10-Q

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                  ------------


                                    FORM 10-Q


       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2002

                                  ------------


                        Commission File Number: 000-20872

                     ST. MARY LAND & EXPLORATION COMPANY
             (Exact name of registrant as specified in its charter)


             Delaware                                   41-0518430
  (State or other jurisdiction             (I.R.S. Employer Identification No.)
of incorporation or organization)

             1776 Lincoln Street, Suite 1100, Denver, Colorado 80203
             (Address of principal executive offices)     (Zip Code)

                                 (303) 861-8140
              (Registrant's telephone number, including area code)




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                               Yes [ |X| ] No [ ]


Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.


As of August 12, 2002, the  registrant  had  27,857,141  shares of common stock,
$.01 par value, outstanding.




                     ST. MARY LAND & EXPLORATION COMPANY
                     ---------------------------------------

                                      INDEX
                                      -----

Part I.   FINANCIAL INFORMATION                                         PAGE
                                                                        ----

          Item 1.   Financial Statements (Unaudited)
                    Consolidated Balance
                    Sheets - June 30, 2002 and
                    December 31, 2001.....................................3

                    Consolidated Statements of
                    Operations - Three and Six Months Ended
                    June 30, 2002 and 2001................................4

                    Consolidated Statements of
                    Cash Flows - Six Months Ended
                    June 30, 2002 and 20010...............................5

                    Consolidated Statements of
                    Stockholders' Equity - June 30, 2002
                    and December 31, 2001.................................7

                    Notes to Consolidated Financial
                    Statements - June 30, 2002............................8

          Item 2.   Management's Discussion and Analysis
                    of Financial Condition and Results
                    of Operations........................................11

          Item 3.   Quantitative and Qualitative Disclosures
                    About Market Risk....................................21


Part II.  OTHER INFORMATION

          Item 1.   Legal Proceedings....................................22

          Item 2.   Changes in Securities and Use of Proceeds............23

          Item 4.   Submission of Matters to a Vote of
                    Security Holders.....................................23

          Item 6.   Exhibits and Reports on Form 8-K.....................24



PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                      (In thousands, except share amounts)

                                  ASSETS                                          June 30,        December 31,
                                                                                ------------     ------------
                                                                                    2002             2001
                                                                                ------------     ------------

Current assets:
  Cash and cash equivalents                                                       $   47,856       $    4,116
  Short term investments                                                               9,376                -
  Accounts receivable                                                                 35,041           46,484
  Prepaid expenses and other                                                           4,002            2,337
  Accrued derivative asset                                                             4,292            8,194
  Refundable income taxes                                                              1,009           11,090
  Deferred income taxes                                                                   29                -
                                                                                ------------     ------------
     Total current assets                                                            101,605           72,221
                                                                                ------------     ------------

Property and equipment (successful efforts method), at cost:
  Proved oil and gas properties                                                      567,965          523,823
  Less accumulated depletion, depreciation and amortization                         (237,685)        (216,288)
  Unproved oil and gas properties, net of impairment
   allowance of $9,402 in 2002 and $8,908 in 2001                                     45,203           48,143
Other property and equipment, net of accumulated depreciation of $3,499
  in 2002 and $3,120 in 2001                                                           3,544            3,252
                                                                                ------------     ------------
     Total property and equipment                                                    379,027          358,930
                                                                                ------------     ------------

                                                                                ------------     ------------
Other assets                                                                          10,165            5,838
                                                                                ------------     ------------

                                                                                ------------     ------------
Total assets                                                                      $  490,797       $  436,989
                                                                                ============     ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses                                           $   39,914       $   34,858
  Deferred tax liability                                                               1,711            3,363
                                                                                ------------     ------------
     Total current liabilities                                                        41,625           38,221
                                                                                ------------     ------------

Long-term liabilities:
  Long-term credit facility                                                                -           64,000
  Convertible notes, issued at par                                                    99,554                -
  Deferred income taxes                                                               52,458           47,685
  Other noncurrent liabilities                                                           867              255
                                                                                ------------     ------------
     Total long-term liabilities                                                     152,879          111,940
                                                                                ------------     ------------

Commitments and contingencies

                                                                                ------------     ------------
Minority interest                                                                        668              711
                                                                                ------------     ------------

Stockholders' equity:
  Common stock, $0.01 par value: authorized  - 100,000,000 shares: Issued and
   outstanding - 28,867,041 shares in 2002 and 28,779,808 shares in 2001                 289              288
  Additional paid-in capital                                                         138,567          137,384
  Treasury stock - at cost:  1,009,900 shares in 2002 and 2001                       (16,210)         (16,210)
  Retained earnings                                                                  169,255          157,739
  Accumulated other comprehensive income                                               3,724            6,916
                                                                                ------------     ------------
     Total stockholders' equity                                                      295,625          286,117
                                                                                ------------     ------------

