalated at 3.0% per year after 1999.
The discount rates ranged from 8 to 12 percent.

Assuming a carry-over of King Ranch Energy's existing tax positions,
and applying reserve and capital spending risk factors ranging from 100% to
35%, depending on reserve

category, the discounted cash flow analysis indicated a range of asset
reference values. After deducting current obligations of King Ranch Energy
and due diligence value adjustments to King Ranch Energy of $11.8 million and
$4.0 million, respectively, and adding current assets of King Ranch Energy of
$10.9 million, the indicated equity reference value ranges of King Ranch Energy
were $48.5 million to $54.6 million for Pricing Case I and $55.6 million to
$62.9 million for Pricing Case II.

Implied King Ranch Energy Equity Value (in $ millions)

- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount
Rate 8% 9% 10% 11% 12%
- ------------------------------------------------------------------------
Pricing Case
I 54.6 52.9 51.3 49.8 48.5
- ------------------------------------------------------------------------
Pricing Case
II 62.9 60.9 59.0 57.2 55.6
- ------------------------------------------------------------------------

</TABLE>

DISCOUNTED CASH FLOW ANALYSIS - ST. MARY. Nesbitt Burns conducted a
discounted cash flow analysis for the purpose of determining the equity
reference value range of St. Mary. Nesbitt Burns calculated the net present
value of estimates of future after-tax cash flows for St. Mary's oil and gas
reserve assets based on reserve estimates by independent engineers as well as
the estimated after-tax cash flows derived from reserves added by St. Mary's
projected capital spending program.

Nesbitt Burns evaluated two scenarios using the same variables and
benchmarks as under the King Ranch Energy analysis. Assuming a carry-over of
St. Mary's existing tax positions, applying reserve and capital spending risk
factors ranging from 100% to 35%, depending on reserve category, and applying
a terminal value of 5 times 2004 discretionary cash flow, the discounted cash
flow analysis indicated a range of asset reference values. After deducting
current and long-term obligations $41.7 million and adding current and other
assets of St. Mary and due diligence adjustments to St. Mary of $42.4 million
and $12.4 million, respectively, the indicated equity reference value ranges
of St. Mary were $245.8 million to $300.2 million for pricing Case I,
$314.6 million to $379.8 million for Pricing Case II, $22.14 to $27.03 per
share for Pricing Case I and $28.33 to $34.20 per share for Pricing Case II.

Implied Equity Value of St. Mary (in $ millions)

- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount
Rate 8% 9% 10% 11% 12%
- -------------------------------------------------------------------------
Pricing Case
I 300.2 285.4 271.5 258.3 245.8
- -------------------------------------------------------------------------
Pricing Case
II 379.8 362.1 345.4 329.5 314.6
- -------------------------------------------------------------------------

</TABLE>

Implied Equity Value of St. Mary per Share

- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount
Rate 8% 9% 10% 11% 12%
- -------------------------------------------------------------------------
Pricing Case
I 27.03 25.70 24.45 23.26 22.14
- -------------------------------------------------------------------------
Pricing Case
II 34.20 32.61 31.10 29.68 28.33
- -------------------------------------------------------------------------

</TABLE>

DISCOUNTED CASH FLOW ANALYSIS - KING RANCH ENERGY PRO FORMA. The
above equity values for each company indicated the following range of implied
King Ranch Energy pro forma ownership in St. Mary:

Pro Forma Ownership

- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount
Rate 8% 9% 10% 11% 12%
- -------------------------------------------------------------------------
Pricing Case
I 15.4% 15.6% 15.9% 16.2% 16.5%
- -------------------------------------------------------------------------
Pricing Case
II 14.2% 14.4% 14.6% 14.8% 15.0%
- -------------------------------------------------------------------------

</TABLE>

PRO FORMA ACCRETION/DILUTION ANALYSIS. Nesbitt Burns analyzed
certain pro forma effects which could result from the mergers based on
discussions with the management of King Ranch and St. Mary. This analysis
indicated that the merger is expected to be dilutive to the forecasted cash
flow and earnings per share to King Ranch Energy in 1999 and, to a lesser
extent, 2000 but accretive to the forecasted cash flow and earnings per share
of St. Mary in the same period.

* * * * *

King Ranch retained Nesbitt Burns based upon its experience and
expertise. Nesbitt Burns is an internationally recognized investment banking and
advisory firm. As part of its investment banking business, Nesbitt Burns is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.

In the ordinary course of its business, Nesbitt Burns and certain of
its affiliates may actively trade the securities of St. Mary for their account
or for the account of its customers and, accordingly, may at any time hold a
long or short position in such securities. Nesbitt Burns has in the past
provided certain financial advisory and investment banking services to King
Ranch and may continue to do so and have received, and may receive, compensation
for the rendering of such services.

Nesbitt Burns has been engaged to act as financial advisor to King
Ranch in connection with the merger and will receive a fee from King Ranch for
their services, a significant portion of which is contingent on the consummation
of the merger. King Ranch also agreed to indemnify Nesbitt Burns for certain
liabilities in connection with its engagement.

COMPARISON OF KING RANCH AND ST. MARY STOCKHOLDER RIGHTS

King Ranch is a Texas corporation and St. Mary and King Ranch Energy
are Delaware corporations. Because King Ranch Energy is a subsidiary of King
Ranch, at the present time the rights of King Ranch stockholders to their
proportionate interests in King Ranch Energy result from their rights as King
Ranch stockholders. The rights of King Ranch stockholders under the King Ranch
articles of incorporation and bylaws with respect to their proportionate
interests in King Ranch Energy prior to the merger and prior to the distribution
to them of the King Ranch Energy Shares are substantially similar to the rights
that they will have under the St. Mary certificate of incorporation and bylaws
and the Nasdaq Stock Market corporate governance rules with respect to the
shares of St. Mary common stock to be issued to them in the merger.

Material differences between King Ranch and St. Mary stockholder rights
are summarized in the following chart. Copies of the King Ranch articles of
incorporation and bylaws, King Ranch Energy certificate of incorporation and
bylaws, and the St. Mary certificate of incorporation and bylaws are filed with
the SEC as exhibits to the registration statement related to this document and
will be sent to King Ranch stockholders upon request. See "Where You Can Find
More Information" on page 91. The summary in the following chart is not intended
to be complete and is qualified by reference to Texas law, Delaware law, the
Nasdaq Stock Market corporate governance rules, the King Ranch articles of
incorporation and bylaws, the King Ranch Energy certificate of incorporation and
bylaws, and the St. Mary certificate of incorporation and bylaws.

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<S> <C>
KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

GENERAL CORPORATE GOVERNANCE

The rights of King Ranch stockholders The rights of St. Mary stockholders are currently
are governed by Texas law and the King governed by Delaware law, the St. Mary certificate
Ranch articles of incorporation and of incorporation and bylaws and the Nasdaq Stock Market
bylaws. corporate governance rules.

Upon completion of the merger, the
rights of King Ranch stockholders with
respect to the shares of St. Mary common
stock issued to them in the merger after
the distribution to them of the King
Ranch Energy shares will be governed by
Delaware law, the St. Mary certificate of
incorporation and bylaws and the Nasdaq
Stock Market corporate governance rules.

AUTHORIZED CAPITAL STOCK

The King Ranch articles of incorporation The St. Mary certificate of incorporation authorizes
authorize King Ranch to issue up to St. Mary to issue up to 50,000,000 shares of common
228,075 shares of 5% Cumulative Preferred stock.
Stock, 42,938 shares of Class A Common
Stock, and 544,320 shares of Class B
Common Stock.

NUMBER OF DIRECTORS

The King Ranch bylaws provide that the The St. Mary bylaws provide that the number
number of directors may be designated by of directors may be determined by the St. Mary
the King Ranch board of directors. King board of directors, but there must be at least
Ranch currently has nine directors. 3 directors.

The St. Mary board of directors currently
consists of nine directors. If the merger is
completed, Jack Hunt and William Gardiner will
be appointed to the St.Mary board of directors
for a total of eleven directors.

The Nasdaq Stock Market requires that St. Mary
have at least two independent directors. St. Mary
currently has six independent directors. If the
merger is completed and Mr. Hunt and Mr. Gardiner
are appointed to the St. Mary board of directors,
St. Mary will have eight independent directors.

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

QUORUM TO HOLD A STOCKHOLDER MEETING

The King Ranch bylaws provide that The St. Mary bylaws provide that the presence at
the presence at a meeting in person or a meeting in person or by proxy of the holders
by proxy of the holders of a majority of one-third of the shares of St. Mary
of the shares of the King Ranch common common stock entitled to vote at the
stock entitled to vote at the meeting meeting is a quorum.
is a quorum.

STOCKHOLDER APPROVAL WITHOUT A MEETING

Under Texas law, stockholder approval of Under Delaware law, stockholder approval
a matter may be obtained without a of a matter may be obtained without a meeting by
meeting only by the unanimous written the written consent of the holders of outstanding
consent of all stockholders, unless the stock representing the number of shares
articles of incorporation provide necessary to approve such matter if a meeting
otherwise. The King Ranch articles of were held at which all shares entitled to vote
incorporation do not provide otherwise. were present and voted.

SPECIAL MEETINGS OF STOCKHOLDERS

Under Texas law and King Ranch's The St. Mary bylaws provide that special meetings of
articles of incorporation, special stockholders can be called on the request of:
meetings of stockholders can be called
on the request of:

- the president of the - two directors, or
corporation,

- the board of directors, - the holders of a majority
of common stock.
- such other person(s) as are
authorized in the King Ranch
articles of incorporation or
bylaws, or

- the holders of at least 20% of
the shares entitled to vote at
the proposed meeting.

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

AMENDMENTS TO ARTICLES OR CERTIFICATE OF INCORPORATION

Under the King Ranch articles of Under Delaware law, an amendment to
incorporation, an amendment to the the certificate of incorporation
articles of incorporation requires requires the approval of the holders
the approval of the holders of at of at least a majority of the
least two-thirds of the outstanding outstanding shares entitled to vote.
Class A Common Stock.

LIMITATION OF DIRECTOR LIABILITY

The King Ranch articles of The St. Mary certificate of
incorporation provide that a director incorporation provides that no
of King Ranch will not be personally director of St. Mary will be liable
liable to King Ranch or its to St. Mary or its stockholders for
stockholders for monetary damages for breach of fiduciary duty as a
any act or omission in his capacity director except for:
as a director, except to the extent
otherwise expressly provided by Texas - a breach of the duty
statute. of loyalty to St. Mary
or its stockholders,

- acts in bad faith or
which involve
intentional
misconduct or a
knowing violation of
law,

- authorizing unlawful
dividend payments, or

- any transaction where
the director derived an
improper personal
benefit.

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

REMOVAL OF DIRECTORS

Under the King Ranch articles of Under Delaware law, any St. Mary
incorporation, any director(s) or the director or the entire board of
entire board of directors may be directors may be removed, with or
removed, with or without cause, at without cause, by the holders of a
any shareholder meeting called majority of the shares entitled to
expressly for that purpose. vote at an election of directors.

STOCKHOLDER APPROVAL OF MERGERS AND SIMILAR TRANSACTIONS

Under Texas law, the merger of a Under Delaware law, the merger of a
corporation or a similar transaction corporation or similar transaction
must generally be approved by the must generally be approved by the
holders of at least two-thirds of the holders of at least a majority of all
outstanding shares (or class or outstanding shares entitled to vote.
series of shares) entitled to vote,
unless the corporation's articles of
incorporation provide otherwise.

APPRAISAL RIGHTS

Under Texas law, stockholders which Under Delaware law, appraisal rights
dissent to a merger of their in connection with a merger are not
corporation have the right to obtain available for holders of qualifying
in cash the appraised fair value of national market system securities,
their shares in lieu of the subject to exceptions. Since St. Mary
consideration be received in the common stock is quoted on the Nasdaq
merger, subject to exceptions. National Market System, appraisal
rights are generally not available to
St. Mary stockholders.

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

NASDAQ STOCKHOLDER APPROVAL RULES

King Ranch is not subject to the The Nasdaq Stock Market requires St.
Nasdaq stockholder approval rules Mary to obtain stockholder approval
applicable to St. Mary as discussed for the following items:
in the right column.
- a stock option or
purchase plan under
which stock may be
acquired by officers
or directors,

- the issuance of
stock which will
result in a change
in control of St.
Mary,

- the issuance of
stock for the
acquisition of stock
or assets of another
company where either:

- a director, officer
or substantial
stockholder has a 5%
or more interest in
the company or
assets to be
acquired and the
issuance of stock
could increase the
outstanding common
shares or voting
power of St. Mary by
5% or more, or

- the issuance of
stock could increase
the outstanding
common shares or
voting power of St.
Mary by 20% or more.

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

ANTI-TAKEOVER STATUTES

Texas has not enacted any specific Under the Delaware anti-takeover
anti-takeover statutes, which statute, a person becomes an
typically apply to publicly traded "interested stockholder" subject to a
companies. three-year takeover moratorium once
that person acquires 15% or more of a
Since King Ranch Energy is a Delaware corporation. A qualifying
privately held company it does not publicly held corporation cannot
qualify for the three-year moratorium enter into a merger or similar
on takeover transactions under the transaction with an interested
Delaware anti-takeover statute stockholder for a period of three
applicable to St. Mary as discussed years after that person became an
in the right column. interested stockholder unless:

- the board of
directors approved
the acquisition of
stock or the merger
transaction prior to
the time that the
person became an
interested
stockholder,

- the person owned at
least 85% of the
stock of the
corporation at the
time the person
became an interested
stockholder, or

- the merger
transaction is
approved by the
board of directors
and the holders of
two-thirds of the
stock which is not
owned by the
interested
stockholder.

These provisions have the effect
of discouraging hostile takeovers
of publicly held Delaware
corporations such as St. Mary,
even if the acquisition would be
at a premium to the current market
price.

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

SHAREHOLDER RIGHTS PLAN

King Ranch Energy does not have a St. Mary adopted a shareholder rights
shareholder rights plan. plan in July 1999, under which St.
Mary has issued to its stockholders
rights to purchase from St. Mary
shares of common stock if there is a
potential takeover transaction not
approved by the St. Mary board of
directors. The merger and the related
agreements and transactions with King
Ranch Energy do not trigger the St.
Mary shareholder rights plan since
the St. Mary board of directors has
approved the merger.

The shareholder rights plan makes it
more difficult for a third party to
acquire St. Mary without approval of
the board of directors, even if the
acquisition would be at a premium to
the current market price.

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ACCOUNTING TREATMENT

St. Mary and King Ranch Energy expect that the merger will be
accounted for using the purchase method of accounting for business
combinations. Under the purchase accounting method, the merger will be
treated as an acquisition of King Ranch Energy by St. Mary and St. Mary will
allocate the total acquisition cost among the acquired assets and liabilities
based on their fair values as of the date the merger is completed. St. Mary's
total acquisition cost will reflect a discount to the publicly traded market
price of the St. Mary common stock to be issued in the merger, as determined
at the time of the announcement of the merger. The discount is attributable
to the number of shares to be issued in comparison to the historical trading
volumes of St. Mary stock and the fact that resale of such stock will
generally not be permitted for a period of two years after completion of the
merger. The reported income of St. Mary will include the operations of King
Ranch Energy after the merger, based on the cost of the acquisition to St.
Mary. See "Unaudited Pro Forma Condensed Combined Financial Statements".

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material U.S. Federal income tax
consequences of the distribution of the stock of King Ranch Energy and the
merger of St. Mary Acquisition Corporation into King Ranch Energy to the King
Ranch stockholders, who hold the shares of King Ranch Energy common stock as
a capital asset. This summary is based on the Internal Revenue Code of 1986,
as amended, the corresponding Treasury Regulations, administrative rulings,
and court decisions, all as in effect as of the date hereof and all of which
are subject to

change at any time, possibly with retroactive effect. This summary is not a
complete description of all the tax consequences of the distribution of the
stock of King Ranch Energy to the King Ranch stockholders and the subsequent
merger and, in particular, does not address U.S. Federal income tax
considerations applicable to stockholders subject to special treatment under
U.S. Federal income tax law, which would include, for example, non-U.S.
persons, financial institutions, dealers in securities, insurance companies,
tax-exempt entities, and stockholders who are subject to the alternative
minimum tax provisions of the Internal Revenue Code of 1986, as amended. In
addition, no information is provided with respect to the tax consequences of
the distribution of the stock of King Ranch Energy or the subsequent merger
under applicable foreign, state or local laws.

HOLDERS OF KING RANCH STOCK ARE URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL INCOME AND OTHER TAX CONSEQUENCES OF THE
DISTRIBUTION OF THE KING RANCH ENERGY STOCK TO THE KING RANCH STOCKHOLDERS
AND THE SUBSEQUENT MERGER TO THEM, INCLUDING THE EFFECTS OF STATE, LOCAL AND
FOREIGN TAX LAWS.

OPINION OF COUNSEL

The obligation of King Ranch, King Ranch Energy, St. Mary and St.
Mary Acquisition Corporation to effect the merger is conditioned upon, among
other things, the receipt of an opinion of Locke Liddell & Sapp LLP in the
case of King Ranch and King Ranch Energy, dated as of the date of the
distribution of the stock of King Ranch Energy and the subsequent merger,
respectively, and based on the facts, representations and assumptions set
forth in the opinion that the merger of St. Mary Acquisition Corporation with
and into King Ranch Energy, when consummated, should qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended.

An opinion of counsel is not binding on the Internal Revenue Service
or the courts, and no assurance can be given that the Internal Revenue
Service will not challenge the tax treatment of the distribution of the stock
of King Ranch Energy to the stockholders of King Ranch or the subsequent
merger. Further, the opinion of Locke Liddell & Sapp LLP is dependent upon
future events, such as St. Mary and St. Mary Acquisition Corporation
continuing to own and conduct the historic business of King Ranch Energy
after the merger, the result of which will not be reviewed by counsel. King
Ranch, King Ranch Energy, St. Mary and St. Mary Acquisition Corporation have
represented to Locke Liddell & Sapp LLP that they are not currently aware of
any facts or circumstances that will cause the representations that they have
made to counsel to be untrue or incorrect in any material respect.

THE FEDERAL TAX CONSEQUENCES OF THE KING RANCH ENERGY STOCK DISTRIBUTION

Neither King Ranch nor King Ranch Energy has received a ruling from
the Internal Revenue Service that the distribution of the stock of King Ranch
Energy to the King Ranch stockholders will qualify as a tax-free distribution
to the shareholders of King Ranch under Section 355(a) of the Code nor will
such a ruling be requested. However, King Ranch has received the opinions of
Locke Liddell & Sapp LLP and Ernst & Young LLP that the distribution of the
stock of King Ranch Energy should not be taxable to the shareholders of King
Ranch. The

opinions of Locke Liddell & Sapp LLP and Ernst & Young LLP were based upon
various assumptions and conditioned upon certain representations made by King
Ranch, King Ranch Energy, St. Mary and St. Mary Acquisition Corporation as to
factual matters. These opinions were also based upon, among other things,
representation letters provided by King Ranch, King Ranch Energy, St. Mary
and St. Mary Acquisition Corporation containing customary statements relating
to certain technical requirements under the Internal Revenue Code of 1986, as
amended, including statements by St. Mary and St. Mary Acquisition
Corporation concerning the continuation of the historical business of King
Ranch Energy and the use of certain assets of King Ranch Energy after the
merger, the result of which will not be reviewed by counsel.

Based upon the opinions of Locke Liddell & Sapp LLP and Ernst &
Young LLP, King Ranch believes that the distribution of the stock of King
Ranch Energy to the King Ranch stockholders will have the following effects:

- The King Ranch stockholders should recognize no gain or loss
(and no amount should be included in their income) as a result
of the receipt of the King Ranch Energy stock;

- The aggregate adjusted tax basis of the King Ranch Energy
stock and King Ranch stock in the hands of each King Ranch
stockholder will be the same as the adjusted tax basis of the
King Ranch stock held by such King Ranch stockholder
immediately prior to the distribution of the King Ranch Energy
stock and will be allocated in proportion to the respective
fair market values of the King Ranch Energy stock and King
Ranch stock owned by such King Ranch stockholder (if the King
Ranch stockholder holds blocks of King Ranch stock that were
purchased at different times or for different prices, such
allocation must be separately calculated for each of such
blocks of King Ranch stock), and

- The holding period of the King Ranch Energy stock received
from King Ranch by a King Ranch stockholder will include the
holding period of the King Ranch stock held by such King Ranch
stockholder immediately before the King Ranch Energy stock,
provided that such King Ranch stockholder held the King Ranch
stock as a capital asset on the date of the distribution of
the King Ranch Energy stock.

As a result of the distribution of the stock of King Ranch Energy to
the King Ranch stockholders and the subsequent merger, King Ranch will be
required under Section 355(e) of the Internal Revenue Code of 1986, as
amended, to recognize taxable gain in an amount equal to the excess, if any,
of the fair market value of the King Ranch Energy stock distributed to the
King Ranch stockholders over King Ranch's adjusted tax basis in such King
Ranch Energy stock immediately prior to the stock distribution. There can be
no assurance that the Internal Revenue Service will agree with King Ranch's
determination of the fair market value of the King Ranch Energy stock
distributed to King Ranch's stockholders or King Ranch's resulting tax
liability from such stock distribution.

ALLOCATION OF TAX BASIS TO KING RANCH ENERGY STOCK. As stated above,
the aggregate adjusted tax basis of the King Ranch Energy stock and the King
Ranch stock in the hands of each

King Ranch stockholder will be the same as the adjusted tax basis of the King
Ranch stock held by such King Ranch stockholder immediately prior to the
distribution of the King Ranch Energy stock and will be allocated in
proportion to the respective fair market values of the King Ranch Energy
stock and the King Ranch stock owned by such King Ranch stockholder (if the
King Ranch stockholder holds blocks of King Ranch stock that were purchased
at different times or for different prices, such allocation must be
separately calculated for each of such blocks of King Ranch stock).

FEDERAL INCOME TAX RISKS OF KING RANCH ENERGY STOCK DISTRIBUTION. As
stated above, an opinion of counsel is not binding upon the Internal Revenue
Service or the courts and there can be no assurance that the Internal Revenue
Service or the courts will agree with King Ranch's determination that the
distribution of the King Ranch Energy stock will be tax-free to the
stockholders of King Ranch. If the stock distribution does not qualify as a
tax-free distribution to the King Ranch stockholders under Section 355(a) of
the Internal Revenue Code of 1986, as amended, each King Ranch stockholder
would be treated as having received a taxable dividend in an amount equal to
the fair market value of the King Ranch Energy stock received to the extent
of such stockholder's pro rata share of King Ranch's current and accumulated
earnings and profits (including any earnings and profits attributable to any
gain that King Ranch recognizes for Federal income tax purposes in connection
with the stock distribution). In addition, the adjusted tax basis of the King
Ranch stock held by such King Ranch stockholder would be reduced to the
extent that the amount received by such King Ranch stockholder exceeded his
or her pro rata share of King Ranch current and accumulated earnings and
profits. In the event the adjusted tax basis of the King Ranch stockholder
was reduced to zero, such King Ranch stockholder would be required to
recognize taxable gain to the extent that the amount received by such King
Ranch's stockholder exceeded the adjusted tax basis of the King Ranch stock
held by such King Ranch stockholder.

THE MERGER

Locke Liddell & Sapp LLP, counsel for King Ranch Energy, has
delivered an opinion of the description of the Federal income tax
consequences of the merger to King Ranch Energy and the King Ranch Energy
stockholders which sets forth the material Federal income tax consequences of
the merger to King Ranch Energy and the King Ranch Energy stockholders. This
opinion is based upon, among other things, representation letters provided by
King Ranch, King Ranch Energy, St. Mary and St. Mary Acquisition Corporation
containing customary statements relating to certain technical requirements
under the Internal Revenue Code of 1986, as amended, including statements by
St. Mary and St. Mary Acquisition Corporation concerning the continuation of
the historical business of King Ranch Energy and the use of certain assets of
King Ranch Energy after the merger.

Based upon the representation letters provided to Locke Liddell &
Sapp LLP, which will be confirmed by King Ranch, King Ranch Energy, St. Mary
and St. Mary Acquisition Corporation prior to the closing of the merger, it
is the opinion of Locke Liddell & Sapp LLP that the merger should qualify as
a reorganization under Section 368(a) of the Code. Accordingly, no gain or
loss should be recognized by King Ranch Energy or the King Ranch

Energy stockholders.

FEDERAL INCOME TAX RISKS OF MERGER. If the merger does not qualify
as a reorganization within the meaning of Section 368(a) of the Code, the
merger would be treated as a taxable exchange for Federal income tax
purposes. In such an event, each King Ranch Energy stockholder would be
required to recognize gain or loss equal to the difference between (1) the
sum of the fair market value of the St. Mary stock received by such King
Ranch Energy stockholder plus any cash received by such King Ranch Energy
stockholder in lieu of fractional shares of St. Mary stock, if any, and (2)
the adjusted tax basis of the King Ranch Energy stock held by such King Ranch
Energy stockholder immediately before the Merger.

The highest marginal individual Federal income tax rate (which
applies to ordinary income and gain from the sale or exchange of capital
assets held for one year or less) is 39.6%. The maximum regular Federal
income tax rate on capital gains derived by individual taxpayers generally is
20% for sales and exchanges of capital assets held for more than one year.
All net capital gain of a corporate taxpayer is subject to tax at ordinary
corporate income tax rates of up to 35%.

REGULATORY MATTERS

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, some
acquisition transactions may not be completed until notifications have been
given, required information has been furnished to the Antitrust Division of
the Justice Department and the FTC, and specified waiting period requirements
have been satisfied. However, the merger is exempt from the pre-merger
reporting and waiting period requirements of the Hart-Scott-Rodino Act since:

- the merger involves the acquisition of King Ranch Energy which
holds primarily oil and gas properties that have a value of
less than $500 million and the value of the other assets of
King Ranch Energy is less than $15 million, and

- the St. Mary common stock to be held after the merger by any
individual shareholder of King Ranch will have a value of less
than $15 million and be less than 15% of the outstanding
shares of St. Mary common stock.

At any time before or after the completion of the merger, the
Antitrust Division, the FTC or another third party could seek to enjoin or
rescind the merger on antitrust grounds. In addition, at any time before or
after the completion of the merger, any state could take action under state
antitrust laws that it deems necessary or desirable in the public interest.
We do not believe that the merger will violate any antitrust laws. However,
we cannot assure you that there will be no challenge to the merger on
antitrust grounds, or if such a challenge is made, what the result will be.
See "The Merger Agreement--Conditions to Closing " on page 69.

TERMINATION OF KING RANCH ENERGY EMPLOYEES

Following the execution of the merger agreement, the employment of a
substantial number of King Ranch Energy employees was terminated, including
four senior management employees. All such employees received a severance
package. The remaining King Ranch Energy employees have been told either that
they will not be retained by St. Mary following the merger or a short
transition period, or that they will be required to relocate to another city.
Thus, if the merger is not completed for any reason, King Ranch Energy will
either be required to incur substantial costs in hiring and training new
employees or to liquidate its assets.

THE MERGER AGREEMENT

The following summary of the merger agreement is qualified by
reference to the complete text of the merger agreement, which is attached as
Annex A and incorporated in this document by reference.

STRUCTURE OF THE MERGER

Under the merger agreement, a St. Mary subsidiary will merge into
King Ranch Energy so that King Ranch Energy becomes a wholly owned subsidiary
of St. Mary.

TIMING OF CLOSING

The closing will occur on the first business day after the
conditions to closing of the merger agreement have been satisfied or waived,
unless the parties agree to a different date. We expect that the foregoing
will occur immediately after the meeting of the stockholders of St. Mary and
King Ranch Energy, if they approve the transaction, and that immediately
after the closing of the merger we will file a merger certificate with the
Delaware Secretary of State and the Colorado Secretary of State at which time
the merger will be effective.

MERGER CONSIDERATION

The merger agreement provides that the total number of shares of
King Ranch Energy common stock outstanding immediately prior to the
completion of the merger will be converted into a total of 2,666,252 shares
of St. Mary common stock. Certificates representing the shares of St. Mary
common stock to be issued in the merger will be delivered pro rata to the
King Ranch Energy stockholders, after all shares of King Ranch Energy common
stock have been distributed on a pro rata basis to the King Ranch
stockholders, at the closing of the merger in exchange for their surrender of
all King Ranch Energy common stock certificates.

RESTRICTIONS ON THE TRANSFER OF ST. MARY COMMON STOCK TO BE ISSUED IN THE MERGER

The merger agreement provides that King Ranch stockholders will
generally not be able to sell or transfer any of the shares of St. Mary
common stock issued to them in the merger for two years after the completion
of the merger. However, if during those two years Thomas E. Congdon or
certain persons or entities related to him sell any shares of St. Mary common
stock, the King Ranch stockholders will then be able to sell a percentage of
their St. Mary shares which corresponds to the percentage sold by Mr. Congdon
or such persons or entities. Mr. Congdon has delivered a letter to St. Mary
indicating that members of the Congdon group have no current intention to
sell any of their shares of St. Mary.

The foregoing restriction on transfer does not prevent transfers
pursuant to the laws of decent and distribution or for customary estate
planning purposes. It also does not prevent transfer in connection with any
acquisition of St. Mary or in response to certain tender offers for St. Mary
stock.

Even if the two-year transfer restriction under the merger agreement
is modified due to sales by the Congdon group, persons who are deemed under
the Securities Act of 1933 to be "affiliates" of King Ranch or King Ranch
Energy prior to the merger may resell their St. Mary common stock only in
transactions allowed by Rule 145 under the Securities Act, or as otherwise
permitted under the Securities Act. Persons who may be deemed to be
affiliates of King Ranch or King Ranch Energy generally include individuals
that may control King Ranch or King Ranch Energy, and may include certain
officers and directors of King Ranch and King Ranch Energy.

In general, Rule 145 requires that for one year following the
completion of the merger any resales of St. Mary common stock by an affiliate
of King Ranch or King Ranch Energy must be through unsolicited "brokers'
transactions" or in transactions directly with a "market maker," as those
terms are defined under the Securities Act. In addition, the number of shares
to be resold by an affiliate within any three-month period may generally not
exceed the greater of 1% of the outstanding shares of St. Mary common stock
or the average weekly trading volume of such stock during the preceding four
calendar weeks. Further, St. Mary must continue to meet SEC informational
reporting requirements, which it expects to do.

After the end of one year from the completion of the merger, Rule
145 would allow resales of St. Mary common stock by an affiliate of King
Ranch or King Ranch Energy without the above manner-of-sale or volume
limitations, as long as St. Mary continues to meet SEC reporting requirements
and provided that such person is not then an affiliate of St. Mary. Two years
after the completion of the merger, an affiliate of King Ranch or King Ranch
Energy may resell St. Mary common stock without any restrictions so long as
such person has not been an affiliate of St. Mary in the prior three months.

This document does not cover any resales of the St. Mary common
stock to be issued to the stockholders of King Ranch Energy upon completion
of the merger, and no person is authorized to make any use of this document
in connection with any such resale.

ST. MARY BOARD OF DIRECTORS AFTER THE MERGER

CHANGE IN THE ST. MARY BOARD OF DIRECTORS

Under the merger agreement, St. Mary will take the necessary
corporate actions so that, as of the closing:

- The St. Mary board size will be increased from nine to eleven, and

- Two individuals will be appointed as new directors of St. Mary.
The two new directors will be Jack Hunt, President of King Ranch,
and William Gardiner, Chief Financial Officer of King Ranch.

In addition, for two years after the closing date St. Mary must use
commercially reasonable efforts at each annual meeting of St. Mary
stockholders to cause Mr. Hunt and Mr. Gardiner or their replacements to be
elected to the St. Mary board of directors.

INFORMATION ABOUT DESIGNEES FOR ST. MARY BOARD OF DIRECTORS

JACK HUNT. Mr. Hunt, 54, is a director and the President and Chief Executive
Officer of King Ranch, having been elected a director in April 1995, and as
President and Chief Executive Officer in May 1995. He was employed for the
prior fourteen years by Tejon Ranch Co., a publicly-held land development and
agribusiness company, serving as its president for nine years prior to April
1995. Mr. Hunt currently serves as a trustee on the board of trustees of
Baylor College of Medicine and was appointed by the Governor of Texas as a
director of the Texas Water Development Board. Mr. Hunt also currently serves
as a director of the Texas Coastal Coordination Council.

WILLIAM GARDINER. Mr. Gardiner, 45, is the Vice President and Chief Financial
Officer of King Ranch. He has served in this position since his date of hire
on April 15, 1996. Prior to his employment with King Ranch, Mr. Gardiner
served as the Executive Vice President and Chief Financial Officer of CRSS,
Inc., a publicly traded independent power producer. Mr. Gardiner was employed
by CRSS for approximately twenty years.

Information about the nine current St. Mary directors is contained
in the 1998 annual report that St. Mary has filed with the SEC and
incorporated in this document by reference. See "Where You Can Find More
Information" on page 91.

REPRESENTATIONS AND WARRANTIES

The merger agreement contains substantially reciprocal disclosure
representations and warranties made by St. Mary and King Ranch Energy to each
other. The most significant of these relate to:

- organization and good standing of the companies,

- corporate authorization to enter into the merger agreement,

- absence of any conflict of the merger agreement with
organizational documents, law or other material agreements of
the companies,

- capitalization,

- financial statements,

- absence of undisclosed material liabilities,

- litigation,

- compliance with laws,

- title to properties and assets,

- oil and gas leases and wells,

- absence of material adverse changes,

- tax matters,

- environmental compliance,

- employee benefits plans,

- Year 2000 matters,

- finders or advisors,

- King Ranch ownership of King Ranch Energy and the corporate
authorization of the distribution of King Ranch Energy common
stock to the King Ranch stockholders before the stockholders
meeting and the merger,

- St. Mary filings with the SEC, and

- general full disclosure of all material facts.

The representations and warranties in the merger agreement will survive
the closing for a period of one year after the closing, except that:

- representations and warranties will survive the closing for a
period of two years after the closing to the extent that any
inaccuracy in any representation or warranty involves a claim
by a third party, and

- representations and warranties related to taxes or employee
benefit plans will survive the closing until 90 days after the
applicable statute of limitations period for such matters has
expired.

COVENANTS

The merger agreement contains various covenants by the parties. Some
of the significant covenants are summarized below.

INTERIM OPERATIONS OF ST. MARY AND KING RANCH ENERGY

Both St. Mary and King Ranch Energy have agreed to separate
covenants that place restrictions on the companies and their subsidiaries
until the closing. In general, St. Mary and its subsidiaries and King Ranch
Energy and its subsidiaries are required to conduct their business in the
ordinary course consistent with past practices and to use all reasonable
efforts to preserve intact their business organizations and relationships
with third parties, except that King Ranch Energy will substantially reduce
(and may possible eliminate) its drilling, exploration, development and
related activities provided it can do so without penalty or materially
breaching a written commitment, contract or agreement. King Ranch Energy must
give St. Mary written notice if King Ranch Energy elects not to pursue a
material drilling, exploration, development or related opportunity presented
by a third party prior to closing. St. Mary has the right to pursue such an
opportunity at its own expense. The companies have also agreed to some
specific restrictions which are subject to exceptions described in the merger
agreement. The following table summarizes the more significant of these
restrictions on each company:

RESTRICTION ST. MARY KING RANCH ENERGY
<S> <C> <C>
making capital or other expenditures in excess of - -
specified amounts

declaring dividends, except for the regular quarterly - -
cash dividends by St. Mary

splitting, combining or reclassifying its capital stock - -

redeeming or repurchasing its capital stock, except
under St. Mary's current share repurchase program,
which is not to be expanded or altered - -

- ---------------------------------------------------------------------------------------------------------------

RESTRICTION ST. MARY KING RANCH ENERGY
<S> <C> <C>
issuing equity securities, options or other securities - -
convertible into or exercisable for equity securities

amending its organizational documents, except to - -
comply with obligations under the merger agreement or
law

acquiring another company No restriction -

disposing of assets, except in the ordinary course of No restriction -
business

making investments or loans or incurring any new debt No restriction -
or paying down debt, except in the ordinary course of
business

taking any action which would prevent the merger from - -
qualifying as a tax-free reorganization

increasing compensation or benefits of senior employees No restriction -

changing its accounting methods or making a material No restriction -
income tax election

</TABLE>

OTHER COVENANTS

The merger agreement contains other substantially reciprocal
covenants of the parties, including covenants to cooperate with each other
and use reasonable efforts to do all things necessary or advisable under the
merger agreement and applicable laws to complete the merger.

OTHER AGREEMENTS

KING RANCH TRADEMARK AND BRAND

St. Mary has agreed that as soon as possible following the closing
it will not use the names "King Ranch," "King Ranch Energy," "King Ranch Oil
& Gas," Running W," or any confusingly similar name in connection with its
business. Accordingly, after the merger the name of King Ranch Energy will be
changed to St. Mary Energy Company.

KING RANCH ENERGY EMPLOYEE SEVERANCE PAYMENTS

Following the execution of the merger agreement, the employment of a
substantial number of King Ranch Energy employees was terminated. All such
employees received a severance package.

