St. Mary Reports Results for the Full Year and Fourth Quarter 2007

St. Mary Land & Exploration Company (NYSE: SM) today reports net income for the year ended 2007 of $189.7 million, or $2.94 per diluted share. Tony Best, President and CEO, commented, "St. Mary had another solid year operationally and financially in 2007. Production for the fourth quarter and full year both were Company records for their respective periods. We posted strong earnings and cash flow numbers for the year, which reflects 16% annual production growth and strong commodity prices. Our operating margins are strong as a result of our significant oil exposure and we are generating significant cash flow. We enter 2008 on solid financial footing as we execute our business plan.” FULL YEAR RESULTS St. Mary announces 2007 earnings of $189.7 million or $2.94 per diluted share. Earnings for 2006 were $190.0 million or $2.94 per diluted share. Adjusted net income, which adjusts for significant non-cash and non-recurring items, was $222.2 million or $3.44 per diluted share for 2007 compared to $205.4 million or $3.18 per diluted share for 2006. Discretionary cash flow increased to $636.9 million in 2007 from $525.1 million in the preceding year, an increase of 21 percent. Net cash provided by operating activities increased to $630.8 million in 2007 from $467.7 million in 2006. Revenues for 2007 were $990.1 million compared to $787.7 million in 2006. Oil and gas production for the year averaged 294.5 million cubic feet of gas equivalent per day (MMCFED), a new annual record for the Company. This was an increase of 16% from 254.2 MMCFED in 2006. The Company continued to enjoy strong operating margins during the year. In 2007, the operating margin increased 5% to $6.12 per MCFE, compared to $5.85 per MCFE in 2006. Average realized prices, inclusive of hedging activities, were $7.63 per Mcf and $62.60 per barrel during 2007. These were 4% and 11% higher, respectively, than the realized prices for the prior year. Average prices, excluding hedging activities, were $6.74 per Mcf and $67.56 per barrel in 2007, which were 2% and 14% higher, respectively, than last year. The Company’s natural gas realizations continue to benefit from high Btu gas in several of our regions. This higher Btu gas is being processed to extract the natural gas liquids (NGLs) that exist in the production stream. The price for NGLs trends directionally with crude oil prices, and accordingly the price for NGLs has increased with the rise in oil prices in recent months. Total lease operating and transportation expense was up 6% between 2007 and 2006 on a per MCFE basis. Cost pressures related to fluid disposal, well maintenance, and trucking, as well as higher labor costs explain the majority of the difference. The increase in depletion and depreciation expense between the two periods reflects the higher finding cost environment experienced by the industry in recent years to acquire and develop properties. Year over year, the overall increase in exploration expense is the result of increased levels of personnel associated with exploration activities. General and administrative expense increased significantly, both in absolute dollars and on a per MCFE basis, due to costs associated with increased headcount and higher payments from the Net Profits Interest Bonus Plan (Net Profits Plan). The large increase in the non-cash expense related to the change in the Net Profits Plan liability is due to higher commodity prices and a decrease in the discount rate used to determine the liability. FOURTH QUARTER 2007 RESULTS Earnings for the fourth quarter of 2007 were $32.9 million or $0.51 per diluted share, compared to $43.5 million or $0.69 per diluted share for the same period in the prior year. Adjusted net income for the quarter was $64.4 million or $1.00 per diluted share, versus $49.1 million or $0.77 per diluted share for the fourth quarter of 2006. Discretionary cash flow increased to $176.4 million for the fourth quarter of 2007 from $126.4 million in the same period of the preceding year. Net cash provided by operating activities increased to $156.8 million for the fourth quarter 2007 from $150.2 million in the same period in 2006. Revenues for the quarter were $275.2 million compared to $202.7 million for the same period in 2006. Quarterly