                                                                                ------------     ------------
Total Liabilities and Stockholders' Equity                                        $  490,797       $  436,989
                                                                                ============     ============
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       3


            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                    (In thousands, except per share amounts)



                                                              For the Three Months Ended        For the Six Months Ended
                                                                       June 30,                         June 30,
                                                            -----------------------------     ----------------------------
                                                                2002             2001             2002              2001
                                                            ------------      -----------     -----------      -----------
Operating revenues:
  Oil and gas production                                      $   46,197        $  55,421       $  87,290        $ 123,336
  Gain on sale of proved properties                                  449               48             413               50
  Marketed gas revenue                                             2,939                -           3,444                -
  Other oil and gas revenue                                          397              203             747              565
  Gain on sale of KMOC stock                                           -                -             836                -
  Other revenues                                                      46              104              71              172
                                                            ------------      -----------     -----------      -----------
     Total operating revenues                                     50,028           55,776          92,801          124,123
                                                            ------------      -----------     -----------      -----------

Operating expenses:
  Oil and gas production                                          11,531           13,436          25,561           25,493
  Depletion, depreciation and amortization                        13,279           12,884          26,333           24,172
  Exploration                                                      4,297            2,149          11,213           10,511
  Impairment of proved properties                                      -               73               -              244
  Abandonment and impairment of unproved properties                  622              608           1,319            1,074
  General and administrative                                       3,015            3,536           6,156            7,557
  Unrealized derivative loss (gain)                               (2,327)               -          (1,975)               -
  Marketed gas system operating expense                            2,662                -           3,086                -
  Minority interest and other                                        243              118             620              379
                                                            ------------      -----------     -----------      -----------
     Total operating expenses                                     33,322           32,804          72,313           69,430
                                                            ------------      -----------     -----------      -----------

Income from operations                                            16,706           22,972          20,488           54,693

Nonoperating income (expense):
  Interest income                                                    170              147             280              335
  Interest expense                                                (1,018)               -          (1,470)             (35)
                                                            ------------      -----------     -----------      -----------

Income before income taxes                                        15,858           23,119          19,298           54,993
Income tax expense                                                 5,269            8,885           6,391           20,366
                                                            ------------      -----------     -----------      -----------

Net income                                                    $   10,589        $  14,234       $  12,907        $  34,627
                                                            ============      ===========     ===========      ===========


Basic net income per common share                             $     0.38        $    0.51       $    0.46        $    1.23
                                                            ============      ===========     ===========      ===========
Diluted net income per common share                           $     0.37        $    0.50       $    0.46        $    1.20
                                                            ============      ===========     ===========      ===========

Basic weighted average common shares outstanding                  27,825           28,135          27,805           28,185
                                                            ============      ===========     ===========      ===========
Diluted weighted average common shares outstanding                28,428           28,717          28,347           28,826
                                                            ============      ===========     ===========      ===========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       4




            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)


                                                                                  For the Six Months Ended
                                                                                          June 30,
                                                                                -----------------------------
                                                                                    2002              2001
                                                                                ------------     ------------
Reconciliation of net income to net cash provided by operating activities:
     Net income                                                                   $   12,907       $   34,627
     Adjustments to reconcile net income to net
         cash provided by operating activities:
       Gain on sale of proved properties                                                (413)             (50)
       Gain on sale of KMOC stock                                                       (836)               -
       Depletion, depreciation and amortization                                       26,333           24,172
       Exploratory dry hole expense                                                    6,133            4,418
       Impairment of proved properties                                                     -              244
       Abandonment and impairment of unproved properties                               1,319            1,074
       Unrealized derivative loss (gain)                                              (1,975)               -
       Deferred income taxes                                                           4,989           10,841
       Minority interest and other                                                       288              442
                                                                                ------------     ------------
                                                                                      48,745           75,768
     Changes in current assets and liabilities:
       Accounts receivable                                                            12,490           (2,394)
       Prepaid expenses and other                                                      8,436           (2,030)
       Accounts payable and accrued expenses                                           6,399            1,530
                                                                                ------------     ------------
     Net cash provided by operating activities                                        76,070           72,874
                                                                                ------------     ------------

     Cash flows from investing activities:
       Proceeds from sale of oil and gas properties                                      122              660
       Capital expenditures                                                          (42,577)         (63,335)
       Acquisition of oil and gas properties                                         (13,643)           1,590
       Proceeds from distribution and sale of KMOC stock                               3,114            7,009
       Short term investments available-for-sale                                      (9,370)               -
       Other                                                                          (2,122)              69
                                                                                ------------     ------------
     Net cash used in investing activities                                           (64,476)         (54,007)
                                                                                ------------     ------------

