St. Mary Land and Exploration (NYSE: SM) is an independent oil and natural gas company that explores for and produces oil and natural gas from land reserves in North America. St. Mary looks to focus on maximizing production from existing properties, shielding itself from risk by acquiring oil and gas properties that complement the company's existing operations rather than exploring new, high-risk areas. [1] St. Mary devotes more of its resources to developing its properties than any of its competitors, who have larger exploration budgets but are less focused on improving existing assets. St. Mary uses the capital it saves on exploration to hire teams of geologists, geophysicists and engineers with local expertise to focus on improving production in the locations where it has valuable reserves.
Headquartered in Denver, Colorado, St. Mary conducts operations in 5 key areas within the United States: The Rocky Mountains, ArkLaTex (Arkansas, Louisiana, and Texas), the Mid-Continent, the Permian Basin and the Gulf of Mexico. St. Mary's production revenues have grown in each of the past three years due to the increase in oil and gas prices, and its proven reserves have grown as well thanks to key low-cost acquisitions. Over the past 5 years SM has increased its oil and gas production by nearly 10% per year.
[edit] Company Overview
High oil and gas prices coupled with a focus on development of existing properties have enabled St. Mary to generate impressive returns on invested capital over the past several years. St. Mary is achieving upwards of 90% success rates in some of its fields, namely the Gulf Coast and Permian Basin regions. Overall, highly productive areas such as the natural-gas fields in the Hanging Woman Basin in Wyoming and Montana, helped drive up earnings nearly 60% in 2005 to $739.6 million. However, increased operation costs have accompanied St. Mary's production growth, hurting its margins on the balance sheet.
The company has also been able to increase its total production by 10% each year due to its efficient development of and continued investment in promising acquisitions such as the Sweetie Peck acquisition in the Permian Basin. In the future St. Mary could encounter problems with government regulations and environmental restrictions because a portion of the company's developed acreage is on federal land in the Hanging Woman Basin. The Hanging Woman Basin is a promising new acquisition that St. Mary is counting on for long-term growth.
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[edit] Trends and Forces
- St. Mary's New Acquisitions are the Key to Revenue Growth- Since St. Mary focuses much of its resources on the development of existing properties rather than on exploration, it must maximize production in each of its acquisitions to maintain its economic niche. The recent acquisitions of oil and natural gas properties in the Permian Basin and Hanging Woman Basin are two examples of regions where the company will focus on long-term production growth. The company also recently completed its most expensive acquisition of oil and gas properties in the Sweetie Peck Field in West Texas for $247.6 million.[4] The forecast of revenues that St. Mary expects to gain from it unproved properties is very optimistic. But niche acquisitions have kept St. Mary a profitable company, and the company continues to prove its ability to exceed production expectations in its acquisitions.
- St. Mary's Operating Costs Continue to Grow- The dramatic increase in gas and oil prices has stimulated St. Mary to deviate slightly from its traditional model and increase exploration activities, since high demand has depleted existing gas and oil deposits. Exploration and production companies are poised to benefit from increases in the demand for energy because the incentive to seek new drilling opportunities is linked to cost increases of oil and gas. On one hand the increase in energy prices has been exceedingly beneficial for St. Mary. However, high oil prices have also exposed St. Mary to volatile drilling and operating costs.
- OPEC's Role- OPEC sets the price of the crude oil produced by two thirds of the world’s oil reserves, and it controls production in member countries to protect this price. These artificially high oil and gas prices are important to St. Mary’s profitability and protect it from volatile price cycles and harsh price competition. St. Mary’s is not restrained by OPEC's regulations, but enjoys the benefits of OPEC's management of supply and demand in the oil industry.
- Emerging Technology in Hybrid and Alternative Energy Sources Could Threaten the Long-term Stability of the Oil Business- Rising oil prices have led both consumers and companies to seek out alternative sources of energy and invest in renewable energy such as nuclear, solar, wind, biofuels, and ethanol. As the global consumer demand shifts toward renewable energy sources due to recent environmental concerns over climate change, this change in consumer consciousness may adversely affect the oil and gas industry. With the advent of hybrid and fuel cell vehicles and the cost of gasoline becoming dangerously close to $4 per gallon, consumers have become less inclined to purchase gas guzzling SUV’s opposed to more fuel-efficient cars. As a result oil and gas companies stand to lose if the industry encounters a sudden decrease in demand.