production set a new record during the fourth quarter of 2007. Oil and gas production for the quarter increased 14% year over year to an average 310.2 MMCFED in the fourth quarter of 2007 from 272.5 MMCFED in the fourth quarter of 2006. St. Mary’s operating margin increased to $6.53 per MCFE in the quarter, up 18% from $5.54 per MCFE in the fourth quarter of 2006. Average realized prices, inclusive of hedging activities, were $7.80 per Mcf and $69.99 per barrel in the fourth quarter of 2007, which were up 8% and 36%, respectively, from the same period a year ago. Average prices, excluding hedging activities, were $7.07 per Mcf and $84.63 per barrel during the quarter. These were 13% and 62% higher, respectively, than the fourth quarter of 2006. Oil and gas production expense was up 7% between the fourth quarters of 2007 and 2006 on a per MCFE basis. The Company continues to be impacted by pricing pressure for service related to the production and maintenance of oil properties, as well as higher labor costs. The increase in depletion and depreciation expense between the two periods reflects the higher finding cost environment experienced by the industry in recent years to acquire and develop properties. General and administrative expense came in below guidance for the quarter as a result of lowering the cash and restricted stock unit bonuses for the year. Year over year, general and administrative expense increased as a result of increased headcount and higher Net Profits Plan payments. There was a significant increase in the expense recognized in the fourth quarter of 2007 related to the change in the Net Profits Plan liability as a result of higher oil prices and a decrease in the discount rate used to determine the liability. YEAR-END 2007 FINANCIAL STANDING As of the end of 2007, St. Mary had total long-term debt of $572.5 million, comprised of $287.5 million in 3.50% Senior Convertible Notes and $285.0 million drawn under our existing long-term credit facility. The Company’s debt to book capitalization ratio as of December 31, 2007 was 40%. Subsequent to year-end, the previously announced divestiture of non-strategic oil and gas properties closed on January 31, 2008 for $131.1 million before commission costs. Proceeds from this sale were used to pay down borrowings under our existing credit facility resulting in a pro forma debt to book capitalization ratio of approximately 34%. Currently, the Company has a borrowing base of $1.25 billion and commitment amount of $500 million related to the credit facility. NON-GAAP FINANCIAL MEASURES Adjusted net income and discretionary cash flow are non-GAAP financial measures – please refer to the respective reconciliation for the nearest comparable GAAP financial measure in the Financial Highlights section at the end of this release, which contains explanations as to how these non-GAAP measures are computed and why the Company believes these non-GAAP measures are meaningful. EARNINGS CALL INFORMATION The Company has scheduled a teleconference call to discuss fourth quarter and full year 2007 earnings results on February 22, 2008, at 8:00 am (Mountain Time). The call participation number is 888-424-5231. A digital recording of the conference call will be available two hours after the completion of the call, 24 hours per day through March 7, 2008, at 800-642-1687, conference number 30812009. International participants can dial 706-634-6088 to take part in the conference call and can access a replay of the call at 706-645-9291, conference number 30812009. In addition, the call will be broadcast live through St. Mary’s website at www.stmaryland.com and the earnings press release and financial highlights will be available before the call. An audio recording of the conference call will be available at that site through March 7, 2008. Production Data   For the Three Months EndedDecember 31,     For the Years EndedDecember 31,           2007   2006 Percent Change 2007   2006 Percent Change   Average realized sales price, before hedging: Oil (per Bbl) $ 84.63 $ 52.39 62% $ 67.56 $ 59.33 14% Gas (per Mcf) $ 7.07 $ 6.25 13% $ 6.74 $ 6.58 2% Average realized sales price, net of hedging: Oil (per Bbl) $ 69.99 $ 51.57 36% $ 62.60 $ 56.60 11% Gas (per Mcf) $ 7.80 $ 7.20 8% $ 7.63 $ 7.37 4% Production: Oil (MMBbls) 1.7 1.6 6% 6.9 6.1 14% Gas (Bcf) 18.3 15.5 19% 66.1 56.4 17% BCFE (6:1) 28.5 25.1 14% 107.5 92.8 16%   Daily production: Oil (MBbls per day) 18.5 17.4 6% 18.9 16.6 14% Gas (MMcf per day) 199.1 168.0 19% 181.0 154.7 17% MMCFE per day (6:1) 310.2 272.5 14% 294.5 254.2 16%   Margin analysis per MCFE: Average realized sales price, before hedging $ 9.59 $ 7.20 33% $ 8.48 $ 7.88 8%   Average realized price, net of hedging $ 9.18 $ 7.73 19% $ 8.71 $ 8.18 6% Lease operating expense and transportation 1.45 1.36 7% 1.45 1.37 6% Production taxes 0.67 0.51 31% 0.58 0.54 7% General and administrative 0.53 0.32 66% 0.56 0.42 33% Operating margin $ 6.53 $ 5.54 18% $ 6.12 $ 5.85 5%   Depletion, depreciation, amortization, and asset retirement obligation liability accretion $ 2.27 $ 1.77 28% $ 2.12 $ 1.67 27% Information on Reserves and Costs Incurred           Proved oil and gas reserve quantities: For the Year For the Year Ended December 31, 2007 Ended December 31, 2006 Oil or Condensate Gas Oil or Condensate Gas Developed and undeveloped: Beginning of year 74,195 482,475 62,903 417,075 Revisions of previous estimate 5,238 9,489 524 10,946 Discoveries and extensions 1,166 28,483 857 36,723 Infill reserves in an existing proved field 4,592 69,090 4,131 49,107 Purchases of minerals in place 567 91,374 11,857 28,030 Sales of reserves (4 ) (1,400 ) (20 ) (2,958 ) Production (6,907 ) (66,061 ) (6,057 ) (56,448 ) End of year 78,847   613,450   74,195   482,475       Proved developed reserves as of the end of the year 68,277   426,627   61,519   358,477       Costs incurred in oil and gas producing activities: For the Years Ended December 31, 2007   2006   Development costs $ 591,013 $ 367,546 Exploration 111,470 126,220 Acquisitions: Proved 161,665 238,400 Unproved 23,495 44,472 Leasing activity 38,436   28,816   Total $ 926,079   $ 805,454   Consolidated Statements of Operations       (In thousands, except per share amounts)   For the Three Months For the Years Ended December 31, Ended December 31, 2007   2006   2007   2006   Operating revenues: Oil and gas production revenue $ 273,736 $ 180,556 $ 912,093 $ 730,737 Realized oil and gas hedge gain (loss) (11,676 ) 13,368 24,484 28,176 Marketed gas system revenue 13,909 8,149 45,149 20,936 Gain (loss) on sale of proved properties (367 ) (323 ) (367 ) 6,910 Other revenue (355 ) 942   8,735   942   Total operating revenues 275,247   202,692   990,094   787,701     Operating expenses: Oil and gas production expense 60,590 47,100 218,208 176,590 Depletion, depreciation, amortization, and asset retirement obligation liability accretion 64,919 44,404 227,596 154,522 Exploration(a)(4) 16,030 16,017 58,686 51,889 Impairment of proved properties - 684 - 7,232 Abandonment and impairment of unproved properties 870 933 4,756 4,301 General and administrative(a)(4) 15,187 7,933 60,149 38,873 Change in Net Profits Plan liability 43,875 6,389 50,823 23,759 Marketed gas system expense 13,031 5,545 42,485 18,526 Unrealized derivative loss 3,234 1,765 5,458 7,094 Other expense 946   2,649   2,522   2,649   Total operating expenses 218,682   133,419   670,683   485,435     Income from operations 56,565 69,273 319,411 302,266   Nonoperating income (expense): Interest income 134 122 746 1,576 Interest expense (6,010 ) (3,423 ) (19,895 ) (8,521 )   Income before income taxes 50,689 65,972 300,262 295,321 Income tax expense (17,815 ) (22,440 ) (110,550 ) (105,306 )   Net income $ 32,874   $ 43,532   $ 189,712   $ 190,015     Basic weighted-average common shares outstanding 63,300   55,480   61,852   56,291     Diluted weighted-average common shares outstanding 64,635   64,886   64,850   65,962     Basic net income per common share $ 0.52   $ 0.78   $ 3.07   $ 3.38     Diluted net income per common share $ 0.51   $ 0.69   $ 2.94   $ 2.94     (a) As explained in Note 4 below, due to a change in circumstances the Company adjusted its accounting classification of Net Profits Plan distributions to terminated employees. As a result, distributions to individuals that are no longer employed by the Company from the Net Profits Plan have been fully allocated to general and administrative expense during 2007. Pro forma general and administrative expense (in thousands) reflecting this reclassification is $12,891, $16,266, and $15,805 for the three month periods ended March 31, 2007, June 30, 2007, and