     Cash flows from financing activities:
       Proceeds from credit facility                                                  16,000           41,750
       Repayment of credit facility                                                  (80,000)         (50,350)
       Proceeds from issuance of convertible notes, net                               96,754                -
       Proceeds from sale of common stock                                                783            1,721
       Repurchase of common stock                                                          -          (10,949)
       Dividends paid                                                                 (1,391)          (1,413)
                                                                                ------------     ------------
     Net cash provided by (used in) financing activities                              32,146          (19,241)
                                                                                ------------     ------------

     Net change in cash and cash equivalents                                          43,740             (374)
     Cash and cash equivalents at beginning of period                                  4,116            6,619
                                                                                ------------     ------------

     Cash and cash equivalents at end of period                                   $   47,856       $    6,245
                                                                                ============     ============

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       5


            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                   (Continued)


Supplemental schedule of additional cash flow information and noncash investing
and financing activities:

                                                                                   For the Six Months Ended
                                                                                            June 30,
                                                                                -----------------------------
                                                                                    2002             2001
                                                                                ------------     ------------
                                                                                        (In thousands)

       Cash paid for interest                                                          $ 478            $ 284

       Cash paid (received) for income taxes                                          (8,699)          10,386

       Cash paid for exploration expenses                                             14,155           10,499


       In June 2002 the Company issued 800 shares of common stock to a director
       and recorded compensation expense of $14,763.

       In January 2002 the Company issued 7,200 shares of common stock to its
       directors and recorded compensation expense of $129,683.

       In January 2001 the Company issued 8,400 shares of common stock to its
       directors and recorded compensation expense of $237,852.


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       6



            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                      (In thousands, except share amounts)


                                                                                                        Accumulated
                                            Common Stock     Additional                Treasury Stock      Other        Total
                                       ---------------------  Paid-in    Retained  ---------------------Comprehensive Stockholders'
                                         Shares     Amount    Capital    Earnings    Shares     Amount     Income        Equity
                                       ---------- ---------- ---------- ---------- ---------- ---------- ----------   ----------

Balances, December 31, 2000            28,553,826  $     286  $ 132,973  $ 120,075   (395,600) $  (3,339) $     141    $ 250,136

Comprehensive income:
  Net Income                                    -          -          -     40,459          -          -          -       40,459
  Unrealized net loss on marketable
    equity securities available
    for sale                                    -          -          -          -          -          -       (132)        (132)
  Adoption of SFAS No. 133                      -          -          -          -          -          -    (28,587)     (28,587)
  Change in derivative instrument
    fair value                                  -          -          -          -          -          -     35,494       35,494
                                                                                                                      ----------
Total comprehensive income                                                                                                47,234
                                                                                                                      ----------
Cash dividends, $ 0.10 per share                -          -          -     (2,795)         -          -          -       (2,795)
Treasury stock purchases                        -          -          -          -   (614,300)   (12,871)         -      (12,871)
Issuance for Employee Stock
  Purchase Plan                            29,772          -        575          -          -          -          -          575
Sale of common stock, including
  income tax  benefit of stock
  option exercises                        187,810          2      3,598          -          -          -          -        3,600
Directors' stock compensation               8,400          -        238          -          -          -          -          238
                                       ---------- ---------- ---------- ---------- ---------- ---------- ----------   ----------

Balances, December 31, 2001            28,779,808  $     288  $ 137,384  $ 157,739 (1,009,900) $ (16,210) $   6,916    $ 286,117
                                       ========== ========== ========== ========== ========== ========== ==========   ==========

Comprehensive income:
  Net Income                                    -          -          -     12,907          -          -          -       12,907
  Unrealized net loss on marketable
    equity securities available
    for sale                                    -          -          -          -          -          -       (151)        (151)
  Change in derivative instrument
    fair value                                  -          -          -          -          -          -     (3,041)      (3,041)
                                                                                                                      ----------
Total comprehensive income                                                                                                 9,715
                                                                                                                      ----------
Cash dividends, $0.05 per share                 -          -          -     (1,391)         -          -          -       (1,391)
ESPP disqualified disposition                   -          -         20          -          -          -          -           20
Sale of common stock, including
  income tax  benefit of stock
  option exercises                         79,233          1      1,018          -          -          -          -        1,019
Directors' stock compensation               8,000          -        145          -          -          -          -          145
                                       ---------- ---------- ---------- ---------- ---------- ---------- ----------   ----------

Balances, June 30, 2002                28,867,041  $     289  $ 138,567  $ 169,255 (1,009,900) $ (16,210) $   3,724    $ 295,625
                                       ========== ========== ========== ========== ========== ========== ==========   ==========


                  The accompanying notes are an integral part of thest
                       consolidated financial statements.