King Ranch has agreed to reimburse King Ranch Energy or St. Mary up to
a maximum of $850,000 for severance payments made to:

- King Ranch Energy employees not offered continued employment
by St. Mary and who remain employed by King Ranch Energy until
closing or an earlier date as agreed upon by King Ranch Energy
and St. Mary (including employees terminated following the
execution of the merger agreement), and

- King Ranch Energy employees whose employment is continued by
St. Mary after the closing for a transition period of six
months or less.

St. Mary shall be liable for all severance payments in excess of this
$850,000 threshold.

The severance packages described above were established by King
Ranch and St. Mary, and include a lump sum severance payment together with
the provision of out-placement services. Except for contractual severance
payments made to six senior management employees, the severance payments were
based on at least two weeks salary for each year of service to King Ranch
Energy, with a minimum of one month of salary.

RETAINED LITIGATION

King Ranch has agreed that it will retain all liability associated
with, and responsibility for the defense of, the Pi Energy Corporation
litigation described in Note 6 of the Notes to Consolidated Financial
Statements of King Ranch Energy contained in this document, as well as
liability for all other currently pending and threatened King Ranch Energy
litigation as described in the disclosure schedules to the merger agreement.

CONSENT COMMITMENTS BY PRINCIPAL KING RANCH ENERGY STOCKHOLDERS

King Ranch agreed to obtain from Stephen J. Kleberg, John D.
Alexander, Jr., and James H. Clement, Jr., members of the King Ranch board of
directors who will have the right to vote a total of 13.8 % of the
outstanding shares of King Ranch Energy voting common stock following the
distribution, commitments to:

- consent to the merger agreement, and

- recommend, subject to their fiduciary obligations, to the
members of their immediate families who will hold King Ranch
Energy voting common stock that they consent to the merger
agreement.

NO SOLICITATION BY KING RANCH AND KING RANCH ENERGY OF OTHER ACQUISITION
PROPOSALS

King Ranch and King Ranch Energy have agreed that each company and
their representatives will not take action to solicit or encourage a proposal
for an acquisition of King Ranch Energy by any company other than St. Mary.

Restricted actions include engaging in discussions or negotiations
with any party regarding an alternative acquisition proposal and the
furnishing of nonpublic information about King Ranch Energy to another party.
However, King Ranch or King Ranch Energy may respond to an unsolicited
alternative acquisition inquiry by another party if and to the extent that
such response is required by the fiduciary duties of King Ranch and King
Ranch Energy directors under applicable law and is based on the advice of
outside legal counsel, and if St. Mary is promptly notified.

INDEMNIFICATION

St. Mary and King Ranch have agreed to generally reciprocal
indemnification provisions. Under these provisions, St. Mary or King Ranch
will indemnify the other party in the event of losses resulting from an
inaccuracy in a St. Mary or King Ranch representation or warranty under the
merger agreement. In addition, King Ranch has agreed to indemnify St. Mary
against any claim by a third party arising out of an act or omission of King
Ranch Energy occurring before the merger, and King Ranch has agreed to
indemnify St. Mary for any loss relating to retained litigation against King
Ranch Energy existing at the time of the merger. St. Mary has agreed to
indemnify King Ranch against any claim by a third party arising out of an act
or omission of St. Mary occurring after the merger.

Neither St. Mary nor King Ranch will be liable for indemnification
to the other on account of any loss which does not exceed $100,000. For any
loss which exceeds $100,000, the full amount of the loss will be reimbursed.
At such time as all losses under $100,000 total more than $600,000,
thereafter all losses must be reimbursed including the first $600,000 of such
losses. In no event however will the liability of King Ranch or of St. Mary
for indemnification exceed $25 million. King Ranch's liability to St. Mary
for any retained litigation of King Ranch Energy will not be affected by the
foregoing limitations.

CONDITIONS TO CLOSING

MUTUAL CLOSING CONDITIONS

The obligations of each party to complete the merger are subject to
the satisfaction or waiver of the following conditions:

- approval by the St. Mary stockholders of the issuance of
St. Mary common stock under the merger agreement and
approval by the King Ranch stockholders of the merger
agreement,

- absence of any legal prohibition on completion of the
merger,

- St. Mary's registration statement on Form S-4 relating to
this document being declared effective by the SEC,

- approval for quotation on the Nasdaq National Market of the
shares of St. Mary common stock to be issued under the
merger agreement,

- the distribution by King Ranch before the merger of all
shares of King Ranch Energy common stock to the King Ranch
stockholders,

- accuracy as of the closing of the representations and
warranties made by the other party to the extent specified
in the merger agreement, and

- performance in all material respects by the other party of
the obligations required to be performed by it at or prior
to closing.

ADDITIONAL CLOSING CONDITIONS FOR ST. MARY'S BENEFIT

St. Mary's obligation to complete the merger is also subject to the
following significant conditions for St. Mary's benefit:

- the reimbursement of King Ranch Energy by King Ranch for
the net amount of any funds transferred by King Ranch
Energy to King Ranch from May 31, 1999 to the closing date,

- the cancellation by King Ranch of any obligation of King
Ranch Energy to reimburse King Ranch for the funds advanced
by King Ranch to King Ranch Energy for King Ranch Energy to
acquire the Flour Bluff properties in February 1999, and
any debt obligation of King Ranch Energy to King Ranch at
May 31, 1999, and

- no exercise of dissenters' appraisal rights in connection
with the merger by the holders of more than five percent of
the outstanding shares of King Ranch Energy common stock.
To the extent that the holders of more than five percent
but less than ten percent of the outstanding shares of King
Ranch Energy common stock exercise appraisal rights and
such exercise results in an obligation to pay an amount
which is equivalent to more than $19.76 per St. Mary share,
King Ranch may elect to satisfy such condition by paying
such excess.

ADDITIONAL CLOSING CONDITIONS FOR KING RANCH'S BENEFIT

King Ranch's obligation to complete the merger is also subject to the
following significant conditions for King Ranch's benefit:

- the reimbursement of King Ranch by King Ranch Energy for
the net amount of any funds transferred by King Ranch to
King Ranch from May 31, 1999 to the closing date, excluding
the funds advanced by King Ranch to King Ranch Energy for
King Ranch Energy to acquire the Flour Bluff properties in
February 1999,

and

- receipt of opinions from its legal counsel and independent
accountants that the merger will be tax-free and that the
distribution of the King Ranch Energy stock to the King
Ranch stockholders will be tax free to them. These opinions
were delivered to King Ranch on July 27, 1999 and have been
filed with the SEC as exhibits to the registration
statement relating to this document. These opinions must
also be true and correct at closing, or King Ranch will not
have to complete the merger.

TERMINATION OF THE MERGER AGREEMENT

RIGHT TO TERMINATE

The merger agreement may be terminated at any time prior to the closing
in any of the following ways:

- by mutual written consent of St. Mary, King Ranch and King
Ranch Energy.

- by St. Mary or King Ranch Energy if the merger has not been
completed by November 30, 1999,

- by St. Mary or King Ranch Energy if there is a permanent
legal prohibition to closing the merger,

- by St. Mary or King Ranch Energy if the St. Mary
stockholders do not approve the issuance of St. Mary common
stock under the merger agreement or the King Ranch Energy
stockholders do not approve the merger agreement.

- by St. Mary if there has been a material uncured breach of
a representation, warranty, covenant or agreement of King
Ranch or King Ranch Energy in the merger agreement, or

- by King Ranch if there has been a material uncured breach
of a representation, warranty, covenant or agreement of St.
Mary in the merger agreement.

Neither St. Mary nor King Ranch Energy can terminate the merger
agreement for the reasons described in the second and third bullet points
above if it has failed in any material respect to fulfill its obligations
under the merger agreement and such failure has resulted in the circumstances
referred to in those bullet points.

EFFECT OF TERMINATION

If the merger agreement is validly terminated, the agreement will
become void without any liability on the part of any party. However, the
provisions of the merger agreement relating to expenses and termination fees,
damages and losses, as well as the confidentiality agreements entered into
between St. Mary and King Ranch, will continue in effect notwithstanding

termination of the merger agreement.

TERMINATION FEES

King Ranch has agreed to pay St. Mary a cash termination fee of $1
million if St. Mary terminates the merger agreement because there has been a
material uncured breach of a representation, warranty, covenant or agreement
of King Ranch or King Ranch Energy in the merger agreement. If after a
termination fee is due to St. Mary there is a third party acquisition
proposal for King Ranch Energy by December 31, 1999 which is subsequently
consummated, King Ranch will be obligated to pay St. Mary an additional fee
of $2 million upon the completion of such transaction.

St. Mary has agreed to pay King Ranch a cash termination fee of $1
million if King Ranch terminates the merger agreement because of a material
uncured breach of a representation, warranty, covenant or agreement of St.
Mary in the merger agreement.

As an alternative to the above termination fees, St. Mary or King
Ranch can elect to pursue a claim for damages against the other party for its
breach.

If the merger agreement is terminated because the St. Mary
stockholders do not approve the issuance of St. Mary common stock under the
merger agreement or the King Ranch Energy stockholders do not consent to the
merger agreement, there will be no termination fee. However, if the King
Ranch Energy stockholders do not consent to the merger agreement and there is
a third party acquisition proposal for King Ranch Energy by December 31, 1999
which is subsequently consummated, King Ranch will be obligated to pay St.
Mary a termination fee of $3 million upon the completion of such transaction.

In the event either King Ranch or St. Mary is entitled to terminate
the merger agreement and receive a termination fee, but elects not to do so,
then either King Ranch or St. Mary will have the right to seek specific
performance of the merger agreement.

OTHER EXPENSES

Except as described above, all costs and expenses incurred in
connection with the merger agreement and related transactions will be paid by
the party incurring such costs or expenses. We estimate that merger-related
fees and expenses, consisting primarily of SEC filing fees, fees and expenses
of investment bankers, attorneys and accountants, and financial printing and
other related charges, will total approximately $2.2 million assuming the
merger is completed.

AMENDMENTS; WAIVERS

Any provision of the merger agreement may be amended or waived prior
to the closing if the amendment or waiver is in writing and signed by each of
the parties. No amendment can be made after the St. Mary stockholders approve
the issuance of St. Mary common stock under the merger agreement or the King
Ranch Energy stockholders consent to the merger agreement unless:

- under the Nasdaq rules or other applicable law such amendment
does not require further stockholder approval or consent, or

- the stockholders approve or consent to such amendment.

THE COMPANIES

BUSINESS OF ST. MARY

St. Mary is engaged in the exploration, development, acquisition and
production of natural gas and crude oil with operations focused in five core
operating areas in the United States:

- the Mid-Continent region in western Oklahoma and northern
Texas,

- the ArkLaTex region that spans northern Louisiana and portions
of eastern Texas, Arkansas and Mississippi,

- south Louisiana,

- the Williston Basin in eastern Montana and western North
Dakota, and

- the Permian Basin in eastern New Mexico and west Texas.

St. Mary's objective is to build value per share by focusing its
resources within selected basins in the United States where management
believes established acreage positions, long-standing industry relationships
and specialized geotechnical and engineering expertise provide a significant
competitive advantage. For further information about St. Mary's business, you
should read St. Mary's 1998 Annual Report on Form 10-K incorporated by
reference into this document. See "Where You Can Find Information" on page 91.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ST. MARY

The following selected historical consolidated financial data for
St. Mary for each of the years 1994 through 1998 has been derived from St.
Mary's audited consolidated financial statements. The selected historical
consolidated financial data for the six months ended June 30, 1999 has been
derived from St. Mary's unaudited consolidated financial statements for the
six months ended June 30, 1999. This information is only a summary and you
should read it together with St. Mary's historical financial statements and
related notes contained in the annual and quarterly reports and other
information that we have filed with the SEC and incorporated in this document
by reference. See "Where You Can Find More Information" on page 91.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil production $28,060 $34,872 $16,545 $22,415 $22,100 $17,090 $14,006
Gas production 1,518 4,386 54,103 53,349 34,674 19,479 24,233
Gain on sale of Russian joint venture - - - 9,671 - - -
Gain (loss) on sale of proved properties 114 (14) 7,685 4,220 2,254 1,292 418
Gas contract settlement and other 273 202 411 1,391 523 789 6,128
------- ------- ------- ------- ------- ------- -------
Total operating revenues 29,965 39,446 78,744 91,046 59,551 38,650 44,785
------- ------- ------- ------- ------- ------- -------

Operating expenses:
Oil and gas production 7,954 8,116 17,005 15,258 12,897 10,646 10,496
Depletion, depreciation & amortization 10,683 11,880 24,912 18,366 12,732 10,227 10,134
Impairment of proved properties 247 1,445 17,483 5,202 408 2,676 4,219
Exploration 2,942 6,473 11,705 6,847 8,185 5,073 8,104
Abandonment and impairment
of unproved properties 800 615 4,457 2,077 1,469 2,359 1,023
General and administrative 3,629 4,424 7,097 7,645 7,603 5,328 5,261
Writedown of Russian
convertible receivable - - 4,553 - - - -
Writedown of investment
in Summo Minerals - - 3,949 - - - -
Other 338 92 141 281 78 152 493
(Income) loss in equity investees 58 571 661 325 (1,272) 579 348
------- ------- ------- ------- ------- ------- -------
Total operating expenses 26,651 33,616 91,963 56,001 42,100 37,040 40,078
------- ------- ------- ------- ------- ------- -------

Income (loss) from operations 3,314 5,830 (13,219) 35,045 17,451 1,610 4,707
Non-operating expense 264 228 1,027 99 1,951 896 525
Income tax expense (benefit) 1,008 1,896 (5,415) 12,325 5,333 (723) 445
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations 2,042 3,706 (8,831) 22,621 10,167 1,437 3,737
Gain on sale of discontinued operations,
net of income taxes - 34 34 488 159 306 -
------- ------- ------- ------- ------- ------- -------
Net income (loss) $2,042 $3,740 $(8,797) $23,109 $10,326 $1,743 $3,737
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------

</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ------ ----- ----- ----- -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (CONTINUED):
Basic net income (loss) per common share:
Income (loss) from continuing operations $0.19 $0.34 $ (0.81) $2.13 $1.16 $0.17 $0.43
Gain on sale of discontinued operations - - - 0.05 0.02 0.03 -
----- ----- ------- ----- ----- ----- -----
Basic net income (loss) per share $0.19 $0.34 $ (0.81) $2.18 $1.18 $0.20 $0.43
===== ===== ======= ===== ===== ===== =====
Diluted net income (loss) per common share:
Income (loss) from continuing operations $0.19 $0.33 $ (0.81) $2.10 $1.15 $0.17 $0.43
Gain on sale of discontinued operations - - - 0.05 0.02 0.03 -
----- ----- ------- ----- ----- ----- -----
Diluted net income (loss) per share $0.19 $0.33 $ (0.81) $2.15 $1.17 $0.20 $0.43
===== ===== ======= ===== ===== ===== =====

Cash dividends per share $0.10 $0.10 $0.20 $0.20 $0.16 $0.16 $0.16
Basic weighted average common
share outstanding 10,879 10,984 10,937 10,620 8,759 8,760 8,763
Diluted weighted average common shares
outstanding 10,892 11,102 10,937 10,753 8,826 8,801 8,803

BALANCE SHEET DATA (END OF PERIOD):
Working capital $8,558 $3,592 $9,785 $9,618 $13,926 $3,102 $9,444
Net property and equipment 152,198 170,987 143,825 157,481 101,510 71,645 59,655
Total assets 182,831 215,849 184,497 212,135 144,271 96,126 89,392
Long-term debt 20,087 26,615 19,398 22,607 43,589 19,602 11,130
Total stockholders' equity 138,695 150,669 134,742 147,932 75,160 66,282 66,034
</TABLE>

KING RANCH

King Ranch is a privately-held company engaged primarily
in ranching, agricultural and energy development businesses. It
owns the historic 825,000 acre "King Ranch" in South Texas. King
Ranch's oil and gas exploration and production business is
conducted through its subsidiary King Ranch Energy which St. Mary
is to acquire in the merger.

BUSINESS OF KING RANCH ENERGY

King Ranch Energy is a privately held oil and gas company based in
Houston, Texas, and is an indirect wholly-owned subsidiary of King Ranch.
Effective on the close of business on December 31, 1997, King Ranch
reorganized the structure of its energy operations. On that date, all of the
onshore and offshore working interests and related assets owned by King Ranch
were transfered to King Ranch Energy. The information presented for the
periods prior to January 1 1998 reflects the financial position, results of
operations, cash flows and other information attributable to the contributed
assets. The oil and gas operations of King Ranch Energy began during the
early 1980's through direct working interest participation in drilling
projects and producing properties on a non-operated basis. In March 1986,
King Ranch began to assemble a team of geophysicists with its acquisition of
Barrick Exploration. The acquisition of Barrick Exploration also included a
significant seismic database and provided King Ranch Energy with exposure to
several exploration joint ventures. During the later portions of the 1980's,
King Ranch Energy brought its geoscience expertise and seismic database to
numerous exploration joint ventures with onshore and offshore operators along
the Gulf Coast. Currently, King Ranch Energy is an oil and gas exploration,
development, and production company operating primarily in the Gulf Coast
region with emphasis in the Gulf of Mexico. King Ranch Energy identifies
exploratory prospects by: (1) integrating 3-D and 2-D seismic technology with
information about surrounding geological features, and (2) high-grading
prospects that exhibit "bright spot" seismic anomalies by using extensive
computer-aided geophysical modeling and amplitude.

OIL AND GAS RESERVES

The following table sets forth certain information on the total
proved reserves, estimated future net cash flow before income taxes from
proved reserves, and the present value, discounted at 10%, of estimated
future net cash flow from proved reserves for King Ranch Energy during the
periods indicated. Information in the following table is based upon the
Reserve Reports in accordance with the rules and regulations of the SEC.

FUTURE NET CASH FLOW
NET PROVED RESERVES AFTER-TAX
-------------------------------------- ---------------------------
Discounted
Gas Oil Total Total at 10%
---- ---- ------------- ------ -------
(in thousands)
<S> <C> <C> <C> <C> <C>
PROVED RESERVES (MMcf) (MBbl) (Bcfe)
December 31, 1996 38,787 1,717 49,089 $94,992 $71,401
December 31, 1997 38,201 1,407 46,643 $59,480 $46,844
December 31, 1998 42,303 1,675 52,353 $52,763 $42,854

</TABLE>

There are numerous uncertainties inherent in estimating quantities
of proved reserves, including many factors beyond the control of King Ranch
Energy. The reserve data set forth herein represents only estimates.
Reservoir engineering is a subjective process of estimating underground
accumulations of crude oil and natural gas that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretations
and judgment. As a result, estimates of different engineers often vary. In

addition, results of drilling, testing and production subsequent to the date
of an estimate may justify revision of such estimate. Accordingly, reserve
estimates are often different from the quantities of crude oil and natural
gas that are ultimately recovered. The meaningfulness of such estimates is
highly dependent upon the accuracy of the assumptions upon which they were
based. In general, the volume of production from oil and gas properties owned
by King Ranch Energy declines as reserves are depleted. Except to the extent
King Ranch Energy conducts successful exploration and development activities
or acquires additional properties containing proved reserves, or both, the
proved reserves of King Ranch Energy will decline as reserves are produced.

In accordance with the SEC's guidelines, the estimates of King Ranch
Energy's proved reserves, future net cash flow from proved reserves and the
discounted present value of future net cash flow from proved reserves are
made using oil and natural gas sales prices in effect as of the dates of such
estimates and are held constant throughout the life of the properties except
where such guidelines permit alternate treatment, including the use of fixed
or determinable contractual price escalations. Prices for natural gas and
crude oil are subject to substantial fluctuations as a result of numerous
factors. In accordance with SEC guidelines, the estimates of King Ranch
Energy's proved reserves, future net cash flow from proved reserves and the
discounted present value of future net cash flow from proved reserves are
made using current lease and well operating costs estimated by King Ranch
Energy. Lease operating expenses for wells operated by King Ranch Energy were
estimated using a combination of fixed and variable-by-volume costs
consistent with King Ranch Energy's experience in the areas for such wells.
For purposes of calculating estimated future net cash flow and the discounted
present value thereof, operating costs exclude accounting and administrative
overhead expenses attributable to King Ranch Energy's working interest in
wells operated under joint operating agreements, but include administrative
costs associated with production offices. The discounted present value of
estimated future net cash flow from proved reserves set forth herein should
not be construed as the current market value of the estimated proved oil and
gas reserves attributable to King Ranch Energy's properties.

EXPLORATION AND DEVELOPMENT ACTIVITY

King Ranch Energy drilled, or participated in the drilling of, the
following numbers of wells during the periods indicated.

YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996
---------------- ----------------- ----------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Producing................ 11.0 3.1 6.0 1.3 3.0 1.3
Dry...................... 9.0 3.1 6.0 1.8 5.0 0.9
Total.............. 20.0 6.2 12.0 3.1 8.0 2.2
Development Wells:
Producing................ 20.0 5.8 13.0 3.6 14.0 6.7
Dry...................... 0 0 1.0 0.3 0 0
Total.............. 20.0 5.8 14.0 3.9 14.0 6.7
Total Wells.................... 40.0 12.0 26.0 7.0 22.0 8.9

</TABLE>

The information contained in the foregoing table should not be
considered indicative of future drilling performance, nor should it be
assumed that there is any necessary correlation between the number of
productive wells drilled and the amount of oil and gas that may ultimately be
recovered form such wells.

PRESENT ACTIVITIES

In the first six months of 1999 King Ranch Energy has completed the
drilling of 8 gross (1.8 net) exploratory wells and 5 gross (1.6 net)
development wells. Of these wells, 2 gross (1.1 net) of the exploratory wells
were productive while all of the development wells were productive.

NET PRODUCTION, UNIT PRICES AND PRODUCTION COSTS

As of July 1, 1999, King Ranch Energy had an ownership interest in
404 gross (80.3 net) productive wells, including 231 gross (45.5 net)
productive natural gas wells and 173 gross (34.8 net) productive crude oil
wells.

The following table sets forth certain information regarding the net
production volumes, average sales prices received, and average production
costs associated with King Ranch Energy's sales of oil and natural gas for
the periods indicated.

YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Production:
Oil and condensate (MBbls)......................... 429 369 325
Gas (MMcf)......................................... 14,826 13,535 13,464
------ ------ ------
Total production (MMcfe)...................... 17,400 15,748 15,414
Average Realized Price:(1)
Oil and condensate (per Bbl)....................... $ 12.25 $ 18.85 $ 19.58
Gas (per Mcf)(2)................................... $ 2.24 $ 2.65 $ 2.54
Average Production Cost:
($/Mcfe)(3)........................................ $ 0.46 $ 0.37 $ 0.28

</TABLE>

(1) Excludes hedging gains of $815,000, $33,000 and $0 for 1998, 1997
and 1996, respectively.

(2) Includes product processing revenue of $342,000, $359,000 and
$500,000 for 1998, 1997 and 1996, respectively.

(3) Excludes production taxes of $294,000, $335,000 and $264,000 for
1998, 1997 and 1996, respectively.

DEVELOPMENT, EXPLORATION AND ACQUISITION EXPENDITURES

King Ranch Energy's total capital expenditures on oil and gas
properties in 1998 were $65.5 million, with $27.8 million spent on
exploration drilling, $12.4 million spent on development drilling, and $25.3
million spent on acquisitions. The following table sets forth certain
information regarding the costs incurred by King Ranch Energy in its
exploration, development and acquisition activities during the periods
indicated.

YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition Costs:
Proved properties........................ $16,341 $0 $0
Unproved properties...................... 8,981 8,990 8,415
Exploration costs............................... 27,819 16,611 6,443
Development costs............................... 12,359 11,798 1,430
------- ------- -------
Total Capital Expenditures................... $65,500 $37,399 $16,288
======= ======= =======

</TABLE>

ACREAGE

As of July 1, 1999, King Ranch Energy had an interest in
approximately 528 thousand gross (157 thousand net) acres, including
approximately 304 thousand gross (106 thousand net) offshore acres, and
approximately 224 thousand gross (51 thousand net) onshore acres. Total
producing offshore acres are 160 thousand gross (44 thousand net), while
total non-producing offshore acres are 143 thousand gross (62 thousand net).
Acreage in which King Ranch Energy's interest is limited to royalty,
over-ridding royalty and similar interests is insignificant and, therefore,
excluded.

OIL AND GAS MARKETING

The revenues generated from King Ranch Energy's oil and gas
operations are highly dependent upon the prices of and the demand for its oil
and gas production. The prices received by King Ranch Energy for its oil and
gas production depend upon numerous factors beyond King Ranch Energy's
control.

Generally, King Ranch Energy's gas production is sold under
short-term contracts with index related pricing while oil production is sold
to various purchasers under short-term arrangements at prices no less than
such purchasers' posted prices for the respective areas less standard
deductions. Total sales of gas accounted for 85% of King Ranch Energy's
revenues during 1998 while total sales of oil accounted for 15% of King Ranch
Energy's revenues. In 1998, the weighted average price of gas sold was
$2.24/Mcf and the weighted average price of oil sold was $12.25/Bbl.

HEDGING

From time to time, King Ranch Energy utilizes hedging transactions
with respect to a portion of its oil and gas production to achieve a more
predictable cash flow, as well as to reduce its exposure to price
fluctuations. While the use of these hedging arrangements limits the downside
risk of adverse price movements, they may also limit future revenues from
favorable price movements. As a result of hedging activities for gas
production for 1998 and 1997, King Ranch Energy realized gains of $815,000
and $33,000, respectively. During 1998, approximately 10% of King Ranch
Energy's equivalent gas production was subject to hedge positions as compared
to 9% in 1997.

The use of hedging transactions also involves the risk that the
counterparties will be unable to meet the financial terms of such
transactions. All of King Ranch Energy's hedging transactions to date were
carried out in the over-the-counter market and the obligations of the
counterparties have been guaranteed by entities with at least an investment
grade rating or secured by letters of credit. King Ranch Energy accounts for
these transactions as hedging activities and, accordingly, gains or losses
are included in oil and gas revenues when the hedged production is delivered.
Neither the hedging contracts nor the unrealized gains or losses on these
contracts are recognized in the financial statements.

COMPETITION

The exploration for and production of oil and gas is highly
competitive. In seeking to obtain desirable properties, leases and
exploration prospects, King Ranch Energy faces competition from both major
and independent oil and natural gas companies, as well as from numerous
individuals and drilling programs. Many of these competitors have financial
and other resources substantially in excess of those available to King Ranch
Energy and, accordingly, may be better positioned to acquire and exploit
prospects, hire personnel and market production. In addition, many of King
Ranch Energy's larger competitors may be better able to respond to factors
that affect the demand for oil and natural gas production such as changes in
worldwide oil and natural gas prices and levels of production, the cost and
availability of alternative fuels and the application of government
regulations.

EMPLOYEES

As of July 31, 1999, following the termination of 14 full-time
employees after the execution of the merger agreement with St. Mary, King
Ranch Energy had 12 full-time employees, none of whom is represented by any
labor union. King Ranch Energy considers its relations with its employees to
be good considering the pending merger. See "King Ranch Energy Stockholders
Meeting -Interests of Certain Persons in the Merger - Termination of King
Ranch Energy Employees; Severance Agreements."

FACILITIES

King Ranch Energy currently leases approximately 16,000 square feet
of office space in Houston, Texas, where its administrative offices are
located.

TITLE TO PROPERTIES

King Ranch Energy believes it has satisfactory title to all of its
producing properties in accordance with standards generally accepted in the
oil and gas industry. King Ranch Energy's properties are subject to customary
royalty interests, liens incident to operating agreements, liens for current
taxes and other burdens which King Ranch Energy believes do not materially
interfere with the use of or affect the value of such properties.

OPERATING HAZARDS AND UNINSURED RISKS

King Ranch Energy operations are subject to hazards and risks
inherent in drilling for and production and transportation of oil and natural
gas, such as fires, natural disasters, explosions, encountering formations
with abnormal pressures, blowouts, cratering, pipeline ruptures and spills,
any of which can result in loss of hydrocarbons, environmental pollution,
personal injury claims, and other damage to properties of King Ranch Energy
and others. Additionally, a substantial amount of King Ranch Energy's oil and
gas operations are located in an area that is subject to tropical weather
disturbances, some of which can be severe enough to cause substantial damages
to facilities and possibly interrupt production. As protection against
operating hazards, King Ranch Energy maintains insurance coverage against
some, but not all, potential losses. King Ranch Energy believes that its
insurance coverage is adequate and customary for companies of a similar size
engaged in operations similar to those of King Ranch Energy, but losses could
occur for uninsurable or uninsured risks or in amounts in excess of existing
insurance coverage. The occurrence of an event that is not fully covered by
insurance could have an adverse impact on King Ranch Energy's financial
condition and results of operations.

GOVERNMENTAL REGULATIONS

King Ranch Energy's oil and gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal and state agencies. Failure to comply with such rules and regulations
can result in substantial penalties. The regulatory burden on the oil and gas
industry increases King Ranch Energy's cost of doing business and affects its
profitability. To date, expenditures related to complying with these rules
and regulations have not been significant in relation to the results of the
operations of King Ranch Energy. However, because such rules and regulations
are frequently amended or reinterpreted, King Ranch Energy is unable to
predict the future cost or impact of complying with such laws.

ENVIRONMENTAL MATTERS

King Ranch Energy's operations and properties are subject to
extensive and changing federal, state and local laws and regulations relating
to environmental protection, including the generation, storage, handling,
emission, transportation and discharge of materials into the environment, and
relating to safety and health. The recent trend in environmental legislation
and regulations generally is toward stricter standards, and this trend will
likely continue. These laws and regulations may require the acquisition of a
permit or other authorization before construction or drilling commences and
for certain other activities, limit or prohibit construction, drilling and
other activities on certain lands lying within wilderness or wetlands and
other protected areas and impose

substantial liabilities for pollution resulting from King Ranch Energy's
operations. The permits required for various aspects of King Ranch Energy's
operations are subject to revocation, modification and renewal by issuing
authorities. King Ranch Energy believes that its operations currently are in
substantial compliance with applicable environmental regulations.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF KING RANCH ENERGY

The following selected historical consolidated financial data has
been derived from (i) the audited financial statements of King Ranch Energy
as of and for the years ended December 31, 1998, 1997 and 1996, (ii) the
accounting records of King Ranch as of and for the years ended December 31,
1995 and 1994 and (iii) the unaudited interim financial statements of King
Ranch Energy as of June 30, 1999 and for the six month periods ended June 30,
1999 and 1998. This information is only a summary and you should read it
together with King Ranch Energy's historical financial statements and related
notes contained in this document.

SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Working and royalty interest $ 20,869 $19,791 $39,290 $43,239 $41,115 $26,384 $ 38,422
Other 60 76 117 365 404 - (460)
--------------------------------------------------------------------------------
Total operating revenues 20,929 19,867 39,407 43,604 41,519 26,384 37,962

Operating expenses:
Oil and gas operating expenses 3,550 3,417 8,373 6,848 4,402 4,965 6,408
Depletion, depreciation, amortization, and
impairment of properties 12,081 11,024 26,363 16,217 20,916 16,544 15,193
Exploration expenses 5,646 6,768 12,301 11,935 7,240 13,086 5,337
General and administrative 1,162 1,387 2,970 3,001 2,980 2,903 2,541
Abandoned Independent Power Production
projects - - - 163 44 1,280 3,379
--------------------------------------------------------------------------------
Total operating expenses 22,439 22,596 50,007 38,164 35,582 38,778 32,858
--------------------------------------------------------------------------------

Income (loss) from operations (1,510) (2,729) (10,600) 5,440 5,937 (12,394) 5,104
Trademark fee - affiliate 250 250 500 250 250 - -
Non-operating expense 633 25 103 146 28 (1,673) -
(Gain) loss of sale of proved properties - - 37 (238) (294) - -
--------------------------------------------------------------------------------
Income (loss) before taxes (2,393) (3,004) (11,240) 5,282 5,953 (10,721) 5,104
Income tax provision (benefit) (825) (794) (4,121) 1,680 1,836 - -
--------------------------------------------------------------------------------
Net income (loss) $ (1,568) $(2,210) $ (7,119) $ 3,602 $ 4,117 $(10,721) $ 5,104
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>

BALANCE SHEET DATA (END OF PERIOD):
Working capital $(15,267) $(2,049) $(14,210) $23,429 $22,830 $(1,712) $11,013
Net property and equipment 67,613 68,356 68,542 41,105 31,986 42,602 53,287
Total assets 81,794 79,734 84,889 74,126 71,198 57,612 85,481
Long-term debt - - - - - 6,927 23,038
Total stockholders' equity 46,782 59,045 48,350 60,682 52,517 34,792 39,671
</TABLE>

KING RANCH ENERGY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the consolidated
financial condition and results of operations of King Ranch Energy
and its subsidiaries for the three years ended December 31, 1998
and the six months ended June 30, 1999 and 1998. This discussion
should be read in conjunction with our "Selected Financial Data"
and our Consolidated Financial Statements, and the notes thereto,
included elsewhere herein. This discussion includes forward-looking
information concerning our future plans, financial condition,
liquidity and capital resources. If the merger with St. Mary is
consummated, our plans will not be implemented and the financial
condition of the combined company will be materially different.

GENERAL

As an independent oil and gas producer, our revenue,
profitability and future rate of growth are substantially dependent
upon prevailing prices for natural gas, oil and condensate, which
are dependent upon numerous factors beyond our control, such as
economic, political and regulatory developments and competition
from other sources of energy. The energy markets have historically
been very volatile and there can be no assurance that oil and gas
prices will not be subject to wide fluctuations in the future. A
substantial or extended decline in oil and gas prices could have a
material adverse effect on our financial position, results of
operations, cash flows, quantities of oil and gas reserves that may
be economically produced and access to capital.

We use the successful efforts method of accounting for oil and gas
properties. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells, which find proved

reserves, and to drill and equip developmental wells are capitalized.
Exploratory geological and geophysical costs, delay rentals, and costs to
drill exploratory wells which do not find proved reserves are expensed.
Properties are periodically reviewed for impairment with valuation reserves
provided as required. Depletion, depreciation, and amortization of costs
incurred in connection with the drilling and development of proved oil and
gas reserves and estimated future abandonment and dismantlement costs are
amortized on a field-by-field basis using the units-of-production method
based upon estimates of proved developed oil and gas reserves. The property
acquisition costs of producing properties are amortized on a field-by-field
basis using the units-of-production method based on estimates of total proved
reserves.

FORWARD-LOOKING STATEMENTS

This document includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 2lE of the Exchange
Act of 1934, as amended. All statements other than statements of historical
facts included in this document, including statements regarding production
targets, anticipated production rates, planned capital expenditures, the
availability of capital resources to fund capital expenditures, estimates of
proved reserves, wells planned to be drilled in the future, our financial
position, business strategy and other plans and objectives for future
operations, are forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements are reasonable,
such statements are based upon assumptions and anticipated results that are
subject to numerous uncertainties. Actual results may vary significantly from
those anticipated due to many factors, including drilling results, oil and
gas prices, industry conditions, the prices of goods and services, the
availability of drilling rigs and other support services and the availability
of capital resources. In addition, the drilling of oil and gas wells and the
production of hydrocarbons are subject to governmental regulations and
operating risks.

RESULTS OF OPERATIONS

The following table sets forth certain operating information with
respect to our oil and gas operations.

Six Month Period
Ended June 30,
----------------------
1999 1998
---- ----
<S> <C> <C>
Production:
Oil and condensate (MBbls) 219 212
Gas (MMcf) 8,877 7,114
Total production (MMcfe) 10,191 8,386
Average Realized Price:
Oil and condensate (per Bbl) $ 12.76 $ 13.28
Gas (per Mcf) 1.99 2.35
</TABLE>

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

PRODUCTION. Net production increased 22%, from 8.4 Bcfe for the 1998
period to 10.2 Bcfe for the 1999 period. Oil and condensate production during
1999 increased 7 MBbls, or 3%, compared to the same period in 1998. Increased
oil production for 1999 was due primarily to production increases from
development drilling activities at the Fort Chadbourne Field in the fourth
quarter 1998. Gas production increased by 1.8 Bcf, or 25%, from 7.1 Bcf for
1998 period to 8.9 Bcf for 1999. Increased gas production was due to
production increases from development drilling activities during the fourth

quarter of 1998 at the Judge Digby Field. These increases were partially
offset by natural production decline on other properties held.

OPERATING REVENUES. Oil and gas revenues for 1999 period increased
by $1.1 million, or 5%, compared to the same period in 1998, primarily as a
result of higher natural gas production levels. This increased production was
partially offset by lower realized oil and gas prices. The average realized
price of natural gas decreased by 15% while the average realized price for
oil decreased by 5%. For the 1999 period, the average realized gas price was
$1.99 per Mcf as compared to an average price of $2.35 per Mcf for the same
period in 1998. As a result of hedging activities for gas production during
the six month periods ended June 30, 1999 and 1998, we realized gains of $297
thousand and $67 thousand, respectively. During the 1999 period,
approximately 17% of our equivalent gas production was subject to hedge
positions as compared to 1% for the same period in 1998. The average realized
oil and condensate price was $12.76 per barrel during 1999 as compared to an
average price of $13.47 per barrel for the same period in 1998.