September 30, 2007, respectively. Pro forma exploration expense (in thousands) reflecting this reclassification is $19,020, $11,074, and $12,562 for the three month periods ended March 31, 2007, June 30, 2007, and September 30, 2007, respectively. Consolidated Balance Sheets     (In thousands, except share amounts) December 31,   December 31, ASSETS 2007 2006 Current assets: Cash and cash equivalents $ 43,510 $ 1,464 Short-term investments 1,173 1,450 Accounts receivable 159,149 142,721 Refundable income taxes 933 7,684 Prepaid expenses and other 14,129 17,485 Accrued derivative asset 17,836 56,136 Deferred income taxes 33,211   -   Total current assets 269,941   226,940     Property and equipment (successful efforts method), at cost: Proved oil and gas properties 2,721,229 2,063,911 Less - accumulated depletion, depreciation, and amortization (804,785 ) (630,051 ) Unproved oil and gas properties, net of impairment allowance of $10,319 in 2007 and $9,425 in 2006 134,386 100,118 Wells in progress 137,417 97,498 Oil and gas properties held for sale less accumulated depletion, depreciation, and amortization 76,921 - Other property and equipment, net of accumulated depreciation of $11,549 in 2007 and $9,740 in 2006 9,230   6,988   2,274,398   1,638,464     Noncurrent assets: Goodwill 9,452 9,452 Accrued derivative asset 5,483 16,939 Other noncurrent assets 12,406   7,302   Total noncurrent assets 27,341   33,693     Total Assets $ 2,571,680   $ 1,899,097     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 254,918 $ 171,834 Short-term note payable - 4,469 Accrued derivative liability 97,627 13,100 Deferred income taxes - 14,667 Deposit associated with oil and gas properties held for sale 10,000   -   Total current liabilities 362,545   204,070     Noncurrent liabilities: Long-term credit facility 285,000 334,000 Senior convertible notes 287,500 99,980 Asset retirement obligation 96,432 77,242 Asset retirement obligation associated with oil and gas properties held for sale 8,744 - Net Profits Plan liability 211,406 160,583 Deferred income taxes 257,603 224,518 Accrued derivative liability 190,262 46,432 Other noncurrent liabilities 8,843   8,898   Total noncurrent liabilities 1,345,790   951,653     Stockholders' equity: Common stock, $0.01 par value: authorized - 200,000,000 shares; issued: 64,010,832 shares in 2007 and 55,251,733 shares in 2006; outstanding, net of treasury shares: 63,001,120 shares in 2007 and 55,001,733 shares in 2006 640 553 Additional paid-in capital 170,070 38,940 Treasury stock, at cost: 1,009,712 shares in 2007 and 250,000 shares in 2006 (29,049 ) (4,272 ) Retained earnings 878,652 695,224 Accumulated other comprehensive income (loss) (156,968 ) 12,929   Total stockholders' equity 863,345   743,374     Total Liabilities and Stockholders' Equity $ 2,571,680   $ 1,899,097   Consolidated Statements of Cash Flows         (In thousands) For the Three Months For the Years Ended December 31, Ended December 31, 2007   2006   2007   2006   Reconciliation of net income to net cash provided by operating activities: Net income $ 32,874 43,532 $ 189,712 $ 190,015 Adjustments to reconcile net income to net cash - - provided by operating activities: - - (Gain) loss on insurance settlement 1,097 - (5,243 ) - (Gain) loss on sale of proved properties 367 323 367 (6,910 ) Depletion, depreciation, amortization, and asset retirement obligation liability accretion 64,919 44,404 227,596 154,522 Exploratory dry hole expense 1,651 6,158 14,365 10,191 Impairment of proved properties - 7,232 - 7,232 Abandonment and impairment of unproved properties 870 (5,614 ) 4,756 4,301 Unrealized derivative loss 3,234 1,765 5,458 7,094 Change in Net Profits Plan liability 43,875 6,389 50,823 23,759 Stock-based compensation expense(a) 1,489 2,443 10,095 11,422 Deferred income taxes 13,666 10,220 92,955 74,832 Other (5,329 ) (2,877 ) (10,497 ) (2,479 ) Changes in current assets and liabilities: - - Accounts receivable (6,349 ) (8,334 ) (6,557 ) 22,476 Refundable income taxes 2,164 21,495 6,751 - Prepaid expenses and other (8,660 ) (2,838 ) 19,375 (17,886 ) Accounts payable and accrued expenses 13,217 26,827 40,769 5,215 Income tax benefit from the exercise of stock options (2,275 ) (974 ) (9,933 ) (16,084 ) Net cash provided by operating activities 156,810   150,151   630,792   467,700     