St. Mary Land & Exploration Company (SM-NYSE) Interview with: Mark A. Hellerstein,
Chairman, President and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their exploration, exploitation,
development, acquisition and production of natural gas and crude oil in five core areas in
the United States.
that distinguishes St. Mary Land & Exploration Company is that they are in more
regions than most companies their size with their technical groups in each of their
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 700
Denver, CO 80203
Mark A. Hellerstein
Chairman, President and CEO
Walter Banks, Publisher
September 9, 2005
Mark A. Hellerstein is Chairman, President and Chief Executive Officer of St. Mary Land
& Exploration Company. Mr. Hellerstein joined the Company in September 1991
as Executive Vice President and Chief Financial Officer. He has served as President
of the Company since May 1992, as Chief Executive Officer since May 1994 and as a Director
since September 1992. Mark was elected Chairman of the Board in September 2002. From
1987 to 1991 Mr. Hellerstein served as Vice President of Finance and Chief Financial
Officer for CoCa Mines Inc. From 1980 to 1986, Mr. Hellerstein served as Vice
President of Finance and Chief Financial Officer of Worldwide Energy Corporation.
Mr. Hellerstein graduated from the University of Colorado in 1974 with a degree in
accounting and is a certified public accountant (non-active).
St. Mary Land & Exploration Company is engaged in the exploration, exploitation,
development, acquisition and production of natural gas and crude oil in five core areas in
the United States. St. Mary was founded in 1908, incorporated in 1915 and became a public
company through an initial public offering of common stock in 1992. The Companys
stock trades on the New York Stock Exchange under the symbol SM. We are headquartered in Denver,
Our primary objective is to invest in oil and gas producing assets that provide a superior
return on equity while preserving underlying capital, resulting in a return on equity to
stockholders that reflects capital appreciation as well as the payment of cash dividends.
We focus on mature basins and have developed dominant leasehold positions and long-term
relationships with suppliers, prospect generators and operators in five core areas. The
Mid-Continent, RockyMountain, ArkLaTex, GulfCoast and PermianBasin regions are operated
out of our offices in Tulsa, Oklahoma; Billings, Montana; Shreveport, Louisiana; and Houston,
Texas. At year-end 2004, the Company's proved reserves totaled 659 billion cubic feet of
gas equivalent with a reserve to production ratio of 8.7 years.
CEOCFO: Mr. Hellerstein,
will you tell us how long you have been with St. Mary Land & Exploration Company and
Mr. Hellerstein: I began in 1991 as executive V.P.; in
1992 I became president and in 1994 was named CEO. The company has gone through three
stages. The company began in 1908 when we acquired 25,000 acres in St. Mary Parish, Louisiana
which is where we got our name. >From 1908 until the mid-sixties, we were a passive
royalty company; we had some major prolific discoveries on that property in 1938. Proceeds
from the royalty income were paid out in dividends to our shareholders. In the
mid-sixties, Tom Congdon, grandson of one of the founders, became president. He decided to
keep a portion of the cash flow in the business to grow the Company; he did that primarily
through passive investing with partners. He developed a long-term relationship with one
partner, George Anderman, who headed our operating company, Anderman Smith Operating
I joined St. Mary, along with another individual, in the early 1990s to be
succession management with the goal of turning the company from a passive investment
company into a full operating company. We did that through a series of acquisitions,
establishing a presence in a number of regions. In 1991, we partnered with Nance Petroleum
Corporation, a company we eventually acquired that is now a wholly owned subsidiary. We
partnered with them and another small company to acquire some old Chevron properties that
became the basis for our Rockies operations.