OIL AND GAS OPERATING EXPENSES. Lease operating expense for 1999
period increased to $3.6 million from $3.4 million for the same period in
1998. Lease operating expense per Mcfe decreased from $0.40 for 1998 period
to $0.35 for the 1999 period. This decrease is primarily attributable to
higher production volumes from the Judge Digby Field without a corresponding
increase in lease operating expense.

EXPLORATION EXPENSE. Exploration expense for the 1999 period
decreased to $5.6 million from $6.8 million for the same period in 1998. Dry
hole costs decreased by $3.0 million while geological and geophysical expense
increase by $1.8 million over the comparable periods. Impairment of
non-producing leaseholds decreased during 1999 to $190 thousand from $1.1
million during the comparable period in 1998.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE. During the 1999
period, depreciation, depletion and amortization expense increased to $12.1
million from $11.0 million for the comparable 1998 period. The increase was
primarily due to increased production volumes. The depletion rate per unit
for 1999 decreased to $1.19 per Mcfe, from $1.30 per Mcfe for 1998.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense, which is net of overhead reimbursements received from other working
interest owners, decreased to $1.2 million, or $0.11 per Mcfe during 1999, as
compared to $1.4 million, or $0.16 per Mcfe, for 1998 period. The reduction
in general and administrative expense per Mcfe resulted from increasing
production levels without a corresponding increase in the number of employees.

TRADEMARK FEE. We pay a trademark fee to King Ranch, Inc. of
$500,000 per year for the use of the King Ranch name and the Running W
trademark.

OTHER EXPENSE. From 1998 to 1999, other expense increased by $600
thousand as a result of interest expense related to the intercompany note
payable that was established in December 1998.

NET INCOME. As a result of the foregoing, we had a net loss of $1.6
million for the 1999 period, as compared to a net loss of $2.2 million for
comparable 1998 period.

RESULTS OF OPERATIONS

The following table sets forth certain operating information with
respect to our oil and gas

operations.

Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Production:
Oil and condensate (MBbls) 429 369 325
Gas (MMcf) 14,826 13,535 13,464
Total production (MMcfe) 17,400 15,749 15,414
Average Realized Price:
Oil and condensate (per Bbl) $ 12.25 $ 18.85 $ 19.58
Gas (per Mcf) 2.24 2.65 2.54
</TABLE>

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

PRODUCTION. Net production increased 11%, from 15.75 Bcfe for 1997
to 17.4 Bcfe for 1998. Oil and condensate production for 1998 increased 60
MBbls, or 16%, compared to 1997. Increased oil production for 1998 was due
primarily to production increases from exploratory drilling activities at
Eugene Island 341 and from the acquisition of the Pittencrieff Americas
properties in the second quarter 1998. Gas production increased by 1.3 Bcf,
or 10%, from 13.5 Bcf for 1997 to 14.8 Bcf for 1998. Increased gas production
was due to production increases from development drilling activities during
1998 at the Judge Digby Field, from the acquisition of interests in several
offshore blocks from NCX Exploration in May 1998, and from exploratory wells
drilled and placed on production during the third quarter of 1998 at
Vermilion 115 and West Cameron 306. These increases were partially offset by
natural production decline on other properties held and by the loss of
reserves from the Shelton Royalty, which was contributed to an affiliated
entity on January 1, 1998.

OPERATING REVENUES. Oil and gas revenues for 1998 decreased by $4.2
million, or 10%, compared to 1997, primarily as a result of lower realized
oil and gas prices. The average realized price of natural gas decreased by
15% while the average realized price for oil decreased by 35%. For 1998, the
average realized gas price was $2.24 per Mcf as compared to an average price
of $2.65 per Mcf for 1997. As a result of hedging activities for gas
production for 1998 and 1997, we realized gains of $815 thousand and $33
thousand, respectively. During 1998, approximately 10% of our equivalent gas
production was subject to hedge positions as compared to 9% in 1997. For
1998, the average realized oil and condensate price was $12.25 per barrel as
compared to an average price of $18.85 per barrel for 1997.

OIL AND GAS OPERATING EXPENSES. Lease operating expense for 1998
increased to $8.4 million from $6.9 million for 1997. Lease operating expense
per Mcfe increased from $0.43 for 1997 to $0.48 for 1998. These increases are
primarily attributable to a general increase in costs in the oilfield service
industry, increased workover activities and lease operating costs associated
with properties acquired during 1998.

EXPLORATION EXPENSE. Exploration expense for 1998 increased to $12.3
million from $11.9 million for 1997. The increase in 1998 is a result of
slightly higher dry hole expense. Dry hole costs for 1997 were $7.4 million
while 1998 dry hole costs were $8.4 million. Impairment of non-producing
leaseholds decreased in 1998 to $1.8 million from $2.7 million during 1997.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE. During 1998,
depreciation, depletion and amortization expense increased to $26.4 million
from $16.2 million for 1997. The increase was due in

part to increased production volumes and also due to an increased depletion
rate per Mcfe caused primarily by lower year-end reserve balances. The
depletion rate per unit for 1998 increased to $1.52 per Mcfe, from $1.03 per
Mcfe for 1997.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense, which is net of overhead reimbursements received from other working
interest owners, remained the same as the 1997 amount of $3.0 million,
however, decreased per Mcfe to $0.17 in 1998 from $0.19 for 1997. The
reduction in general and administrative expense per Mcfe resulted from
increasing production levels without a corresponding increase in the number
of employees.

TRADEMARK FEE. We pay a trademark fee to King Ranch, Inc. for the
use of the King Ranch name and the Running W trademark. This fee was
increased from $250,000 per year in 1997 to $500,000 per year in 1998.

NET INCOME. As a result of the foregoing, we had a net loss of $7.1
million for 1998, as compared to net income of $3.6 million for 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

PRODUCTION. Net production increased 2%, from 15.4 Bcfe for 1996, to
15.7 Bcfe for 1997. Oil and condensate production for 1997 increased 44
MBbls, or 14%, compared to 1996. Increased oil production for 1997 was due
primarily to production increases from development drilling activities during
1997 at the Clarksville Field. Gas production increased by 0.1 Bcf, or 1%,
from 13.4 Bcf for 1996 to 13.5 Bcf for 1997. Increased gas production was due
to production increases from exploratory drilling activities during 1996 at
Vermilion Block 281. These increases were partially offset by natural
production decline on other properties held.

OPERATING REVENUES. Oil and gas revenues for 1997 increased by $2.1
million, or 5%, compared to 1996, primarily as a result of increased oil and
gas production and slightly higher realized gas prices. The average realized
price of natural gas increased by 4%. For 1997, the average realized gas
price was $2.65 per Mcf as compared to an average price of $2.54 per Mcf for
1996. As a result of hedging activities for gas production for 1997, we
realized a gain of $33 thousand. During 1997, approximately 9% of our
equivalent gas production was subject to hedge positions. We did not hedge
any of its production during 1996. For 1997, the average realized oil and
condensate price was $18.85 per barrel as compared to an average price of
$19.58 per barrel for 1996.

OIL AND GAS OPERATING EXPENSES. Lease operating expense for 1997
increased to $6.9 million from $4.4 million for 1996. Lease operating expense
per Mcfe increased from $0.29 for 1996 to $0.43 for 1997. These increases are
primarily attributable to a general increase in costs in the oilfield service
industry and increased workover activities at the Clarksville Field and at
the East Cameron 56/57, West Cameron 306, and Matagorda Island 650 blocks.

EXPLORATION EXPENSE. Exploration expense for 1997 increased to $11.9
million from $7.2 million for 1996. The increase in 1997 is a result of
higher dry hole expense. Dry hole costs for 1997 were $7.4 million while 1996
dry hole costs were $3.2 million. Impairment of non-producing leaseholds in
1997 was $2.7 million while no leases were impaired during 1996.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE. During 1997,
depreciation, depletion and amortization expense decreased to $16.2 million
from $20.9 million for 1996. The decrease is primarily attributable to lower
finding costs related to the discoveries at Vermilion Blocks 273 and 281.
This

decrease resulted in a decreased depletion rate per Mcfe from $1.36 per Mcfe
in 1996 to $1.03 per Mcfe in 1997.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense for 1997, which is net of overhead reimbursements received from other
working interest owners, remained the same as the 1996 figures of $3.0
million, or $0.19 per Mcfe.

TRADEMARK FEE. We pay a trademark fee to King Ranch, Inc. of
$250,000 per year for the use of the King Ranch name and the Running W
trademark.

NET INCOME. As a result of the foregoing, we had net income of $3.6
million for 1997, as compared to $4.1 million for 1996.

LIQUIDITY AND CAPITAL RESOURCES

For the six-month periods ending June 30, 1999 and June 30, 1998, we
had negative working capital of ($177) thousand and ($2.1) million,
respectively. The June 30, 1999 working capital amount excludes an
intercompany note payable to our parent company King Ranch, Inc. We had
working capital at December 31, 1998 of $240 thousand excluding the
intercompany note payable to our parent company. Our working capital at
December 31, 1997 was $23.4 million. The $23.2 million decrease in working
capital from December 31, 1997 to December 31, 1998 is primarily due to
several reserve acquisitions and oil and gas exploration activities made
during 1998, which were funded by our parent.

For the six-month periods ending June 30, 1999 and June 30, 1998,
our net cash flows from operations were $12.2 million and $43.3 million,
respectively. The large decrease is the result of a $23.6 million decrease in
intercompany receivable from our parent during the first six months of 1998.
Our net cash flow from operations for 1998 was $52.0 million compared to
$28.0 million for 1997 and $3.9 million for 1996. The increase from 1997 to
1998 is primarily due to a $23.6 million reduction in the intercompany
receivable from our parent. The 1996 cash flow from operations is
substantially below 1997 because of a $24.6 million increase in the
intercompany receivable from our parent.

For the six-month period ending June 30, 1999, capital expenditures
were $12.9 million, consisting of $4.9 million for exploration, $3.1 million
for development and $4.9 million for acquisitions of properties. For the
six-month period ending June 30, 1998, capital expenditures were $44.0
million, consisting of $8.0 million for exploration, $15.0 million for
development and $20.9 million for acquisitions of properties. Capital
expenditures for 1998 were $63.2 million, consisting of $25.5 million for
exploration, $12.4 million for development and $25.3 million for acquisitions
of properties. Capital expenditures for 1997 were $33.2 million, consisting
of $12.4 million for exploration, $11.8 million for development and $9.0
million for acquisitions of properties while in 1996 total capital
expenditures were $14.0 million, consisting of $4.2 million for exploration,
$1.4 million for development and $8.4 million for acquisitions of properties.
Our exploration capital expenditure budget for 1999 is approximately $19
million. While we continue to pursue attractive development opportunities,
the timing and size of its capital commitments are unpredictable.

Actual levels of capital expenditures may vary significantly due to
many factors, including drilling results, oil and gas prices, industry
conditions, the prices and availability of goods and services and the extent
to which proved properties are acquired. We anticipate that capital
expenditures will be funded principally from cash flow from operations.

We participate in revolving credit and cash management with our
parent. Under this policy our

cash requirements are provided by our parent, and our excess cash is remitted
to our parent for investment. During December 1998, our parent began to
charge interest to us at a rate of 8.75% (prime rate + 1%) on the outstanding
balance borrowed, prior to December 1998, no interest income or expense was
recognized as a result of this policy.

To cover the various obligations of lessees on the Outer Continental
Shelf ("OCS"), the Minerals and Management Service ("MMS") generally requires
that lessees post substantial bonds or other acceptable assurances that such
obligations will be met. The cost of such bonds or other surety can be
substantial and there is no assurance that bonds or other surety can be
obtained in all cases. Additionally, the MMS may require operators in the OCS
to post supplemental bonds in excess of lease and area wide bonds to assure
that abandonment obligations on specific properties will be met. We are
currently exempt from the supplemental bonding requirements of the MMS. Under
certain circumstances, the MMS may require operations on federal leases to be
suspended or terminated. Any such suspension or termination could materially
and adversely affect our financial condition, results of operations and cash
flows.

Our operations are subject to various federal, state and local laws
and regulations relating to the protection of the environment. We believe our
current operations are in material compliance with current environmental laws
and regulations. There can be no assurance, however, that current regulatory
requirements will not change, currently unforeseen environmental incidents
will not occur or past non-compliance with environmental laws will not be
discovered.

FINANCIAL INSTRUMENT MARKET RISK

Our Board of Directors has adopted a policy regarding the use of
derivative instruments. This policy requires every derivative used by us to
relate to underlying offsetting positions or firm commitments. It prohibits
the use of speculative, highly complex or leveraged derivatives. Under the
policy, the Chief Executive Officer and Vice President of Finance must review
and approve all risk management programs that use derivatives. The Audit
Committee of our Board of Directors also periodically reviews these programs.

COMMODITY PRICE RISK. From time to time, we utilize hedging
transactions with respect to a portion of our oil and gas production to
achieve a more predictable cash flow, as well as to reduce our exposure to
price fluctuations. While the use of these hedging arrangements limits the
downside risk of adverse price movements, they may also limit future revenues
from favorable price movements. The use of hedging transactions also involves
the risk that the counterparties will be unable to meet the financial terms
of such transactions. All of our hedging transactions to date were carried
out in the over-the-counter market and the obligations of the counterparties
have been guaranteed by entities with at least an investment grade rating or
secured by letters of credit. We account for these transactions as hedging
activities and, accordingly, gains or losses are included in oil and gas
revenues when the hedged production is delivered. Neither the hedging
contracts nor the unrealized gains or losses on these contracts are
recognized in the financial statements.

INTEREST RATE RISK. Market risk is estimated as the potential change
in fair-value resulting from an immediate hypothetical one percentage point
parallel shift in the yield curve. The sensitivity analysis presents the
hypothetical change in fair-value of the financial instrument we held at
December 31, 1998. For floating rate debt, interest rate changes generally do
not affect the fair market value but do impact future results of operations
and cash flows, assuming other factors are held constant. At December 31,
1998, we had intercompany floating debt of $14.45 million and had no fixed
debt. Assuming constant debt levels, the results of operations and cash flows
for the next year resulting from a one percentage

point change in interest rates would be approximately $145,000 before taxes.

YEAR 2000 ISSUES

Year 2000 issues result from the inability of computer programs or
computerized equipment to accurately calculate, store or use a date
subsequent to December 31, 1999. The erroneous date can be interpreted in a
number of different ways; typically the year 2000 is represented as the year
1900. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business.

Because we were recently formed, we were aware of, and considered
year 2000 issues at the time of purchase or development of our software and
hardware systems. In addition, we have recently completed an assessment of
our core financial and operational systems to ensure year 2000 compliance. As
a result of our assessments we have determined that our land and lease
records software system is not Year 2000 compliant. Further assessment of
other less critical systems and various types of equipment is continuing and
should be completed during the third quarter of 1999. We do not have a
contingency plan to address unavoidable risks, but we intend to formulate one
upon completion of our assessment and testing in the third quarter of 1999.
We believe that the potential impact, if any, of these systems not being year
2000 compliant will at most require employees to manually complete otherwise
automated tasks or calculations and it should not impact our ability to
continue exploration, drilling, production or sales activities.

We rely on other producers and transmission companies to conduct our
basic operations. Should any third party with which we have a material
relationship fail, the impact could impair our ability to perform basic
operations. We have initiated communications with these significant
suppliers, business partners and customers to determine the extent to which
we are vulnerable to those third parties' failure to correct their own year
2000 issues. There can be no guarantee, however, that the systems of other
companies on which our systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with our systems would not have a material adverse effect on our operations.

We have and will continue to utilize both internal and external
resources to complete tasks and perform testing necessary to address the year
2000 issue. Costs of developing and carrying out our assessment and testing
have been funded from our operations and have not represented a material
expense. We have not completed our assessment and testing; however, we do not
anticipate any significant costs relating to remediation efforts resulting
from the year 2000 issues.

KING RANCH ENERGY CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

During King Ranch Energy's two most recent fiscal years and through
the date of this document, King Ranch Energy has not had any changes in or
disagreements with its independent accountants on accounting and financial
disclosure.

LEGAL MATTERS

The validity of the St. Mary common stock to be issued in the merger
has been passed upon by Ballard Spahr Andrews & Ingersoll, LLP.

Locke Liddell & Sapp LLP has issued an opinion as to the Federal
income tax consequences of the merger and the distribution and Ernst & Young
LLP has issued an opinion as to the Federal income

tax consequences of the distribution. These opinions have been filed with the
SEC as exhibits to the registration statement relating to this document. See
"The Merger Transaction-Material Federal Income Tax Consequences of the
Merger."

EXPERTS

The consolidated financial statements of St. Mary incorporated by
reference in this document to the extent and for the periods indicated in
their report, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of that
firm as experts in auditing and accounting in giving that report.

The consolidated financial statements of St. Mary for the year ended
December 31, 1996 incorporated by reference in this document, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent public accountants, given as the authority of that firm as
experts in accounting and auditing.

The consolidated financial statements of King Ranch Energy, Inc. as
of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998 included in this proxy and consent
statement/prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

Some of the estimates of oil and gas reserves included or
incorporated by reference in this document were based upon engineering
reports prepared by the independent petroleum engineering firms of Ryder
Scott Company, L.P. and Netherland Sewell & Associates, Inc. Such estimates
are included herein in reliance on the authority of those firms as experts in
such matters.

WHERE YOU CAN FIND MORE INFORMATION

St. Mary files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information St. Mary files at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. St. Mary's SEC filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at "http://www.sec.gov."

St. Mary has filed a registration statement on Form S-4 to register
with the SEC the St. Mary common stock to be issued in the merger. This
document is a part of that registration statement and constitutes a
prospectus of St. Mary in addition to being a proxy statement King Ranch for
the King Ranch stockholders meeting to vote on the merger agreement. As
allowed by SEC rules, this document does not contain all the information you
can find in the registration statement or the exhibits to the registration
statement.

The SEC allows St. Mary to "incorporate by reference" information
into this document, which means that St. Mary can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of
this document even though it is not included or delivered with this document,
except for any information superseded by information included or incorporated
by reference in this document. This document incorporates by reference those
documents set forth below that St. Mary has previously filed with the SEC.
Those documents contain important business and financial information about
St. Mary.

You can obtain any of the other documents incorporated by reference
through us or the SEC.

Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference
an exhibit in this document. Stockholders may obtain other documents
incorporated by reference in this document by requesting them in writing or
by telephone from St. Mary at the following address:

St. Mary Land & Exploration Company
Attn: Secretary
1776 Lincoln Street, Suite 1100
Denver, CO 80203
Tel: (303) 861-8140

IF YOU WOULD LIKE TO REQUEST FROM ST. MARY DOCUMENTS WHICH ARE
INCORPORATED BY REFERENCE, PLEASE DO SO BY SEPTEMBER 22, 1999 TO RECEIVE THEM
BEFORE THE KING RANCH STOCKHOLDERS MEETING.

ST. MARY SEC FILINGS PERIOD
<S> <C>
(SEC FILE NO. 0-20872)

Annual Report on Form 10-K Fiscal Year ended December 31, 1998

Amendment to Annual Report on Form 10-K/A
filed April 14, 1999 Fiscal Year ended December 31, 1998

Quarterly Report on Form 10-Q Quarter ended March 31, 1999

Quarterly Report on Form 10-Q Quarter ended June 30, 1999

Amendment to Quarterly Report on Form 10-Q/A
filed August 17, 1999 Quarter ended June 30, 1999

Current Report on Form 8-K filed July 28, 1999

Registration Statement on Form 8-A
filed November 18, 1992

</TABLE>

We are also incorporating by reference additional documents that we
file with the SEC between the date of this document and the date of the King
Ranch stockholders meeting.

St. Mary has supplied all information contained or incorporated by
reference in this document relating to St. Mary, and King Ranch and King
Ranch Energy has supplied all information contained in this document relating
to King Ranch and King Ranch Energy.

You can also get more information by visiting St. Mary's web site at
www.stmaryland.com and King Ranch's web site at www.king-ranch.com. Web site
materials are not part of this document.

You should rely only on the information contained or incorporated by
reference in this document to vote on the St. Mary share issuance at the St.
Mary stockholder meeting or to consent to the merger as a King Ranch Energy
stockholder. We have not authorized anyone to provide you with information
that is different from what is contained in this document. This document is
dated August _____, 1999. You should not assume that the information
contained in the document is accurate as of any date other than such date,
and neither the mailing of this document to stockholders nor the issuance

of St. Mary common stock in the merger shall create any implication to the
contrary.

FUTURE ST. MARY STOCKHOLDER PROPOSALS

Any St. Mary stockholder proposal for the annual meeting of
stockholders in 2000 must be received by St. Mary by November 1, 1999 for the
proposal to be included in the St. Mary proxy statement and form of proxy for
that meeting. If notice of a proposal for which a stockholder will conduct
his or her own proxy solicitation is not received by St. Mary by March 1,
2000, proxies solicited by the St. Mary board of directors may use their
discretionary voting authority when the matter is raised at the meeting,
without including any discussion of the matter in the proxy statement.

CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

This document includes or incorporates by reference "forward-looking
statements" that are subject to risks and uncertainties. These
forward-looking statements include statements about:

<TABLE>

<S> <C>
- - synergies expected from the merger - future capital spending and availability

- - efficiencies and costs savings expected to - repayment of debt
be realized from the merger

- - revenue enhancements expected from the - expected oil and natural gas production
merger
- asset portfolios
- - the timetable for closing the merger
- Year 2000 readiness
- - capital productivity and returns on capital
employed by St. Mary after the closing - oil and natural gas potential

- - oil and gas reserve estimates (including - future development and exploration expenditures
estimates of future net revenues associated future net revenues)
with such reserves and the present value of
(including the amount and nature thereof) - planned drilling of wells

- - planned expansion and growth of St. Mary's - business strategies
operations

</TABLE>

The sections of this document which contain forward-looking statements
include:

- Summary,

- The Merger Transaction--Background of the Merger;

- The Merger Transaction--Our Reasons for the Merger,

- Unaudited Pro Forma Condensed Combined Financial Statements,
and

- Opinions of Financial Advisors.

Our forward-looking statements are also identified by words such as:

- "believes,"

- "expects,"

- "anticipates,"

- "intends,"

- "projects,"

- "estimates," or

- similar expressions.

For those statements by St. Mary, St. Mary claims the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.

You should understand that the following important factors, in addition
to those discussed elsewhere in this document and in the documents which are
incorporated by reference, could affect the future results of St. Mary and King
Ranch Energy, and of St. Mary after the closing of the merger, and could cause
those results or other outcomes to differ materially from those expressed in our
forward-looking statements:

ECONOMIC AND INDUSTRY CONDITIONS POLITICAL/GOVERNMENTAL FACTOR
<S> <C>
- - material adverse changes in economic - political developments and laws
and regulations, such as restrictions
or industry conditions generally or in on production, price controls, tax
the markets served by our companies increases and retroactive tax claims,
and environmental regulations
- - supply and demand for and pricing of
crude oil and natural gas - permitting delays
- -
- - changes in demographics and consumer
preferences

- - the uncertainty of estimated oil and gas
resources

</TABLE>

PROJECT/TECHNOLOGY FACTORS OPERATING FACTORS
<S> <C>

- - supply disruptions oil and natural - supply disruptions
gas project advancement
- technical difficulties
- - supply disruptions the development and
use of new technology - changes in operating conditions and costs

- - the impact of the Year 2000 on our - weather
technology systems or the technology
systems of third parties with which we - marketing delays
have material relationships

</TABLE>

TRANSACTION OR COMMERCIAL FACTORS COMPETITIVE FACTORS
<S> <C>

- - the outcome of negotiations with - the competitiveness of suppliers of
partners, customers or others alternative energy sources or
product substitutes
- - our ability to integrate the businesses
of St. Mary and King Ranch Energy - the actions of competitors
successfully after the merger
- the challenges inherent in diverting
management's focus and resources from
other strategic opportunities and from
operational matters during the merger
and integration process

</TABLE>

You are cautioned that our forward-looking statements are not
guarantees of future performance and that actual results or developments may
differ materially from those expressed or implied by the forward-looking
statements.

SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Delaware General Corporation Law provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in
connection with an action suit, or proceeding brought by reason of their
position as a director, employee, or agent. The person being indemnified must
have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation.

Provisions of St. Mary's' certificate of incorporation and by-laws
obligate St. Mary to indemnify its directors and officers to the fullest
extent permitted under Delaware law. Provisions of King Ranch Energy's bylaws
obligate King Ranch Energy to indemnify its directors and officers in a
manner consistent with Delaware General Corporation Law. [King Ranch?]

In so far as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling St. Mary, King Ranch or King Ranch Energy pursuant to the
foregoing provisions or otherwise, St. Mary, King Ranch and King Ranch Energy
have been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial
statements combine the historical consolidated balance sheets and statements
of operations of St. Mary and King Ranch Energy giving effect to the merger
using the purchase method of accounting for business combinations.

We are providing the following information to aid you in your
analysis of the financial aspects of the merger. We derived this information
from the audited financial statements of St. Mary for 1998 and the unaudited
financial statements for the six months ended June 30, 1999 and from the
audited financial statements of King Ranch Energy for 1998 and the unaudited
financial statements for the six months ended June 30, 1999. The information
is only a summary and you should read it in conjunction with our historical
financial statements and related notes contained in the annual reports and
other

information that St. Mary has filed with the SEC and incorporated in this
document by reference and the historical financial statements of King Ranch
Energy and related notes contained in this document. See "Where You Can Find
More Information" on page 91.

The unaudited pro forma condensed combined statements of operations
for the year ended December 31, 1998 and the six months ended June 30, 1999
assume the merger was effected on January 1, 1998. The unaudited pro forma
condensed combined balance sheet gives effect to the merger as if it had
occurred on June 30, 1999. The accounting policies of St. Mary and King Ranch
Energy are substantially comparable. Therefore, we did not make adjustments
to the unaudited pro forma condensed combined financial statements to conform
the accounting policies of the combining companies.

The unaudited pro forma condensed combined financial information is
for illustrative purposes only. The companies may have performed differently
had they always been combined. You should not rely on the pro forma condensed
combined financial information as being indicative of the historical results
that would have been achieved had the companies always been combined or the
future results that the combined company will experience after the merger.

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1999
(In thousands, except share amounts)

ASSETS
<TABLE>
<CAPTION>
St. Mary/
Pro Forma King Ranch
St. Mary King Ranch Adjustments Pro Forma
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 5,244 $ - $ 5,244
Accounts receivable 12,775 7,651 (2) $ 4,000 24,426
Prepaid expenses and other 816 584 1,400
Refundable income taxes 211 - 211
Refundable income taxes-affiliate - 5,700 (1) (5,700) -
Deferred income taxes 91 - 91
--------- --------- ---------- ---------
Total current assets 19,137 13,935 (1,700) 31,372
--------- --------- ---------- ---------

Property and equipment (successful efforts method), at cost:
Proved oil and gas properties 252,803 257,331 (2) (226,541) 283,593
Unproved oil and gas properties, net 31,455 22,074 (2) (14,074) 39,455
Other, net 4,654 473 5,127
--------- --------- ---------- ---------
288,912 279,878 (240,615) 328,175
Less accumulated depletion, depreciation, amortization
and impairment (136,714) (212,265) (2) 212,265 (136,714)
--------- --------- ---------- ---------
Net property and equipment 152,198 67,613 (28,350) 191,461
--------- --------- ---------- ---------
Other assets:
Khanty Mansiysk Oil Corporation receivable and stock 6,839 - 6,839
Summo Minerals Corporation investment and receivable 1,130 - 1,130
Other assets 3,527 246 (1) (246) 3,527
--------- --------- ---------- ---------
Total other assets 11,496 246 (246) 11,496
--------- --------- ---------- ---------
Total assets $ 182,831 $ 81,794 $ (30,296) $ 234,329
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
June 30, 1999
(In thousands, except share amounts)

<TABLE>
<CAPTION>
St. Mary/
Pro Forma King Ranch
St. Mary King Ranch Adjustments Pro Forma
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,307 $ 4,795 $ 15,102
Accounts payable-parent - 9,317 (1) (9,317) -
Current notes payable-affiliate - 15,090 (1) (15,090) -
Current portion of stock appreciation rights 272 - 272
--------- --------- ---------- ---------
Total current liabilities 10,579 29,202 (24,407) 15,374
--------- --------- ---------- ---------

Long-term liabilities:
Long-term debt 20,087 - 20,087
Deferred income taxes 11,765 - (2) 683 12,448
Stock appreciation rights 455 - 455
Future platform abandonment - 5,782 5,782
Other noncurrent liabilities 1,250 28 1,278
--------- --------- ---------- ---------
33,557 5,810 683 40,050
--------- --------- ---------- ---------

Stockholders' equity:
Common stock, $.01 par value: authorized - 50,000,000 shares:
issued and outstanding - 11,269,361 for St. Mary -
Pro forma, 13,935,613 issued and outstanding 113 1 (2) 26 140
Additional paid-in capital 71,083 55,468 (2) (33,992) 111,266
(1) 18,707
Treasury stock - 182,800 shares, at cost for St. Mary (2,995) - (2,995)
Retained earnings (deficit) 70,299 (8,687) (2) 8,687 70,299
Unrealized gain on marketable equity securities-available
for sale 195 - 195
--------- --------- ---------- ---------
Total stockholders' equity 138,695 46,782 (6,572) 178,905
--------- --------- ---------- ---------
Total liabilities and stockholders' equity $ 182,831 $ 81,794 $ (30,296) $ 234,329
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>

The accompanying notes are an integral part
of these pro forma financial statements.

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The unaudited pro forma condensed combined statement of operations for the
fiscal year ended December 31, 1998 gives effect to the Merger as if it
occurred on January 1, 1998 by combining the results of operations for St.
Mary and King Ranch applying the purchase method of accounting.

<TABLE>
<CAPTION>
St. Mary/
King
King Pro Forma Ranch
St. Mary Ranch Adjustments Pro Forma
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas production $ 70,648 $ 39,290 $109,938
Gain on sale of proved properties 7,685 - 7,685
Other revenues 411 117 528
-------- -------- ------- --------
Total operating revenues 78,744 39,407 - 118,151
-------- -------- ------- --------
Operating expenses:
Oil and gas production 17,005 8,373 25,378
Depletion, depreciation, amortization and impairment 42,395 26,363 (5) (16,445) 52,313
Exploration 16,162 12,301 28,463
General and administrative 7,097 2,970 10,067
Writedown of Russian convertible receivable 4,553 - 4,553
Writedown of investment in Summo Minerals Corporation 3,949 - 3,949
Loss in equity investees 661 - 661
Other 141 - 141
-------- -------- ------- --------
Total operating expenses 91,963 50,007 (16,445) 125,525
-------- -------- ------- --------

Loss from operations (13,219) (10,600) 16,445 (7,374)

Nonoperating income and (expense):
Trademark fee-affiliate - (500) (3) 500 -
Interest income 638 - 638
Interest expense (1,665) (50) (4) 50 (1,665)
Other - (90) (90)
-------- -------- ------- --------

Loss from continuing operations before income taxes (14,246) (11,240) 16,995 (8,491)
Income tax benefit (5,415) (4,121) (6) 6,118 (3,418)
-------- -------- ------- --------
Net loss from continuing operations $ (8,831) $ (7,119) $10,877 $ (5,073)
-------- -------- ------- --------
-------- -------- ------- --------
</TABLE>

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
St. Mary/
King
King Pro Forma Ranch
St. Mary Ranch Adjustments Pro Forma
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Basic net loss per common share from continuing
operations $ (.81) $ (.37)
-------- --------
-------- --------
Diluted net loss per common share from continuing
operations $ (.81) $ (.37)
-------- --------
-------- --------

Basic weighted average shares outstanding 10,937 (2) 2,666 13,603
-------- --------
-------- --------
Diluted weighted average shares outstanding 10,937 (2) 2,666 13,603
-------- --------
-------- --------

</TABLE>

The accompanying notes are an integral part
of these pro forma financial statements.

100

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The unaudited pro forma condensed combined statement of operations for the
fiscal year ended June 30, 1998 gives effect to the Merger as if it occurred
on January 1, 1998 by combining the results of operations for St. Mary and
King Ranch applying the purchase method of accounting.

<TABLE>
<CAPTION>
St. Mary/
King
King Pro Forma Ranch
St. Mary Ranch Adjustments Pro Forma
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas production $ 29,578 $ 20,869 $ 50,447
Gain on sale of proved properties 114 - 114
Other revenues 273 60 333
-------- -------- -------- --------
Total operating revenues 29,965 20,929 - 50,894
-------- -------- -------- --------
Operating expenses:
Oil and gas production 7,954 3,550 11,504
Depletion, depreciation, amortization and impairment 10,930 12,081 (5) $ (6,272) 16,739
Exploration 3,742 5,646 9,388
General and administrative 3,629 1,162 4,791
Loss in equity investees 58 - 58
Other 338 - 338
-------- -------- -------- --------
Total operating expenses 26,651 22,439 (6,272) 42,818
-------- -------- -------- --------

Income (loss) from operations 3,314 (1,510) 6,272 8,076

Nonoperating income and (expense):
Trademark fee-affiliate - (250) (3) 250 -
Interest income 252 - 252
Interest expense (516) (600) (4) 600 (516)
Other - (33) (33)
-------- -------- -------- --------

Income (loss) from continuing operations before income
taxes 3,050 (2,393) 7,122 7,779
Income tax expense (benefit) 1,008 (825) (6) 2,564 2,747
-------- -------- -------- --------
Net income (loss) from continuing operations $ 2,042 $ (1,568) $ 4,558 $ 5,032
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

101

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
St. Mary/
King
King Pro Forma Ranch
St. Mary Ranch Adjustments Pro Forma
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Basic net income per common share from continuing
operations $ .19 $ .37
-------- --------
-------- --------
Diluted net income per common share from continuing
operations $ .19 $ .37
-------- --------
-------- --------

Basic weighted average shares outstanding 10,879 (2) 2,666 13,545
-------- --------
-------- --------
Diluted weighted average shares outstanding 10,892 (2) 2,666 13,558
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part
of these pro forma financial statements.

102

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

On July 27, 1999, St. Mary Land & Exploration Company ("St. Mary")
signed an agreement to acquire King Ranch Energy, Inc. ("King Ranch Energy")
located in Houston, Texas in a merger in which St. Mary will issue 2,666,252
common shares to shareholders of King Ranch. King Ranch Energy will become a
wholly owned subsidiary of St. Mary. The acquisition will be accounted for as
a purchase.

The unaudited pro forma condensed combined statements of income are
based on the consolidated financial statements of St. Mary and King Ranch
Energy for the year ended December 31, 1998 and the six months ended June 30,
1999. The unaudited pro forma condensed combined balance sheet is based on
the unaudited consolidated financial statements of St. Mary and King Ranch
Energy at June 30, 1999.

The St. Mary and King Ranch Energy consolidated financial statements
are prepared in accordance with generally accepted accounting principles and
require St. Mary and King Ranch Energy to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities. In the opinion of St. Mary
and King Ranch Energy, the unaudited pro forma condensed combined financial
statements include all adjustments necessary to present fairly the results of
the periods presented.

The accompanying pro forma statements 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 for the year ended December 31,
1998. 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 St. Mary's financial statements in Form 10-K for the year ended December
31, 1998. It is suggested that these financial statements be read in
conjunction with the financial statements and notes included in the Form 10-K.

The accompanying condensed pro forma balance sheet includes pro forma
adjustments to give effect to the acquisition of King Ranch Energy as of June
30, 1999. The condensed pro forma statements of operations for the year ended
December 31, 1998 and the six months ended June 30, 1999 include the
historical revenue and direct operating expenses of St. Mary and King Ranch
Energy for the respective periods presented and adjustments for the pro forma
effects of the acquisition as if the transaction had occurred January 1, 1998.

Note 2 - Accounting Policies and Financial Statement Classifications

The accounting policies of St. Mary and King Ranch Energy are
substantially comparable. Consequently, no adjustments were made to the
unaudited pro forma condensed combined financial statements to conform to the
accounting policies of the combining companies.

103

Certain revenues, costs and other expenses in the consolidated
statements of operations of King Ranch Energy have been reclassified to
conform to the line item presentation in the pro forma condensed combined
statements of income. Certain assets and liabilities in the consolidated
balance sheets of St. Mary and King Ranch Energy have been reclassified to
conform to the line item presentation in the pro forma condensed combined
balance sheet.

Note 3 - Pro Forma Adjustments

The following pro forma adjustments have been made to the balance
sheet of St. Mary and King Ranch Energy at June 30, 1999 and to the
statements of operations for the six months ended June 30, 1999 and for the
year ended December 31, 1998:

(1) To eliminate all assets and liabilities related to the
parent company, King Ranch, Inc.

(2) To record the purchase transaction and allocate purchase
price.

(3) To eliminate the trademark fee paid by King Ranch Energy
to King Ranch, Inc. for use of logo. This logo will not
be used by St. Mary.

(4) To eliminate the interest expense paid on the note
payable owed to King Ranch, Inc. This debt will not be
assumed by St. Mary.

(5) To adjust depreciation, deletion, and amortization based
on new fair values of producing properties.