Cash flows from investing activities: Proceeds from insurance settlement (1,116 ) - 5,948 - Proceeds from sale of oil and gas properties 171 (323 ) 495 860 Capital expenditures (137,637 ) (161,079 ) (637,748 ) (455,056 ) Acquisition of oil and gas properties (150,233 ) (260,706 ) (182,883 ) (270,639 ) Deposits for acquisition of oil and gas assets 15,310 - - - Deposits to short-term investments available-for-sale (15 ) - (1,168 ) - Receipts from short-term investments available-for-sale - 25 1,450 25 Other 10,005   12   10,034   91   Net cash used in investing activities (263,515 ) (422,071 ) (803,872 ) (724,719 )   Cash flows from financing activities: Proceeds from credit facility 268,086 597,137 822,000 935,137 Repayment of credit facility (138,086 ) (329,137 ) (871,000 ) (601,137 ) Repayment of short-term note payable - - (4,469 ) - Proceeds from short-term note payable - 4,469 - 4,469 Income tax benefit from the exercise of stock options 2,275 974 9,933 16,084 Proceeds from issuance of convertible debt, net of deferred financing costs (7 ) - 280,657 - Proceeds from sale of common stock 3,665 1,670 10,007 17,716 Repurchase of common stock - - (25,904 ) (123,108 ) Dividends paid (3,144 ) (2,745 ) (6,284 ) (5,603 ) Other 186   -   186   -   Net cash provided by financing activities 132,975   272,368   215,126   243,558     Net change in cash and cash equivalents 26,270 448 42,046 (13,461 ) Cash and cash equivalents at beginning of period 17,240   1,016   1,464   14,925   Cash and cash equivalents at end of period $ 43,510   $ 1,464   $ 43,510   $ 1,464     (a) Stock-based compensation expense is a component of General and administrative and Exploration on the Consolidated Statements of Operations. For the years ended December 31, 2007, and 2006, $6.9 million and $8.3 million, respectively, of stock-based compensation expense is included in general and administrative expense and $3.2  million and $3.1 million, respectively, of stock-based compensation expense is included in exploration expense. For the three months ended December 31, 2007, and 2006, $889,000 and $1.8 million, respectively, of stock-based compensation expense is included in general and administrative expense and $600,000 and $656,000, respectively, is included in exploration expense.   Adjusted Net Income         (In thousands, except per share data)   Reconciliation of Net Income (GAAP) to Adjusted Net Income (Non-GAAP): For the Three MonthsEnded December 31, For the YearsEnded December 31,   2007   2006   2007   2006     Reported Net Income (GAAP) $ 32,874 $ 43,532 $ 189,712 $ 190,015   Change in Net Profits Plan liability 43,875 6,389 50,823 23,759 Unrealized derivative loss 3,234 1,765 5,458 7,094 (Gain) loss on sale of proved properties 367 323 367 (6,910 ) (Gain) loss on insurance settlement (1) 1,097 - (5,243 ) -         Total of Adjustments 48,573   8,477   51,405   23,943     Expense from tax effect on adjustments (17,071 ) (2,883 ) (18,926 ) (8,538 )         Adjusted Net Income (Non-GAAP) (2) $ 64,376   $ 49,126   $ 222,191   $ 205,420     Adjusted Net Income Per Share (Non-GAAP) Basic $ 1.02   $ 0.89   $ 3.59   $ 3.65   Diluted $ 1.00   $ 0.77   $ 3.44   $ 3.18     Average Number of Shares Outstanding Basic 63,300   55,480   61,852   56,291   Diluted 64,635   64,886   64,850   65,962     (1) Included within line item Other revenue on the Consolidated Statements of Operations.   (2) Adjusted net income is calculated as net income adjusted for significant non-cash and non-recurring items. Examples of non-cash charges include non-cash changes in the Net Profits Plan liability and unrealized derivative gains and losses. Examples of non-recurring items include gains or losses from sales of properties and insurance settlements. The non-GAAP measure of adjusted net income is presented because management believes it provides useful additional information to investors for analysis of St. Mary’s fundamental business on a recurring basis. In addition, management believes that adjusted net income is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry, and many investors use the published research of industry research analysts in making investment decisions. Adjusted net income should not be considered in isolation or as a substitute for net income, income from operations, cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since