In 1992, we acquired the oil and gas division of T.L. James & Company that became the
basis of our ArkLaTex operations and established our Shreveport office. In the
mid-nineties, we did a couple of smaller acquisitions in the PermianBasin. In about 1994,
George Anderman, one of our partners, passed away. He had been sick and we had taken over
some functions he previously had done. After he died, we took over Anderman Smith
Operating Company, of which we actually owned a majority. That became St. Mary Operating
Company and our Tulsa office, which ran our Oklahoma operations. These acquisitions and
operations gave us our core operating regions. In 1999, we made an acquisition of the
properties of King Ranch Energy Company, which were primarily along the GulfCoast. Even
though we had our original fee property, this was the beginning of our operations in the Gulf Coast region.
CEOCFO: Are you happy
with your five core areas?
Mr. Hellerstein: We are always looking to grow and the
most likely places to grow are where you have the most knowledge. Those are the regions we
are presently in. Our two biggest regions, which are the Rockies along with the
Mid-Continent, have been our growth engines for quite some time. We have grown primarily
through a combination of acquisitions as well as organic drilling. About 65% of our budget
tends to be for organic growth and about 35% is for acquisitions. Drilling and
acquisitions work well together. The organic side gives us the technical knowledge to make
acquisitions, and the acquisitions generally come with some undeveloped acreage. That
model has worked well for our Company.
We have charged our regions with the goal to replace 200% of our production each year. For
every Mcf of gas or barrel of oil we produce, our goal is to replace that with two, either
through the drill bit or through acquisitions, and to do it economically. Replacing 200%
of our production will give us a growth rate of 10% to 15% which we have been able to do
over a long period of time. Over the last three years, we have replaced about 259% of our
production. We have been able to replace over 200% of our production since we went public
One thing that distinguishes us is that we are in more regions than most companies our
size. Each regional office has a full technical group and our home office in Denver
provides administrative support. At our home office we create a St. Mary framework that
includes our value system, how we look at risk and reward, a feedback system to identify
where we are making and losing money, and an incentive program that supports our
objectives of growth and economics. This all translates into growing net asset value per
share, which, we think, is what drives our stock price. That is the core and framework of
our organizational structure. Within that framework the regions have a lot of
CEOCFO: Do you have much
competition for acquisitions and organic growth?
Mr. Hellerstein: Absolutely! Acquisitions have never
been more competitive than they are today. The question you have to ask yourself when
properties come up for sale is why are they worth more to us than they are to somebody
else. If you can answer that question, the chances are you are going to be successful in
acquiring the properties at a price that provides a reasonable return.
CEOCFO: What gives you
the edge in getting that property?
Mr. Hellerstein: One of our examples is in 1996 where
we had an idea at a field called BoxChurch which was not a large producing
field that was producing from the Smackover formation. Our geologist in Shreveport
believed BoxChurch was similar to another field in the area that was productive in the Cotton Valley and the TravisPeak. When you looked at the logs for the BoxChurch wells, they
looked like the CottonValley and TravisPeak were wet. Because the logs were similar to
logs in the neighboring field where the CottonValley and TravisPeak were productive, our
geologist believed BoxChurch had CottonValley and TravisPeak potential. We acquired the
field at a very reasonable price because we only paid for the Smackover production. The Cotton Valley and TravisPeak were productive which turned our acquisition into a great
Looking more recently, this year we made an
acquisition of a company, Agate Petroleum; the Agate shareholders wanted to sell the whole
company, which had its properties and operations in two regions where we also had
operations. There are very few companies that operate in both the WillistonBasin and the Arkoma Basin. The acquisition was not very competitive and was a very good fit for us.
Late last year we did an acquisition of an old field in the BigHornBasin called
Fourbear. One of our engineers, who was originally from Marathon, had worked a lot of old
fields in the BigHornBasin. Through a combination of completing behind pipe zones,
infill drilling, secondary recovery and tertiary recovery, he was able to recover a lot
more oil from these old fields. He identified the Fourbear field that has about 200
million barrels of oil in-place of which only ten percent had been recovered. He thought
through the techniques that he had previously applied, we could double the recovery rate.
We approached the owners of the property who had not done a lot to enhance production on
the property for many years, and we were able to negotiate a transaction which we believe
has substantial upside.
CEOCFO: It sounds like
you have an experienced team!