(6) To account for the tax effect of the pro forma
adjustments.

There are no adjustments to general and administrative, exploration
or other such expenses for prospective information for what may happen once
the companies are combined.

104

INDEX TO KING RANCH ENERGY CONSOLIDATED FINANCIAL STATEMENTS

Page
----
<S> <C>
Independent Auditors' Report.....................................................F-2

Consolidated Balance Sheets as of June 30, 1999 (unaudited) and

December 31, 1998 and 1997..............................................F-3

Consolidated Statements of Income for the six months ended

June 30, 1999 and 1998 (unaudited) and the years ended

December 31, 1998, 1997 and 1996........................................F-4

Consolidated Statements of Stockholder's Equity for the six months
ended June 30, 1999 (unaudited) and for the years ended December
31, 1998,
1997 and 1996....................................................................F-5

Consolidated Statements of Cash Flows for the six months ended

June 30, 1999 and 1998 (unaudited) and the years ended

December 31, 1998, 1997 and 1996........................................F-6

Notes to Consolidated Financial Statements.......................................F-7
</TABLE>

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
King Ranch, Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheets of King Ranch
Energy, Inc. and subsidiaries (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholder's
equity, and cash flows for each of the three years in the period then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1998 and 1997, and the results of its operations and cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas
March 2, 1999

F-2

KING RANCH ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
December 31,
June 30, ------------------
Assets 1999 1998 1997
- ----------------------------------------------------------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Accounts receivable:
Affiliate $ - $ - $ 23,603
Trade 7,651 8,856 8,543
Current income tax receivable - Affiliate 5,700 5,484 -
Prepaids and other assets 505 1,928 417
Inventories 79 79 134
--------- ---------- ---------
Total Current Assets 13,935 16,347 32,697
--------- ---------- ---------

Property and Equipment:
Oil and gas properties, successful efforts method:
Producing properties 257,331 254,011 210,315
Nonproducing leaseholds 18,223 17,235 14,014
Wells-in-progress 7,464 5,228 5,538
--------- ---------- ---------
Total 283,018 276,474 229,867

Other property and equipment 1,907 1,907 1,647
Accumulated depletion, depreciation and amortization (217,312) (209,839) (190,409)
--------- ---------- ---------
Total Property and Equipment, net 67,613 68,542 41,105
--------- ---------- ---------

Deferred Tax Asset 246 - 324
--------- ---------- ---------
Total Assets $ 81,794 $ 84,889 $ 74,126
--------- ---------- ---------
--------- ---------- ---------
Liabilities and Stockholder's Equity
- -----------------------------------------------------------
Current Liabilities:
Accounts payable:
Parent $ 9,317 $ 4,271 $ -
Trade 3,620 10,360 6,117
Oil and gas 1,175 1,476 2,776
Notes payable - Affiliate 15,090 14,450 -
Current income taxes payable - Affiliate - - 375
--------- ---------- -------
Total Current Liabilities 29,202 30,557 9,268
--------- ---------- -------

Future platform abandonment 5,782 5,091 4,148
Other 28 35 28
Deferred tax liability - 856 -
--------- ---------- -------
Total Liabilities 35,012 36,539 13,444
--------- ---------- -------

Stockholder's Equity:
Common stock, $1 par value -
Authorized, issued, and outstanding shares - 1,000
Paid-in capital 1 1 1
Retained deficit 55,468 55,468 60,681
(8,687) (7,119) -
--------- ---------- -------
Total Stockholder's Equity 46,782 48,350 60,682
--------- ---------- -------
Total Liabilities and Stockholder's Equity $ 81,794 $ 84,889 $74,126
--------- ---------- -------
--------- ---------- -------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3

KING RANCH ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------
1999 1998 1998 1997 1996
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Working and royalty interest $20,869 $19,791 $ 39,290 $43,239 $41,115
Other 60 76 117 365 404
------- ------- -------- ------- -------
Total Operating Revenues 20,929 19,867 39,407 43,604 41,519
------- ------- -------- ------- -------
Operating Expenses:
Oil and gas operating expenses 3,550 3,417 8,373 6,848 4,402
Exploration expenses 5,646 6,768 12,301 11,935 7,240
Depletion, depreciation,
amortization and impairment
of properties 12,081 11,024 26,363 16,217 20,916
General and administrative
expenses 1,162 1,387 2,970 3,001 2,980
Abandoned independent Power
Production projects - - - 163 44
------- ------- -------- ------- -------
Total Operating Expenses 22,439 22,596 50,007 38,164 35,582
------- ------- -------- ------- -------
Income (Loss) From Operations (1,510) (2,729) (10,600) 5,440 5,937
Other Income (Expense):
Trademark fee - Affiliate (250) (250) (500) (250) (250)
Gain (loss) on sale of properties - - (37) 238 294
Other (633) (25) (103) (146) (28)
------- ------- -------- ------- -------
Income (Loss) Before Taxes (2,393) (3,004) (11,240) 5,282 5,953
Income Tax Provision (Benefit) (825) (794) (4,121) 1,680 1,836
------- ------- -------- ------- -------
Net Income (Loss) $(1,568) $(2,210) $ (7,119) $ 3,602 $ 4,117
------- ------- -------- ------- -------
------- ------- -------- ------- -------
</TABLE>

SEE ACCOMPANYING NOTES.

F-4

KING RANCH ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 - $- $40,891 $ - $40,891

Paid-in capital - - 7,509 - 7,509
Earnings attributable to assets
contributed - - 4,117 - 4,117
------ ------ -------- -------- -------
Balance at December 31, 1996 - - 52,517 - 52,517
Paid-in capital - - 4,562 - 4,562
Earnings attributable to assets
contributed - - 3,602 - 3,602
Issuance of common stock 1,000 1 - - 1
------ ------ -------- -------- -------
Balance at December 31, 1997 1,000 1 60,681 - 60,682
Paid-in capital - - 1,328 - 1,328
Return of capital - - (1,886) - (1,886)
Net loss - - - (7,119) (7,119)
Dividends paid - - (4,655) - (4,655)
------ ------ -------- -------- -------
Balance at December 31, 1998 1,000 1 55,468 (7,119) 48,350
Net loss (unaudited) - - - (1,568) (1,568)
------ ------ -------- -------- -------
Balance at June 30, 1999 (unaudited) 1,000 $1 $55,468 $(8,687) $46,782
------ ------ -------- -------- -------
------ ------ -------- -------- -------
</TABLE>

SEE ACCOMPANYING NOTES.

F-5

KING RANCH ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
----------------- ------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss) $ (1,568) $ (2,210) $ (7,119) $ 3,602 $ 4,117
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depletion, depreciation, amortization and
impairment of properties 12,081 11,024 26,363 16,217 20,916
Dry hole costs 2,393 5,774 8,397 7,401 3,175
Gain on sale of unproved properties - - - (238) (294)
Deferred income tax provision (benefit) (1,102) 3,282 1,793 1,570 (2,334)
Deferred revenues - - - - (412)
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable - Affiliate - 23,603 23,603 1,849 (24,576)
Accounts receivable - Trade 1,205 2,195 (313) 2,575 941
Inventories, prepaid and other assets 1,423 (219) (1,456) 197 117
Accounts payable - Affiliate 5,046 4,266 4,271 - -
Accounts payable - Non Affiliate (7,041) 268 2,943 (1,601) 3,859
Current income taxes receivable/payable -
Affiliate (216) (4,635) (6,472) (3,619) (1,640)
-------- -------- -------- -------- -------
Net Cash by Operating Activities 12,221 43,348 52,010 27,953 3,869
-------- -------- -------- -------- -------
Investing Activities
Proceeds from the sale of properties - 300 300 755 1,445
Additions to oil and gas properties (12,854) (43,976) (63,180) (33,169) (13,990)
Additions to other property and equipment - (260) (260) (85) (498)
Other (7) 15 7 (17) 21
-------- -------- -------- -------- -------
Net Cash Used in Investing Activities (12,861) (43,921) (63,133) (32,516) (13,022)
-------- -------- -------- -------- -------
Financing Activities
Dividends paid - - (4,655) - -
Paid-in capital - 573 1,328 4,562 7,509
Issuance of common stock - - - 1 -
Notes payable - Affiliate 640 - 14,450 - -
-------- -------- -------- -------- -------
Net Cash Provided by Financing Activities 640 573 11,123 4,563 7,509
-------- -------- -------- -------- -------

Net Increase in Cash - - - - (1,644)
Cash and Cash Equivalents at Beginning of Year - - - - 1,644
-------- -------- -------- -------- -------
Cash and Cash Equivalents at End of Year $ - $ - $ - $ - $ -
======== ======== ======== ======== =======
Noncash Transaction - Return of Capital $ - $ 1,886 $ 1,886 $ - $ -
======== ======== ======== ======== =======
</TABLE>
SEE ACCOMPANYING NOTES.

F-6

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

King Ranch Energy, Inc. (the "Company"), a Delaware corporation, is
a wholly owned subsidiary of King Ranch Minerals, Inc. ("KRM" or
"Parent"). KRM is a wholly owned subsidiary of King Ranch, Inc.
("KRI"). Effective on the close of business on December 31, 1997,
KRI reorganized the structure of its energy operations. On that
date, all of the onshore and offshore working interests and related
assets owned by KRM were transferred to the Company. The
accompanying consolidated financial statements present the balances
and results of operations applicable to the contributed assets.

The consolidated financial statements presented herein at June 30, 1999
and for the six-month periods ended June 30, 1999 and 1998 are
unaudited; however, all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods covered
have been made and are of a normal recurring nature. Accounting
measurements at interim dates inherently involve greater reliance on
estimates than at year end. The results of the interim periods are not
necessarily indicative of results to be expected for the full year.

NATURE OF OPERATIONS

The Company is an independent oil and gas exploration and production
company with operations primarily onshore in Texas, Oklahoma,
Louisiana, North Dakota, and Utah and in the Gulf of Mexico, offshore
Texas and Louisiana.

REVENUE RECOGNITION

The Company recognizes oil and gas revenue from its royalty and working
interests in producing wells as oil and gas is produced and sold from
those wells. Oil and gas sold by the Company is not significantly
different from the Company's share of production.

PROPERTY AND EQUIPMENT AND DEPLETION, DEPRECIATION, AND AMORTIZATION

OIL AND GAS PROPERTIES

The Company accounts for oil and gas properties using the
successful efforts method of accounting. Costs to acquire
mineral interests in oil and gas properties, to drill and
equip exploratory wells which find proved reserves, and to
drill and equip developmental wells are capitalized.
Exploratory geological and geophysical costs, delay rentals,
and costs to drill exploratory wells which do not find
proved reserves are expensed. Properties are periodically
reviewed for impairment with valuation reserves provided as
required.

Depletion, depreciation, and amortization of costs incurred
in connection with the drilling and development of proved
oil and gas reserves and estimated future abandonment and
dismantlement costs are amortized on a field-by-field basis

F-7

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

using the unit-of-production method based upon estimates of
proved developed oil and gas reserves. The property acquisition
costs of producing properties are amortized on a field-by-field
basis using the unit-of-production method based on estimates of
total proved reserves.

OTHER PROPERTY AND EQUIPMENT

Other property and equipment are stated at cost. Depreciation
is determined using accelerated methods over the estimated
useful lives of the assets.

Repair and maintenance costs are charged to expense as
incurred. Major additions and betterments are capitalized.
Asset and accumulated depreciation accounts are relieved for
dispositions with resulting gains or losses reflected in
income.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company impairs certain producing properties when the market
indicates the carrying amounts of such properties may not be
recoverable. Fair value for producing oil and gas properties is
determined based upon estimated future cash flows on a field-by-field
basis. An impairment loss of approximately $2,511,000, $1,867,000 and
$4,370,000 was recorded for the years ended December 31, 1998, 1997 and
1996, respectively.

The Company also impairs nonproducing leaseholds when such leases are
determined to have a recoverable value less than cost. An impairment
loss of $1,823,000, $2,670,000 and $1,533,000 was recorded for the years
ended December 31, 1998, 1997 and 1996, respectively.

INCOME TAXES

The Company follows the liability method of accounting for income taxes.
Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities recognized for financial
reporting purposes and such amounts recognized for tax purposes at the
enacted tax rates at the end of the period. KRI files a consolidated
federal income tax return which includes the Company. The Company will
pay or receive from KRI the amount of income taxes currently payable or
refundable computed as if the Company filed its annual tax return on a
separate Company basis, except that income tax benefits are recognized
only to the extent utilized by KRI. The Company paid KRI approximately
$514,000, $2,893,000 and $1,026,000 related to their portion of taxes
due during 1998, 1997 and 1996, respectively.

FINANCIAL INSTRUMENTS

The Company uses financial instruments on a limited basis (primarily
futures contracts and swap agreements) as an extension of its natural
gas sales. All such transactions are for natural gas produced by the
Company and hedge future price fluctuations. Accordingly, gains or
losses are deferred until such time as the hedged production is sold.

F-8

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The following table sets forth the Company's open hedging contracts
for natural gas and the weighted average fixed prices hedged under
various swap agreements entered into as of December 31, 1998. Under
these contracts the Company will receive the fixed price displayed
below and will pay the prevailing NYMEX price at the maturity date
of the respective hedge contracts. As of December 31, 1998, the
prevailing NYMEX price was $1.83 per MMBTU.

<TABLE>
<CAPTION>
NATURAL GAS
-----------
MMBTU PRICE
----- -----
<S> <C> <C>
1999 580,000 $2.33
1999 1,260,000 2.35

2000 219,000 2.26
2000 780,000 2.29

</TABLE>

EMPLOYEE BENEFIT PLANS

Eligible Company employees participate in various benefit plans
sponsored by KRI. KRI does not allocate any expenses associated with
these plans to the Company. See Note 3.

CONCENTRATION OF RISK

Substantially all of the Company's trade accounts receivable result
from oil and gas sales or joint interest billings to third parties in
the oil and gas industry. Historically, the Company has not experienced
credit losses on such receivables.

USE OF ESTIMATES

The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts.
Actual results could differ from these estimates.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years
consolidated financial statements for consistency with the current year
presentation.

2. INCOME TAXES

Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1998 and 1997 are as follows (in
thousands):

F-9

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Difference between tax and book bases of oil and gas properties $(856) $324
----- ----
Net Deferred Tax Assets (Liabilities) $(856) $324

</TABLE>

2. INCOME TAXES (CONTINUED)

Significant components of the income tax provision
(benefit) are as follows for the years ended December 31,
1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $(5,958) $ (81) $ 4,246
State 44 191 (76)
------- ------- --------
Total Current (5,914) 110 4,170

Total Deferred - Federal 1,793 1,570 (2,334)
------- ------- --------
$(4,121) $1,680 $ 1,836
======= ======= ========
</TABLE>

The reconciliation of income tax computed at the U.S.
federal statutory tax rates to income tax expense for the
years ended December 31, 1998, 1997 and 1996 are as
follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------ --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. $ (3,934) (35.00)% $ 1,849 35.00% $ 2,084 35.00%
statutory rates
Percentage depletion (161) (1.43) (279) (5.28) (172) (2.89)
State income tax 29 0.26 191 3.61 (76) (1.27)
Other, net (55) (0.49) (81) (1.52) - -
-------- ------- -------- ----- ------- -------
Total Expense $ (4,121) (36.66)% $ 1,680 31.81% $ 1,836 (30.84)%
======== ======= ======== ===== ======= =======
</TABLE>

3. EMPLOYEE BENEFIT PLANS

Substantially all employees of the Company are covered by
KRI's defined benefit pension plan. The benefits are
based on years of service and the employee's compensation
during the last five years of employment. KRI contributes
amounts to the pension plan sufficient to meet the
minimum funding requirements as set forth in the Employee
Retirement Income Security Act of 1974. At December 31,
1998, 1997 and 1996, the plan's assets at fair value were
in excess of the projected benefit obligation.

Employees of the Company who have one year of service and
are age 21 or older are eligible to participate in KRI's
defined contribution 401(k) Employee Retirement Savings
plan. Contributions are discretionary and payable by KRI.

F-10

Retired employees of the Company are eligible to participate in
KRI's noncontributory defined-benefit postretirement plan covering
all full-time U.S. employees who retire after age 60 with 15 years
of service after age 44 (except for certain grandfathered retirees).
The plan provides for comprehensive medical benefits and term life
insurance benefits.

4. RELATED PARTY TRANSACTIONS

At December 31, 1998, the Company had an account payable and a note
payable to an affiliate in the amount of $4,271,000 and $14,450,000,
respectively. At December 31, 1997, the Company had a receivable
from an affiliate in the amount of $23,603,000. These related funds
are borrowed from or swept into the consolidated entity for cash
management and investment purposes. During December 1998, the
affiliate charged the Company $50,000 in interest related to amounts
outstanding under the note payable. Prior to December 1998, the
Company did not record interest income or expense associated with
such funds.

The Company was charged an annual fee of $500,000, $250,000 and
$250,000 by an affiliate for the use of the King Ranch trademark and
brand for 1998, 1997 and 1996, respectively Effective January 1,
1998, the Company contributed $1,886,000 of certain producing
properties to KRM.

5. LEASE COMMITMENTS

The Company leases office space under a noncancelable operating
lease agreement which expires on July 31, 2001. The lease comprises
18,063 square feet, of which KRI utilizes square footage as needed
from the Company.

Rent expense charged to operations was $198,000 for the years ended
December 31, 1998 and 1997 and $45,000 for the year ended December
31, 1996.

Future minimum lease payments under noncancellable operating leases
as of December 31, 1998 are as follows (in thousands):

<TABLE>

<S> <C>
1999 $181
2000 217
2001 126
----
524
----

Less: Sublease rental income 210
----
$314
====
</TABLE>

6. CONTINGENCIES

The Company is party to other litigation and claims which management
believes are normal in the course of its operations; while the
results of such litigation and claims cannot be predicted with
certainty, the Company believes the final outcome of such matters
will not have a material adverse effect on its results of operations
or financial position.

The Company was sued on October 5, 1998 by Pi Energy Corporation
alleging that the Company failed to perform under the terms of a
letter of intent (and other alleged agreements) to purchase

F-11

an interest in certain leases in Redfish Bay, located in state
waters off of Corpus Christi, Texas, for $10.5 million. Although the
Company believes Pi Energy claims are without substantial merit, the
case is in a preliminary stage which makes it difficult to predict
the ultimate result.

KRI and KRM are 2 of more than 100 named defendants in a suit
originally brought in the 28th District Court of Nueces County,
Texas styled No. 95-2273-A; William Warren Chapman, III et. al. V.
The King Ranch, Inc., King Ranch Oil and Gas, Inc., et. al. The
plaintiffs seek a one-half interest in approximately 15,500 acres in
Kleberg County, Texas-owned or previously owned by KRI, its
predecessors in title, and some of its stockholders. In addition,
the plaintiffs seek rentals, royalties, and other income from the
property since 1883. KRM currently owns mineral interests underlying
the property. On January 13, 1998, the Court entered a summary
judgment in favor of all defendants. The plaintiffs have appealed.

7. SUBSEQUENT EVENTS (UNAUDITED)

On February 18, 1999, the Company acquired a 50% interest in the Flour
Bluff field located in Nueces County, Texas for $4,375,000. The
transaction, which was effective January 4, 1999, added approximately
12.7 Bcfe of proven reserves, 90% of which is natural gas, based on a
report by Ryder Scott Company. The field has an estimated reserve life
of 28 years and encompasses approximately 6,500 net acres.

In July 1999, KRI agreed in principle to sell the Company to St. Mary
Land & Exploration Company ("St. Mary"). Consideration for the sale is
expected to be through newly issued shares of St. Mary's common stock,
the purchase price is subject to final determination at closing, which
is expected to occur during the third quarter of 1999.

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

The following information concerning the Company's oil and gas
operations has been prepared in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 69, "Disclosure about Oil and Gas
Producing Activities."

The information concerning sales prices and production costs,
capitalized costs of oil and gas properties, costs incurred in property
acquisition, exploration, and development, and operating results from
oil and gas producing activities is taken from the Company's accounting
records with the exception of income taxes. Income tax provisions are
calculated using statutory tax rates and reflect permanent differences
and tax credits and allowances relating to oil and gas operations that
are reflected in the Company's consolidated income tax provision for
the period. The pretax income from oil and gas producing activities
does not agree with the Company's accounting records due to the
exclusion of certain expenses from the information shown as required by
SFAS No. 69.

The following table presents the average sales price per unit of
natural gas and crude oil produced and the production costs per MCF of
gas equivalent for the years ended December 31, 1998, 1997 and 1996:

F-12

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

SALES PRICES AND PRODUCTION COSTS

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
AVERAGE SALES PRICE (1):
Natural Gas (per MCF) (2) $ 2.24 $ 2.65 $ 2.54

Crude Oil (per barrel) $12.25 $18.85 $19.58
PRODUCTION COSTS PER MCF EQUIVALENT (3) $ 0.46 $ 0.37 $ 0.28
</TABLE>

(1) Excludes hedging gains of $815,000, $33,000
and $0 for 1998, 1997 and 1996, respectively.

(2) Includes product processing revenue of $342,000, $359,000
and $500,000 for 1998, 1997 and 1996, respectively.

(3) Excludes production taxes of $294,000, $335,000 and
$264,000 for 1998, 1997 and 1996, respectively.

The following table presents the Company's aggregate capitalized costs
relating to oil and gas producing activities, all located in the United
States, and the aggregate amount of related depletion, depreciation,
and amortization for the years ended December 31, 1998, 1997 and 1996
(in thousands):

CAPITALIZED COSTS OF OIL AND GAS PROPERTIES

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Capitalized Costs:
Proved Developed Properties $254,011 $210,315 $208,971
Proved Undeveloped Properties 5,228 5,538 3,383
Unproved Properties 17,235 14,014 6,321
-------- -------- --------
276,474 229,867 218,675
-------- -------- --------

Reserves for Depletion, Depreciation, and Amortization:
Proved Developed Properties 204,016 184,205 184,749
Unproved Properties 4,509 5,071 2,608
-------- -------- --------
208,525 189,276 187,357
-------- -------- --------
Net Capitalized Costs $ 67,949 $ 40,591 $ 31,318
-------- -------- --------
-------- -------- --------
</TABLE>

The following table presents both capitalized and expensed costs
incurred by the Company for oil and gas property acquisition,
exploration, and development activities, all located in the United
States, for the years ended December 31, 1998, 1997 and 1996 (in
thousands):

F-13

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

COSTS INCURRED IN PROPERTY ACQUISITION, EXPLORATION, AND
DEVELOPMENT ACTIVITIES

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Acquisition costs:
Proved properties $16,341 $ - $ -
Unproved properties 8,981 8,990 8,415
Exploration costs 27,819 16,611 6,443
Development costs 12,359 11,798 1,430
------- ------- -------
$65,500 $37,399 $16,288
------- ------- -------
------- ------- -------
</TABLE>

The results of operations from oil and gas producing activities, all
located in the United States, for the years ended December 31, 1998,
1997 and 1996, consisted of the following (in thousands):

RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales and services $39,290 $43,239 $41,115
Production costs 8,373 6,848 4,402
Exploration expenses 12,301 11,935 7,240
Depletion, depreciation, amortization expense, and
impairment of properties 26,183 16,025 20,711
Income tax expense (benefit) (4,338) 1,644 1,402
------- ------- -------
Results of Operations from Producing Activities* $(3,229) $ 6,787 $ 7,360
------- ------- -------
------- ------- -------
</TABLE>
*Before deducting general, administrative, and interest expense

OIL AND GAS RESERVE INFORMATION

The following table sets forth the Company's reconciliation of the
changes from January 1, 1996 to December 31, 1998 in estimated net
proved oil and gas reserve quantities. This information has been
determined by independent and Company oil and gas reservoir engineers.
All of the Company's reserves are located in the United States.

Proved reserves are the estimated quantities of crude oil and natural
gas which, based upon analysis of geological and engineering data,
appear with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions,
e.g., prices and costs as of the date the estimate is made. Reservoirs
are considered proved if economic producibility is supported by actual
production or conclusive formation testing. Proved developed reserves
are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods

It should be stressed that these reserve quantities are estimates and
may be subject to substantial upward or downward revisions as indicated
by past experience. The estimates are based on the most current and
reliable information available; however, additional information

F-14

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

obtained through future production experience and additional
development of existing reservoirs may significantly alter previous
estimates of proved reserves. Future changes in the costs to develop
and produce reserves can also result in substantial revisions to proved
reserve estimates.

These estimates relate only to those reserves which meet the Securities
and Exchange Commission's (the "SEC") definition of proved reserves and
do not consider probable reserves and the likelihood of their recovery
which, if considered, could result in substantial increases in reported
reserves.

<TABLE>
<CAPTION>
MBbls Bcf
----- ---
<S> <C> <C>
Net Proved Reserves at January 1, 1996 1,043 45.332

Revisions of previous estimates 852 (3.052)
Extensions, discoveries and other additions 147 9.971
Production (325) (13.464)
------ -------
Net Proved Reserves at December 31, 1996 1,717 38.787

Revisions of previous estimates 33 3.624
Extensions, discoveries and other additions 54 9.040
Sales and transfers of minerals in place (28) (0.014)
Purchases of reserves in place 0 0.299
Production (369) (13.535)
------ -------
Net Proved Reserves at December 31, 1997 1,407 38.201

Revisions of previous estimates (2,052) (3.698)
Extensions, discoveries and other additions 823 13.490
Transfer of minerals in place to KRM (56) (2.713)
Purchases of reserves in place 1,982 11.849
Production (429) (14.826)
------ -------
Net Proved Reserves at December 31, 1998 1,675 42.303
------ -------
------ -------
Net Proved Developed Reserves:
January 1, 1996 989 38.092
December 31, 1996 1,581 30.964
December 31, 1997 1,406 37.345
December 31, 1998 1,434 39.910
</TABLE>

The information presented below concerning the net present value of
after-tax cash flows for the Company's oil and gas producing operations
is required by SFAS No. 69 in an attempt to make comparable information
concerning oil and gas producing operations available for financial
statement users. The information is based on proved reserves as of
December 31 for each year and has been prepared in the following
manner:

F-15

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

1. Estimates were made of the future periods in which proved
reserves would be produced based on year-end economic
conditions.

2. The estimated future production streams of proved reserves
have been priced using year-end prices.

3. The resulting future gross cash inflows have been reduced by
the estimated future costs to develop and produce the proved
reserves at year-end cost levels.

4. Future income tax payments have been computed by the Company
at statutory rates based on the net future cash inflows, the
remaining tax basis in oil and gas properties, permanent
differences between book and tax income, and tax credits or
other tax benefits available related to the oil and gas
operations.

5. The resulting after-tax future net cash flows are discounted
to present value amounts by applying a 10% annual discount
factor.

The net present value of future cash flows, computed as prescribed by
SFAS No. 69, should not be construed as the fair value of the Company's
oil and gas operations. The computation is based on assumptions which
in some cases may not be realistic and estimates which are subject to
substantial uncertainties. Since the discounted cash flows are based on
proved reserves as defined by the SEC, they are subject to the same
uncertainties and limitations inherent in the reserve estimates which
include, among others, no consideration of probable reserves.
Additionally, the timing of future production and cash flows, given the
current state of the U.S. natural gas market, is subject to significant
uncertainty. The use of a 10% discount factor by all companies does not
provide a basis for quantifying differences in risk with respect to oil
and gas operations among different companies. The computation also
ignores the impact future exploration and development activities may
have on profitability.

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES (IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Future cash inflows $104,725 $111,099 $167,201
Future development and production costs 46,097 37,542 39,915
Future income tax payments 5,865 14,077 32,294
-------- -------- --------
Future net cash flows 52,763 59,480 94,992
10% annual discount 9,909 12,636 23,591
-------- -------- --------
Standardized Measure of Discounted
Future Net Cash Flows $ 42,854 $ 46,844 $ 71,401
-------- -------- --------
-------- -------- --------
</TABLE>

F-16

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS RELATING TO PROVED RESERVES (IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales and transfers, net of production costs $(30,917) $(36,391) $(36,713)
Net changes in prices and production costs (14,265) (37,111) 43,366
Extensions and discoveries, net of future
production and development costs 16,848 13,432 25,876
Changes in estimated future development costs (9,020) (3,955) (1,206)
Development costs incurred during the
period that reduced future development costs 10,466 9,424 4,614
Revisions of quantity estimates (18,605) 5,802 4,468
Sales of reserves (2,786) (361) -
Purchases of reserves in place 27,597 223 -
Accretion of discount 5,816 10,022 4,611
Net change in income taxes 6,124 13,755 (12,810)
Changes in production rates, timing and other 4,752 603 (6,911)
-------- -------- --------
Net Change (3,990) (24,557) 25,295

Standardized Measure, Beginning of Year 46,844 71,401 46,106
-------- -------- --------

Standardized Measure, End of Year $ 42,854 $ 46,844 $ 71,401
-------- -------- --------
-------- -------- --------
</TABLE>

F-17

Annex A

AGREEMENT AND PLAN OF MERGER

dated

July 27, 1999

among

ST. MARY LAND & EXPLORATION COMPANY,

ST. MARY ACQUISITION CORPORATION,

KING RANCH, INC.

and

KING RANCH ENERGY, INC.

A-1

TABLE OF CONTENTS

Page

RECITALS.....................................................................A-7

ARTICLE I

THE MERGER...................................................................A-8
Section 1.1 The Merger..........................................A-8
Section 1.2 Closing.............................................A-8
Section 1.3 Effective Time......................................A-8
Section 1.4 Effects of the Merger...............................A-8
Section 1.5 Certificate of Incorporation........................A-9
Section 1.6 Bylaws..............................................A-9
Section 1.7 Directors of Surviving Corporation..................A-9
Section 1.8 Officers of Surviving Corporation...................A-9

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES; CASH SETTLEMENT ...............A-9
Section 2.1 Effect on Capital Stock.............................A-9
(a) Conversion of KRE Common Stock......................A-9
(b) Capital Stock of Merger Sub........................A-10
Section 2.2 Exchange of Certificates...........................A-10
(a) Exchange at Closing................................A-10
(b) No Further Ownership Rights in KRE Capital Stock...A-10
(c) Further Assurances.................................A-10

ARTICLE III

REPRESENTATIONS AND WARRANTIES..............................................A-10
Section 3.1 Representations and Warranties of KRI..............A-10
(a) Organization and Standing of KRI...................A-10
(b) Authority; No Conflicts............................A-11
(c) Ownership and Distribution of KRE Common Stock.....A-11
(d) Finders or Advisors................................A-11
Section 3.2 Representations and Warranties of KRI and KRE......A-12
(a) Organization and Standing of KRE...................A-12
(b) Authority; No Conflicts............................A-12
(c) Capitalization of KRE and Indebtedness for
Borrowed Moneys ..................................A-13
(d) KRE Financial Statements...........................A-13
(e) Present Status.....................................A-14
(f) Litigation.........................................A-14

A-2

(g) Compliance With the Law and Other Instruments......A-14
(h) Title to Properties and Assets.....................A-14
(i) Oil and Gas Leases and Wells.......................A-14
(j) Records............................................A-15
(k) Absence of Certain Changes or Events...............A-15
(l) Taxes..............................................A-15
(m) Environmental Matters..............................A-16
(n) KRE Benefit Plans..................................A-16
(o) Year 2000 Matters..................................A-20
(p) Confidentiality Agreements.........................A-20
(q) Vote Required......................................A-20
(r) Fairness Opinion. ................................A-21
(s) Full Disclosure....................................A-21
Section 3.3 Representations and Warranties by St. Mary.........A-21
(a) Organization and Standing of St. Mary..............A-21
(b) Authority; No Conflicts............................A-21
(c) Capitalization of St. Mary and Indebtedness for
Borrowed Moneys...................................A-22
(d) St. Mary SEC Reports and Financial Statements......A-23
(e) Present Status.....................................A-24
(f) Litigation.........................................A-24
(g) Compliance With the Law and Other Instruments......A-24
(h) Title to Properties and Assets.....................A-24
(i) Oil and Gas Leases and Wells.......................A-24
(j) Records............................................A-25
(k) Absence of Certain Changes or Events...............A-25
(l) Taxes..............................................A-25
(m) Environmental Matters..............................A-26
(n) St. Mary Benefit Plans.............................A-26
(o) Year 2000 Matters..................................A-29
(p) Finders and Advisors...............................A-29
(q) Vote Required......................................A-29
(r) Fairness Opinion...................................A-30
(s) Full Disclosure....................................A-30
Section 3.4 Representations and Warranties of St. Mary and
Merger Sub .......................................A-30
(a) Organization and Standing of Merger Sub............A-30
(b) Authority..........................................A-30
(c) Non-Contravention..................................A-30
(d) No Business Activities by Merger Sub...............A-30

ARTICLE IV

COVENANTS RELATING TO CONDUCT OF BUSINESS...................................A-31
Section 4.1 Covenants of KRI and KRE...........................A-31

A-3

(a) Ordinary Course....................................A-31
(b) Dividends; Changes in Share Capital................A-32
(c) Issuance of Securities.............................A-32
(d) Governing Documents................................A-32
(e) No Acquisitions....................................A-32
(f) No Dispositions....................................A-33
(g) Investments; Indebtedness..........................A-33
(h) Tax-Free Qualification.............................A-33
(i) Compensation.......................................A-33
(j) Accounting Methods; Income Tax Elections...........A-33
(k) Preservation of Property...........................A-33
Section 4.2 Covenants of St. Mary..............................A-34
(a) Ordinary Course....................................A-34
(b) Dividends; Changes in Share Capital................A-34
(c) Issuance of Securities.............................A-34
(d) Governing Documents................................A-35
(e) Tax-Free Qualification.............................A-35
Section 4.3 Advice of Changes; Governmental Filings............A-35

ARTICLE V

ADDITIONAL AGREEMENTS.......................................................A-36
Section 5.1 Preparation of Proxies and Registration
Statement; Meeting of St. Mary Shareholders.......A-36
Section 5.2 Confidentiality - Access to Information............A-37
Section 5.3 Commercially Reasonable Efforts....................A-37
Section 5.4 Public Announcements...............................A-38
Section 5.5 Restrictions on Transfer of St. Mary Common Stock..A-38
Section 5.6 Representation on St. Mary Board of Directors......A-39
Section 5.7 Expenses...........................................A-40
Section 5.8 King Ranch Trademark and Brand.....................A-40
Section 5.9 KRE Employee Severance Payments....................A-40
Section 5.10 368(a) Reorganization..............................A-41
Section 5.11 355 Distribution...................................A-41
Section 5.12 Continuity of Business.............................A-41
Section 5.13 Indemnification of Officers and Directors..........A-41
Section 5.14 Retained Litigation................................A-41
Section 5.15 Stockholder's Representative.......................A-41
Section 5.16 Voting Commitments.................................A-42
Section 5.17 No Solicitation....................................A-42
Section 5.18 Seismic Data.......................................A-42

A-4

ARTICLE VI

INDEMNIFICATION.............................................................A-43
Section 6.1 Indemnification by KRI.............................A-43
Section 6.2 Indemnification by St. Mary........................A-43
Section 6.3 Notice and Defense of Third-Party Claims...........A-43
Section 6.4 Limitation of Liability............................A-44
Section 6.5 Exclusivity........................................A-46
Section 6.6 Waiver of Consequential Damages....................A-46

ARTICLE VII

CONDITIONS TO CLOSING.......................................................A-46
Section 7.1 Conditions to Each Party's Obligation to
Effect the Merger ................................A-46
(a) Shareholder Approvals..............................A-46
(b) No Injunctions, Restraints or Illegality...........A-47
(c) Effectiveness of the Form S-4......................A-47
(d) Nasdaq Listing.....................................A-47
(e) Consummation of the Distribution...................A-47
Section 7.2 Additional Conditions to Obligations of
St. Mary and Merger Sub...........................A-47
(a) Representations and Warranties.....................A-47
(b) Performance of Obligations of KRI and KRE..........A-47
(c) Settlement for KRI-KRE Intercompany Balances.......A-47
(d) Certificate of Officers............................A-48
(e) Opinion of Financial Advisor.......................A-48
(f) Opinion of Counsel................................A-48
(g) Non-Exercise of Appraisal Rights...................A-48
(h) Eugene Island Block 341............................A-48
(i) Affiliate Restrictions.............................A-49
Section 7.3 Additional Conditions to Obligations of KRE and
the Shareholders of KRE...........................A-49
(a) Representations and Warranties.....................A-49
(b) Performance of Obligations of St. Mary and
Merger Sub .......................................A-49
(c) Settlement of KRI-KRE Intercompany Balances........A-49
(d) Certificate of Officers............................A-49
(e) Opinion of Financial Advisor.......................A-49
(f) Opinion of Counsel.................................A-49
(g) Tax Certificate....................................A-49
(h) Tax Opinion........................................A-50

A-5

ARTICLE VIII

TERMINATION AND AMENDMENT...................................................A-50
Section 8.1 Termination........................................A-50
Section 8.2 Effect of Termination..............................A-51
Section 8.3 Amendment..........................................A-52
Section 8.4 Extension; Waiver..................................A-53

ARTICLE IX

ARBITRATION.................................................................A-53
Section 9.1 Mediation..........................................A-53
Section 9.2 Arbitration........................................A-53
Section 9.3 Costs; Enforcement.................................A-55

ARTICLE X

MISCELLANEOUS...............................................................A-55
Section 10.1 Nature of Representations and Warranties;
Survival ........................................A-55
Section 10.2 Counterparts and Facsimile Signatures.............A-55
Section 10.3 Assignment........................................A-56
Section 10.4 Representative of KRH, KRM and KRE................A-56
Section 10.5 Entire Agreement..................................A-56
Section 10.6 Governing Law.....................................A-56
Section 10.7 Severability......................................A-56
Section 10.8 Notices...........................................A-56
Section 10.9 Attorney Fees.....................................A-57
Section 10.10 Certain Definitions..............................A-58

A-5

SCHEDULES/EXHIBITS

3.1 KRI Disclosure Schedule
3.1(b)(iii) Consents
3.2 KRE Disclosure Schedule
3.2(b)(ii) No Conflicts
3.2(b)(iii) Consents
3.2(e) Present Status
3.2(f) Litigation
3.2(h) Title to Properties and Assets
3.2(k) Absence of Certain Changes or Events
3.2(l) Taxes
3.2(m) Environmental Matters
3.2(n) KRE Benefit Plans
3.2(n)(vii) Severance or Other Compensation
3.2(o) Year 2000 Matters
3.3 St. Mary Disclosure Schedule
3.3(a) St. Mary Subsidiaries
3.3(c) Additional Options
3.3(f) Litigation
3.3(h) Title to Properties and Assets
3.3(n) St. Mary Benefit Plans
4.1(a)(ii) KRE Capital Expenditures Over $500,000
4.2(a)(ii) St. Mary Capital Expenditures Over $1,000,000
5.5(b)(ii) Thomas E. Congdon Letter Regarding Congdon Group
5.9 KRE Employee Severance Payments
7.3(g) Form of Tax Certificate

A-6

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into this
27th day of July, 1999 among St. Mary Land & Exploration Company, a Delaware
corporation ("St. Mary"), St. Mary Acquisition Corporation, a Colorado
corporation and newly formed first-tier wholly owned subsidiary of St. Mary
("Merger Sub"), King Ranch, Inc., a Texas corporation ("KRI"), and King Ranch
Energy, Inc., a Delaware corporation and a wholly owned third-tier subsidiary of
KRI ("KRE").

