OilVoice - St. Mary Announces Entry into Marcellus Shale; Provides 2009 Capital Program Guidance

St. Mary Announces Entry into Marcellus Shale; Provides 2009 Capital Program Guidance

Tuesday, December 23, 2008

- Access to 43,000 net acres with Marcellus shale potential in Pennsylvania
- Capital investments in 2009 to be within cash flow; program to balance high return development projects and strategic testing in the Haynesville, Eagleford, Marcellus, and Three Forks programs
- Assuming flat current near-month commodity prices, 2009 exploration and development investment would be down over 50% from $758 million forecast for 2008

St. Mary Land & Exploration Company announces its entry into the Marcellus shale play in Pennsylvania. Additionally, the Company is providing initial guidance regarding its 2009 capital investment program.

MARCELLUS SHALE ACREAGE

St. Mary has entered into agreements that allow the Company to earn approximately 43,000 net acres (50,000 gross acres) with potential for the Marcellus shale in north central Pennsylvania. The acreage is located in McKean and Potter counties. St. Mary plans to test portions of the acreage in 2009.

“I am pleased to announce our entry into the Marcellus shale. We have exposed ourselves to a meaningful, largely contiguous acreage position at an attractive cost,” remarked Tony Best, President and CEO. “St. Mary will be able to apply its expertise in horizontal drilling to develop this emerging play, and one of our partners in these arrangements has existing infrastructure and takeaway capacity that we believe will be a competitive advantage going forward.”

CAPITAL PROGRAM FOR 2009

Tony Best commented, “St. Mary’s objective is to build net asset value per share, which necessitates a focus on maintaining high returns on capital employed. Capital costs to drill and complete wells are coming down rapidly in response to the slowing of activity in the industry. In this environment, it makes sense to defer discretionary capital investment when possible to capture the additional value that can be generated on projects by executing them at significantly lower costs. St. Mary plans to drop six drilling rigs by the end of January 2009, at which time we will be running nine rigs to meet existing contractual or leasehold obligations. We will focus our investment with these committed rigs in the first half of 2009 by testing areas of strategic importance, namely the Haynesville, Eagleford, and Marcellus shale programs. We plan to defer much of our discretionary development activity until the second half of the year.

“St. Mary’s Board has approved a 2009 plan that allows the Company to invest at or within our generated cash flows. Our program for next year is designed to protect our balance sheet and to allow for a high degree of flexibility in drilling activity. We have the ability to accelerate our operations if market conditions improve or defer further investment if conditions warrant.”

Based on flat pricing of roughly $42 per barrel of oil and $5.30 per Mcf of gas (approximate near-month NYMEX levels), the Company estimates that it would invest approximately $350 million in exploration and development activities in 2009. This represents a 54% decrease from the $758 million forecasted for exploration and development activities in 2008. An approximate break down of capital investment under that scenario is provided below.

2009 Exploration & Development Capital Expenditure ($ in millions)

Development Activity
Woodford Shale: $46
Cotton Valley & James Lime: 52
Wolfberry: 28
Other: 50

New Resource Plays & Exploration*: 75
Land & Seismic: 40
Overhead & Facilities: 59
TOTAL: $350

*Included in the New Resource Plays & Exploration caption above is capital for Company-operated testing of the Haynesville, Eagleford, Marcellus, and Three Forks formations.

Assuming this capital scenario, including the timing considerations discussed above, St. Mary estimates its production for 2009 would be between 105 and 109 BCFE.

Tony Best added, “St. Mary is well positioned to enter what could be a very challenging year for the exploration and production industry based on the current outlook for commodity prices and the limited availability of external financing. Our strong balance sheet, significant availability under our revolving credit facility, limited capital commitments, and favorable hedging position are great assets to have as we enter a period of some uncertainty. We look forward to testing the key resource plays in our portfolio in 2009 and to accelerating our discretionary activities when market conditions improve.”