                                       7




            ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                           ---------------------------

                                  June 30, 2002

Note 1 - Basis of Presentation

         The accompanying unaudited condensed consolidated financial statements
of St. Mary Land & Exploration Company and Subsidiaries ("St. Mary" or the
"Company") have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information. They do not
include all information and notes required by generally accepted accounting
principles for complete financial statements. However, except as disclosed
herein, there has been no material change in the information disclosed in the
notes to consolidated financial statements included in St. Mary's Annual Report
on Form 10-K for the year ended December 31, 2001. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the periods
presented are not necessarily indicative of the results that may be expected for
the full year.

         The accounting policies followed by the Company are set forth in Note 1
to the Company's consolidated financial statements in the Form 10-K for the year
ended December 31, 2001. It is suggested that these unaudited condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes included in the Form 10-K.

         Certain amounts in the 2001 unaudited condensed consolidated financial
statements have been reclassified to correspond to the 2002 presentation.

Note 2 - Income Taxes

         Federal income tax expense for the three and six months ended June 30,
2002 and 2001 differ from the amounts that would be provided by applying the
statutory U.S. Federal income tax rate to income before income taxes primarily
due to Section 29 credits, percentage depletion, interest expense on convertible
debt with contingent interest provisions, and the effect of state income taxes.
For the six months ended June 30, 2002 the Company's current portion of income
tax expense was $1.5 million.

Note 3 - Long-term Debt

         In March 2002 the Company issued in a private placement a total of
$100,000,000 of 5.75% senior convertible notes due 2022 (the "Notes") with a
1/2% contingent interest provision (see Note 4). Interest payments will be made
on March 15 and September 15 of every year beginning September 15, 2002. The
Company received net proceeds of $96,754,000 after deducting the initial
purchasers' discount and offering expenses paid by the Company. The Notes are
general unsecured obligations and rank on a parity in right of payment with all
existing and future senior indebtedness and other general unsecured obligations.
They are senior in right of payment with all future subordinated indebtedness.
The Notes are convertible into the Company's common stock at a conversion price
of $26.00 per share, subject to adjustment. The Company can redeem the Notes
with cash in whole or in part at a repurchase price of 100% of the principal
amount plus accrued and unpaid interest (including contingent interest)
beginning on March 20, 2007. The note holders have the option of requiring the
Company to repurchase the Notes for cash at 100% of the principal amount plus
accrued and unpaid interest (including contingent interest) upon (1) a change in
control of St. Mary or (2) on March 20, 2007, March 15, 2012 and March 15, 2017.
If the note holders request repurchase on March 20, 2007, the Company may pay
the repurchase price with cash, shares of its common stock valued at a discount
to the market price at the time of repurchase or any combination of cash and its
discounted common stock. St. Mary is not restricted from paying dividends,

                                       8

incurring debt, or issuing or repurchasing its securities under the indenture
for the Notes. There are no financial covenants in the indenture. The Company
used a portion of the net proceeds from the Notes to repay its credit facility
balance and will use the remaining net proceeds to fund a portion of its 2002
capital budget. On March 25, 2002 the Company entered into a five-year
fixed-rate to floating-rate interest rate swap on $50,000,000 of Notes. The
floating rate for each applicable six-month period will be determined as LIBOR
plus 0.36%. For the initial six-month calculation period this rate was 2.69%.
See "Note 4 - Financial Instruments" for a discussion of the derivative
accounting for the interest rate swap.

         The stated total borrowing base under the Company's current long-term
revolving credit agreement was decreased to $160,000,000 in April 2002. Pursuant
to a March 4, 2002 amendment to the credit agreement, during the revolving
period of the loan, loan balances will accrue interest at the Company's option
of either (1) the higher of the federal funds rate plus 1/2% or the prime rate,
plus an additional 1/4% when the Company's debt to capitalization ratio is
greater than 50%, or (2) the LIBOR rate plus (a) 1% when the Company's debt to
total capitalization ratio is less than 30%, (b) 1 1/4% when the Company's debt
to capitalization ratio is greater than or equal to 30% but less than 40%, (c) 1
3/8% when the Company's debt to capitalization ratio is greater than or equal to
40% but less than 50%, or (d) 1 5/8% when the Company's debt to capitalization
ratio is greater than 50%. At June 30, 2002 the Company's debt to capitalization
ratio as defined under the credit agreement was 25.2%.