RECITALS

WHEREAS, the respective Boards of Directors of St. Mary, Merger Sub, KRI
and KRE have each determined that the merger of Merger Sub with and into KRE
(the "Merger") is advisable and is in their best interests and in the best
interests of their respective shareholders, and such Boards of Directors have
approved such Merger, upon the terms and subject to the conditions set forth in
this Agreement;

WHEREAS, St. Mary desires to avoid the concentration of the ownership of
the St. Mary Common Stock in a single shareholder, and therefore, to induce St.
Mary to enter into this Agreement and consummate the transactions described
herein, immediately prior to the Merger all of the shares of common stock of KRE
shall be distributed (A) by King Ranch Minerals, Inc., a Delaware corporation
("KRM"), the sole shareholder of KRE and a wholly owned subsidiary of King Ranch
Holdings, Inc., a Delaware corporation ("KRH") and a wholly owned subsidiary of
KRI, to KRH, (B) by KRH to KRI, and (C) by KRI pro rata to the shareholders of
KRI (the "Spin-Off") (all of the foregoing, together with the Spin-Off,
collectively referred to as the "Distributions");

WHEREAS, as a result of the Distributions, the shareholders of KRI will
receive all of the common stock of KRE while maintaining their current ownership
of KRI;

WHEREAS, pursuant to the terms of this Agreement, upon consummation of the
Merger, St. Mary will issue to the shareholders of KRE, with respect to their
ownership of all of the shares of common stock of KRE, shares of common stock,
par value $.01 per share, of St. Mary ("St. Mary Common Stock") as set forth in
Section 2.1 hereof;

WHEREAS, St. Mary, Merger Sub, KRI and KRE desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to set forth various conditions to the
transactions contemplated hereby; and

WHEREAS, for federal income tax purposes it is intended that the Merger
qualify as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder, and St. Mary, Merger Sub, KRE and the shareholders of
KRI as the subsequent shareholders of KRE intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of

A-7

reorganization within the meaning of Section 368(a) of the Code and the
regulations promulgated thereunder.

NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, and intending to be legally bound
hereby, the parties hereto agree as follows:

ARTICLE I

THE MERGER

Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the corporate laws of Delaware
and Colorado, Merger Sub shall be merged with and into KRE at the Effective Time
(as defined in Section 1.3). Following the Merger, the separate corporate
existence of Merger Sub shall cease and KRE shall continue as the surviving
corporation (the "Surviving Corporation") under the name St. Mary Energy Company
and shall succeed to and assume all the rights and obligations of Merger Sub in
accordance with the corporate laws of Delaware and Colorado.

Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 2:00 p.m. Denver, Colorado time on the first business day after the
satisfaction or waiver (subject to applicable law) of the conditions set forth
in Article VII of this Agreement (the "Closing Date"), at the offices of Ballard
Spahr Andrews & Ingersoll, 1225 17th Street, Suite 2300, Denver, Colorado,
unless another date or place is agreed to in writing by the parties hereto. The
parties agree to use all reasonable efforts to close the Merger as soon as
practicable, subject to Article VII hereof.

Section 1.3 Effective Time. Immediately following the Closing, the parties
shall execute and file a certificate of merger or other appropriate documents
(in any such case, the "Certificate of Merger") in accordance with the relevant
provisions of the corporate laws of Delaware and Colorado and shall make all
other filings or recordings required under the corporate laws of Delaware and
Colorado. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State and the Colorado
Secretary of State, or at such subsequent time as the parties shall agree, which
subsequent time shall be specified in the Certificate of Merger (the time the
Merger becomes effective being hereinafter referred to as the "Effective Time").

Section 1.4 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in the corporate laws of Delaware and
Colorado. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time all the property, rights, privileges, powers and
franchises of KRE and Merger Sub shall be vested in the Surviving Corporation,
and, except for the indemnification obligations of KRI set forth in Article VI

A-8

hereof, all debts, liabilities and duties of KRE and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.

Section 1.5 Certificate of Incorporation. At the Effective Time, the
certificate of incorporation of the Surviving Corporation shall be amended in
accordance with the corporate laws of Delaware such that the certificate of
incorporation of the Surviving Corporation shall consist of the provisions of
the articles of incorporation of Merger Sub, except that Article I of the
certificate of incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "The name of the corporation shall be St. Mary
Energy Company."

Section 1.6 Bylaws. The bylaws of Merger Sub as in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.

Section 1.7 Directors of Surviving Corporation. The directors of Merger
Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.

Section 1.8 Officers of Surviving Corporation. The officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES; CASH SETTLEMENT

Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger:

(a) Conversion of KRE Common Stock. The total number of shares of
KRE Common Stock issued and outstanding immediately prior to the Effective
Time shall be automatically converted into a total of 2,666,252 shares of
St. Mary Common Stock (the "St. Mary Share Issuance"). Certificates
representing the shares of St. Mary Common Stock to be issued hereby shall
be delivered pro rata to the shareholders of KRE at the Closing in
exchange for their surrender of all KRE Common Stock certificates. At the
Effective Time, all such shares of KRE Common Stock shall cease to be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and KRM, KRH, KRI and the shareholders of KRI shall
thereafter cease to have any rights with respect to such shares of KRE
Common Stock.

A-9

(b) Capital Stock of Merger Sub. Each share of common stock, par
value $.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be automatically converted into and
become one fully paid and nonassessable share of common stock, par value
$.01 per share, of the Surviving Corporation.

Section 2.2 Exchange of Certificates.

(a) Exchange at Closing. At the Closing, St. Mary shall deliver pro
rata to the shareholders of KRE certificates aggregating the number of
shares of St. Mary Common Stock set forth in Section 2.1(a) and the
shareholders of KRE shall surrender to St. Mary all certificates
representing all issued and outstanding shares of KRE Common Stock.

(b) No Further Ownership Rights in KRE Capital Stock. All shares of
St. Mary Common Stock issued upon the surrender of KRE Common Stock
certificates in accordance with the terms of this Article II shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to the shares of KRE Common Stock theretofore represented by
such certificates.

(c) Further Assurances. If at any time after the Effective Time, any
further assignments or assurances in law or any other things are necessary
or desirable to vest or to perfect or confirm of record in the Surviving
Corporation the title to any property or rights of either KRE or Merger
Sub, or otherwise to carry out the purposes and provisions of this
Agreement, the officers and directors of the Surviving Corporation are
hereby authorized and empowered, in the name of and on behalf of KRE and
Merger Sub, to execute and deliver any and all things necessary or proper
to vest or perfect or confirm title to such property or rights in the
Surviving Corporation, and otherwise to carry out the purposes and
provisions of this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1 Representations and Warranties of KRI. Except as set forth in
the KRI Disclosure Schedule attached to this Agreement as Schedule 3.1 (each
section of which qualifies the correspondingly numbered representation and
warranty to the extent specified therein), KRI represents and warrants to St.
Mary as follows:

(a) Organization and Standing of KRI. KRI is a corporation duly
organized and validly existing and in good standing under the laws of the
State of Texas. KRI has all requisite corporate power and authority to
enter into this Agreement and to carry out and perform the terms and
provisions of this Agreement.

A-10

(b) Authority; No Conflicts.

(i) The execution, delivery and performance of this Agreement
have been duly authorized by all requisite corporate action on the
part of KRI and KRE. This Agreement has been executed and delivered
by KRI and KRE and constitutes valid and binding obligations of KRI
and KRE enforceable in accordance with its terms (except as limited
by bankruptcy, insolvency, or other laws affecting the enforcement
of creditors' rights).

(ii) The execution and delivery of this Agreement by KRI and
KRE does not, and the consummation of the Merger pursuant to this
Agreement and the other transactions contemplated hereby will not,
conflict with or result in any violation of, or constitute a default
(with or without notice or lapse of time, or both) under, any
provision of the certificate of incorporation or bylaws of KRI or
KRE.

(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any national, state,
municipal or local government, any instrumentality, subdivision,
court, administrative agency or commission or other authority
thereof, or any quasi-governmental or private body exercising any
regulatory, taxing or other governmental or quasi-governmental
authority (a "Governmental Entity"), is required by or is necessary
with respect to KRI or KRE in connection with their execution and
delivery of this Agreement or the consummation of the Merger and the
other transactions contemplated thereby, except for those required
under or in relation to (A) the Securities Act of 1933, as amended
(the "Securities Act"), (B) the corporate laws of Delaware and
Colorado with respect to the filing of the Certificate of Merger
with the Delaware Secretary of State and Articles of Merger with the
Colorado Secretary of State, (C) the rules and regulations of
Nasdaq, and (D) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make
or obtain would not have a Material Adverse Effect on any party
hereto. Consents, approvals, orders, authorizations, registrations,
declarations and filings required under or in relation to any of the
foregoing clauses (A) through (D) are hereinafter referred to as the
"Required Consents."

(c) Ownership and Distribution of KRE Common Stock. KRM owns all of
the issued and outstanding shares of KRE Common Stock free and clear of
any lien, encumbrance or adverse claim. The Boards of Directors of KRM,
KRH and KRI have duly authorized the Distributions.

(d) Finders or Advisors. Except for Nesbitt Burns Securities Inc.
("Nesbitt Burns"), a copy of whose engagement agreement with KRI has been
provided to St. Mary, there is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on
behalf of KRI, KRH, KRM, KRE or the

A-11

shareholders of KRI who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.

Section 3.2 Representations and Warranties of KRI and KRE. Except as set
forth in the KRE Disclosure Schedule attached to this Agreement as Schedule 3.2
(the "KRE Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty to the extent specified
therein), KRI and KRE represent and warrant to St. Mary as follows:

(a) Organization and Standing of KRE. KRE and each of its
Subsidiaries is a corporation duly organized and validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted
and is duly qualified to do business and in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary other than in
such jurisdictions where the failure to so qualify would not, either
individually or in the aggregate, have a Material Adverse Effect on KRE.
KRE is duly qualified to enter into this Agreement and to carry out and
perform the terms and provisions of this Agreement. Except with respect to
the KRE Subsidiaries set forth on the KRE Disclosure Schedule, KRE has no
direct or indirect interest, either by way of stock ownership or
otherwise, in any other firm, corporation, association or business. The
copies of the certificate of incorporation and bylaws of KRE which were
previously furnished to St. Mary are true, complete and correct copies of
such documents as in effect on the date of this Agreement.

(b) Authority; No Conflicts.

(i) The execution, delivery and performance of this Agreement
have been duly authorized by all requisite corporate action on the
part of KRE subject to the Required KRE Vote (as defined below).
This Agreement has been executed and delivered by KRE and
constitutes a valid and binding obligation of KRE enforceable in
accordance with its terms (except as limited by bankruptcy,
insolvency, or other laws affecting the enforcement of creditors'
rights).

(ii) The execution and delivery of this Agreement by KRE does
not, and the consummation of the Merger by KRE and the other
transactions contemplated hereby will not, conflict with, or result
in a violation pursuant to: (A) any provision of the certificate of
incorporation or bylaws of KRE, or (B) any loan or credit agreement,
note, mortgage, bond, indenture, lease, benefit plan or other
agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to KRE or any Subsidiary of KRE or any of
their properties or assets, except as would not have a Material
Adverse Effect on to KRE, subject to obtaining the

A-12

consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below.

(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to KRE or its Subsidiaries in connection
with the execution and delivery of this Agreement by KRE or the
consummation of the Merger and the other transactions contemplated
thereby, except for (A) the Required Consents, (B) such consents,
approvals, orders, authorizations, registrations and declarations by
Governmental Entities (including, without limitation, the Minerals
Management Service, the Bureau of Land Management and all other
federal and state regulatory entities having jurisdiction) in
connection with the transfer, sale or conveyance of oil and gas
leases or interests therein if the same are customarily obtained by
a purchaser subsequent to such sale or conveyance, and (C) such
consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain
would not have a Material Adverse Effect on KRE or its Subsidiaries.

(iv) Except as set forth in the KRE Disclosure Schedule, all
material contracts of KRE shall remain in full force and effect
following, and notwithstanding the consummation of, the Merger.

(c) Capitalization of KRE and Indebtedness for Borrowed Moneys. KRE
is duly and lawfully authorized by its certificate of incorporation, to
issue 1,000 shares of KRE Common Stock, of which as of the date hereof
there are issued and outstanding 1,000 shares. All outstanding shares of
KRE Common Stock have been issued to and are held by KRM. KRE has no
treasury stock and no other authorized series or class of stock. All the
outstanding shares of KRE Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and free of preemptive
rights. Neither KRE nor any of its Subsidiaries is obligated to issue any
additional capital stock or voting securities as a result of any options,
warrants, rights, conversion rights, obligations upon default,
subscription agreements or other obligations of any kind. KRE is not
presently liable on account of any indebtedness for borrowed moneys,
except as reflected in the KRE Financial Statements (as hereinafter
defined) or the KRE Disclosure Schedule.

(d) KRE Financial Statements. KRE has furnished to St. Mary its
audited balance sheets as of December 31, 1996, 1997 and 1998, its audited
statements of income and retained earnings and cash flows for each of the
three years ended December 31, 1998, its unaudited balance sheet as of May
31, 1999, and its unaudited statements of income and cash flows for the
five months ended May 31, 1999 (collectively, the "KRE Financial
Statements"). All of the KRE Financial Statements present fairly, in all
material respects, the financial position of KRE as of the respective
balance sheet dates and the results of its operations and cash flows for
the respective periods therein specified. The KRE Financial Statements
have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis.

A-13

(e) Present Status. Except as otherwise disclosed in the KRE
Disclosure Schedule, from May 31, 1999 to the date of this Agreement, KRE
and its Subsidiaries have not incurred any liabilities that are of a
nature that would be required to be disclosed on a consolidated balance
sheet of KRE and its Subsidiaries or the notes thereto prepared in
accordance with GAAP, other than liabilities incurred in the ordinary
course of business of KRE and which do not have a Material Adverse Effect
on KRE.

(f) Litigation. Except as disclosed in the KRE Financial Statements
or Schedule 3.2(f) hereto, there are no legal actions, suits, arbitrations
or other legal or administrative proceedings pending or, to the Knowledge
of KRI or KRE, threatened against KRE or any Subsidiary of KRE which would
reasonably be expected to have a Material Adverse Effect on KRE and its
Subsidiaries. In addition, neither KRI nor KRE is aware of any facts which
to the best of its Knowledge would reasonably be expected to result in any
action, suit, arbitration or other proceeding which would reasonably be
expected to have a Material Adverse Effect on KRE and its Subsidiaries.
Neither KRE nor any of its Subsidiaries is in default of any judgment,
order or decree of any court or, in any material respect of, any
requirements of a government agency or instrumentality, except as set
forth in the KRE Financial Statements or on the KRE Disclosure Schedule.

(g) Compliance With the Law and Other Instruments. To the best of
KRE's and KRI's Knowledge, the business operations of KRE and its
Subsidiaries have been and are being conducted in compliance in all
material respects with all applicable laws, rules, and regulations of all
authorities. Neither KRE nor any of its Subsidiaries are in violation of,
or in default under, any term or provision of its certificate of
incorporation or its bylaws or in any material respect of any lien,
mortgage, lease, agreement, instrument, order, judgment or decree, except
those violations, defaults and restrictions which do not, individually or
in the aggregate, have a Material Adverse Effect on KRE and its
Subsidiaries, or which do not prohibit KRE from entering into this
Agreement.

(h) Title to Properties and Assets. Except as set forth on Schedule
3.2(h) hereto, each of KRE and its Subsidiaries has good and defensible
title to the leasehold or well interests set forth in the Ryder Scott
Company reports as of January 1, 1999, dated April 9, 1999 and as of
January 1, 1999 dated May 21, 1999 (the "Ryder Scott Reports") and the
Netherland Sewell and Associates, Inc. report as of January 1, 1999, dated
April 9, 1999 (the "Netherland Sewell Report"), and as to all of its
material properties and assets, including without limitation those
reflected in the KRE Financial Statements and those used or located on
property controlled by KRE or any of its Subsidiaries in its business
(except assets leased or sold in the ordinary course of business), subject
to no mortgage, pledge, lien, charge, security interest, encumbrance or
restriction except those which (a) are disclosed in the KRE Financial
Statements or the KRE Disclosure Schedule; or (b) do not have a Material
Adverse Effect on KRE and its Subsidiaries, taken together.

(i) Oil and Gas Leases and Wells. KRE has furnished to St. Mary
lists of all oil and gas leases and wells in which either KRE or its
Subsidiaries own or claim any type of

A-14

right or interest, whether legal, equitable, or beneficial (the "KRE
Leases and Wells Lists"), and the KRE Leases and Wells Lists are accurate
and complete in all material respects. All leases listed on the KRE Leases
and Wells Lists are valid and in full force and effect, and all rentals,
royalties, shut-in payments, minimum royalties, and other payments due
thereunder have been timely and properly made. Except as specifically set
forth on the KRE Leases and Wells Lists, KRE and its Subsidiaries enjoy
and are in peaceful and undisturbed possession under each lease and for
each well so listed. Neither KRE nor any of its Subsidiaries has received
any notice of, and there does not exist, any default, event, occurrence or
act which, with the giving of notice or lapse of time or both, would
become a default under any such lease, and neither KRE nor any of its
Subsidiaries has violated any of the terms or conditions under any such
lease in any material respect. To the Knowledge of KRI and KRE, such real
property and the wells, pipelines, gathering lines and facilities,
processing facilities, flow lines, tanks, pumps, production platforms,
equipment and any and all other buildings, fixtures, equipment and other
property attached or appurtenant thereto or situated thereon are in good
operating condition and repair, in compliance in all material respects
with all applicable laws and are adequate and suitable for the purposes
for which they are presently being used, except for such matters which in
the aggregate, would not have a Material Adverse Effect on KRE and its
Subsidiaries, taken together.

(j) Records. To the best of KRI's and KRE's Knowledge, the books of
account and other records of KRE and its Subsidiaries are complete and
correct in all material respects, and there have been no material
transactions involving the business of KRE and its Subsidiaries which
properly should have been set forth in such records, other than those set
forth therein.

(k) Absence of Certain Changes or Events. Except as set forth in
Schedule 3.2(k) hereto, since May 31, 1999, (i) there has not been any
material adverse change in, or event or condition which has had a Material
Adverse Effect on, the condition (financial or otherwise), properties,
assets, liabilities or, to the best of KRI's and KRE's Knowledge, the
business of KRE and its Subsidiaries, taken together, (other than any
change or circumstance relating to the economy or securities markets in
general or to the oil and gas industry in general and not specifically
relating to KRE) and (ii) KRE has not declared or paid any dividend or
made any other distribution in respect of any of its capital stock or
repurchased or redeemed or otherwise acquired any shares of its capital
stock or obligated itself to do any of the foregoing.

(l) Taxes. To the Knowledge of KRI and KRE, except as set forth in
Schedule 3.2(l) hereto, KRE and KRE's Subsidiaries have duly filed all
federal, state, county, local and foreign income, franchise, excise, real
and personal property and other tax returns and reports (including, but
not limited to, those relating to social security, withholding,
unemployment insurance and occupation (sales) and use taxes) required to
have been filed up to the date hereof. To the Knowledge of KRI and KRE,
all of the foregoing returns are true and correct in all material respects
and KRE and KRE's Subsidiaries have

A-15

paid or provided for all taxes, interest and penalties shown on such
returns or reports as being due. To the Knowledge of KRI and KRE, KRE and
KRE's Subsidiaries have no liability for any amount of taxes, interest or
penalties of any nature whatsoever, except for those taxes which may have
arisen up to the Closing Date in the ordinary course of business and are
properly accrued on the books of KRI, KRE and KRE's Subsidiaries as of the
Closing Date.

(m) Environmental Matters. Neither KRI nor KRE is aware of any
actions, proceedings or investigations pending or, to the best of KRI's
and KRE's Knowledge, threatened before any federal, state or foreign
environmental regulatory body or before any federal, state or foreign
court alleging material noncompliance by KRE or any of its Subsidiaries
with CERCLA or any other laws or regulations regulating the discharge of
materials into the environment ("Environmental Laws"). To the best of
KRI's and KRE's Knowledge: (i) there is no reasonable basis for the
institution of any material action, proceeding or investigation against
KRE or any of its Subsidiaries for violation of any Environmental Law;
(ii) neither KRE nor any of its Subsidiaries is responsible under any
Environmental Law for any release by any person at or in the vicinity of
real property of any hazardous substance (as defined by CERCLA) caused by
the spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing of any such hazardous
substance into the environment, other than routine incidental releases
associated with normal operations the remediation of which is required
under the Environmental Laws and the cost of which will not be material to
KRE; (iii) neither KRE nor any of its Subsidiaries is responsible for any
costs of any remedial action required by virtue of any release of any
hazardous substance, pollutant or contaminant into the environment, other
than routine incidental releases associated with normal operations the
remediation of which is required under the Environmental Laws and the cost
of which will not be material to KRE; (iv) KRE and its Subsidiaries are in
compliance in all material respects with all applicable Environmental
Laws; and (v) no real property used, owned, managed or controlled by KRE
or any of its Subsidiaries contains any toxic or hazardous substance
including, without limitation, any asbestos, PCBs or petroleum products or
byproducts in any form, the presence, location or condition of which
violates any Environmental Law in any material respect.

(n) KRE Benefit Plans.

(i) Attached hereto as Schedule 3.2(n) is a list identifying
each Benefit Plan of KRE or any of its Subsidiaries or in which they
participate. For purposes of this Agreement, the term "Benefit Plan"
means, with respect to any Person (as defined in Section 7.5), any
employee benefit plan (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA")), written or oral employment or consulting agreement,
severance pay plan or agreement, employee relations policy (or
practice, agreement or arrangement), agreements with respect to
leased or temporary employees, vacation plan or arrangement, sick
pay plan, stock purchase plan, stock option

A-16

plan, fringe benefit plan, incentive plan, bonus plan, cafeteria or
flexible spending account plan and any deferred compensation
agreement, (or plan, program, or arrangement) covering any present
or former employee of such Person or a Subsidiary of such Person and
which is, or at any time was, sponsored or maintained by (or to
which contributions are, were, or at any time were required to have
been, made by such Person or a Subsidiary of such Person).

(ii) With respect to each KRE Benefit Plan, there has been
delivered to St. Mary, (i) copies of each such KRE Benefit Plan
(including all trust agreements, insurance or annuity contracts,
descriptions, general notices to employees or beneficiaries and any
other material documents or instruments relating thereto); (ii) the
most recent audited (if required or otherwise available) or
unaudited financial statement with respect to each such KRE Benefit
Plan; (iii) copies of the most recent determination letters with
respect to any such KRE Benefit Plan which is an employee pension
benefit plan (as such term is defined under ERISA) intended to
qualify under the Internal Revenue Code of 1986 (the "Code") ; and
(iv) copies of the most recent actuarial reports, if any, of each
such KRE Benefit Plan.

(iii) With respect to each KRE Benefit Plan:

(A) each such KRE Benefit Plan which is an employee
pension benefit plan intended to qualify under the Code so
qualifies and has received a favorable determination letter as
to its qualification under the Code, and no event has occurred
that will or could reasonably be expected to give rise to
disqualification or loss of tax-exempt status of any such plan
or related trust;

(B) KRE has complied in all material respects with all
provisions of ERISA and no act or omission by KRE in
connection with any KRE Benefit Plan has occurred that will or
could reasonably be expected to give rise to liability for a
breach of fiduciary responsibilities under ERISA or to any
fines or penalties under ERISA;

(C) all insurance and annuity premiums, if any, required
for all periods up to and including the Closing have been or
will be paid;

(D) no KRE Benefit Plan provides for any post-retirement
life, medical, dental or other welfare benefits (whether or
not insured) for any current or former employee except as
required under the Code or ERISA or applicable state or local
Law;

(E) all contributions required to have been made by law
or under the terms of any contract, agreement or KRE Benefit
Plan for all complete

A-17

and partial periods up to and including the Closing have been
made or will be made;

(F) the transactions contemplated by this Agreement will
not be the direct or indirect cause of any amount paid or
payable from such KRE Benefit Plan being classified as an
excess parachute payment under the Code;

(G) there are no matters pending before the United
States Internal Revenue Service, the United States Department
of Labor or the Pension Benefit Guaranty Corporation ("PBGC");

(H) there have been no claims or notice of claims filed
under any fiduciary liability insurance policy covering any
KRE Benefit Plan;

(I) each and every such KRE Benefit Plan which is a
group health plan (as such term is defined under the Code or
ERISA) complies in all material respects, and in each and
every case has complied in all material respects, with the
applicable requirements of the Code, ERISA, the applicable
requirements of the Health Insurance Portability and
Accountability Act of 1996, and all other federal, state or
local Laws or ordinances requiring the provision or
continuance of health or medical benefits;

(J) each and every KRE Benefit Plan which is a cafeteria
plan or flexible spending account plan complies in all
material respects, and in each and every case has complied in
all material respects, with the applicable requirements of the
Code and all other applicable federal, state, or local Laws or
ordinances; and

(K) each and every KRE Benefit Plan which is a dependent
care assistance program complies in all material respects, and
in each and every case has complied in all material respects,
with the applicable requirements of the Code and all other
applicable federal, state or local Laws or ordinances.

(iv) With respect to any employee benefit plan (within the
meaning of ERISA), stock purchase plan, stock option plan, fringe
benefit plan, bonus plan or any deferred compensation agreement,
plan or program (whether or not any such plan, program, or agreement
is currently in effect):

(A) there are no actions, suits, or claims (other than
routine claims for benefits in the ordinary course) pending
or, to the best Knowledge of KRE threatened, and to the best
Knowledge of KRE there are no facts

A-18

which could give rise to any such actions, suits, or claims
(other than routine claims for benefits in the ordinary
course), which could subject KRE to any material liability;

(B) KRE has not engaged in a prohibited transaction, as
such term is defined in the Code which would subject KRE to
any taxes, penalties or other liabilities resulting from
prohibited transactions under the Code or under ERISA; and

(C) KRE is not subject to (1) any liability, lien or
other encumbrance under any agreement imposing secondary
liability on KRE as a seller of the assets of a business under
ERISA or the Code, (2) contingent liability under ERISA to the
PBGC or to any plan, participant, or other person or (3) a
lien or other encumbrance under ERISA.

(v) (A) KRE is not subject to any legal, contractual,
equitable, or other obligation to continue any KRE Benefit Plan of
any nature, including, without limitation any KRE Benefit Plan or
any other pension, profit sharing, welfare, or post-retirement
welfare plan, or any stock option, stock or cash award,
non-qualified deferred compensation or executive compensation plan,
policy or practice (or to continue participation in any such benefit
plan, policy or practice) on or after the Closing;

(B) KRE may, in any manner, and without the consent of
any employee, beneficiary or other person, terminate, modify
or amend any such KRE Benefit Plan (or its participation in
such KRE Benefit Plan or any other plan, program or practice)
effective as of any date on or after the Closing; and

(C) no representations or communications (directly or
indirectly, orally, in writing or otherwise) with respect to
participation, eligibility for benefits, vesting, benefit
accrual coverage or other material terms of any KRE Benefit
Plan have been made prior to the Closing to any employee,
beneficiary or other person other than those which are in
accordance with the terms and provisions of each such KRE
Benefit Plan as in effect immediately prior to the Closing.

(vi) KRE has at no time participated in a multi-employer
pension plan defined under Section 3(37) of ERISA.

(vii) With respect to each and every KRE Benefit Plan subject
to ERISA: (A) no such KRE Benefit Plan or related trust has been
terminated or partially terminated; (B) no liability to the PBGC has
been or is expected to be incurred with respect to such KRE Benefit
Plan; (C) the PBGC has not instituted

A-19

and to the best Knowledge of KRE is not expected to institute any
proceedings to terminate such KRE Benefit Plan; (D) there has been
no reportable event (within the meaning of ERISA); (E) there exists
no condition or set of circumstances that presents a material risk
of the termination of such KRE Benefit Plan by the PBGC; (F) no
accumulated funding deficiency (as defined under ERISA and the
Code), whether or not waived, exists with respect to such KRE
Benefit Plan; and (G) the current value of all vested accrued
benefits under each such KRE Benefit Plan did not as of the last day
of the most recently ended fiscal year of each KRE Benefit Plan, and
will not as of the Closing, exceed the current value of the assets
of each such KRE Benefit Plan allocable to such vested accrued
benefits determined by KRE Benefit Plans' actuary on an ongoing
basis.

(viii) Except as set forth on Schedule 3.2(n)(viii) hereto, no
director or officer or other employee of KRE or any of its
Subsidiaries will become entitled to any retirement, severance or
similar benefit or enhanced or accelerated benefit (including any
acceleration of vesting or lapse of repurchase rights or obligations
with respect to any employee stock option or other benefit under any
stock option plan or compensation plan or arrangement of KRE) solely
as a result of the transactions contemplated by this Agreement.

(o) Year 2000 Matters. Except as set forth on Schedule 3.2(o)
hereto, the computer software operated by KRE and each of its Subsidiaries
is capable of providing or is being adapted to provide uninterrupted
millennium functionality to record, store, process and present calendar
dates falling on or after January 1, 2000 in substantially the same manner
and with the same functionality as such software records, stores,
processes and presents such calendar dates falling on or before December
31, 1999. The costs of the adaptations referred to in the prior sentence
will not be material to KRE and its Subsidiaries. To the Knowledge of KRI
and KRE, neither KRE nor any of its Subsidiaries has relationships with
third parties the failure of whose systems to be Year 2000 compliant will
be material to KRE.

(p) Confidentiality Agreements. All current employees of KRE and its
Subsidiaries have executed the KRE Information Resources User
Acknowledgment and have received a copy of the KRE Information Resources
Use and Protection Policy.

(q) Vote Required. The affirmative vote of the holders of the
majority of the outstanding shares of KRE Common Stock at a duly held
meeting of such holders (the "Required KRE Vote") to approve the Merger is
the only vote of the shareholders of KRE, KRH, KRM or KRI required, other
than the votes of the Boards of Directors of KRM, KRH and KRI to approve
the Merger.

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(r) Fairness Opinion. KRI has received from Nesbitt Burns, KRI's
financial advisor with respect to the transactions contemplated by this
Agreement, an opinion to the effect that the consideration to be received
by the KRI shareholders in the Merger is fair to the KRI shareholders from
a financial point of view.

(s) Full Disclosure. To the best of KRI's and KRE's Knowledge, this
Agreement and any Schedules, certificates and the KRE Leases and Wells
Lists delivered by KRI and KRE in connection herewith or with the
transactions contemplated hereby, taken as a whole, neither contain any
untrue statement of a material fact nor omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. To the best of KRI's and KRE's Knowledge, there are no facts
or circumstances relating to KRE or any Subsidiary of KRE that will have,
or would be reasonably likely to have, a Material Adverse Effect on St.
Mary following the Closing Date, other than any facts or circumstances (A)
disclosed in this Agreement or any schedule, exhibit or other document
delivered in connection herewith, or (B) previously disclosed to St. Mary
by KRI or KRE.

Section 3.3 Representations and Warranties by St. Mary. Except as set
forth in the St. Mary Disclosure Schedule attached to this Agreement as Schedule
3.3 (the "St. Mary Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein), St. Mary hereby represents and warrants to KRI as follows:

(a) Organization and Standing of St. Mary. St. Mary and each of its
Subsidiaries is a corporation duly organized and validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted, and is duly qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties make such qualification necessary other than in
jurisdictions where the failure to so qualify would not, either
individually or in the aggregate, have a Material Adverse Effect on St.
Mary. Except with respect to the St. Mary Subsidiaries set forth on the
St. Mary Disclosure Schedule, St. Mary has no direct or indirect interest,
either by way of stock ownership or otherwise, in any other firm,
corporation, association, or business. The copies of the certificate of
incorporation and bylaws of St. Mary which were previously furnished to
KRI and KRE are true, complete and correct copies of such documents as in
effect on the date of this Agreement.

(b) Authority; No Conflicts.

(i) The execution, delivery and performance of this Agreement
have been duly authorized by all requisite corporate action on the
part of St. Mary, subject to the Required St. Mary Vote (as defined
below). This Agreement has been

A-21

executed and delivered by St. Mary and constitutes a valid and
binding obligation of St. Mary enforceable in accordance with its
terms (except as limited by bankruptcy, insolvency, or other laws
affecting the enforcement of creditors' rights).

(ii) The execution and delivery of this Agreement by St. Mary
does, and the consummation by St. Mary of the Merger and the other
transactions contemplated hereby will not, conflict with or result
in a violation pursuant to: (A) any provision of the certificate of
incorporation or bylaws of St. Mary, (B) any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or
other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to St. Mary or any
Subsidiary of St. Mary or any of its properties or assets, except as
would not have a Material Adverse Effect on St. Mary, subject to
obtaining the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph
(iii) below.

(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, a Governmental Entity is
required by or with respect to St. Mary or its Subsidiaries in
connection with the execution and delivery of this Agreement by St.
Mary or the consummation of the Merger and the other transactions
contemplated hereby, except for the Required Consents and such
consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain
would not have a Material Adverse Effect on St. Mary or its
Subsidiaries.

(c) Capitalization of St. Mary and Indebtedness for Borrowed Moneys.
St. Mary is duly and lawfully authorized by its certificate of
incorporation to issue 50,000,000 shares of St. Mary Common Stock, of
which as of the date hereof there are 11,276,938 shares issued and
outstanding and 182,800 shares held by St. Mary as treasury stock. St.
Mary has no other authorized series or class of stock. All the outstanding
shares of St. Mary Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable and free of preemptive rights.
All of the shares of St. Mary Common Stock to be issued upon consummation
of the Merger will be, at the time of issuance, duly authorized and
validly issued, and will be fully paid and nonassessable and free of
preemptive rights. St. Mary has a Stock Option Plan and an Incentive Stock
Option Plan (collectively, the "St. Mary Option Plans") which provide for
the issuance of up to an aggregate of 1,650,000 shares of St. Mary Common
Stock pursuant to the exercise of options granted under the St. Mary
Option Plans. As of the date hereof, options representing in the aggregate
the right to purchase 684,322 shares of St. Mary Common Stock have been
granted under the St. Mary Option Plans and remain outstanding. St. Mary
has an Employee Stock Purchase Plan for the purchase of up to 500,000
shares of St. Mary Common Stock, under which 24,821 shares of St. Mary
Common Stock have been purchased through the date hereof. Except with
respect to the foregoing and to this

A-22

Agreement, and except as set forth on Schedule 3.3(c), neither St. Mary
nor any of its Subsidiaries is obligated to issue any additional capital
stock or voting securities as a result of any options, warrants, rights,
conversion rights, obligations upon default, subscription agreement or
other obligation of any kind. St. Mary is not presently liable on account
of any indebtedness for borrowed moneys, except as reflected in the St.
Mary Financial Statements (as hereinafter defined).

(d) St. Mary SEC Reports and Financial Statements.