adjusted net income excludes some, but not all, items that affect net income and may vary among companies, the adjusted net income amounts presented may not be comparable to similarly titled measures of other companies. Discretionary Cash Flow         (In thousands)   Reconciliation of Net Cash Provided by Operating Activities (GAAP) to Discretionary Cash Flow (Non-GAAP): For the Three MonthsEnded December 31, For the YearsEnded December 31, 2007   2006   2007   2006   Net cash provided by operating activities (GAAP) $ 156,810 $ 150,151   $ 630,792 $ 467,700   Gain (loss) on insurance settlement (1,097 )   -   5,243   - Gain (loss) on sale of proved properties (367 )   (323 )   (367 )   6,910 Exploration (4) 16,030   16,017   58,686   51,889 Less: Exploratory dry hole expense (1,651 ) (6,158 ) (14,365 ) (10,191 ) Less: Stock-based compensation expense included in Exploration (599 ) - (3,215 ) - Other 5,329 2,877 10,497 2,476 Changes in current assets and liabilities 1,903   (36,176 ) (50,405 ) 6,279   Discretionary cash flow (Non-GAAP) (3) $ 176,358   $ 126,388   $ 636,866   $ 525,063   Revised Quarterly Discretionary Cash Flow     (In thousands)     Revised reconciliation of Net Cash Provided by Operating Activities (GAAP) to Discretionary Cash Flow (Non-GAAP) For the Three Months Ended   March 31, June 30, September 30, 2007 2007 2007 Net cash provided by operating activities (GAAP) $ 126,075 $ 156,246 $ 191,661   Gain on insurance settlement - 6,325 15 Gain on sale of proved properties - - - Exploration (4) 19,020 11,074 12,562 Less: Exploratory dry hole expense (9,569) (1,651) (1,494) Less: Stock-based compensation expense included in Exploration (1,004) (886) (726) Other 125 2,571 2,472 Changes in current assets and liabilities 6,835 (13,562) (45,581) Discretionary cash flow (Non-GAAP) (3) $ 141,482 $ 160,117 $ 158,909     (3) Discretionary cash flow is computed as net income plus depreciation, depletion, amortization, asset retirement obligation liability accretion, impairments, deferred taxes, exploration expense, stock-based compensation expense, and non-cash changes in the Net Profits Plan liability less the effect of unrealized derivative (gain) loss. The non-GAAP measure of discretionary cash flow is presented since management believes that it provides useful additional information to investors for analysis of St. Mary’s ability to internally generate funds for exploration, development, and acquisitions. In addition, discretionary cash flow is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry, and many investors use the published research of industry research analysts in making investment decisions. Discretionary cash flow should not be considered in isolation or as a substitute for net income, income from operations, net cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since discretionary cash flow excludes some, but not all, items that affect net income and net cash provided by operating activities and may vary among companies, the discretionary cash flow amounts presented may not be comparable to similarly titled measures of other companies. See the Consolidated Statements of Cash Flows herein for more detailed cash flow information.   (4) As a result of a change in circumstances, a greater portion of distributions from the Net Profits Plan have been classified as general and and administrative expense than in prior years. This is a result of a greater portion of payments being made to individuals that are no longer employed by the Company. In 2007, only those distributions related to individuals that are currently employed and are involved with the Company's exploration efforts are classified as exploration expense. As time has progressed, less of the distribution relates to prospective exploration efforts as more of the distributions are made to employees that have terminated employment and thereby do not provide any exploration support. Therefore, the quarterly financial information presented in the above tables reflects the recording of current distributions under the Net Profits Plan for terminated employees as being fully allocated entirely to general and administrative expense since there is no longer any functional link to geologic and geophysical or exploration related work by those terminated individuals.