         The Company had no outstanding borrowings under its revolving credit
agreement and $100,000,000 in outstanding borrowings under the Notes as of June
30, 2002. The weighted average interest rate paid for the second quarter of 2002
was 4.6 % including commitment fees paid on the unused portion of the borrowing
base.

Note 4 - Financial Instruments

         The Company seeks to protect its rate of return on acquisitions of
producing properties by hedging cash flow when the economic criteria from its
evaluation and pricing model indicate it would be appropriate. Management's
strategy is to hedge cash flows from investments requiring a gas price in excess
of $3.25 per Mcf and an oil price in excess of $22.50 per Bbl in order to meet
minimum rate-of-return criteria. The Company anticipates this strategy will
result in the hedging of future cash flow from acquisitions. St. Mary generally
limits its aggregate hedge position to no more than 35% of its total production
but will hedge up to 50% of total production in certain circumstances. The
Company seeks to minimize basis risk and index the majority of oil hedges to
NYMEX prices and the majority of gas hedges to various regional index prices
associated with pipelines in proximity to its areas of gas production.

         On February 4, 2002 the Company entered into an agreement to monetize
its unrealized hedge gain receivable due from Enron for $1.1 million. This
amount was included in other comprehensive income at December 31, 2001, is
recorded in oil hedge gain and is reported in oil and gas production revenues in
the consolidated statements of operations. Amortization of $609,000 of other
comprehensive income related to commodity positions with Enron is also recorded
in oil hedge gain. Additional amortization will be recorded in oil hedge gain in
future months. Unrealized derivative loss on the consolidated statements of
operations includes $54,000 of net loss from oil and gas hedge ineffectiveness.

         The Notes contain a provision for payment of contingent interest if
certain conditions are met. Under Statement of Financial Accounting Standards
("SFAS") No. 133 this provision is considered an embedded equity-related
derivative that is not clearly and closely related to the fair value of an
equity interest and therefore must be separated from the Notes and accounted for
as a derivative instrument. The value of the derivative at issuance in March
2002 was $474,000. This amount was recorded as an adjustment to the Notes on the
consolidated balance sheets. Of this amount, $28,000 has been amortized through
interest expense. Unrealized derivative loss on the consolidated statements of
operations includes $245,000 of net loss from mark-to-market adjustments for
this derivative.

                                       9

         The fixed-rate to floating-rate interest rate swap on $50,000,000 of
Notes did not qualify for fair value hedge treatment under SFAS No. 133.
Unrealized derivative gain on the consolidated statements of operations includes
$2,244,000 of net gain from mark-to-market adjustments for this derivative
instrument.

         The Company anticipates that all oil and gas hedge transactions will
occur as expected. Based on current prices we anticipate that $3,228,000 of the
after tax gain amount included in accumulated and other comprehensive income
will be included in earnings during the next 12 months.

Note 5 - Short-term Investments Available-for-Sale

         The following short-term interest-bearing investment-grade securities
available for sale will mature within one year:

                                       Amortized     Gross Unrealized      Aggregate
     Major security type               Cost Basis      Holding Gains       Fair Value
     --------------------------------------------------------------------------------

     Mortgaged-backed securities     $   995,000        $        -        $   995,000
                                       8,375,000
     Corporate debt securities                               6,000          8,381,000

                                     ------------------------------------------------
     Total securities                $ 9,370,000        $    6,000        $ 9,376,000
                                     ------------------------------------------------

Note 6 - Newly Issued Accounting Standards

         In June 2002 the Financial Accounting Standards Board ("FASB") issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." This statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in Restructuring)."
This statement requires recognition of a liability for a cost associated with an
exit or disposal activity when the liability is incurred, as opposed to when the
entity commits to an exit plan under EITF No. 94-3. SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company does not have any pending or planned exit or disposal
activities and does not expect a material effect on its financial position or
results of operations from the adoption of this statement.

         In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." FASB No. 4 required all gains or losses from extinguishment of
debt to be classified as extraordinary items net of income taxes. SFAS No. 145
requires that gains and losses from extinguishment of debt be evaluated under
the provisions of Accounting Principles Board Opinion No. 30, and be classified
as ordinary items unless they are unusual or infrequent or meet the specific
criteria for treatment as an extraordinary item. This statement is effective
January 1, 2003. The Company does not anticipate that the adoption of this
statement will have a material effect on its financial position or results of
operations.

         On January 1, 2002 the Company adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." There was no impact on the
Company's financial position or results of operations as a result of the
adoption of this statement.