(i) St. Mary has filed all required reports, schedules, forms,
statements and other documents required to be filed with the SEC
(collectively, including all exhibits thereto, the "St. Mary SEC
Reports"). No Subsidiary of St. Mary is required to file any form,
report or other document with the SEC. None of the St. Mary SEC
Reports, as of their respective dates (and, if amended or superseded
by filings prior to the date of this Agreement or the Closing Date,
then on the date of such filing), contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
Each of the financial statements (including the related notes)
included in the St. Mary SEC Reports presents fairly, in all
material respects, the consolidated financial position and
consolidated results of operations and cash flows of St. Mary and
its Subsidiaries as of the respective dates or for the respective
periods set forth therein, all in accordance with GAAP consistently
applied during the periods involved except as otherwise noted
therein. All of such St. Mary SEC Reports, as of their respective
dates (and as of the date of any amendment to the respective St.
Mary SEC Report), complied as to form in all material respects with
the applicable requirements of the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder.

(ii) St. Mary has furnished to KRM and KRI its audited balance
sheets as of December 31, 1996, 1997 and 1998, its audited
statements of operations and statements of cash flows for each of
the three years ended December 31, 1998, its unaudited balance sheet
as of May 31, 1999, and its unaudited income statement and statement
of cash flows for the five months ended May 31, 1999 and 1998
(collectively, the "St. Mary Financial Statements"). All of the St.
Mary Financial Statements present fairly, in all material respects,
the financial position of St. Mary as of the respective balance
sheet dates, and the results of its operations and cash flows for
the respective periods therein specified. The St. Mary Financial
Statements were prepared in accordance with GAAP (except in the case
of unaudited interim financial statements, as permitted by the rules
and regulations of the SEC) applied on a consistent basis.

A-23

(e) Present Status. Except as otherwise disclosed in the St. Mary
Disclosure Schedule, from May 31, 1999 to the date of this Agreement, St.
Mary and its Subsidiaries have not incurred any liabilities that are of a
nature that would be required to be disclosed on a consolidated balance
sheet of St. Mary and its Subsidiaries or the notes thereto prepared in
accordance with GAAP, other than liabilities incurred in the ordinary
course of business of St. Mary and which do not have a Material Adverse
Effect on St. Mary.

(f) Litigation. Except as disclosed in the St. Mary Financial
Statements, the St. Mary Disclosure Schedule or Schedule 3.3(f) hereto,
there are no legal actions, suits, arbitrations, or other legal or
administrative proceedings pending or, to the Knowledge of St. Mary,
threatened against St. Mary or any Subsidiary of St. Mary which would
reasonably be expected to have a Material Adverse Effect on St. Mary and
its Subsidiaries. In addition, St. Mary is not aware of any facts which to
the best of its Knowledge would reasonably be expected to result in any
action, suit, arbitration or other proceeding which would reasonably be
expected to have a Material Adverse Effect on St. Mary and its
Subsidiaries. Neither St. Mary nor any of its Subsidiaries is in default
of any judgment, order or decree of any court or, in any material respect
of, any requirements of a government agency or instrumentality.

(g) Compliance With the Law and Other Instruments. To the best of
St. Mary's Knowledge, the business operations of St. Mary have been and
are being conducted in compliance in all material respects with all
applicable laws, rules, and regulations of all authorities. St. Mary is
not in violation of, or in default under, any term or provision of its
certificate of incorporation or its bylaws or in any material respect of
any lien, mortgage, lease, agreement, instrument, order, judgment or
decree, except those violations, defaults and restrictions which do not,
individually and in the aggregate, have a Material Adverse Effect on St.
Mary and its Subsidiaries, or which do not prohibit St. Mary from entering
into this Agreement.

(h) Title to Properties and Assets. Except as set forth on Schedule
3.3(h) hereto, St. Mary and its Subsidiaries have good and defensible
title to all of its material properties and assets, including without
limitation those reflected in the St. Mary Financial Statements and those
used or located on property controlled by St. Mary or any of its
Subsidiaries in its business (except assets leased or sold in the ordinary
course of business), subject to no mortgage, pledge, lien, charge,
security interest, encumbrance or restriction except those which (a) are
disclosed in the St. Mary Financial Statements; or (b) do not have a
Material Adverse Effect on St. Mary and its Subsidiaries, taken together.

(i) Oil and Gas Leases and Wells. St. Mary has furnished to KRI
lists of all oil and gas leases and wells in which St. Mary owns or claims
any type of right or interest whether legal, equitable, or beneficial (the
"St. Mary Leases and Wells Lists") and the St. Mary Leases and Wells Lists
are accurate and complete in all material respects. All leases listed on
the St. Mary Leases and Wells Lists are valid and in full force and
effect,

A-24

and all rentals, royalties, shut-in payments, minimum royalties, and other
payments due thereunder have been timely and properly made. Except as
specifically set forth on the St. Mary Leases and Wells Lists, St. Mary
enjoys and is in peaceful and undisturbed possession under each lease and
for each well so listed. St. Mary has not received any notice of, and
there does not exist, any default, event, occurrence or act which, with
the giving of notice or lapse of time or both, would become a default
under any such lease, and St. Mary has not violated any of the terms or
conditions under any such lease in any material respect. To the Knowledge
of St. Mary, such real property and the wells, pipelines, gathering lines
and facilities, processing facilities, flow lines, tanks, pumps,
production platforms, equipment and any and all other buildings, fixtures,
equipment and other property attached or appurtenant or situated thereon
are in good operating condition and repair, in compliance in all material
respects with all applicable laws and are adequate and suitable for the
purposes for which they are presently being used, except for such matters
which in the aggregate, would not have a Material Adverse Effect on St.
Mary.

(j) Records. To the best of St. Mary's Knowledge, the books and
other records of St. Mary and its Subsidiaries are complete and correct in
all material respects, and there have been no material transactions
involving the business of St. Mary and its Subsidiaries which properly
should have been set forth in such records, other than those set forth
therein.

(k) Absence of Certain Changes or Events. Since May 31, 1999, (i)
there has not been any material adverse change in, or event or condition
which has had a Material Adverse Effect on, the condition (financial or
otherwise), properties, assets, liabilities or, to the best of St. Mary's
Knowledge, the business of St. Mary and its Subsidiaries, taken together
(other than any change or circumstance relating to the economy or
securities markets in general or to the oil and gas industry in general
and not specifically relating to St. Mary), and (ii) except for its $0.05
per share St. Mary Common Stock dividend per quarter, St. Mary has not
declared or paid any dividend or made any other distribution in respect of
any of its capital stock, and except for the purchase of 182,800 shares of
St. Mary Common Stock under its open market share repurchase program, St.
Mary has not repurchased or redeemed or otherwise acquired any shares of
its capital stock or obligated itself to do any of the foregoing.

(l) Taxes. To the Knowledge of St. Mary, St. Mary and its
Subsidiaries have duly filed all federal, state, county, local and foreign
income, franchise, excise, real and personal property and other tax
returns and reports (including, but not limited to, those relating to
social security, withholding, unemployment insurance, and occupation
(sales) and use taxes) required to have been filed by St. Mary and its
Subsidiaries up to the date hereof. To the Knowledge of St. Mary, all of
the foregoing returns are true and correct in all material respects and
St. Mary and its Subsidiaries have paid or provided for all taxes,
interest and penalties shown on such returns or reports as being due. To
the Knowledge of St. Mary, St. Mary and its Subsidiaries have no liability
for any amount of taxes,

A-25

interest or penalties of any nature whatsoever, except for those taxes
which may have arisen up to the Closing Date in the ordinary course of
business and are properly accrued on the books of St. Mary and its
Subsidiaries as of the Closing Date.

(m) Environmental Matters. St. Mary is not aware of any actions,
proceedings or investigations pending or, to the best of St. Mary's
Knowledge, threatened before any federal, state or foreign environmental
regulatory body or before any federal, state or foreign court alleging
material noncompliance by St. Mary or any of its Subsidiaries with any
Environmental Laws. To the best of St. Mary's Knowledge: (i) there is no
reasonable basis for the institution of any material action, proceeding or
investigation against St. Mary or any of its Subsidiaries for violation of
any Environmental Law; (ii) neither St. Mary nor any of its Subsidiaries
is responsible under any Environmental Law for any release by any person
at or in the vicinity of real property of any hazardous substance (as
defined by CERCLA) caused by the spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing of any such hazardous substance into the environment, other than
routine incidental releases associated with normal operations the
remediation of which is required under the Environmental Laws and the cost
of which will not be material to St. Mary; (iii) neither St. Mary nor any
of its Subsidiaries is responsible for any costs of any remedial action
required by virtue of any release of any hazardous substance, pollutant or
contaminant into the environment, other than routine incidental releases
associated with normal operations the remediation of which is required
under the Environmental Laws and the cost of which will not be material to
St. Mary; (iv) St. Mary and its Subsidiaries are in compliance in all
material respects with all applicable Environmental Laws; and (v) no real
property used, owned, managed or controlled by St. Mary or any of its
Subsidiaries contains any toxic or hazardous substance including, without
limitation, any asbestos, PCBs or petroleum products or byproducts in any
form, the presence, location or condition of which violates any
Environmental Law in any material respect.

(n) St. Mary Benefit Plans.

(i) Attached hereto as Schedule 3.3(n) is a list identifying
each Benefit Plan of St. Mary or any of its Subsidiaries.

(ii) With respect to each St. Mary Benefit Plan, there has
been delivered to KRM and KRI, (i) copies of each such St. Mary
Benefit Plan (including all trust agreements, insurance or annuity
contracts, descriptions, general notices to employees or
beneficiaries and any other material documents or instruments
relating thereto); (ii) the most recent audited (if required or
otherwise available) or unaudited financial statement with respect
to each such St. Mary Benefit Plan; (iii) copies of the most recent
determination letters with respect to any such St. Mary Benefit Plan
which is an employee pension benefit plan (as such term is defined
under ERISA) intended to qualify under the Code; and (iv) copies of
the most recent actuarial reports, if any, of each such St. Mary
Benefit Plan.

A-26

(iii) With respect to each St. Mary Benefit Plan:

(A) each such St. Mary Benefit Plan which is an employee
pension benefit plan intended to qualify under the Code so
qualifies and has received a favorable determination letter as
to its qualification under the Code, and no event has occurred
that will or could reasonably be expected to give rise to
disqualification or loss of tax-exempt status of any such plan
or related trust;

(B) St. Mary has complied in all material respects with
all provisions of ERISA and no act or omission by St. Mary in
connection with any St. Mary Benefit Plan has occurred that
will or could reasonably be expected to give rise to liability
for a breach of fiduciary responsibilities under ERISA or to
any fines or penalties under ERISA;

(C) all insurance and annuity premiums, if any, required
for all periods up to and including the Closing have been or
will be paid;

(D) no St. Mary Benefit Plan provides for any
post-retirement life, dental or other welfare benefits
(whether or not insured) for any current or former employee
except as required under the Code or ERISA or applicable state
or local Law;

(E) all contributions required to have been made by law
or under the terms of any contract, agreement or St. Mary
Benefit Plan for all complete and partial periods up to and
including the Closing have been made or will be made;

(F) the transactions contemplated by this Agreement will
not be the direct or indirect cause of any amount paid or
payable from such St. Mary Benefit Plan being classified as an
excess parachute payment under the Code;

(G) there are no matters pending before the United
States Internal Revenue Service, the United States Department
of Labor or the PBGC;

(H) there have been no claims or notice of claims filed
under any fiduciary liability insurance policy covering any
St. Mary Benefit Plan;

(I) each and every such St. Mary Benefit Plan which is a
group health plan (as such term is defined under the Code or
ERISA), complies in all material respects, and in each and
every case has complied in all material respects, with the
applicable requirements of the Code, ERISA, the applicable
requirements of the Health Insurance Portability and

A-27

Accountability Act of 1996, and all other federal, state or
local Laws or ordinances requiring the provision or
continuance of health or medical benefits;

(J) each and every St. Mary Benefit Plan which is a
cafeteria plan or flexible spending account plan complies in
all material respects, and in each and every case has complied
in all material respects, with the applicable requirements of
the Code and all other applicable federal, state, or local
Laws or ordinances; and

(K) each and every St. Mary Benefit Plan which is a
dependent care assistance program complies in all material
respects, and in each and every case has complied in all
material respects, with the applicable requirements of the
Code and all other applicable federal, state or local Laws or
ordinances.

(A) there are no actions, suits, or claims (other than
routine claims for benefits in the ordinary course) pending
or, to the best Knowledge of St. Mary threatened, and to the
best Knowledge of St. Mary there are no facts which could give
rise to any such actions, suits, or claims (other than routine
claims for benefits in the ordinary course), which could
subject St. Mary to any material liability;

(B) St. Mary has not engaged in a prohibited
transaction, as such term is defined in the Code which would
subject St. Mary to any taxes, penalties or other liabilities
resulting from prohibited transactions under the Code or under
ERISA; and

(C) St. Mary is not subject to (1) any liability, lien
or other encumbrance under any agreement imposing secondary
liability on St. Mary as a seller of the assets of a business
under ERISA or the Code, (2) contingent liability under ERISA
to the PBGC or to any plan, participant, or other person or
(3) a lien or other encumbrance under ERISA.

(v) St. Mary has at no time participated in a multi-employer
pension plan defined under Section 3(37) of ERISA.

(vi) With respect to each and every St. Mary Benefit Plan
subject to ERISA: (A) no such St. Mary Benefit Plan or related trust
has been terminated or

A-28

partially terminated; (B) no liability to the PBGC has been or is
expected to be incurred with respect to such St. Mary Benefit Plan;
(C) the PBGC has not instituted and to the best Knowledge of St.
Mary is not expected to institute any proceedings to terminate such
St. Mary Benefit Plan; (D) there has been no reportable event
(within the meaning of ERISA); (E) there exists no condition or set
of circumstances that presents a material risk of the termination of
such St. Mary Benefit Plan by the PBGC; (F) no accumulated funding
deficiency (as defined under ERISA and the Code), whether or not
waived, exists with respect to such St. Mary Benefit Plan; and (G)
the current value of all vested accrued benefits under each such St.
Mary Benefit Plan did not as of the last day of the most recently
ended fiscal year of each St. Mary Benefit Plan, and will not as of
the Closing, exceed the current value of the assets of each such St.
Mary Benefit Plan allocable to such vested accrued benefits
determined by St. Mary Benefit Plans' actuary on an ongoing basis.

(vii) No director or officer or other employee of St. Mary or
any of its Subsidiaries will become entitled to any retirement,
severance or similar benefit or enhanced or accelerated benefit
(including any acceleration of vesting or lapse of repurchase rights
or obligations with respect to any employee stock option or other
benefit under any stock option plan or compensation plan or
arrangement of St. Mary) solely as a result of the transactions
contemplated by this Agreement.

(o) Year 2000 Matters. The computer software operated by St. Mary is
capable of providing or is being adapted to provide uninterrupted
millennium functionality to record, store, process and present calendar
dates falling on or after January 1, 2000 in substantially the same manner
and with the same functionality as such software records, stores,
processes and presents such calendar dates falling on or before December
31, 1999. The costs of the adaptations referred to in the prior sentence
will not be material to St. Mary and its Subsidiaries. To the Knowledge of
St. Mary, neither St. Mary nor any of its Subsidiaries has relationships
with third parties the failure of whose systems to be Year 2000 compliant
will be material to St. Mary.

(p) Finders and Advisors. Except for Deutsche Bank Securities Inc. a
copy of whose engagement agreement with St. Mary has been provided to KRM
and KRI, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf
of St. Mary or any of its Subsidiaries who might be entitled to any fee or
commission in connection with the transactions contemplated by this
Agreement.

(q) Vote Required. The affirmative vote of the holders of shares of
St. Mary Common Stock representing a majority of the total shares
represented at a duly held meeting of the holders of outstanding shares of
St. Mary Common Stock (the "Required St. Mary Vote") to approve the St.
Mary Share Issuance pursuant to the terms of this

A-29

Agreement is the only vote of the holders of St. Mary capital stock
necessary for the Merger.

(r) Fairness Opinion. St. Mary has received from Deutsche Bank
Securities Inc., St. Mary's financial advisor with respect to the
transactions contemplated by this Agreement, an opinion to the effect that
the consideration to be paid by St. Mary in the Merger is fair to St. Mary
from a financial point of view.

(s) Full Disclosure. To the best of St. Mary's Knowledge, this
Agreement, and any Schedules, certificates and other St. Mary Leases and
Wells Lists delivered by St. Mary in connection herewith or with the
transactions contemplated hereby, taken as a whole, neither contain any
untrue statement of a material fact nor omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. To the best of St. Mary's Knowledge, there are no facts or
circumstances relating to St. Mary or any Subsidiary of St. Mary that will
have, or would be reasonably likely to have, a Material Adverse Effect on
St. Mary following the Closing Date, other than any facts or circumstances
(A) disclosed in this Agreement or any schedule, exhibit or other document
delivered in connection herewith, or (B) previously disclosed to KRI or
KRE by St. Mary.

Section 3.4 Representations and Warranties of St. Mary and Merger Sub. St.
Mary and Merger Sub represent and warrant to KRI and KRE as follows:

(a) Organization and Standing of Merger Sub. Merger Sub is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Colorado. Merger Sub is a first-tier wholly owned
subsidiary of St. Mary.

(b) Authority. Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Merger Sub
of this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Merger Sub. This Agreement has been duly executed
and delivered by Merger Sub and constitutes a valid and binding agreement
of Merger Sub, enforceable against it in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors generally.

(c) Non-Contravention. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of
transactions contemplated hereby do not and will not contravene or
conflict with the certificate of incorporation or bylaws of Merger Sub.

(d) No Business Activities by Merger Sub. Merger Sub has not
conducted any activities other than in connection with the organization of
Merger Sub, the negotiation

A-30

and execution of this Agreement and the consummation of the transactions
contemplated hereby. Merger Sub has no subsidiaries.

ARTICLE IV

COVENANTS RELATING TO CONDUCT OF BUSINESS

Section 4.1 Covenants of KRI and KRE. During the period from the date of
this Agreement and continuing until the Effective Time, KRI and KRE agree that
(except as expressly contemplated or permitted by this Agreement or as otherwise
indicated on the KRE Disclosure Schedule or as required by a Governmental Entity
of competent jurisdiction or to the extent that St. Mary shall otherwise consent
in writing):

(a) Ordinary Course.

(i) KRE and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted,
and shall use all reasonable efforts to preserve intact their
present lines of business, maintain their rights and franchises and
preserve their relationships with customers, suppliers and other
having business dealings with them to the end that their ongoing
businesses shall not be impaired in any material respect at the
Effective Time; provided, however, that no action by KRE or its
Subsidiaries with respect to matters specifically addressed by any
other provision of this Section 4.1 shall be deemed a breach of this
Section 4.1(a)(i) unless such action would constitute a breach of
one or more of such other provisions.

(ii) KRI or KRE shall promptly give St. Mary notice of what it
reasonably believes to be any material occurrence in the business of
KRE or any of its Subsidiaries. KRE shall not, and shall not permit
any of its Subsidiaries to, incur or commit to any capital or other
expenditure, whether or not in the ordinary course of business, in
excess (as to KRE and its Subsidiaries) of $500,000 without the
prior written consent of St. Mary, except for capital or other
expenditures set forth on Schedule 4.1(a)(ii) attached to this
Agreement.

(iii) Notwithstanding the provisions of Section 4.1(a)(i), the
parties agree and acknowledge that from the date hereof through the
Closing Date, KRE will substantially reduce (and possibly eliminate)
its drilling, exploration, development and related activities,
provided that such reduction (or elimination) does not constitute,
or result in, a material breach by KRE of a written commitment,
contract or agreement in effect as of the date hereof or otherwise
does not result in a penalty which would have a Material Adverse
Effect on KRE. The parties further agree and acknowledge that any
such reduction (or elimination) will not constitute a violation of
the obligations of KRI and KRE hereunder. In the event

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that KRE elects not to pursue a material drilling, exploration,
development or related opportunity presented to KRE by a third party
from the date hereof through the Closing Date, KRE shall give St.
Mary written notice thereof, and St. Mary shall have the right to
pursue such opportunity for its own benefit and at its own cost and
expense. KRE will use its commercially reasonable efforts to assist
St. Mary in exercising the right to pursue any such opportunity.

(b) Dividends; Changes in Share Capital. KRE shall not (i) declare
or pay any dividends on or make other distributions in respect of any of
its capital stock, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock, except for any such transaction by a wholly owned
Subsidiary of KRE which remains a wholly owned Subsidiary after
consummation of such transactions, or (iii) repurchase, redeem or
otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock;
provided, however, that KRE may increase its authorized capital stock and
take such other action as necessary to insure that the distribution of KRE
stock to shareholders of KRI is on a one for one basis; and provided,
further, that this provision shall not prohibit intercompany transactions
in the ordinary course of business consistent with past practice.

(c) Issuance of Securities. KRE shall not, and shall not permit any
of its Subsidiaries to, issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock of any
class, any voting securities or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such
shares or voting securities, or enter into any agreement with respect to
any of the foregoing, other than issuances by a wholly owned Subsidiary of
KRE of capital stock to such Subsidiary's parent.

(d) Governing Documents. Except to the extent required to comply
with obligations hereunder or required by law, KRE and its Subsidiaries
shall not amend in any material respect or propose to so amend their
respective certificates of incorporation, bylaws or other governing
documents.

(e) No Acquisitions. KRE shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets
(other than the acquisition of assets used in the operations of the
business of KRE and its Subsidiaries in the ordinary course subject to
Section 4.1(a)(ii)); provided, however, that the foregoing shall not
prohibit (y) internal reorganizations or consolidations involving existing
Subsidiaries of KRE, or (z) the creation of new Subsidiaries of KRE
organized to conduct or continue activities otherwise permitted by this
Agreement.

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(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of KRE, or (ii) in the
ordinary course of business, KRE shall not, and shall not permit any
Subsidiary of KRE to, sell, lease, encumber or otherwise dispose of, or
agree to sell, lease, encumber or otherwise dispose of, any of its assets
(including capital stock of Subsidiaries of KRE) which are material
individually or in the aggregate to KRE.

(g) Investments; Indebtedness. Subject to the provisions of Section
7.2(c) and 7.3(c), KRE shall not, and shall not permit any of its
Subsidiaries to, (i) make any loans, advances or capital contributions to,
or investments in, any other Person, (ii) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than payments, discharges or
satisfactions incurred or committed to in the ordinary course of business
consistent with past practice, or (iii), subject to Section 4.1(a)(ii),
create, incur, assume or suffer to exist any indebtedness, issuances of
debt securities, guarantees, loans or advances not in existence as of the
date of this Agreement other than the incurring of accounts payable and
accrued expenses, extensions of credit, advances of funds and intercompany
transactions in the ordinary course of business consistent with past
practices.

(h) Tax-Free Qualification. KRI and KRE shall not, and shall not
permit any of KRI's or KRE's Subsidiaries to, take any action that would
reasonably be expected to prevent or impede the Merger from qualifying as
a reorganization under Section 368 of the Code.

(i) Compensation. Except as contemplated in Section 5.9 hereof, KRE
shall not, and shall not permit any of its Subsidiaries to, increase the
amount of compensation of any executive officer or other senior employee,
make any increase in, or commitment to increase, any employee benefits,
adopt or make any commitment to adopt any additional employee benefit plan
or make any contribution, other than regularly scheduled contributions, to
any KRE Benefit Plan.

(j) Accounting Methods; Income Tax Elections. Except as required by
a Governmental Entity, KRE shall not change its methods of accounting in
effect at December 31, 1998, except as required by changes in GAAP as
concurred in by KRE's independent auditors. KRE shall not (i) change its
fiscal year or (ii) make any material tax election.

(k) Preservation of Property. KRE shall take such reasonable actions
and institute such reasonable procedures as St. Mary may from time to time
specify for assuring that the property of KRE, including but not limited
to its equipment and records, is preserved for the benefit of St. Mary
upon the completion of the Merger, and all reasonable costs associated
with such actions and procedures shall be borne by KRI.

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Section 4.2 Covenants of St. Mary. During the period from the date of this
Agreement and continuing until the Effective Time, St. Mary agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated on the St. Mary Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that KRM, KRI and KRE shall otherwise consent in writing):

(a) Ordinary Course.

(i) St. Mary and its Subsidiaries shall carry on their
respective business in the usual, regular and ordinary course in all
material respects, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to preserve intact
their present lines of business, maintain their rights and
franchises and preserve their relationships with customers,
suppliers and others having business dealings with them to the end
that their ongoing businesses shall not be impaired in any material
respect at the Effective Time; provided, however, that no action by
St. Mary or its Subsidiaries with respect to matters specifically
addressed by any other provisions of this Section 4.2 shall be
deemed a breach of this Section 4.2(a)(i) unless such action would
constitute a breach of one or more of such other provisions.

(ii) St. Mary shall promptly give KRE notice of what it
reasonably believes to be any material occurrence in the business of
St. Mary or any of its Subsidiaries. St. Mary shall not, and shall
not permit any of its Subsidiaries to, incur or commit to any
capital or other expenditure, whether or not in the ordinary course
of business, in excess of $1,000,000 without the prior written
consent of KRE, which consent shall not be unreasonably withheld or
delayed, except for capital or other expenditures set forth on
Schedule 4.2(a)(ii) attached to this Agreement.

(b) Dividends; Changes in Share Capital. St. Mary shall not (i)
declare or pay any dividends on or make other distributions in respect of
any of its capital stock, except for a dividend not to exceed $0.05 per
share of St. Mary Common Stock per quarter, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, except for any such
transaction by a wholly owned Subsidiary of St. Mary which remains a
wholly owned Subsidiary after consummation of such transaction, or (iii)
except under its current open market St. Mary Common Stock share
repurchase program (which shall not be expanded or altered), repurchase,
redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares or its capital
stock.

(c) Issuance of Securities. St. Mary shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its capital stock
of any class or any securities convertible into or

A-34

exercisable for, or any rights, warrants or options to acquire, any such
shares, or enter into any agreement with respect to any of the foregoing,
other than (i) the issuance of St. Mary Common Stock upon the exercise of
stock options pursuant to the St. Mary Option Plans or pursuant to the St.
Mary Employee Stock Purchase Plan, (ii) issuances by a wholly owned
Subsidiary of St. Mary of capital stock to such Subsidiary's parent or
another wholly owned Subsidiary of St. Mary, (iii) issuances of
equity-related awards pursuant to St. Mary Benefit Plans consistent with
past practices, and (iv) issuances in respect of any acquisitions,
mergers, share exchanges, consolidations, business combinations or similar
transactions by St. Mary or its Subsidiaries which issuances shall not
exceed in the aggregate 550,000 shares.

(d) Governing Documents. Except to the extent required to comply
with their respective obligations hereunder, required by law or required
by the rules and regulations of Nasdaq, St. Mary and its Subsidiaries
shall not amend in any material respect, or propose to so amend their
respective certificates of incorporation, bylaws or other governing
documents.

(e) Tax-Free Qualification. St. Mary shall not, and shall not permit
any of its Subsidiaries to, take any action that would reasonably be
expected to (i) prevent or impede the Merger from qualifying as a
reorganization under Section 368 of the Code, or (ii) prevent the Spin-Off
from qualifying as a distribution in which Section 355(e) applies or
prevent such distribution from not being taxable to the shareholders of
KRI.

Section 4.3 Advice of Changes; Governmental Filings. Each party shall (a)
confer on a regular and frequent basis with the other and (b) promptly report to
the other parties on material operational matters or any event or circumstance
which (alone or together with other such matters) may have a Material Adverse
Effect on such party. KRE and St. Mary shall file all reports required to be
filed by each of them with the SEC and all other Governmental Entities between
the date of this Agreement and the Effective Time and shall deliver to the other
party copies of all such reports promptly after the same are filed. Each of KRE
and St. Mary shall have the right to review in advance, and will consult with
the other with respect to, all the information relating to the other party and
each of their respective Subsidiaries which appears in any filings,
announcements or publications made with, or written materials submitted to, any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as necessary with
respect to such materials. Each party agrees that, to the extent practicable and
as timely as practicable, it will consult with, and provide all appropriate and
necessary assistance to, the other party with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other party apprised
of the status of matters relating to completion of the transactions contemplated
hereby.

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ARTICLE V

ADDITIONAL AGREEMENTS

Section 5.1 Preparation of Proxies and Registration Statement; Meeting of
St. Mary Shareholders.

(a) As promptly as practicable following the execution of this
Agreement, St. Mary shall, in cooperation with KRI and KRE, prepare and
file with the SEC materials which shall constitute the proxy statements
and the registration statement on Form S-4 with respect to the approval of
the Merger by the shareholders of KRI and the St. Mary Share Issuance by
the shareholders of St. Mary (such proxy statements and registration
statement being hereinafter together referred to as the "Form S-4"). St.
Mary shall cause the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act and the
rules and regulations thereunder. St. Mary shall, as promptly as
practicable after receipt thereof, provide copies to KRI and KRE of any
written comments received from the SEC with respect to the Form S-4 and
advise KRI and KRE of any oral comments with respect to the Form S-4
received from the SEC. St. Mary agrees that none of the information
supplied or to be supplied by St. Mary for inclusion or incorporation by
reference in the Form S-4 and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the St. Mary Shareholders
Meeting and the KRE Shareholders Meeting (as defined below), will contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
KRI and KRE agree that none of the information supplied or to be supplied
by KRI or KRE for inclusion in the Form S-4 and each amendment or
supplement thereto, at the time of mailing thereof and at the times of the
St. Mary and KRE Shareholders Meetings, will contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. For purposes of
the foregoing, it is understood and agreed that information concerning or
related to St. Mary and the St. Mary shareholders meeting will be deemed
to have been supplied by St. Mary and information concerning or related to
KRI and KRE, and the KRE Shareholders Meeting, shall be deemed to have
been supplied by KRI. St. Mary will provide KRI and KRE with a reasonable
opportunity to review and comment on any amendment or supplement to the
Form S-4 prior to filing such with the SEC, and will provide KRI and KRE
with a copy of all such filings made with the SEC. No amendment or
supplement for inclusion in the Form S-4 shall be made without the
approval of KRI and KRE, which approvals shall not be unreasonably
withheld or delayed.

(b) St. Mary shall, as promptly as practicable following the date on
which the Form S-4 is declared effective by the SEC, duly call, give
notice of, convene and hold a special meeting of its shareholders (the
"St. Mary Shareholders Meeting") for the purpose

A-36

of obtaining the Required St. Mary Vote, shall take all lawful action to
solicit the approval of the St. Mary Share Issuance by the Required St.
Mary Vote and the Board of Directors of St. Mary shall, subject to its
fiduciary duties, recommend approval of the St. Mary Share Issuance by the
shareholders of St. Mary.

(c) KRE shall, as promptly as practicable following the date on
which the Form S- 4 is declared effective by the SEC, duly call, give
notice of, convene and hold a special meeting of those persons who will be
its shareholders ("KRE Shareholders") following the Distributions (the
"KRE Shareholders Meeting") for the purpose of obtaining the Required KRE
Vote, shall take all lawful action to solicit the approval of the Merger
by the Required KRE Vote and the Boards of Directors of KRI and KRE shall,
subject to their fiduciary duties, recommend approval of the Merger by the
shareholders of KRE.

Section 5.2 Confidentiality - Access to Information. Notwithstanding
anything contained in this Agreement to the contrary, all of the parties hereto
agree and acknowledge that they are bound by those certain confidentiality
agreements between KRI and St. Mary dated February 25, 1999, and April 21, 1999
(the "Confidentiality Agreements"), which remain in full force and effect and
shall also govern the information disclosed pursuant to this Agreement. Upon
reasonable notice, and subject to the Confidentiality Agreements, each party
shall (and shall cause its subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access during normal business hours, during the period prior to
the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, such party shall (and shall cause its
subsidiaries to) furnish promptly to the other party (a) a copy of each report,
schedule and other document filed, published, announced or received by it during
such period pursuant to the requirements of federal or state securities laws, as
applicable (other than documents which such party is not permitted to disclose
under applicable law), and (b) consistent with its legal obligations, all other
information concerning its business, properties and personnel as such other
party may reasonably request. The parties shall hold any such information which
is non-public in confidence in accordance with the Confidentiality Agreements.
Any investigation by St. Mary, KRI or KRE shall not affect the representations
and warranties of KRI and KRE or of St. Mary, as the case may be.

Section 5.3 Commercially Reasonable Efforts.

(a) Subject to the terms and conditions of this Agreement, each
party will use its commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate
the Merger and the other transactions contemplated by this Agreement as
soon as practicable after the date hereof.

(b) In furtherance and not in limitation of the covenants of the
parties contained in Section 5.3(a), if any administrative or judicial
action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any

A-37

transaction contemplated by this Agreement, each of the parties shall
cooperate in all respects with each other and use its respective
commercially reasonable efforts to contest and resist any such action or
proceeding and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement.

Section 5.4 Public Announcements. St. Mary shall consult with KRI and KRE
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statement, including a public
statement required by applicable law or by obligations pursuant to St. Mary's
listing agreement with Nasdaq, prior to such consultation and approval, which
approval shall not be unreasonably withheld or delayed. Neither KRI nor KRE nor
any Subsidiary of KRI shall issue any press release or otherwise make any public
statements with respect to the transactions contemplated by this Agreement
without the prior approval of St. Mary, which approval shall not be unreasonably
withheld or delayed.

Section 5.5 Restrictions on Transfer of St. Mary Common Stock.

(a) The KRE Shareholders shall not make any disposition by sale,
pledge or any other transfer of all or any portion of the shares of St.
Mary Common Stock acquired by them pursuant to this Agreement for a period
of two years from the Closing Date. The certificates representing the
shares of St. Mary Common Stock to be issued to the KRE Shareholders
pursuant to this Agreement shall be stamped or otherwise imprinted with a
legend substantially similar to the following:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF AN AGREEMENT AND PLAN OF MERGER WHICH PLACES
CERTAIN RESTRICTIONS ON THE TRANSFER OF THE SHARES REPRESENTED
HEREBY. A COPY OF SUCH AGREEMENT AND PLAN OF MERGER IS AVAILABLE AT
THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES.

(b) Notwithstanding the foregoing, the above-referenced transfer
restrictions shall not apply to the following transactions or under the
following circumstances:

(i) The KRE Shareholders may transfer the shares of St. Mary
Common Stock acquired under this Agreement pursuant to the laws of
descent and distribution and for customary estate planning purposes,
and such shares shall continue to be bound by the restrictions set
forth in this Section 5.5 for the remainder of the restricted
period, as evidenced by the above-referenced legend;

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(ii) Subject to the provisions of Rule 145 under the
Securities Act of 1933, as amended (the "Securities Act"), if any of
Thomas E. Congdon, his spouse or a descendant of his, or any trust
or other entity controlled directly or indirectly by any of them, or
the MMC 1961 Trust, the TEC 1966 Trust or Greenhouse Associates
(together the "Congdon Group"), shall after the Closing Date sell
any of their shares of St. Mary Common Stock (other than to another
member of the Congdon Group), St. Mary shall give prompt notice
thereof to the former shareholders of KRE, and each former
shareholder of KRE may sell a percentage of his, her or its
aggregate shares of St. Mary Common Stock equal to the percentage of
shares owned by the Congdon Group which are so sold. The number of
shares of St. Mary Common Stock owned by the Congdon Group on the
date of this Agreement is 1,288,870. Attached hereto as Exhibit 5.5
is a letter of Thomas E. Congdon setting forth that the members of
the Congdon Group have no current intention to sell any of their
shares of St. Mary Common Stock. Without limiting the generality of
the foregoing, in the event of a tender offer made to the
shareholders of St. Mary which is subject to Regulation 14D of the
Securities Exchange Act of 1934 (a "Tender Offer"), and which is not
approved by the Board of Directors of St. Mary, and in the event
that the Congdon Group sells shares of St. Mary Common Stock
pursuant to such Tender Offer, each former shareholder of KRE may
sell pursuant to such Tender Offer a percentage of his, her or its
aggregate shares of St. Mary Common Stock equal to the percentage of
shares owned by the Congdon Group which are so sold.

(iii) In the event of an Acquisition of St. Mary (as
hereinafter defined), the restrictions on the sale, pledge or other
transfer of shares of St. Mary Common Stock described in Section
5.5(a) above shall terminate and any shares of capital stock of the
acquirer (or an affiliate of the acquirer) received by the former
shareholders of KRE in the Acquisition of St. Mary shall not be
subject to such restrictions. For purposes of this Agreement, the
term "Acquisition of St. Mary" means the occurrence of any of the
following events: (i) St. Mary shall not be the surviving entity in
any merger (other than a merger with a subsidiary of St. Mary),
share exchange, consolidation or other reorganization (or survives
only as a subsidiary of an entity other than an Affiliate of St.
Mary); or (ii) St. Mary sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other
than a wholly owned subsidiary of St. Mary). In the event of a
Tender Offer which is approved by the Board of Directors of St. Mary
pursuant to a plan intended to result in a subsequent Acquisition of
St. Mary, the former shareholders of KRE may participate in such
Tender Offer to the extent of up to all of his, her or its aggregate
shares of St. Mary Common Stock.

