Approaching its 100th birthday, Denver-based St. Mary Land & Exploration Co. is going through a bit of a management face-lift. In 2006, chief operating officer Doug York stepped down after a decade with St. Mary to pursue other professional opportunities, including raising capital to launch a private company of his own.

After 40 years with the company, former chief executive Thomas Congdon retired from the board. And, after some 15 years with the company, chief executive Mark Hellerstein moved into a new role of non-executive chairman, making way for Tony Best, who had been with the company as president and COO for just nine months.

After a career with producers such as Arco and Pure Resources Inc., which eventually became a subsidiary of Unocal Corp., Best retired when Chevron purchased Unocal. After six months in retirement, he was in the midst of raising capital to go out on his own when an executive headhunter called him regarding a position at St. Mary. After some due diligence, he liked what he saw. With a little boost from his wife who was pushing him to "get out of the house and do something meaningful," Best was back in the oil and gas business.

Immediately, he set out to meet every employee in the company-at the corporate office in Denver as well as at regional offices in Billings, Montana; Tulsa, Oklahoma; Houston; and Shreveport, Louisiana. He became CEO in late February upon Hellerstein's retirement.

Joining a company that has a stellar reputation on Wall Street and survived E&P mergers for a century can be daunting. The Street often thinks of St. Mary as a "sleep good at night" company because of its history of resolutely chugging along its chosen course of oil and gas in the Lower 48, Best says. This is not something he wants to change, but he has ideas on the direction St. Mary will take under his leadership. He visited with Oil and Gas Investor shortly after assuming the CEO role, and described his plan.

Investor You've made a point to meet as many St. Mary employees as you can. Is that part of your management philosophy?

Best I would characterize my management style as "dynamic involvement." I try to find a way to interact with people at every level within the organization in some form or fashion. To me, the best part of this business is being able to work with talented, committed people. I find ways to interact with a pumper or a lease analyst or a geologist. I try to find some way to be involved and to communicate at every level of the organization.

It makes a world of difference when people feel they're in the game and not sitting on the bench. I've only been in this job 23 days today, so I've got a ways to go, but I've been onboard for nine months, and I see tremendous upside and potential with this company that already has a great track record.

Investor What do you expect to change about St. Mary?

Best This company has done incredibly well with its decentralized organizational structure. That was among characteristics that attracted me to the company. In my career, I've worked more with larger corporations, and I see so much more creativity and efficiency within a decentralized organization than one that is tightly centralized with more bureaucracy and corporate control.

We have a great position right now in our five regional areas. The groups there have done an excellent job and they're staffed with very talented people. They have a lot of empowerment and autonomy, and they've done a great job of bringing us opportunities and deals over the years.

What I intend is to look a little more broadly. We're going to beef up our business-development staff to see what other opportunities are out there for us. We're basically a Lower 48 company. I know there are long-term opportunities for us outside our existing footprint. I intend for us to take a look outside and see what else might be out there, including resource plays, new basin entries, applications of new technology, or just leveraging our current experience and success into new plays.

Investor Will that include more acquisitions?

Best It could be acquisitions, or it could be drillbit opportunities. We want to be equally capable in both. The company has a long history of success in making very leveraging acquisitions. We'll be looking to strengthen our drillbit capabilities even more to expand our inventory of drilling opportunities and projects. This will allow us to be much better positioned in tight acquisition markets. Right now, acquisitions can be rather expensive.

Investor How did the $250-million acquisition in the Permian Basin come about?

Best We're looking to grow in every region we're in. That acquisition happened to be excellent timing for us. In the third quarter of last year, we got word that Henry Petroleum was going to be putting the Sweetie Peck asset on the market. I've had a long relationship with Henry Petroleum during the past 18 years and I've done numerous deals with them, so we had already done our technical homework and our evaluations on this particular asset. We put a preemptive offer on the table.

Investor You're working on beating back service costs?

Best We're going to use between 12 and 18 rigs this year, and as many as 20 later this year. We're going to participate in more than 750 wells this year. That's an incredible investment. There is an opportunity to focus on supply-chain management. We might be able to get volume discounts or preferred-supplier arrangements. In my career, I've gone through this a couple of different times, and the savings can be significant.

Investor What is your drilling focus for this year?

Best We're starting out in the Permian Basin with a two-rig program, and hoping to ramp that up to four rigs by the end of this year.

In the Hanging Woman Basin, which is our coalbed-methane play in the northern Rockies, we have more than 200,000 gross acres and more than 300 wells. We're going to expand that program this year from two rigs to four. We have an incredible amount of running room there. We have more than 3,000 drilling locations and more than 800 billion cubic feet of gas equivalent on a 3P basis.

The ArkLaTex is an area that had a capex budget of $25 million just a few years ago; we plan to invest more than $130 million in the region this year.

The Midcontinent is also going to provide significant growth for us this year. And we've had great success on the Gulf Coast-six discoveries out of eight in 2006.

Investor Are there assets you may sell this year?

Best We'll look at tail-end assets in the latter part of the year as we plan for next year. For the most part, a lot of our acreage is held by production, so we don't have to divest anything at a given time.

Investor Tell us about the St. Mary culture.

Best St. Mary is unique because of its "no B.S." culture; there are no politics, there is no bureaucracy. People are able to focus on doing productive, meaningful work. When you provide that kind of environment, employees get the satisfaction of being able to be creative and do good work, rather than just doing busy work and a lot of things that are nonproductive. That's part of the way we're able to have a very low attrition rate. For the most part, our folks like where they are and what they're doing, so we don't lose a lot of people.

Investor What should potential investors know about St. Mary?

Best I think investors need to know we're not going to do any U-turns or 180s. We're going to focus on the fundamentals of the business, and continue with the same direction and business philosophies that have made this company successful. Certainly we're going to look for areas where we can improve and expand and strengthen. We're starting off with a very strong base.

Investor What does Wall Street misunderstand about St. Mary?

Best I've heard from time to time that we're a "sleep good at night" company. Some people have inferred that this makes us too conservative, but I don't see it that way. I think we play it straight and we call it right down the middle. In terms of our PUD percentage, we're at 22% and the industry average is 35%. I don't view that as being conservative. We follow industry guidelines and we call it the way we see it.

The other aspect that not all investors or analysts would necessarily understand is our decentralized approach to business and our diverse asset base are very much a strength and a competitive advantage. It's a lot like your own personal investment portfolio. I'd much rather have some diversification in that portfolio so our success doesn't hinge on one single resource play. We have multiple areas for success and, taken together, they provide a strong foundation for St. Mary to grow from.

Investor Will St. Mary do anything special to celebrate its century birthday?

Best We'll probably be ringing the bell at the New York Stock Exchange.

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