Mr. Hellerstein: The key to our success is our people.
The managers of our regions have been in each of our regions for twenty-five, thirty, or
more years. Most of our people in our regions have been in the same region for the bulk of
their careers. These are people that are seasoned and have knowledge specifically for that
area. They understand relationships with vendors and other players in the region which is
very important. A major reason we have been able to grow in the Rockies is due to a
geophysicist we have had on our staff since 1991 that is able to map porosity, as well as
structure using 3-D seismic. Other companies are able to map structure but are not able to
map porosity. As a result, since 1991 we have had about an 86% success rate in the Red
River play where others have only had about a 15% success rate. Our success has allowed us
to explore in the Williston while others were leaving. We have been the natural
consolidator of properties in the Williston. Not only were we able to explore
successfully, but we were able to acquire successfully because of the ability that we have
to make properties worth more to us than they are to someone else.
CEOCFO: Do you have the
finances to continue?
Mr. Hellerstein: We have always maintained one of the
strongest balance sheets among our peers. At year-end, we had about a 22% debt-to-capital
ratio, but most of that debt is actually a $100 million convertible note that is well in
the money. It is more like equity. We have a $400 million borrowing base with our bank
group and only about $40 million is outstanding.
CEOCFO: From where are
your greatest revenues coming?
Mr. Hellerstein: Our reserves are balanced almost
half-and-half between natural gas and crude oil. Since our gas properties have a shorter
life than our oil properties, 57% to 58% of our production is from natural gas.
CEOCFO: Do you think you
will maintain that balance?
Mr. Hellerstein: We tend to go where there is
opportunity. We have not tried to take a position on whether we want oil or gas. We are
always looking for the most attractive economic opportunity.
CEOCFO: How do you stand with environmental regulations?
Mr. Hellerstein: We strive to be a good corporate
environmental citizen. We comply with all the various rules. We have never had significant
issues or problems related to environmental regulations.
CEOCFO: Will you tell us about your available float and your
approach to investor relations?
Mr. Hellerstein: We have approximately 5% of our stock
owned by insiders, so our float is large. We trade over 400,000 shares a day on average.
We do our investor relations in-house; we have a person with that responsibility. We spend
a reasonable amount of time on the road. We probably make presentations to stockholders
and potential stockholders in twenty cities a year and we do conferences a
CEOCFO: If I were a
potential investor, what could you tell me about St. Mary Land & Exploration Company
that would convince me that the company would be a good investment?
Mr. Hellerstein: We have a very long track record of
success. Since we went public in 1992, we have provided our shareholders a 19% compounded
return that puts us in the top tier of our competitors. Secondly, we have always
maintained one of the strongest balance sheets of our peers, which allows us to be
opportunistic during the tougher times and gives us a bargaining edge, as we always have
dry powder. Thirdly, we think we have excellent technical teams in each of our regions
with knowledge specific to that region, which is the key to generating ideas and executing
them. We have a large inventory of acreage and today, we have more multi-year plays where
we can deploy capital than we have ever had in our history. In the WillistonBasin we have
the Bakken play and the Red River play. We have the Hanging Woman Basin coalbed methane
project; a place to deploy capital, for probably ten years or more in the Powder River
Basin. We have recently announced the Cromwell Play in Oklahoma that we think will be a
multi-year play that will be significant to our company. We have a great foundation from
which we will be building and growing St. Mary.
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have a very long track record of success. Since we went public in 1992, we have provided
our shareholders a 19% compounded return that puts us in the top tier of our competitors.
Secondly, we have always maintained one of the strongest balance sheets of our peers,
which allows us to be opportunistic during the tougher times and gives us a bargaining
edge, as we always have dry powder. Thirdly, we think we have excellent technical teams in
each of our regions with knowledge specific to that region, which is the key to generating
ideas and executing them. We have a large inventory of acreage and today, we have more
multi-year plays where we can deploy capital than we have ever had in our history. -
Mark A. Hellerstein
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