St. Mary Surpasses Ests – Analyst Blog

St. Mary Land & Exploration Co. (SM) reported fourth-quarter earnings of 31 cents per share, beating the Zacks Consensus Estimate of 26 cents but down from the year-earlier earnings of 42 cents. Non-cash charges and impairments result in a reported net profit of 2 cents per share.

 

Despite a 13% lower production volume, the company’s results came in above our expectations on the back of improved oil prices and cost reduction intiatives. Revenues for the quarter were $242 million, down more than 6% from the year-earlier level.

 

 

There were no significant changes in estimate revisions. For the last 30 days, one of the 11 analysts covering the stock lowered the estimate for the full fiscal 2010 while no one moved in the opposite direction. But no up or downside movements were noticed in the last 7 days.

 

Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $1.15 per share, which is well above the full fiscal 2009 earnings of 80 cents.

 

The company’s earnings surprise for the preceding four quarters varies between negative 107.1% and positive 21.1%, with the average being negative 36.0%.

 

St. Mary reported a quarterly production of 26.1 billion cubic feet equivalent (Bcfe), down 13% year over year. However, volumes were within the company’s guidance range of 24.75 to 26.25 Bcfe.

 

Of the total production, gas was 66% and the rest was oil. Natural gas for the quarter was 17.1 billion cubic feet (Bcf), down 13% year over year. Oil production during the quarter was 1.5 million barrels (MMbbl), down 12% from the year-earlier quarter.

 

Average equivalent price per Mcfe (including the effect of hedging) was $7.69, down 2% from the year-ago realization. Average realized prices (inclusive of hedging activities) were $6.07 per Mcf of natural gas and $64.43 per barrel of oil, a decrease of 14% and increase of 16%, respectively, from the same period a year ago.

 

On the costs front, unit lease operating expense (LOE) was down 18% year over year to $1.31 per Mcfe. Transportation expenses on a per Mcfe basis were flat. General and administrative (G&A) expenses were up 95% from the year-earlier level to 80 cents per Mcfe.

 

Discretionary cash flow was $144.2 million during the quarter, down approximately 12% year over year. Net cash from operating activities was $83 million, down nearly 25% from the year-earlier level.

 

At the end of the quarter, the company had cash balance of $10.7 million and long-term debt of $454.9 million, representing a debt-to-capitalization ratio of 31.8%.

 

 

The company’s proved reserves as of December 31, 2009, were 772.2 Bcfe, an 11% decrease from the end of 2008. Of this, 58.2% was natural gas and 82% in the proved developed category.

 

 

St. Mary expects to invest $725 million for the 2010 capex program. Of this, approximately 77% or $561 million is earmarked for the exploration and drilling program. For the first quarter and full year 2010, the company anticipates production to be in the range of 255 – 278 MMcfe/d and 253 – 276 MMcfe/d, respectively.

 

Though the company is fairly active in emerging shale plays, management hinted that production will be declining during the first half of this year, which results in higher per unit costs. Our current recommendation for the stock is Underperform.