         In June 2001 FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement requires companies to recognize the fair value of
an asset retirement liability in the financial statements by capitalizing that
cost as part of the cost of the related long-lived asset. The asset retirement
liability should then be allocated to expense by using a systematic and rational
method. The statement is effective January 1, 2003. The Company has not yet
determined the impact of adoption of this statement.

                                       10

         On January 1, 2002 the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." There was no impact on the Company's financial
position or results of operations as a result of the adoption of this statement.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Cautionary Note About Forward - Looking Statements

         This Quarterly Report on Form 10-Q includes certain statements that may
be deemed to be "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical facts, included in
this Form 10-Q that address activities, events or developments that St. Mary
management expects, believes or anticipates will or may occur in the future are
forward-looking statements. The words "will," "believe," "anticipate," "intend,"
"estimate," "expect," "project," and similar expressions are intended to
identify forward - looking statements, although not all forward - looking
statements contain such identifying words. Examples of forward-looking
statements may include discussion of such matters as:

    o    the amount and nature of future capital, development and exploration
         expenditures,
    o    the drilling of wells,
    o    reserve estimates and the estimates of both future net revenues and the
         present value of future net revenues that are included in their
         calculation,
    o    future oil and gas production estimates,
    o    repayment of debt,
    o    business strategies,
    o    expansion and growth of operations,
    o    recent legal developments, and
    o    other similar matters.

         These statements are based on certain assumptions and analyses made by
us in light of our experience and our perception of historical trends, current
conditions, expected future developments and other factors we believe are
appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including such factors as the volatility
and level of oil and natural gas prices, production rates and reserve
replacement, reserve estimates, drilling and operating service availability and
risks, uncertainties in cash flow, the financial strength of hedge contract
counterparties, the availability of attractive exploration, development and
property acquisition opportunities, financing requirements, expected acquisition
benefits, competition, litigation, environmental matters, the potential impact
of government regulations, and other matters discussed under the "Risk Factors"
section of our 2001 Annual Report on Form 10-K. Readers are cautioned that
forward-looking statements are not guarantees of future performance and that
actual results or developments may differ materially from those expressed or
implied in the forward-looking statements. Although we may from time to time
voluntarily update our prior forward - looking statements, we disclaim any
commitment to do so except as required by securities laws.

Overview

         When comparing the quarter ended June 30, 2002 to activity in 2001 the
focus will again be on oil and gas prices. Prices decreased compared to last
year but were higher this quarter than they were in the first quarter of 2002.
Our experience in the acquisition market during the quarter suggests to us that
this market may be moving toward our opinion of rationality. We remain hopeful
of meeting our acquisition budget this year. We continue to have a strong
balance sheet as a result of the $100.0 million senior convertible note private
placement we completed in the first quarter.

                                       11

Critical Accounting Policies and Estimates

     We refer you to the corresponding section of our Annual Report on Form 10-K
for the year ended December 31, 2001.

Results of Operations

     The following table sets forth selected operating data for the periods
indicated:

                                                       Three Months               Six Months
                                                 ----------------------     ----------------------
                                                      Ended June 30,            Ended June 30,
                                                 ----------------------     ----------------------
                                                  2002          2001           2002        2001
                                                 ----------  ----------     ----------  ----------
                                                      (In thousands, except per volume data)
 Oil and gas production revenues:
    Gas production                                $  29,113   $  40,970      $  53,734   $  93,350
    Oil production                                   17,084      14,451         33,556      29,986
                                                 ----------  ----------     ----------  ----------
        Total                                     $  46,197   $  55,421      $  87,290   $ 123,336
                                                 ==========  ==========     ==========  ==========
Net production:
   Gas (MMcf)                                         9,618      10,041         19,173      19,650
   Oil (MBbls)                                          673         595          1,378       1,203
   MCFE                                              13,655      13,611         27,440      26,868

Average sales price (1):
   Gas (per Mcf)                                  $    3.03   $    4.08      $    2.80   $    4.75
   Oil (per Bbl)                                  $   25.39   $   24.30      $   24.35   $   24.92

Oil and gas production costs:
   Lease operating expense                        $   8,177   $   9,826      $  18,626   $  17,364
   Transportation costs                                 761         541          1,577       6,991                                                                   2,593       3,069                                1,138
   Production taxes                                   2,593       3,069
                                                 ----------  ----------     ----------  ----------
      Total                                       $  11,531   $  13,436      $  25,561   $  25,493
                                                 ==========  ==========     ==========  ==========

Additional per MCFE data:
   Sales price                                    $    3.38   $    4.07      $    3.18   $    4.59
   Lease operating expense                             0.60        0.72           0.68        0.65
   Transportation costs                                0.06        0.04           0.06        0.04
   Production taxes                                    0.18        0.23           0.19        0.26
                                                 ----------  ----------     ----------  ----------
      Operating margin                            $    2.54   $    3.08      $    2.25   $    3.64
                                                 ==========  ==========     ==========  ==========

   Depletion, depreciation and amortization       $    0.97   $    0.95      $    0.96   $    0.90
   Impairment of proved properties                $       -   $    0.01      $       -   $    0.01                                                                                                                                             -
   General and administrative                     $    0.22   $    0.26      $    0.22   $    0.28

      ------------
      (1)Includes the effects of St. Mary's hedging activities.