Section 5.6 Representation on St. Mary Board of Directors. At the
Effective Time, St. Mary shall cause the Board of Directors of St. Mary to
consist of not more than eleven directors, nine of whom shall be the Directors
of St. Mary immediately prior to the Effective Time and two of whom shall be
Jack Hunt and William Gardiner (the "KRE Board Designees"). Thereafter

A-39

until two years after the Closing Date, or until such time as the former
shareholders of KRE own no shares of St. Mary Common Stock, St. Mary shall
utilize commercially reasonable efforts at the time of each annual meeting of
the shareholders of St. Mary to cause the KRE Board Designees to be elected to
the St. Mary Board of Directors. In the event one or both of the KRE Board
Designees are unwilling or unable to serve on the Board of Directors of St. Mary
for any reason during the foregoing period, the first alternate to replace a KRE
Board Designee shall be John Alexander and the second alternate KRE Board
Designee shall be James Clement.

Section 5.7 Expenses. St. Mary shall be responsible for all of its own
expenses, including but not limited to legal, accounting and other professional
fees and the fees of Deutsche Bank Securities Inc. incurred with respect to this
Agreement and the transactions provided for herein. Without limiting the
generality of the foregoing, St. Mary shall also be responsible for all costs
and registration fees associated with the preparation and filing of the Form
S-4. KRI shall be responsible for all the expenses of KRI and KRE, including but
not limited to legal, accounting and other professional fees and the fees of
Nesbitt Burns, incurred by them with respect to this Agreement and the
transactions provided for herein including the preparation of the Form S-4
except that St. Mary shall pay up to $12,000 of the fees of Deloitte & Touche
LLP incurred on behalf of KRI and KRE in connection with the Form S-4.

Section 5.8 King Ranch Trademark and Brand. As soon as practicable
following the Effective Date, St. Mary and its Subsidiaries, shall not utilize
the names "King Ranch," "King Ranch Energy," "King Ranch Oil & Gas," "Running W"
or any confusingly similar derivation thereof in connection with their
businesses and they shall within such period utilize their commercially
reasonable efforts to remove such names, or logos which include such names, from
any stationery, purchase orders, equipment or machinery owned by them. Effective
January 1, 1999, KRE will not be liable for any fees associated with the use of
the "King Ranch" trademark or brand.

Section 5.9 KRE Employee Severance Payments. KRI shall reimburse KRE or
St. Mary for severance payments to (i) KRE employees to whom St. Mary does not
offer continued employment and who remain employed by KRE until the Closing Date
or until such earlier date as agreed upon by KRE and St. Mary and (ii) KRE
employees whose employment is continued by St. Mary after the Closing Date for a
transition period not in excess of six months. Notwithstanding anything to the
contrary contained in the foregoing, (A) the severance payment reimbursement
liability of KRI for KRE employees described above shall be based, in St. Mary's
discretion, upon not more than two weeks for each full year of prior employment
by KRE except for those employees who are entitled to severance payments
computed in accordance with existing agreements with them, as described on
Schedule 5.9 hereto, provided that the severance payment to any such employee
shall not be less than thirty days salary, (B) the aggregate liability of KRI
under this Section 5.9 shall not exceed $850,000, and any excess shall be paid
by St. Mary and (C) the payment of severance may be conditioned upon an
employee's agreement to a customary confidentiality covenant with respect to
KRE's confidential information.

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Section 5.10 368(a) Reorganization. St. Mary, Merger Sub, KRI and KRE
shall each use commercially reasonable efforts to cause the business combination
to be effected by the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code. From and after the date of this Agreement
and after the Effective Time, each party shall use its commercially reasonable
efforts to cause the Merger to qualify, and shall not knowingly take any actions
or cause any actions to be taken which could prevent the Merger from qualifying,
as a reorganization under the provisions of Section 368(a) of the Code.

Section 5.11 355 Distribution. St. Mary, Merger Sub, KRI and KRE shall
each use commercially reasonable efforts to cause the Spin-Off to qualify as a
distribution in which Section 355(e) of the Code applies and to prevent such
distribution from being taxable to the shareholders of KRI. From and after the
date of this Agreement and after the Effective Time, each party shall use its
commercially reasonable efforts to cause the Spin-Off to qualify, and shall not
knowingly take any actions or cause any actions to be taken which are reasonably
likely to prevent the Spin-Off from qualifying as a distribution to which
Section 355(e) of the Code applies.

Section 5.12 Continuity of Business. Following the Merger, St. Mary
intends to cause Merger Sub to continue to a significant extent the historic
business of KRE or to use a significant portion of the historic business assets
of KRE in a business in substantially the same manner as such business was
conducted prior to Closing.

Section 5.13 Indemnification of Officers and Directors. The
indemnification obligations set forth in KRE's Certificate of Incorporation and
KRE's Bylaws shall survive the Merger, and shall not be amended, repealed or
otherwise modified for a period of two years after the Effective Time in any
manner that would adversely affect the rights thereunder of the individuals who
on or prior to the Effective Time were directors, officers, employees or agents
of KRE.

Section 5.14 Retained Litigation. KRI shall retain all liability
associated with, and responsibility for the defense of and the costs thereof,
the Pi Energy Corporation litigation described in Note 6 of the Notes to the KRE
Financial Statements as of December 31, 1998, and any other litigation or
threatened litigation set forth on Schedule 3.2(f) hereto (the "Retained
Litigation"). Notwithstanding the foregoing, St. Mary shall be obligated to use
its commercially reasonable efforts to cooperate with KRI in connection with the
defense of the Retained Litigation, including, without limitation, providing KRI
access to St. Mary's documents and/or employees, which obligation shall survive
the Closing.

Section 5.15 Stockholder's Representative. KRI shall act as the agent and
attorney-in-fact with full power and authority in connection with the
administration of this Agreement on behalf of the KRE shareholders, including
the prosecution of indemnification claims against St. Mary. This appointment
shall be coupled with an interest and shall be irrevocable and binding in all
respects upon St. Mary and the KRE shareholders and their successors and
assigns, and heirs and devisees.

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Section 5.16 Voting Commitments. KRI shall obtain from Stephen Kleberg,
John Alexander and James Clement, members of the KRI Board of Directors and
substantial shareholders of KRI, commitments to (i) vote the shares of stock of
KRE which they will receive in the Distributions in favor of the Merger and (ii)
subject to their fiduciary obligations as Directors, recommend to the members of
their immediate families who are shareholders of KRI that they vote the shares
of KRE stock which they will receive in the Distributions in favor of the
Merger.

Section 5.17 No Solicitation.

(a) KRI and KRE shall immediately cease and cause to be terminated
all existing discussions and negotiations, if any, with any parties
conducted heretofore with respect to any Acquisition Proposal. As used in
this Section 5.17, "Acquisition Proposal" means any tender offer or
exchange offer by a non-affiliated third party for fifty percent or more
of the outstanding shares of KRE common stock or any proposal or offer by
a non-affiliated third party for a merger, consolidation, amalgamation or
other business combination involving KRE or any equity securities (or
securities convertible into equity securities) of KRE, or any proposal or
offer by a non-affiliated third party to acquire in any manner a fifty
percent or greater equity or beneficial interest in, or a material amount
of the assets or value of, KRE, other than pursuant to the transactions
contemplated by this Agreement.

(b) Unless and until this Agreement shall have been terminated, KRI
and KRE shall not permit any of their officers, directors, employees,
agents, financial advisors, counsel or other representatives
(collectively, the "Representatives") to, directly or indirectly, (i)
solicit, initiate or take any action with the intent of facilitating the
making of, any offer or proposal that constitutes or that is reasonably
likely to lead to any Acquisition Proposal, (ii) participate in any
discussions or negotiations regarding any Acquisition Proposal or (iii)
furnish to any Person (other than St. Mary or any Affiliate or
Representative of KRI) any nonpublic information or nonpublic data outside
the ordinary course of conducting KRE's business; provided, however, that
to the extent required by their fiduciary duties under applicable law and
after consultation with and based upon the advice of outside legal
counsel, KRI's or KRE's Board of Directors and officers may in response to
a Person who initiates communication with KRI or KRE, without there having
occurred any action prohibited by clause (i) of this sentence, take such
actions as would otherwise be prohibited by clauses (ii) and (iii). KRI
shall notify St. Mary of any such inquiries, offers or proposals
(including the identity of the Person making any inquiry, offer or
proposal) as promptly as possible and in any event within 24 hours after
receipt thereof or the occurrence of such events, as appropriate, and
shall give St. Mary ten days' advance notice of any agreement to be
entered into with, or any information or data to be furnished to, any
Person in connection with any such inquiry, offer or proposal.

Section 5.18 Seismic Data. The parties agree that neither KRI nor KRE is
making any representation or warranty regarding the continued access of St. Mary
or the Surviving

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Corporation following the consummation of the Merger to any of the seismic data
under the seismic licenses to which KRE or any Subsidiary of KRE is a party.
Furthermore, the parties agree that (A) certain of such seismic data and
licenses are not transferrable to St. Mary or the Surviving Corporation upon
consummation of the Merger, and (B) certain of the seismic data and licenses
will transfer to St. Mary or the Surviving Corporation only upon the payment of
a transfer fee or other penalty. Neither KRI nor KRE shall have any liability to
St. Mary or Surviving Corporation in the event that any such seismic data or
licenses are not transferrable, or in the event that the consummation of the
Merger triggers the payment of a transfer fee or other penalty.

ARTICLE VI

INDEMNIFICATION

Section 6.1 Indemnification by KRI. KRI agrees to and shall defend,
indemnify and hold harmless St. Mary, the Surviving Corporation, and each of
their subsidiaries, stockholders, affiliates, officers, directors, employees,
counsel, agents, successors, assigns and legal representatives (St. Mary and all
such other Persons are collectively referred to as the "St. Mary Indemnified
Persons") from and against, and shall reimburse the St. Mary Indemnified Persons
for, each and every Loss paid, imposed on or incurred by the St. Mary
Indemnified Persons, directly or indirectly, relating to, resulting from or
arising out of (i) any inaccuracy in any representation or warranty of KRI or
KRE under this Agreement, or the KRI or KRE Disclosure or other Schedules hereto
or any agreement or certificate delivered or to be delivered by KRI or KRE
pursuant hereto, (ii) any claim by a third party against St. Mary Indemnified
Persons arising out of an act or omission of KRI or KRE occurring before the
Closing Date, or (iii) the Retained Litigation. The indemnification obligations
set forth herein shall be that of KRI, and the shareholders of KRI shall have
absolutely no liability or obligation hereunder.

Section 6.2 Indemnification by St. Mary. St. Mary agrees to and shall
defend, indemnify and hold harmless KRI and each of KRI's respective
subsidiaries, stockholders, affiliates, officers, directors, employees, counsel,
agents, successors, assigns and legal representatives (KRI and all such other
Persons are collectively referred to as the "KRI Indemnified Persons") from and
against, and shall reimburse the KRI Indemnified Persons for, each and every
Loss paid, imposed on or incurred by the KRI Indemnified Persons, directly or
indirectly, relating to, resulting from or arising out of (i) any inaccuracy in
any representation or warranty of St. Mary or Merger Sub under this Agreement,
or the St. Mary Disclosure Schedule hereto or any agreement or certificate
delivered or to be delivered by St. Mary pursuant hereto, or (ii) any claim by a
third party against KRI Indemnified Persons arising out of an act or omission of
St. Mary or KRE occurring after the Closing Date.

Section 6.3 Notice and Defense of Third-Party Claims. If any Proceeding
shall be brought or asserted under this Article against an indemnified party or
any successor thereto (the "Indemnified Person") in respect of which indemnity
may be sought under this Article from an

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indemnifying Person or any successor thereto (the "Indemnifying Person"), the
Indemnified Person shall give prompt written notice of such Proceeding to the
Indemnifying Person who shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all expenses; provided, that any delay or failure to so notify the
Indemnifying Person shall relieve the Indemnifying Person of its obligations
hereunder only to the extent, if at all, that it is prejudiced by reason of such
delay or failure. In no event shall any Indemnified Person be required to make
any expenditure or bring any cause of action to enforce the Indemnifying
Person's obligations and liability under and pursuant to the indemnifications
set forth in this Article. In addition, actual or threatened action by a
Governmental Entity or other entity is not a condition or prerequisite to the
Indemnifying Person's obligations under this Article. The Indemnified Person
shall have the right to employ separate counsel in any of the foregoing
Proceedings and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of the Indemnified Person unless the
Indemnified Person shall in good faith determine that there exist actual or
potential conflicts of interest which make representation by the same counsel
inappropriate, as evidenced by the written opinion of outside counsel to the
Indemnified Person. The Indemnified Person's right to participate in the defense
or response to any Proceeding should not be deemed to limit or otherwise modify
its obligations under this Article. In the event that the Indemnifying Person,
within 15 days after notice of any such Proceeding, fails to assume the defense
thereof, the Indemnified Person shall have the right to undertake the defense,
compromise or settlement of such Proceeding for the account of the Indemnifying
Person, subject to the right of the Indemnifying Person to assume the defense of
such Proceeding with counsel reasonably satisfactory to the Indemnified Person
at any time prior to the settlement, compromise or final determination thereof.
Anything in this Article to the contrary notwithstanding, the Indemnifying
Person shall not, without the Indemnified Person's prior written consent, which
consent shall not be unreasonably withheld, settle or compromise any Proceeding
or consent to the entry of any judgment with respect to any Proceeding;
provided, however, that the Indemnifying Person may, without the Indemnified
Person's prior written consent, settle or compromise any such Proceeding or
consent to entry of any judgment with respect to any such Proceeding that
requires solely the payment of money damages by the Indemnifying Person and that
includes as an unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Person from all liability in respect of such
Proceeding.

Section 6.4 Limitation of Liability.

(a) Survival. An Indemnifying Person shall have no liability under
this Article unless notice of a claim for indemnity, or notice of facts as
to which an indemnifiable Loss is expected to be incurred, shall have been
given within one year after the Closing Date, except that (i) an
Indemnified Person may give notice of and may make a claim for
indemnification for any indemnifiable Loss which results from any claim by
any third party at any time within two years after the Closing Date, (ii)
an Indemnified Person may give notice of and may make a claim relating to
the payment of federal or state taxes (including with respect to matters
set forth on Schedule 3.2(l)), or compliance with or obligations under
ERISA at any time prior to ninety days after the expiration of

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the appropriate statute of limitation, if any, with respect thereto, and
(iii) St. Mary's Indemnified Persons may give notice of and may make a
claim relating to the Retained Litigation at any time.

(b) Limitation on KRI Liability. In addition to the other
limitations set forth in Section 6.4 (a) and (d), the liability of KRI to
St. Mary's Indemnified Persons shall be subject to the following
limitations:

(i) No St. Mary Indemnified Person shall be entitled to
indemnification from KRI pursuant to Section 6.1 hereof, except for
single Losses in excess of $100,000 (for which the full Loss shall
be indemnified and not solely the amount of the Loss in excess of
$100,000), unless and until the aggregate of all Losses (excluding
single Losses in excess of $100,000 which have been indemnified) for
which indemnification would (but for the limitation of this
sentence) be required to be paid by KRI hereunder exceeds $600,000
(the "KRI Loss Threshold") after which the St. Mary Indemnified
Persons shall be entitled to recover for all Losses and for which
indemnification is required to be paid hereunder (including such
$600,000).

(ii) In no event shall the aggregate liability of KRI
hereunder exceed $25,000,000 ("KRI Loss Ceiling"). KRI shall have no
further obligations under this Article VI of this Agreement at the
earlier of the time when KRI has paid or is required to pay to St.
Mary's Indemnified Persons an amount equal to the KRI Loss Ceiling.

(iii) Notwithstanding anything in this Section 6.4(b) to the
contrary, amounts paid by KRI in connection with the Retained
Litigation, including attorneys' fees, court costs, settlements or
judgements shall not be used in calculating the KRI Loss Threshold,
shall not be limited by the KRI Loss Ceiling and shall be due from
KRI irrespective of the provisions of paragraphs (i) and (ii) above.

(c) Limitation on St. Mary Liability. In addition to the other
limitations set forth in Section 6.4(a) and (d), the liability of St. Mary
to KRI's Indemnified Persons shall be subject to the following
limitations:

(i) No KRI Indemnified Person shall be entitled to
indemnification from St. Mary pursuant to Section 6.2 hereof, except
for single Losses in excess of $100,000 (for which the full Loss
shall be indemnified and not solely the amount of the Loss in excess
of $100,000), unless and until the aggregate of all Losses
(excluding single Losses in excess of $100,000 which have been
indemnified) for which indemnification would (but for the limitation
of this sentence) be required to be paid by St. Mary hereunder
exceeds $600,000 (the "St. Mary Loss Threshold") after which the KRI
Indemnified Persons shall be entitled

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to recover for all Losses and for which indemnification is required
to be paid hereunder (including such $600,000).

(ii) In no event shall the aggregate liability of St. Mary
hereunder exceed $25,000,000 ("St. Mary Loss Ceiling"). St. Mary
shall have no further obligations under this Article VI of this
Agreement at the earlier of the time when St. Mary has paid or is
required to pay to KRI an amount equal to the St. Mary's Loss
Ceiling.

(d) Tax Benefits; Insurance Recoveries. In calculating the amount of
any Loss for which any Indemnifying Person is liable under this Article,
there shall be taken into consideration (i) the value of any federal or
state income tax benefits and (ii) the amount of any insurance recoveries,
net of any amounts which are in effect self-insured, whether through
deductibles, co-payments, retention amounts, retroactive premium
adjustments or other similar adjustments, the Indemnified Person in fact
receives as a direct consequence of the circumstances to which the Loss
related or from which the Loss resulted or arose.

Section 6.5 Exclusivity. After the Effective Time, the provisions of this
Article shall be the exclusive basis for the assertion of claims by or
imposition of liability on the parties hereto arising under or as a result of
this Agreement; provided, however, nothing herein shall preclude any party
hereto from asserting a claim for equitable non-monetary remedies.

Section 6.6 Waiver of Consequential Damages. With respect to any and all
Losses for which indemnification may be available hereunder, each party hereby
expressly waives any consequential and punitive damages with respect to a claim
against the other party hereto; provided, however, that this waiver shall not
apply to the extent such consequential or punitive damages are awarded in a
Proceeding brought or asserted by a third party against an Indemnified Person.

ARTICLE VII

CONDITIONS TO CLOSING

Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.
Except as may be waived in writing by the Parties, all of the obligations of the
Parties under this Agreement are subject to the fulfillment, prior to or at the
Closing, of each of the following conditions:

(a) Shareholder Approvals. St. Mary shall have obtained the Required
St. Mary Vote in connection with the approval of the St. Mary Share
Issuance by the shareholders of St. Mary and KRI shall have obtained the
Required KRE Vote in connection with the approval of the Merger by the
shareholders of KRE.

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(b) No Injunctions, Restraints or Illegality. No laws shall have
been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or
other governmental entity of competent jurisdiction shall be in effect,
having the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger, provided however, that the provisions of this
Section 7.1(b) shall not be available to any party whose failure to
fulfill its obligations pursuant to Section 5.3 shall have been the cause
of, or shall have resulted in, such order or injunction.

(c) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC and shall have become effective in all
states where required.

(d) Nasdaq Listing. The shares of St. Mary Common Stock to be issued
pursuant to this Agreement shall have been approved upon official notice
of issuance for quotation on Nasdaq.

(e) Consummation of the Distribution. The shares of KRE shall have
been distributed to the KRI shareholders in accordance with the
Distributions.

Section 7.2 Additional Conditions to Obligations of St. Mary and Merger
Sub. The obligations of St. Mary and Merger Sub to effect the Merger are subject
to the satisfaction of, or waiver by St. Mary, on or prior to the Closing Date
of the following conditions:

(a) Representations and Warranties. The representations and
warranties of KRI and KRE set forth in Sections 3.1 and 3.2 shall be true
and correct in all respects as of the Closing Date and as if made on the
Closing Date subject to any changes contemplated by this Agreement.

(b) Performance of Obligations of KRI and KRE. KRI and KRE shall
have performed or complied in all material respects with all agreements
and covenants required to be performed by it under this Agreement at or
prior to the Closing Date.

(c) Settlement for KRI-KRE Intercompany Balances. KRI shall have
paid to KRE an amount equal to the amount, if any, of intercompany
transactions subsequent to May 31, 1999 and up to the Closing Date between
KRE (together with any KRE Subsidiary) and KRI (together with any other
Subsidiary of KRI), net of any intercompany transactions between KRI
(together with any other Subsidiary of KRI) and KRE (together with any KRE
Subsidiary) subsequent to that date. No interest shall have accrued from
and after December 31, 1998 on any outstanding obligations between KRE or
any KRE Subsidiary and KRI or any other KRI Subsidiary. KRI shall provide
evidence of the cancellation of any obligation of KRE to repay KRI, or any
other Subsidiary of KRI, for (i) the funds advanced by KRI to KRE for the
acquisition by KRE of the Flour Bluff properties, and (ii) any
indebtedness of KRE to KRI or any other Subsidiary of KRI existing on May
31, 1999.

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(d) Certificate of Officers. KRI shall have delivered to St. Mary
certificates dated as of the Closing Date, executed in their respective
corporate names by, and verified by, the oath of its chief executive
officer and chief financial officer certifying to the fulfillment of the
conditions specified in subsections (a) and (b) of this Section 7.2.

(e) Opinion of Financial Advisor. The opinion referred to in Section
3.3(r) shall not have been withdrawn by Deutsche Bank Securities Inc.

(f) Opinion of Counsel. St. Mary shall have received a customary
opinion of Locke Liddell & Sapp LLP, counsel to KRE and KRI, in a form
approved by St. Mary, which approval shall not be unreasonably withheld or
delayed.

(g) Non-Exercise of Appraisal Rights. In connection with the
Required KRE Vote, the holders of no more than five percent of the
outstanding shares of common stock of KRE shall have exercised the rights
of dissenting shareholders under Section 262 of the Delaware General
Corporation Law ("Dissenting Shares"); provided, however, that if more
than five percent, but less than ten percent, of the shares of KRE common
shares are Dissenting Shares ("Excess Shares"), KRI shall have the right,
but not the obligation, to assume the liability for any Excess Payment (as
hereinafter defined). In the event that KRI assumes the liability for any
Excess Payment, this condition shall be deemed satisfied. The term "Excess
Payment" is the amount by which St. Mary's per share liability for Excess
Shares (as adjusted by the exchange ratio into shares of St. Mary Common
Stock) exceeds$19.76 per share of St. Mary Common Stock.

(h) Eugene Island Block 341. With respect to the Eugene Island Block
341 oil and gas property, KRE shall have obtained in a form substantially
similar to that previously provided to St. Mary the assignment of interest
contemplated by that certain Participation Agreement dated February 17,
1998 between NCX Company, Inc. ("NCX") and KRE, which assignment shall be
subject to a contract operations agreement between NCX and Chevron U.S.A.
Production Company ("Chevron"), a throughput agreement between NCX and
Chevron, and an operating agreement between NCX and KRE. If such
assignment is not obtained, KRI shall indemnify St. Mary in accordance
with the provisions of Article VI hereof to the extent that St. Mary is
unable to recover currently non-producing reserves solely due to a lack of
rights or interests in such reserves, and this condition to closing shall
be deemed satisfied thereby. The liability for such indemnity obligation
shall be the values used by St. Mary in the net asset value determination
for KRE in connection with the Merger on a case-by-case basis as to each
currently non-producing interval covered by such assignment. Such
indemnification obligation of KRI shall remain in full force and effect
for a period of five years after the Closing Date or until any earlier
obtaining of such assignment. If there exists any conflict between this
provision and any other provision contained in this Agreement, the
provisions set forth in this Section shall control. Notwithstanding the
foregoing, no indemnification shall apply if such reserves are not
recoverable for any reason other than as specified herein.

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(i) Affiliate Restrictions. KRI shall have notified, in writing,
persons who are affiliates of KRI or KRE within the meaning of the
Securities Act (i) of the application to them of Rule 145 under the
Securities Act with respect to St. Mary Common Stock to be issued to them
pursuant to this Agreement and (ii) that the certificates of St. Mary
Common Stock issued to such persons will bear an additional restrictive
legend with respect to the foregoing.

Section 7.3 Additional Conditions to Obligations of KRE and the
Shareholders of KRE. The obligations of the shareholders of KRE and KRE to
effect the Merger are subject to the satisfaction of, or waiver by KRI on or
prior to the Closing Date of the following conditions:

(a) Representations and Warranties. The representations and
warranties of St. Mary and Merger Sub set forth in Section 3.3 and Section
3.4 shall be true and correct in all respects as of the Closing Date and
as if made on the Closing Date, subject to any changes contemplated by
this Agreement.

(b) Performance of Obligations of St. Mary and Merger Sub. St. Mary
and Merger Sub shall have performed or complied in all material respects
with all agreements and covenants required to be performed by them under
this Agreement at or prior to the Closing Date.

(c) Settlement of KRI-KRE Intercompany Balances. KRE shall have paid
KRI an amount equal to the amount, if any, of intercompany transactions
subsequent to May 31, 1999 and up to the Closing Date between KRI
(together with any other Subsidiary of KRI) and KRE (together with any KRE
Subsidiary), net of any intercompany transactions between KRE (together
with any KRE Subsidiary) and KRI (together with any other Subsidiary of
KRI) subsequent to that date, exclusive of funds advanced by KRI to KRE
for the acquisition by KRE of the Flour Bluff properties.

(d) Certificate of Officers. St. Mary shall have delivered to KRI a
certificate dated as of the Closing Date, executed in its corporate name
by, and verified by, the oath of its chief executive officer and vice
president of finance certifying to the fulfillment of the conditions
specified in subsections (a) and (b) of this Section 7.3.

(e) Opinion of Financial Advisor. The opinion referred to in Section
3.2(r) shall not have been withdrawn by Nesbitt Burns.

(f) Opinion of Counsel. KRI shall have received a customary opinion
of Ballard Spahr Andrews & Ingersoll, LLP, counsel to St. Mary, in a form
approved by KRI, which approval shall not be unreasonably withheld or
delayed.

(g) Tax Certificate. Counsel to KRI shall have received a tax
certificate from St. Mary in the form attached hereto as Exhibit 7.3(g).

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(h) Tax Opinion. KRI shall have received the opinions of Locke
Liddell & Sapp LLP and Ernst & Young LLP that (i) the Merger qualifies as
a reorganization under Section 368(a) of the Code, and (ii) the Spin-Off
qualifies as a tax-free distribution to the shareholders of KRI under
Section 355 of the Code.

ARTICLE VIII

TERMINATION AND AMENDMENT

Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time by action taken or authorized by the Board of
Directors of the terminating party or parties, whether before or after approval
of the St. Mary Share Issuance by the shareholders of St. Mary and approval of
the Merger by the shareholders of KRE, as follows:

(a) by mutual written consent of St. Mary, KRI and KRE, by action of
their respective Boards of Directors;

(b) by KRE or by St. Mary if the Effective Time shall not have
occurred on or before November 30, 1999 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement (including without limitation
Section 5.3) has to any material extent been the cause of, or resulted in,
the failure of the Effective Time to occur on or before the Termination
Date;

(c) by KRE or by St. Mary if any Governmental Entity (i) shall have
issued an order, decree or ruling or taken any other action (which the
parties shall have used their commercially reasonable efforts to resist,
resolve or lift, as applicable, in accordance with Section 5.3)
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree,
ruling or other action shall have become final and nonappealable or (ii)
shall have failed to issue an order, decree or ruling or to take any other
action (which order, decree, ruling or other action the parties shall have
used their commercially reasonable efforts to obtain, in accordance with
Section 5.3), in each case of (i) and (ii) which is necessary to fulfill
the conditions set forth in subsections 7.1(b) and 7.1(c) as applicable,
and such denial of a request to issue such order, decree, ruling or take
such other action shall have become final and nonappealable; provided
however, that the right to terminate this Agreement under this Section
8.1(c) shall not be available to any party whose failure to comply with
Section 5.3 has to any material extent been the cause of such action or
inaction;

(d) by KRE or by St. Mary if (i) the approval by the shareholders of
St. Mary required for the St. Mary Share Issuance to consummate the Merger
shall not have been obtained by reason of the failure to obtain the
Required St. Mary Vote, upon the taking of such vote at a duly held
meeting of the shareholders of St. Mary or at any reconvened

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meeting after any adjournment or postponement thereof, or (ii) the
approval by the shareholders of KRE required for the Merger shall not have
been obtained by reason of the failure to obtain the Required KRE Vote,
upon the taking of such vote at a duly held meeting of the shareholders of
KRE or at any reconvened meeting after any adjournment or postponement
thereof;

(e) by St. Mary if there has been a material breach of a
representation, warranty, covenant or agreement contained in this
Agreement on the part of KRI or KRE, and as a result of such breach the
conditions precedent set forth in Section 7.1 or Section 7.2, as the case
may be, would not then be satisfied; provided, however, that if such
breach is curable by KRI or KRE through the exercise of commercially
reasonable efforts within the earlier of (i) thirty days from the receipt
of written notice of breach by KRI from St. Mary or (ii) November 30,
1999, then for so long as KRI continues to exercise such commercially
reasonable efforts, St. Mary may not terminate this Agreement under this
Section 8.1(e) unless the breach is not cured in full within such time
period; and

(f) by KRI if there has been a material breach of a representation,
warranty, covenant or agreement contained in this Agreement on the part of
St. Mary, and as a result of such breach the conditions precedent set
forth in Section 7.1 or Section 7.3, as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by St. Mary
through the exercise of commercially reasonable efforts within the earlier
of (i) thirty days from receipt of written notice of breach by St. Mary
from KRI or (ii) November 30, 1999, then for so long as St. Mary continues
to exercise such commercially reasonable efforts, KRI may not terminate
this Agreement under this Section 8.1(f) unless the breach is not cured in
full within such time period.

Section 8.2 Effect of Termination.

(a) In the event of termination of this Agreement by KRE or by St.
Mary as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of St. Mary
or KRI or their respective subsidiaries, affiliates, employees, officers,
directors or counsel, except with respect to the first sentence of Section
5.2, Section 5.7 and this Section 8.2.

(b) If St. Mary shall terminate this Agreement pursuant to Section
8.1(e) hereof, St. Mary may elect (i) to require KRI to pay to it the sum
of $1,000,000 (the "Termination Fee"), or (ii) in lieu of the Termination
Fee, to exercise its legal right to assert a claim for all available legal
monetary and equitable non-monetary remedies against KRI and KRE with
respect to such breach. If St. Mary shall terminate this Agreement
pursuant to Section 8.1(e) hereof, and on or before December 31, 1999
there is a proposal reflected by a written document (an "Alternative
Acquisition Proposal") for an Alternative Transaction (as hereinafter
defined), KRI shall be obligated to pay to St. Mary an additional sum of
$2,000,000 (the "Alternative Transaction Fee") upon the closing of such
Alternative Transaction. An "Alternative Transaction" shall mean a

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merger, a tender offer or exchange offer for substantially all or the
outstanding capital stock of KRE, or a sale of substantially all of the
assets of KRE to one or more non-affiliated purchasers but shall not mean
a liquidation or dissolution of KRE which is not a part of one of the
foregoing transactions. KRI acknowledges that St. Mary will have incurred
significant costs and will have invested significant amounts of time and
resources investigating and negotiating the acquisition of KRE, and agrees
that the Termination Fee and the Alternative Transaction Fee constitute,
if applicable, reasonable liquidated damages in light of the anticipated
or actual harm to St. Mary that would be caused by a termination subject
to this Section 8.2(b). KRI and KRE further acknowledge that St. Mary may
suffer irreparable harm as a result of entering into this Agreement, and
in the event St. Mary shall be entitled to terminate this Agreement
pursuant to Section 8.1(e) hereof, but elects not to so terminate, St.
Mary shall have the right to seek specific enforcement of this Agreement.

(c) If KRI shall terminate this Agreement pursuant to Section 8.1(e)
hereof, KRI may elect (i) to require St. Mary to pay to it the Termination
Fee, or (ii) in lieu of the Termination Fee, to exercise its legal right
to assert a claim for all available legal monetary and equitable
non-monetary remedies against St. Mary with respect to such breach. St.
Mary acknowledges that KRI will have incurred significant costs and will
have invested significant amounts of time and resources investigating and
negotiating the acquisition of KRE, and agrees that the Termination Fee,
if applicable, constitutes reasonable liquidated damages in light of the
anticipated or actual harm to KRI that would be caused by a termination
subject to this Section 8.2(b). St. Mary further acknowledges that KRE may
suffer irreparable harm through the loss of personnel and/or business
opportunities as a result of entering into this Agreement, and in the
event KRE shall be entitled to terminate this Agreement pursuant to
Section 8.1(f) hereof, but elects not to so terminate, KRI and KRE shall
have the right to seek specific enforcement of this Agreement.

(d) Notwithstanding the provisions of paragraphs (a) and (b) above,
if this Agreement is terminated because of a failure to obtain the
Required St. Mary Vote or the Required KRE Vote, a Termination Fee shall
not be payable. However, if this Agreement is terminated because of a
failure to obtain the Required KRE Vote, and on or before December 31,
1999 there is an Alternative Acquisition Proposal, an Alternative
Transaction Fee shall be payable as set forth in paragraph (b) above upon
the closing of such Alternative Transaction, and in that event the
Alternative Transaction Fee payable upon the closing of such Alternative
Transaction shall be $3,000,000.

(e) Any payment required to be made pursuant to Sections 8.2(b) and
(c) shall be made by wire transfer not later than ten business days after
first due.

Section 8.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the St. Mary Share Issuance by the
shareholders of St. Mary and the approval of the

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Merger by the shareholders of KRI, but, after any such approval, no amendment
shall be made which by law or in accordance with the rules of Nasdaq requires
further approval by such shareholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.

Section 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of all parties hereto. The
failure of any party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of those rights.

ARTICLE IX

ARBITRATION

Section 9.1 Mediation. The parties hereto agree that if any claim, action,
dispute or controversy of any kind arises out of or relates to this Agreement or
concerns any aspect of performance by any party under the terms of this
Agreement, prior to seeking any other remedies, including arbitration or
litigation, the aggrieved party shall give written notice to the other party
describing the disputed issue. Within ten days after the receipt of such a
notice, the parties shall mutually appoint a single mediator to assist in the
resolution of the dispute. If the parties cannot agree upon a mediator, either
KRI or St. Mary shall have the right to apply to the American Arbitration
Association ("AAA") for a single mediator to be appointed to mediate the dispute
in accordance with the rules applicable to AAA sponsored proceedings and, upon
the appointment of such a mediator by AAA, such mediator shall be deemed to be
accepted by the parties hereto. Within twenty days after the appointment of a
mediator, either by the parties hereto or, if necessary, by AAA, the parties
shall meet one or more times with such mediator in an effort to resolve the
matters in dispute. If after such meeting or meetings any aspect of the dispute
remains unresolved for a period of an additional ten days, the parties shall be
obligated to submit the dispute to arbitration in accordance with the provisions
of Section 9.2 immediately below. Any meeting or meetings with the mediator
appointed pursuant to this Article IX shall be conducted in Denver, Colorado.
The costs and expenses of the mediator shall be borne equally by KRI and St.
Mary.

Section 9.2 Arbitration.

(a) Any claim, action, dispute or controversy of my kind arising out
of or relating to this Agreement or concerning any aspect of performance
by any party under the terms of this Agreement that is not resolved by the
mediation process set forth in Section 9.1 above ("Dispute") shall be
resolved by mandatory and binding arbitration administered

A-53

by the AAA pursuant to the Federal Arbitration Act (Title 9 of the United
States Code) in accordance with this Agreement and the then-applicable
Commercial Arbitration Rules of the AAA. The parties acknowledge and agree
that the transactions evidenced and contemplated hereby involve "commerce"
as contemplated in Section 2 of the Federal Arbitration Act. To the extent
that any inconsistency exists between this Agreement and the foregoing
statutes or rules, this Agreement shall control. Judgment upon the award
rendered by the arbitrator acting pursuant to this Agreement may be
entered in, and enforced by, any court having jurisdiction absent manifest
disregard by such arbitrator of applicable law; provided, however, that
the arbitrator shall not amend, supplement or reform in any manner any of
the rights or obligations of any party hereunder or the enforceability of
any of the terms of this Agreement. Any arbitration proceedings under this
Agreement shall be conducted in Denver, Colorado, before a single
arbitrator being a member of the State Bar of Colorado for over ten years
and having recognized expertise in the field or fields of the matter(s) in
dispute.

(b) After first exhausting the mediation process set forth in
Section 9.1 upon the request by written notice delivered in accordance
with the terms hereof, whether made before or after the institution of any
legal proceeding, but prior to the expiration of the statutory time period
within which a party must respond upon receipt of valid service of process
in order to avoid a default judgment, any Dispute shall be resolved by
mandatory and binding arbitration in accordance with the terms of this
Agreement. Within ten days after a party's receipt of such notice, each of
the parties shall select one qualified arbitrator. The two arbitrators
selected by the parties shall then mutually select a third arbitrator (the
"Third Arbitrator"), and the Third Arbitrator shall resolve the Dispute in
accordance with this Agreement and the applicable AAA rules. If a
replacement arbitrator is necessary for any reason, such replacement
arbitrator shall be appointed by the Third Arbitrator or, alternatively,
if the Third Arbitrator is to be replaced, mutually by the two arbitrators
selected by the parties.