[edit] Competition
St. Mary encounters competition with a number of independent oil and gas companies with interests in the same regions where St. Mary owns properties and conducts operations. St. Mary competes for new and promising acquisitions with larger companies with greater resources that could potentially threaten St. Mary if they are able to muscle St. Mary out of lucrative acquisition opportunities. St. Mary's focus on onshore North America development may limit growth in the near future as some of its top competitors are beginning to develop growing interests in deepwater oil exploration.
Below is a table comparing several independent oil & gas companies across several metrics.[5]
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| Proved Reserves
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| Square Footage
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| | Revenue TTM ($M) | Operating Margin | Production (MMcfe/Day)[6] | Oil (MMBbls) | Natural Gas (Bcf) | LNG (MMBbls) | Gross developed acreage (in thou) | Gross undeveloped acreage | Gross Total
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| FST | 934 | 33.2% | 310 | 80.3 | 778 | 112 | 766 | 8416 | 9182
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| DNR | 811.04 | 39.9% | 220 | 126 | 288 | | 224 | 471 | 695
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| EOG | 3760 | 48.5% | 1561 | 118 | 6095 | | 3777 | 8279 | 12056
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| KWK | 514.21 | 42.8% | 167 | 6.3 | 1241 | 48 | 936 | 1610 | 2546
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| NBL | 2890 | 40.2% | 408 | 296 | 3231 | | 1934 | 10,295 | 12229
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| NFX | 1810 | 27.3% | 664 | 114 | 1586 | | 1593 | 6006 | 7599
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| PXD | 1710 | 18.9% | 1617 | | 2927 | 416 | 1874 | 16592 | 18466
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| PXP | 1020 | 26.9% | 1009 | 333 | 111 | | 149 | 587.5 | 736.5
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| RRC | 868.35 | 38.0% | 276 | 53.7 | 1436 | 53.7 | 1458 | 1756 | 3214
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| SM | 862 | 38.4% | 254 | 74.2 | 482.5 | | 992 | 1291 | 2283
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| STR | 2700 | 30.1% | 355 | 28.4 | 1461 | 28.4 | 2401 | 1825 | 4226
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| SWN | 1070 | 29.1% | 198 | 7.9 | 979 | | 520 | 1608 | 2128
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| XEC | 1290 | 33.1% | 449 | 59.8 | 1090 | 59.8 | 1945 | 4445 | 6390
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| XTO | 5120 | 59.4% | 1527 | 214.4 | 6940 | 53 | 3182 | 808 | 3990
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2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available
[edit] Footnotes
- ↑ SM 2007 Annual 10-k Report, pg.3
- ↑ Google Finance
- ↑ SM 2006 Annual 10-k Report, "Properties" pg.23
- ↑ SM 2006 Annual 10-k Report, pg.39
- ↑ All data compiled from company annual reports and 10-K's
- ↑ MMcfe/day, or millions of natural gas cubic feet equivalent, is a measure of the level of production per day that converts oil into the energy-yielding natural gas equivalent using a ratio of 6 to 1 (natural gas to oil)
- ↑ All information Complied from 2006 Annual 10-k Reports
- ↑ FST, 10K for 2006, Item 1, Page 7
- ↑ 9.0 9.1 FST, 10K for 2006, Item 7, Page 33
- ↑ FST, 10K for 2006, Item 8, Page 55
- ↑ FST, 10K for 2006, Item , Page 5
- ↑ STR, 10k for 2007, Item 2 pg 18
- ↑ 13.0 13.1 STR, 10k for 2007, Item 2 pg 18
- ↑ STR, 10k for 2007, Item 8 pg 43
- ↑ STR, 10k for 2007, Item 2 pg 17
- ↑ KWK, 10K for 2006, Item 2, Page 27
- ↑ 17.0 17.1 KWK, 10K for 2006, Item 2, Page 25
- ↑ KWK, 10K for 2006, Item 8, Page 57
- ↑ KWK, 10K for 2006, Item 2, Page 23
- ↑ SWN, 10K for 2006, Item 2, Page 31
- ↑ 21.0 21.1 21.2 SWN, 10K for 2006, Item 6, Page 37
- ↑ SWN, 10K for 2006, Item 6, Page 36
- ↑ SM, 2007 10-K, Item 1 & 2, Page 11
- ↑ 24.0 24.1 SM, 2007 10-K, Item 1 & 2, Page 10
- ↑ SM, 2007 10-K, Item 8, Page F-3
- ↑ SM, 2007 10-K, Item 1 & 2, Page 5
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