Three-Month Comparison

         Oil and Gas Production Revenues. Our quarterly oil and gas production
revenues decreased $9.2 million, or 17% to $46.2 million for the three months
ended June 30, 2002, compared with $55.4 million for the same period in 2001.

                                       12

The following table presents the components of increases or (decreases) between
2002 and 2001:

                                   Production      Price         Price
                                   % Change      $ Change      % Change
                                   ------------------------------------
    o    Natural Gas                   (4%)      ($1.05)/Mcf     (26%)
    o    Oil                           13%        $1.09/Bbl        4%

         Average net daily production increased to 150.1 MMCFE for 2002 compared
with 149.6 MMCFE in 2001. Our acquisition of properties from Choctaw in November
2001 added $3.4 million of revenue and average net daily production of 12.0
MMCFE to the second quarter of 2002. Other acquisitions and wells completed
during 2002 added average net daily production of 16.9 MMCFE. These increases in
average net daily production offset decreases from older properties.

         We hedged approximately 39% or 260 MBbls of our oil production for the
three months ended June 30, 2002, and realized a $1.2 million increase in oil
revenue attributable to hedging compared with a $775,000 decrease in 2001.
Without these contracts our average price would have been $23.64 per Bbl in the
second quarter of 2002 compared to $25.60 per Bbl in 2001. We also hedged 44% of
our 2002 second quarter gas production or 4.6 million MMBtu and realized a $1.5
million decrease in gas revenue compared with a $5.1 million decrease in gas
revenue in 2001. Without these contracts our average price would have been $3.18
per Mcf for the three months ended June 30, 2002, compared to $4.51 per Mcf for
the same period in 2001.

         Marketed Gas Revenue and Gas System Operating Expense. As a result of
our acquisition of gas gathering system lines in Cole County, Oklahoma in
February 2002 we started taking title to and marketing natural gas for third
parties. For the three months ended June 30, 2002 we received $2.9 million from
the sale of this natural gas. Operating costs associated with these revenues
totaled $2.7 million and resulted in gross margin to us of $277,000. Due to
fluctuations in natural gas prices, cost inflation and the variability of
production from oil and gas wells, we may not always have a positive gross
margin from marketing.

         Oil and Gas Production Costs. Oil and gas production costs consist of
lease operating expense, production taxes and transportation expenses. Total
production costs decreased $1.9 million or 14% to $11.5 million for the three
months ended June 30, 2002, from $13.4 million in 2001. In the second quarter of
2002 our Gulf Coast region experienced a $2.7 million decrease in LOE that was
comprised of a decrease in expense for non-recurring LOE and an adjustment due
to the issuance of a revised Authorization For Expenditure by the operator of
the Judge Digby field. This AFE indicated that non-recurring LOE we previously
expensed under the original AFE should be recorded as property, plant and
equipment. Our acquisition of properties from Choctaw in November 2001 added
$1.7 million of production costs in 2002 that were not reflected in 2001. Total
oil and gas production costs per MCFE decreased 15% to $0.84 for the three
months ended June 30, 2002 compared with $0.99 for 2001. A $0.07 per MCFE
decrease was due to the decrease in Gulf Coast non-recurring LOE. The Judge
Digby adjustment caused another $0.05 decrease. A $0.01 per MCFE increase was
due to the acquisitions previously discussed. A net $0.03 per MCFE decrease was
due to decreased production taxes partially offset by increased transportation
expenses.

         Depreciation, Depletion, Amortization and Impairment. Depreciation,
depletion and amortization expense ("DD&A") increased $395,000 or 3% to
$13.3 million for the three months ended June 30, 2002, from $12.9 million in
2001. DD&A per MCFE increased by 2% to $0.97 for the second quarter of 2002
compared with $0.95 in 2001. This increase reflects acquisitions and drilling
results in 2001 and 2002 that have added costs at a higher per-unit rate.

