St. Mary Land & Exploration Needs Regulations Refresher

St. Mary Land & Exploration Company (SM) issued a very late in the day (Jul 16) press release (approximately 2114 ET) announcing a laundry list of significant disclosure. They also announced that their earnings will be released after the close of trading on Aug 2, with an early morning conference call on Aug 3. Consult your calendar and you will see that many observers would call this a severe violation of the thirty day quiet period regulation.

The press release starts with announcements about promotions and retirements. After your eyes glaze over, the document continues with a very helpful and detailed discussion of operations and drilling activities. It concludes with financial modeling information relating to almost every aspect of operations. Any investor who closely watches the stock will be able to predict the EPS.

Guidance updates should not be issued just before the real numbers come out. They certainly should not be issued within the 30 day quiet period.

The stock is currently trading at the lower end of its 52 week range. Some significant insider selling is occurring. In June, Robert L. Nance, a Senior Vice President backed up his truck and offloaded 34,024 shares. Shortly thereafter, John Seidl, a director, backed up a smaller truck and offloaded 11,428 shares. So why is everyone exercising their options at the lower end of the 52 week range?

The company, including its board of directors and any executive with corporate governance-driven responsibilities, need some remedial tutorials about securities regulations before they really get into some serious trouble. Hey, In-House Counsel - that means you have to get tough or it will be your fault. Milam Randolf Pharo (VP Legal), does the finger point to you?

Comments

[User 1:]

George, could you clarify this a bit - from what I understand, this is something of a gray area in SEC regulations - see here, for example, where the lawyer addresses the issue of 'Does the law require a quiet period before every quarterly earnings announcement from public companies?':

www.mobilitypr.com/blo.../

What exactly can a public company not state during this period, and where is that documented?

Thanks

2007 Jul 18 05:07 AM

[George Guto...:]

My apologies for a tardy response. You are right that this is a grey area. The quiet period is more adequately defined in the context of IPO’s. However if you review many corporate investor relations web sites you will see that many companies have opted to implement quiet period policies before quarterly announcements. Many employees of publicly traded companies are frequently cautioned that their employer is about to enter this period and prudence is required if mentioning company affairs outside of the company. If you Google “quarterly quiet period” or “quarterly earnings quiet period” you will source numerous pages referring to quiet periods and how these policies are believed to relate to Reg. FD and Securities regulations.
The SEC appears to be remiss in not having issued regulations which have the necessary degree of clarity in the context of quarterly earnings. However many companies have adopted quarterly quiet period policies. Obviously the corporate lawyers have signed off on the policies as well as boards of directors. Corporate governance processes should therefore be reliant on these policies. The marketplace has developed a compliance practice in a regulatory context. The practice is uneven from company to company.
In the context of St Mary Land and Exploration. They are issuing guidance two weeks after the quarter is over but two weeks before earnings are announced. The announcement came out very late in the evening and was camouflaged by personnel change announcements. On their web site they claim to have a St Mary’s Fair Disclosure Policy however I could not find a copy of the document. Given their position in the disclosure time line a guidance update issued cryptically is not Fair Disclosure.
The criticism that may be directed at me is that the tone of my post assumed the 30 day period was a matter of hard regulation or even law. It is not.

2007 Jul 18 08:51 PM