(c) All statutes of limitation that would otherwise be applicable
shall apply to my arbitration proceeding. Any attorney-client privilege
and other protection against disclosure of privileged or confidential
information including, without limitation, any protection afforded the
work-product of any attorney, that could otherwise be claimed by any party
shall be available to, and may be claimed by, any such party in any
mediation or arbitration proceeding. No party waives my attorney-client
privilege or any other protection against disclosure of privileged or
confidential information by reason of anything contained in, or done
pursuant to, the mediation or arbitration provisions of this Agreement.

(d) The arbitration shall be conducted and concluded as soon as
reasonably practicable, based on a schedule established by the Third
Arbitrator. Any arbitration award shall be based on and accompanied by
findings of fact and conclusions of law, shall be conclusive as to the
facts so found and shall be confirmable by my court having jurisdiction
over the Dispute, provided that such award, findings and conclusions are
not

A-54

in manifest disregard of applicable law. The Third Arbitrator shall have
no authority to award punitive damages or any other damages not measured
by the prevailing party's actual damages, and may not, in my event, make
any ruling, finding or award that does not conform to the terms and
conditions of this Agreement.

(e) In order for an arbitration award to be conclusive, binding and
enforceable under this Agreement, the arbitration must follow the
procedures set forth in the portions of this Agreement relating to such
arbitration and any award or determination shall not be in manifest
disregard of applicable law. The obligation to mediate or arbitrate my
Dispute shall be binding upon the successors and assigns of each of the
parties hereto.

(f) Notwithstanding anything to the contrary contained in this
Article IX, the obligation of the parties hereto to mediate and arbitrate
shall not apply to any dispute in which injunctive or other equitable
relief is sought.

Section 9.3 Costs; Enforcement. Each party shall bear its own expenses,
including, without limitation, expenses of counsel incident to any mediation or
arbitration. The expenses of the Third Arbitrator and the AAA shall be born
equally by KRI and St. Mary. The Third Arbitrator shall have the power and
authority to award expenses to the prevailing party if the Third Arbitrator
elects to do so. A party may bring summary proceedings (including, without
limitation, a plea in abatement or motion to stay further proceedings) in court
to compel mediation or arbitration of any Dispute in accordance with this
Agreement.

ARTICLE X

MISCELLANEOUS

Section 10.1 Nature of Representations and Warranties; Survival. The
representations and warranties of the parties under this Agreement shall survive
for a period of one year from the Closing Date; provided, however, that (i) the
representations and warranties shall survive for a period of two years from the
Closing Date to the extent that any inaccuracy in any representation or warranty
results in or involves a claim by any third party and (ii) the representations
and warranties made with respect to taxes and benefit plans shall survive until
ninety days after the expiration of the appropriate statue of limitation, if
any, with respect thereto. Further, the Confidentiality Agreements (defined in
Section 5.2) and the obligations with respect to the Retained Litigation (as
defined in Section 5.13), shall survive the Closing and remain in full force and
effect without a time limitation.

Section 10.2 Counterparts and Facsimile Signatures. In order to facilitate
the execution of this Agreement, the same may be executed in any number of
counterparts and signature pages may be delivered by telefax, with original
executed signature pages to be furnished promptly thereafter.

A-55

Section 10.3 Assignment. Neither this Agreement nor any right created
hereby shall be assignable by KRI, KRE or St. Mary without the prior written
consent of the other parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereby and their
respective successors, assigns, heirs, executors, administrators, or personal
representatives, any rights or remedies under or by reason of this Agreement.

Section 10.4 Representative of KRH, KRM and KRE Any executive officer of
KRI is hereby authorized to execute any document or take any other action on
behalf of KRH, KRM or KRE.

Section 10.5 Entire Agreement. This Agreement, the schedules hereto, and
the other documents delivered pursuant hereby constitute the full and entire
understanding and agreement between the parties with regard to the subject
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants or agreements except as specifically set
forth herein. All prior agreements and understandings are superseded by this
Agreement and the schedules hereto.

Section 10.6 Governing Law. This Agreement shall be governed by the laws
of the State of New York, except that the Delaware General Corporation Law shall
govern as to matters of corporate law pertaining to St. Mary and KRE, the
corporate laws of Texas shall govern as to the matters of corporate law
pertaining to KRI and the corporate laws of Colorado shall govern as to matters
of corporate law pertaining to Merger Sub. Subject to the alternative dispute
resolution provisions set forth in Article IX, any action brought to enforce
this Agreement or any term thereof shall be brought in a court of competent
jurisdiction in Denver, Colorado and each party hereto affirmatively agrees to
submit to the jurisdiction in that city and state.

Section 10.7 Severability. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

Section 10.8 Notices. Any notice, communication, request, reply or advice,
hereinafter severally and collectively called "notice," in this Agreement
provided or permitted to be given, made or accepted by either party to the other
must be in writing and may be given by personal delivery or U.S. mail or
confirmed telefax. If given by mail, such notice must be sent by registered or
certified mail, postage prepaid, mailed to the party at the respective address
set forth below, and shall be effective only if and when received by the party
to be notified. For purposes of notice, the addresses of the parties shall,
until changed as hereinafter provided, be as follows:

A-56

(a) If to St. Mary and/or Merger Sub:

St. Mary Land & Exploration Company
Attn: Mr. Mark A. Hellerstein
President and Chief Executive Officer
1776 Lincoln Street, Suite 1100
Denver, CO 80203-1080
Telefax: (303) 861-0934

With a copy to:

Milam Randolph Pharo, Esq.
Vice President Land & Legal
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, CO 80203-1080
Telefax: (303) 863-1040

(b) If to KRH, KRM, KRI and/or KRE:

King Ranch Inc.
Attn: Mr. Jack Hunt, President
1415 Louisiana, Suite 2300
Houston, TX 77002
Telefax: (713) 752-0101

With a copy to:

Greg Hill, Esq.
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis
Houston, Texas 77002
Telefax: (713) 223-3717

or at such other address or telefax number as any party may have advised the
others in writing.

Section 10.9 Attorney Fees. Except as otherwise provided herein, in the
event any party hereto institutes a proceeding against any other party hereto
for a claim arising out of or to enforce this Agreement, the parties agree that
the judge or arbitrator in any such proceeding shall be entitled to determine
the extent to which any party shall pay the reasonable attorneys' fees incurred
by the other party in connection with such proceeding, which determination shall
take into consideration the outcome of such Proceeding and such other factors as
the judge may determine to be equitable in the circumstances.

A-57

Section 10.10 Certain Definitions.

(a) "Affiliate" means, with respect to any Person, any other Person
that directly, or indirectly through one or-more intermediaries, controls
or is controlled by or is under common control with, such Person; as used
in this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract, or otherwise.

(b) "Knowledge" means (i) with respect to KRI and KRE, the actual
conscious knowledge of Jack Hunt, William Gardiner, Tom Fiorito, William
Silk, Brian Romere, Sonny Bryant, Dwight Bowles and Dennis Haydel and (ii)
with respect to St. Mary or Merger Sub, the actual conscious knowledge of
Thomas E. Congdon, Mark Hellerstein, Ronald Boone, Douglas York, Milam
Randolph Pharo, Richard Norris and Gary Wilkering.

(c) "Loss" means any loss, damage, injury, diminution in value,
liability, claim, demand, proceeding, judgment, punitive damage, fine,
penalty, tax, cost or expense (including reasonable costs of investigation
and the fees, disbursements and expenses of attorneys, accountants and
other professionals incurred in proceedings, investigations or disputes
involving third parties, including governmental agencies).

(d) "Material Adverse Effect" means, with respect to KRE or St.
Mary, or any of their respective Subsidiaries, any adverse change,
circumstance or effect that, individually or in the aggregate with all
other adverse changes, circumstances and effects, or is reasonably likely
to be materially adverse to the business, properties, assets, financial
conditions or results or such operations of such entity and its
Subsidiaries, taken as a whole, other than any change, circumstance or
effect relating to the economy or securities markets in general, the price
or oil or natural gas, or the industries in which KRE or St. Mary operates
and are not specifically relating to KRE or St. Mary.

(e) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).

(f) "Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted,
or heard by or before, or otherwise involving, any Governmental Entity or
arbitrator.

(g) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a
majority of the voting interests in such partnership) or (ii) at least a
majority of the

A-58

securities or other interests of which having by their terms ordinary
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party
or by any one or more or its Subsidiaries, or by such party and one or
more of its Subsidiaries.

{Remainder of Page Intentionally Left Blank}

A-59

IN WITNESS WHEREOF, this Agreement is hereby duly executed by each party
hereto as of the date first written above.

ST. MARY:

ST. MARY LAND & EXPLORATION COMPANY,
a Delaware corporation

By: /S/ MARK A HELLERSTEIN
-------------------------------------
Mark A. Hellerstein, President and
Chief Executive Officer

MERGER SUB:

ST. MARY ACQUISITION CORPORATION,
a Colorado corporation

By: /S/ MARK A. HELLERSTEIN
-------------------------------------
Mark A. Hellerstein, President

KRI:

KING RANCH INC.,
a Texas corporation

By: /S/ JACK HUNT
-------------------------------------
Jack Hunt, President

KRE:

KING RANCH ENERGY, INC.,
a Delaware corporation

By: /S/ WILLIAM GARDINER
-------------------------------------
William Gardiner, Vice President

A-60

Annex B

July 27, 1999

Board of Directors
St. Mary Land & Exploration Company
1776 Lincoln Street
Suite 1100
Denver, Colorado 80203

Gentlemen:

Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to St. Mary Land & Exploration Company ("St. Mary") in connection with
the proposed merger of St. Mary Acquisition Corporation ("Merger Sub"), a
wholly-owned subsidiary of St. Mary, and King Ranch Energy, Inc. ("KRE"), a
wholly-owned subsidiary of King Ranch, Inc. ("KRI"), pursuant to the Agreement
and Plan of Merger, dated July 27, 1999, among St. Mary, Merger Sub, KRI and KRE
(the "Merger Agreement"), which provides, among other things, for the merger of
Merger Sub with and into KRE (the "Transaction"), as a result of which KRE will
become a wholly-owned subsidiary of St. Mary. As set forth more fully in the
Merger Agreement, as a result of the Transaction, the total number of shares of
the Common Stock, par value $0.01 per share, of KRE ("KRE Common Stock") issued
and outstanding will be converted into the right to receive 2,666,252 shares
(the "Exchange Ratio") of Common Stock, par value $0.01 per share, of St. Mary
("St. Mary Common Stock"). Immediately prior to the completion of the
Transaction, all the issued and outstanding shares of KRE Common Stock will be
distributed pro rata to the shareholders of KRI (the "Distribution"). Each of
the shareholders of KRE who receives St. Mary Common Stock will be restricted
from selling such St. Mary Common Stock for a period of two years following the
effectiveness of the Transaction, subject to limited exceptions specified in the
Merger Agreement. The terms and conditions of the Transaction are more fully set
forth in the Merger Agreement.

You have requested Deutsche Bank's opinion, as investment bankers, as to
the fairness, from a financial point of view, to St. Mary of the Exchange Ratio.

In connection with Deutsche Bank's role as financial advisor to St. Mary,
and in arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning KRE and St. Mary and
certain internal analyses and other information furnished to it by KRE and St.
Mary. Deutsche Bank has also held discussions with members of the senior
managements of KRE and St. Mary regarding the businesses and prospects of their
respective companies and the joint prospects of a combined company. In addition,
Deutsche Bank has (i) reviewed the reported prices and trading activity for St.
Mary Common Stock, (ii) compared certain financial information for KRE and St.
Mary, and certain stock market

B-1

St. Mary Land & Exploration Company
July 27, 1999
Page 2

information for St. Mary, with similar information for certain other companies
whose securities are publicly traded, (iii) reviewed the financial terms of
certain recent business combinations which it deemed comparable in whole or in
part, (iv) reviewed the terms of the Merger Agreement and certain related
documents, and (v) performed such other studies and analyses and considered such
other factors as it deemed appropriate.

Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning KRE or St. Mary, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, Deutsche Bank has assumed and relied upon the accuracy and completeness
of all such information and Deutsche Bank has not conducted a physical
inspection of any of the properties or assets, and has not prepared or obtained
any independent evaluation or appraisal of any of the assets or liabilities, of
KRE or St. Mary. With respect to the financial forecasts and projections,
including any analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies expected by St. Mary to be
achieved as a result of the Transaction (collectively, the "Synergies"), made
available to Deutsche Bank and used in its analyses, Deutsche Bank has assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of St. Mary, as the case may
be, as to the matters covered thereby. In rendering its opinion, Deutsche Bank
expresses no view as to the reasonableness of such forecasts and projections,
including the Synergies, or the assumptions on which they are based. Deutsche
Bank's opinion is necessarily based upon economic, market and other conditions
as in effect on, and the information made available to it as of, the date
hereof.

For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of St.
Mary, Merger Sub, KRI and KRE contained in the Merger Agreement are true and
correct, St. Mary, Merger Sub, KRI and KRE will each perform all of the
covenants and agreements to be performed by it under the Merger Agreement and
all conditions to the obligations of each of St. Mary, Merger Sub, KRI and KRE
to consummate the Transaction will be satisfied without any waiver thereof.
Deutsche Bank has also assumed that all material governmental, regulatory or
other approvals and consents required in connection with the consummation of the
Transaction will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which any
of St. Mary, Merger Sub, KRI or KRE is a party or is subject or by which it is
bound, no limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on St.
Mary or KRE or materially reduce the contemplated benefits of the Transaction to
St. Mary. In addition, you have informed

B-2

St. Mary Land & Exploration Company
July 27, 1999
Page 3

Deutsche Bank, and accordingly for purposes of rendering its opinion Deutsche
Bank has assumed, that the Transaction will be tax-free to each of St. Mary and
KRE.

This opinion is addressed to, and for the use and benefit of, the Board of
Directors of St. Mary and is not a recommendation to the stockholders of St.
Mary to approve the Transaction or the issuance of shares of St. Mary Common
Stock in the Transaction. This opinion is limited to the fairness, from a
financial point of view, to St. Mary of the Exchange Ratio, and Deutsche Bank
expresses no opinion as to the merits of the underlying decision by St. Mary to
engage in the Transaction.

Deutsche Bank will be paid a fee for its services as financial advisor to
St. Mary in connection with the Transaction, a substantial portion of which is
contingent upon consummation of the Transaction. We are an affiliate of Deutsche
Bank AG (together with its affiliates, the "DB Group"). One or more members of
the DB Group have, from time to time, provided investment banking and other
financial services to St. Mary or its affiliates for which it has received
compensation, including certain transactions to hedge price fluctuations of oil
and gas. In the ordinary course of business, members of the DB Group may
actively trade in the securities and other instruments and obligations of St.
Mary for their own accounts and for the accounts of their customers.
Accordingly, the DB Group may at any time hold a long or short position in such
securities, instruments and obligations.

Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to St. Mary.

Very truly yours,

DEUTSCHE BANK SECURITIES INC.

/S/ DEUTSCHE BANK SECURITIES INC.

B-3

Annex C

July 26, 1999

The Board of Directors
King Ranch, Inc.
1415 Louisiana, Suite 2300
Houston, Texas 77002

Members of the Board:

You have requested our opinion as to the fairness from a financial point
of view to the holders of the outstanding shares of common stock (the "Common
Stock") of King Ranch, Inc. ("KRI") of the consideration to be received by such
shareholders in connection with the proposed merger (the "Merger") of St. Mary
Acquisition Corporation ("Merger Sub"), a wholly-owned subsidiary of St. Mary
Land & Exploration Company ("St. Mary"), with and into King Ranch Energy, Inc.
("KRE"), a wholly-owned third-tier subsidiary of KRI pursuant to the Agreement
and Plan of Merger substantially in the form of the draft dated July 25, 1999,
among KRI, KRE, St. Mary and Merger Sub (the "Merger Agreement"). We understand
the Merger Agreement provides, among other things, that (i) immediately prior to
the Merger all of the shares of common stock of KRE shall be distributed pro
rata to the shareholders of KRI, and (ii) upon consummation of the Merger, the
KRE common stock held by the holders of Common Stock will be converted into the
right to receive 2,666,252 shares of St. Mary common stock in the manner and
more fully described in the Merger Agreement (the "Merger Consideration"). We
also understand the shares of St. Mary common stock to be received by the
holders of KRE common stock in the Merger will be subject, except as set forth
in the Merger Agreement, to certain restrictions on transfer for a period of two
years from the Closing Date (as such term is defined in the Merger Agreement).

In arriving at our opinion, we have, among other things:

(i) reviewed certain publicly available business and financial
information relating to KRI, KRE and St. Mary;

(ii) reviewed certain internal financial and operating information,
including financial forecasts of the respective results of
operations of KRE and St. Mary as well as certain estimates of the
expected operational and financial benefits expected to result from
the Merger ("the Expected Synergies"), prepared and provided to us
by the managements of KRI, KRE and St. Mary, respectively;

C-1

(iii) held discussions with certain senior officers, directors and other
representatives and advisors of KRI, KRE and St. Mary concerning
their respective strategic objectives, businesses, operations,
assets, financial condition and prospects before and after giving
effect to the Merger and the Expected Synergies;

(iv) reviewed the reported prices and trading activity for St. Mary
common stock;

(v) considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected which we
considered relevant in evaluating the transaction contemplated by
the Merger Agreement;

(vi) analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of KRE
and St. Mary;

(vii) participated in discussions and negotiations among representatives
of KRI, KRE and St. Mary and their respective legal and financial
advisors;

(viii) reviewed the draft Merger Agreement and certain related agreements
(the "Reviewed Documents"); and

(ix) conducted such other analyses, inquiries and examinations and
considered such other financial, engineering, economic and market
criteria as we deemed appropriate in arriving at our opinion.

In rendering our opinion, we have assumed and relied upon, without
independent verification, the accuracy, fair representation and completeness of
all financial and other information, data, advice, opinions and representations
publicly available or furnished to or otherwise reviewed by or discussed with us
and our opinion is conditional upon such accuracy, fairness and completeness.
With respect to financial forecasts, Expected Synergies and other information
provided to or otherwise reviewed by or discussed with us by management of KRI,
KRE or St. Mary, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of KRI's, KRE's or
St. Mary's management as to the expected future financial performance of KRE or
St. Mary, as the case may be. Subject to the exercise of professional judgment
and except as expressly described herein, we have not assumed any responsibility
or attempted to verify independently the accuracy or completeness of any such
information, data, advice, opinions and representations. We have further assumed
that the Merger will be accounted for as a purchase under generally accepted
accounting principles and that it will qualify as a tax-free reorganization for
U.S. Federal income tax purposes. We have also assumed that the final form of
the transaction documents, including the Merger Agreement, will be substantially
similar to the Reviewed Documents.

C-2

We have not made or been provided with an independent evaluation of the
assets or liabilities (contingent or otherwise) of KRI, KRE, or St. Mary nor
have we made any physical inspection of the properties or assets of KRI, KRE or
St. Mary. Our opinion is also based upon the condition and prospects, financial
and otherwise, of KRE and St. Mary as they were reflected in the information and
documents reviewed by us and as they were represented to us in our discussions
with management of KRI, KRE and St. Mary. In our analyses and in connection with
the preparation of our opinion, we made numerous assumptions with respect to
industry performance, general business, market and economic conditions and other
matters, many of which are beyond the control of any party involved. For the
purpose of rendering this opinion, we have assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Merger, no restriction, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger.

Our opinion is necessarily rendered on the basis of information available
to us including financial and securities markets, economic and general business
and financial conditions and other conditions and circumstances existing and
disclosed to us, as at the date hereof. The opinion expressed herein is the
opinion of Nesbitt Burns and the form and content herein have been approved for
release by a committee of its directors, each of whom is experienced in merger,
acquisition, divestiture and valuation matters.

We are acting as financial advisor to KRI in connection with the Merger
and will receive a fee from KRI for our services, a significant portion of which
is contingent upon the consummation of the Merger. In addition, KRI has agreed
to indemnify us for certain liabilities arising out of our engagement.

In the ordinary course of our business, we and certain of our affiliates
may actively trade the securities of St. Mary for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. We have in the past provided certain financial
advisory and investment banking services to KRI and may continue to do so and
have received, and may receive, compensation for the rendering of such services.

Our advisory services and the opinion expressed herein are provided for
the use and benefit of the Board of Directors of KRI in its evaluation of the
Merger. Our opinion does not address the merits of the underlying decision by
KRI to engage in the Merger and is not intended to be and does not constitute a
recommendation to any shareholder of KRI or KRE as to how such shareholder
should vote on the proposed Merger or any matter related thereto. We are not
expressing any opinion herein as to the prices at which the St. Mary common
stock will trade following the announcement or consummation of the Merger. Our
opinion may not be published or otherwise used or referred to, nor shall any
public reference to Nesbitt Burns be made, without our prior written consent in
each specific instance, except that this opinion may be included in its entirety
in any proxy statement to be distributed to the holders of Common Stock in
connection with the Merger.

C-3

Based upon and subject to all the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Merger Consideration to be
received by the holders of Common Stock is fair from a financial point of view
to the holders of Common Stock.

Yours truly,

/S/ NESBITT BURNS SECURITIES INC.

C-4

Annex D

SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

Section 262. Appraisal rights.

(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this
title:

(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further provided that
no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ss.251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to ss.ss. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:

D-1

a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;

b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.

(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d)
and(e) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking
of the vote on the merger or consolidation, a written demand for appraisal
of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the

D-2

merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or

(2) If the merger or consolidation was approved pursuant to ss.228
or ss.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or
of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date or the merger
or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date,
the record date shall be the close of business on the day next preceding
the day on which the notice is given.

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery

D-3

demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or execution of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder

D-4

entitled to participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may proceed to
trial upon the appraisal prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the surviving or resulting corporation pursuant to subsection (f) of this
section and who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings until it
is finally determined that he is not entitled to appraisal rights under this
section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.

D-5

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Indemnification Under Delaware Law and St. Mary Certificate of Incorporation
and By-Laws

As permitted by the provisions of the Delaware General Corporation Law,
the St. Mary certificate of incorporation eliminates in certain circumstances
the monetary liability of directors of St. Mary for a breach of their
fiduciary duty as directors. These provisions do not eliminate the liability
of a director for:

- a breach of the director's duty of loyalty to St. Mary or its
stockholders,

- acts or omissions by a director not in good faith or which involve
intentional misconduct or a knowing violation of law,

- liability arising under Section 174 of the Delaware General Corporation
Law (relating to the declaration of dividends and purchase or redemption
of shares in violation of the Delaware General Corporation Law), or

- any transaction from which the director derived an improper personal
benefit.

In addition, these provisions do not eliminate the liability of a director
for violations of federal securities laws, nor do they limit the rights of
St. Mary or its stockholders, in appropriate circumstances, to seek equitable
remedies such as injunctive or other forms of non-monetary relief. Such
remedies may not be effective in all cases.

St. Mary's certificate of incorporation and by-laws provide that St. Mary
shall indemnify all directors and officers of St. Mary to the full extent
permitted by the Delaware General Corporation Law. Under such provisions, any
director or officer who in his capacity as such is made or threatened to be
made a party to any suit or proceeding may be indemnified if the St. Mary
board of directors determines such director or officer acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of St. Mary. The St. Mary certificate of incorporation, by-laws and
the Delaware General Corporation Law further provide that such
indemnification is not exclusive of any other rights to which such
individuals may be entitled under the certificate of incorporation, the
by-laws, any agreement, vote of stockholders or disinterested directors or
otherwise.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
St. Mary pursuant to the foregoing provisions, St. Mary has been informed
that in the opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act of 1933 and is therefore unenforceable.

St. Mary D&O Insurance

The directors and officers of St. Mary are insured under a policy of
directors' and officers' liability insurance issued by Executive Risk.

Merger Agreement Provisions For King Ranch Energy Directors and Officers

Under the merger agreement, the provisions in the King Ranch Energy
certificate of incorporation

II-1

and bylaws for the indemnification of King Ranch Energy officers and
directors will survive the merger for a period of two years.

While the King Ranch Energy certificate of incorporation does not contain
any express provisions concerning the indemnification of directors and
officers, the King Ranch Energy bylaws generally provide that a directors or
officer who in the capacity as such is made or threatened to be made a party
to a lawsuit or proceeding shall be indemnified if the individual acted in
good faith and in a manner the individual reasonably believed to be in or not
opposed to the best interests of King Ranch Energy. The King Ranch Energy
bylaws further provide that such indemnification is not exclusive of any
other rights to which such individual may be entitled under the certificate
of incorporation, any agreement, vote of stockholders or disinterested
directors or otherwise.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) List of Exhibits

The following exhibits are furnished as part of this registration
statement:

<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated July 27, 1999 among St. Mary Land & Exploration
Company, St. Mary Acquisition Corporation, King Ranch Minerals, Inc., King Ranch
Holdings, Inc., King Ranch, Inc. and King Ranch Energy, Inc. (included as Annex
A to the document contained in this registration statement)*
3.1 Restated Certificate of Incorporation of St. Mary Land & Exploration Company dated
November 11, 1992 (filed as Exhibit 3.1A to the registrant's Registration
Statement on Form S-1 (Registration No. 33-53512) and incorporated herein by
reference)
3.2 Certificate of Amendment to Certificate of Incorporation of St. Mary Land &
Exploration Company dated June 22, 1998*
3.3 Restated By-laws of St. Mary Land & Exploration Company as of June 15, 1994*
3.4 Certificate of Incorporation of King Ranch Energy, Inc.*
3.5 Bylaws of King Ranch Energy, Inc.*
4.1 St. Mary Land & Exploration Company Shareholder Rights Plan adopted on July 15,
1999 (filed as Exhibit 4.1 to the registrant's Quarterly
Report on Form 10-Q/A (File No. 0-20872) for the quarter
ended June 30, 1999 and incorporated herein by reference)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding the
validity of the securities being registered*
8.1 Opinion of Locke Liddell & Sapp LLP regarding certain federal
income tax consequences relating to the merger*
8.2 Opinion of Ernst & Young LLP regarding certain federal income
tax consequences relating to the merger*
10.1 Stock Option Plan (filed as Exhibit 10.3 to the
registrant's Registration Statement on Form S-1
(Registration No. 33-53512) and incorporated herein by
reference)
10.2 Stock Appreciation Rights Plan (filed as Exhibit 10.4 to the registrant's
Registration Statement on Form S-1 (Registration No. 33-53512) and incorporated
herein by reference)
10.3 Cash Bonus Plan (filed as Exhibit 10.5 to the registrant's
Registration Statement on Form S-1 (Registration No.
33-53512) and incorporated herein by reference)
10.4 Net Profits Interest Bonus Plan (filed as Exhibit 10.6 to the registrant's
Registration Statement on Form S-1 (Registration No. 33-53512) and incorporated
herein by reference)
10.5 Summary Plan Description/Pension Plan dated January 1, 1985 (filed as
Exhibit 10.7 to the registrant's Registration Statement on Form S-1
(Registration No. 33-53512) and incorporated

II-2

herein by reference)
10.6 Non-qualified Unfunded Supplemental Retirement Plan, as amended (filed
as Exhibit 10.8 to the registrant's Registration Statement on Form S-1
(Registration No. 33-53512) and incorporated herein by reference)
10.7 Summary Plan Description Custom 401(k) Plan and Trust (filed as Exhibit
10.10 to the registrant's Registration Statement on Form S-1
(Registration No. 33-53512) and incorporated herein by reference)
10.8 Stock Option Agreement - Mark A. Hellerstein (filed as Exhibit 10.11 to
the registrant's Registration Statement on Form S-1 (Registration No.
33-53512) and incorporated herein by reference)
10.9 Stock Option Agreement - Ronald D. Boone (filed as Exhibit 10.12 to the
registrant's Registration Statement on Form S-1 (Registration No.
33-53512) and incorporated herein by reference)
10.10 Employment Agreement between Registrant and Mark A. Hellerstein
(filed as Exhibit 10.13 to the registrant's Registration Statement on
Form S-1 (Registration No. 33-53512) and incorporated herein by
reference)
10.11 Summary Plan Description 401(k) Profit Sharing Plan( filed as Exhibit
10.34 to the registrant's Annual Report on Form 10-K (File No. 0-20872)
for the year ended December 31, 1994 and incorporated herein by
reference)
10.12 Summary Plan Description/Pension Plan dated December 30, 1994 (filed as
Exhibit 10.35 to the registrant's Annual Report on Form 10-K (File No.
0-20872) for the year ended December 31, 1994 and incorporated herein
by reference)
10.13 Second Restated Partnership Agreement - Panterra Petroleum (filed as Exhibit 10.41 to the
registrant's Annual Report on Form 10-K (File No. 0-20872) for the year ended December 31, 1995 and
incorporated herein by reference)
10.14 Purchase and Sale Agreement between Siete Oil & Gas Corporation and St.
Mary Land & Exploration Company (filed as Exhibit 10.42 filed to the
registrant's Current Report on Form 8-K (File No. 0-20872) dated June
28, 1996, as amended by Registrant's Current Report on Form 8-K/A (File
No. 0-20872) dated June 28, 1996 and incorporated herein by reference)
10.15 Acquisition Agreement regarding the sale of the St. Mary Land &
Exploration Company's interest in the Russian joint venture (filed as
Exhibit 10.43 filed to the registrant's Current Report on Form 8-K
(File No. 0-20872) dated December 16, 1996 and incorporated herein by
reference)
10.16 Employment Agreement between registrant and Ralph H. Smith, effective
October 1, 1995 (filed as Exhibit 99 filed to the registrant's Current
Report on Form 8-K (File No. 0-20872) dated January 28, 1997 and
incorporated herein by reference)
10.17 St. Mary Land & Exploration Company Employee Stock Purchase Plan (filed
as Exhibit 10.48 filed to the registrant's Annual Report on Form 10-K
(File No. 0-20872) for the year ended December 31, 1997 and
incorporated herein by reference)
10.18 Credit Agreement dated June 30, 1998 (filed as Exhibit 10.52 to the
registrant's Quarterly Report on Form 10-Q (File No. 0-20872) for the
quarter ended June 30, 1998 and incorporated herein by reference)
10.19 Purchase and Sale Agreement dated November 12, 1998 between ONEOK
Resources Company (filed as Exhibit 10.53 filed to the registrant's
Current Report on Form 8-K (File No. 0-20872) dated December 30, 1998
and incorporated herein by reference)
10.20 Credit Agreement between Panterra Petroleum and Colorado National Bank
dated June 17, 1997 (filed as Exhibit 10.25 to the registrant's Annual
Report on Form 10-K (File No. 0-20872) for the year ended December 31,
1998 and incorporated herein by reference)
10.21 Agreement between Summo Minerals Corporation, Summo USA Corporation,
St. Mary Land & Exploration Company, and St. Mary Minerals Inc. re the
formation of Lisbon Valley Mining Company dated May 15, 1997 (filed as
Exhibit 10.26 to the registrant's Annual Report on Form 10-K (File No.
0-20872) for the year ended December 31, 1998 and incorporated herein
by reference)

II-3

10.22 Pledge and Security Agreement From Summo USA Corporation and Lisbon
Valley Mining Co. LLC to St. Mary Minerals Inc. dated November 23, 1998
(filed as Exhibit 10.27 to the registrant's Annual Report on Form 10-K
(File No. 0-20872) for the year ended December 31, 1998 and
incorporated herein by reference)
10.23 Deed of Trust, Assignment of Rents and Security Agreement by Lisbon
Valley Mining Co. LLC and Stewart Title Guaranty Company for the
benefit of St. Mary Minerals Inc. dated November 23, 1998 (filed as
Exhibit 10.28 to the registrant's Annual Report on Form 10-K (File No.
0-20872) for the year ended December 31, 1998 and incorporated herein
by reference)
10.24 St. Mary Land & Exploration Company Incentive Stock Option Plan, As
Amended on March 25, 1999 (filed as Exhibit 10.1 to registrant's
Quarterly Report on Form 10-Q (File No. 0-20872) for the quarter ended
March 31, 1999 and incorporated herein by reference)
10.25 St. Mary Land & Exploration Company Stock Option Plan, As Amended on
March 25, 1999 (filed as Exhibit 10.2 to registrant's Quarterly Report
on Form 10-Q (File No. 0-20872) for the quarter ended March 31, 1999
and incorporated herein by reference)
10.26 Net Profits Interest Bonus Plan, As Amended on September 19, 1996 and
July 24, 1997 and January 28, 1999 (filed as Exhibit 10.3 to
registrant's Quarterly Report on Form 10-Q (File No. 0-20872) for the
quarter ended March 31, 1999 and incorporated herein by reference)
10.27 Stock Exchange Agreement dated June 1, 1999 among St. Mary Land & Exploration Company, Robert L.
Nance, Penni W. Nance, Amy Nance Cebull and Robert Scott Nance*
10.28 Stock Exchange Agreement dated June 1, 1999 between St. Mary Land & Exploration Company and Robert
T. Hanley*
10.29 Stock Exchange Agreement dated June 1, 1999 among St. Mary Land & Exploration Company, Robert L.
Nance and Robert T. Hanley*
10.30 Loan and Stock Purchase Agreement dated June 25, 1999 among Resource Capital Fund L.P., St. Mary
Land & Exploration Company and St. Mary Minerals Inc.*
10.31 Credit Agreement dated June 25, 1999 among Summo Minerals Corporation, Summo USA Corporation,
Resource Capital Fund L.P. and St. Mary Minerals Inc.*
10.32 Replacement Promissory dated June 25, 1999 payable to St. Mary Minerals Inc. in the amount of
$1,400,000*
10.33 Pledge and Security Agreement dated June 25, 1999 among Summo Minerals Corporation, Resource
Capital Fund L.P., and St. Mary Minerals Inc.*
10.34 Pledge and Security Agreement dated June 25, 1999 among Summo USA Corporation, Resource Capital
Fund L.P., and St. Mary Minerals Inc.*
10.35 Warrant Agreement dated June 25, 1999 among Summo Minerals Corporation, Resource Capital Fund L.P.
and St. Mary Minerals Inc.*
21.1 Subsidiaries of St. Mary Land & Exploration Company*
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of PricewaterhouseCoopers LLP*
23.3 Consent of Deloitte & Touche LLP*
23.4 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in the opinion filed as Exhibit 5.1 to
this Registration Statement)*
23.5 Consent of Locke Liddell & Sapp LLP*
23.6 Consent of Ernst & Young LLP*
23.7 Consent of Ryder Scott Company, L.P. with respect to St. Mary reserve reports*
23.8 Consent of Deutsche Bank Securities Inc.*
23.9 Consent of Nesbitt Burns Securities Inc.*
23.10 Consent of Ryder Scott Company, L.P. with respect to King Ranch Energy reserve reports*
23.11 Consent of Netherland Sewell & Associates, Inc. with respect to King Ranch Energy reserve reports*
24.1 Power of Attorney*
99.1 Form of St. Mary Proxy Card*
99.2 Form of King Ranch Energy Written Consent*
</TABLE>

II-4

- --------------------
* Filed herewith.

ITEM 22. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:

(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 % change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and

(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
and

(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof;

(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering;

(4) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;

(5) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this registration statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by
the other

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items of the applicable form;

(6) That every prospectus (i) that is filed pursuant to
paragraph (5) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933
and is used in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof; and

(7) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to any
provision or arrangement whereby the registrant may indemnify a
director, officer or controlling person or the registrant against
liabilities arising under the Securities Act, or otherwise, the
registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.

(c) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on August 19, 1999.

ST. MARY LAND & EXPLORATION COMPANY

By: /S/ THOMAS E. CONGDON
----------------------------------------
Thomas E. Congdon, Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ ----------------------------------------- ---------------
<S> <C> <C>
/S/ THOMAS E. CONGDON Chairman of the Board and Director August 19, 1999
- ---------------------
Thomas E. Congdon

/S/ MARK A. HELLERSTEIN President, Chief Executive Officer and August 19, 1999
- ----------------------- Director
Mark A. Hellerstein

Executive Vice President, Chief Operating August ___, 1999
- ----------------------- Officer and Director
Ronald D. Boone

/S/ RICHARD C. NORRIS Vice President - Finance, Secretary and August 19,1999
- --------------------- Treasurer
Richard C. Norris

/S/ GARRY A. WILKENING Vice President - Administration and August 19, 1999
- ---------------------- Controller
Garry A. Wilkening

/S/ LARRY W. BICKLE Director August 16, 1999
- -------------------
Larry W. Bickle

/S/ DAVID C. DUDLEY Director August 13, 1999
- -------------------
David C. Dudley

/S/ RICHARD C. KRAUS Director August 19, 1999
- --------------------
Richard C. Kraus

Director August __, 1999
- -----------------------
R. James Nicholson

II-7

/S/ AREND J. SANBULTE Director August 15, 1999
- ---------------------
Arend J. Sandbulte

Director August ____, 1999
- -----------------------
John M. Seidl

</TABLE>

II-8