St. Mary Land & Exploration Co. (SM) reported third-quarter earnings of 23 cents per share, beating the Zacks Consensus Estimate of 19 cents but down from the year-earlier earnings of $1.20. Non-cash charges and impairments result in a reported net loss of 7 cents per diluted share.
The results were driven by the company’s production performance and reduced costs. Revenues for the quarter were $185.8 million, down nearly 43% from the year-earlier level.
St. Mary reported quarterly production of 26.4 billion cubic feet equivalent (Bcfe), down 5% year over year. However, volumes were within the company’s guidance range of 25.5 to 27.0 Bcfe. Production would have been down 2% year over year without accounting for the last year’s asset sale. Production was also sequentially down as a result of lower levels of capital investment.
Of the total production, gas was 65% and the rest was oil. Natural gas for the quarter was 17.2 billion cubic feet (Bcf), down 5% year over year. Oil production during the quarter was 1.5 million barrels (MMbbl), down 3% from the year-earlier quarter.
Average equivalent price per Mcfe (including the effect of hedging) was $6.86, down 38% from the year-ago realization. Average realized prices (inclusive of hedging activities) were $4.95 per Mcf of natural gas and $62.65 per barrel of oil, a decrease of 48% and 25%, respectively, from the same period a year ago.
On the costs front, unit lease operating expense (LOE) was down 17% year over year to $1.30 per Mcfe. Transportation expenses and G&A expenses were also down 17% and 9% from the year-earlier level to 20 cents and 79 cents per Mcfe, respectively.
Discretionary cash flow was $99.9 million during the quarter, down approximately 49% year over year. Net cash from operating activities was $111.3 million, down nearly 56% from the year-earlier level. The main reason behind these falls was the significant decrease in oil and natural gas prices.
At the end of the quarter, the company had cash balance of $20.5 million and long-term debt of $499.8 million, representing debt-to-capitalization ratio of 33.4%.
St. Mary expects to invest $450 million for the 2009 capex program, including $117 million for the Eagle Ford, Haynesville and Marcellus shale developments. For the fourth quarter, the company anticipates production to be in the range of 24.75 – 26.25 Bcfe.
The company has been working over the past several years to build a significant position in emerging shale plays in order to transition it to more of a resource play focused company, with a deep inventory of repeatable drilling prospects with a high rate of return.
Given the company’s increasing activity in the oilier parts of its assets portfolio, specifically the Permian and Rocky Mountain regions, we believe that St. Mary will be able to maintain or even increase its oil-weighted activity through 2010. In turn, this will create the value for shareholders.
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