                                       13

         Exploration. Exploration expense increased $2.1 million or 100% to $4.3
million for the three months ended June 30, 2002, compared with $2.1 million in
2001. Percentages of total exploration expense are as follows:

                                                    2002       2001
                                                    ----       ----
     o   Geological and geophysical expenses         12%        26%
     o   Exploratory dry holes                       46%       -14%
     o   Overhead and other expenses                 42%        88%

         Oil and gas exploration is imprecise, and success can be affected by
numerous factors. Not every likely geological structure contains oil or natural
gas. Even when oil or natural gas is discovered there are no guarantees that
sufficient quantities can be produced to justify the completion of an
exploratory well. We have budgeted for additional geological and geophysical
expenses and expect to incur additional overhead and other expenses in the
pursuit of exploration, but we generally explore with an expectation of success.

         General and Administrative. General and administrative expenses
decreased $521,000 or 15% to $3.0 million for the three months ended June 30,
2002, compared with $3.5 million in 2001. We experienced a $491,000 increase in
COPAS overhead reimbursement from operations in this quarter.

         Interest Expense. Interest expense increased to $1.0 million for the
quarter ended June 30, 2002. This amount reflects accrued interest on our senior
convertible notes and will increase significantly on a comparative basis with
last year as we accrue and pay the interest due on the notes. The amount we
accrue and pay will be affected by the fixed-rate to floating-rate interest rate
swap we entered into in March 2002.

         Income Taxes. Income tax expense totaled $5.3 million for the three
months ended June 30, 2002, and $8.9 million in 2001, resulting in effective tax
rates of 33.2% and 38.4%, respectively. This decrease is a result of the tax
effect of interest expense on convertible debt with contingent interest
provisions combined with a lesser effect of state income taxes and an increase
in the effect on Section 29 credits on a lesser net income in 2002.

         Net Income. Net income for the three months ended June 30, 2002
decreased $3.6 million to $10.6 million compared with $14.2 million in 2001. A
26% decrease in gas prices and a 4% increase in oil prices combined with a 13%
increase in oil production and a 4% decrease in gas production resulted in a
$9.2 million decrease in oil and gas production revenue. This decrease was
offset by decreases of $1.9 million in oil and gas production costs and $3.6
million in income tax expense.

Six-Month Comparison

         Oil and Gas Production Revenues. We experienced a decrease in oil and
gas production revenues of $36.0 million, or 29% to $87.3 million for the six
months ended June 30, 2002, compared with $123.3 million for the same period in
2001. The following table presents the components of increases or (decreases)
between 2002 and 2001:

                                   Production      Price         Price
                                     %Change     $ Change      % Change
                                   ------------------------------------
     o   Natural Gas                   (2%)     ($1.95)/Mcf      (41%)
     o   Oil                           15%      ($0.57)/Bbl       (2%)

         Average net daily production increased to 151.6 MMCFE for the first six
months of 2002 compared with 148.4 MMCFE in 2001. Our acquisition of properties
from Choctaw in November 2001 added $6.7 million of revenue and average net
daily production of 12.1 MMCFE to the first six months of 2002. Other

                                       14

acquisitions and wells completed during 2002 added average net daily production
of 9.6 MMCFE. These increases offset declines in average net daily production
from older properties.

         We hedged approximately 39% or 542 MBbls of our oil production for the
six months ended June 30, 2002, and realized a $2.6 million increase in oil
revenue attributable to hedging compared with a $1.9 million decrease in 2001.
Without these contracts we would have received an average price of $22.46 per
Bbl for the six months ended June 30, 2002 compared to $26.48 per Bbl in 2001.
We also hedged 43% of our gas production or 9.0 million MMBtu and realized a
$904,000 increase in gas revenue for the six months ended June 30, 2002 compared
with a $20.4 million decrease in gas revenue in 2001. Without these contracts we
would have received an average price of $2.76 per Mcf for the six months ended
June 30, 2002, compared to $5.79 per Mcf for the same period in 2001.

         Marketed Gas Revenue and Gas System Operating Expense. As a result of
our acquisition of gas gathering system lines in Cole County, Oklahoma in
February 2002 we started taking title to and marketing natural gas for third
parties. For the six months ended June 30, 2002 we received $3.4 million from
the sale of this natural gas. Costs associated with these revenues totaled $3.1
million and resulted in gross margin to us of $358,000.

         Oil and Gas Production Costs. Total production costs increased slightly
to $25.6 million for the six months ended June 30, 2002, from $25.5 million in
2001. Our acquisition of properties from Choctaw added 2.6 million of LOE in
2002 that was not reflected in 2001. In the second quarter of 2002 our Gulf
Coast region experienced a $2.7 million decrease in LOE that was comprised of a
decrease in expense for non-recurring LOE and an adjustment due to the issuance
of a revised AFE by the Operator at Judge Digby. This AFE indicated that
non-recurring LOE we previously expensed under the original AFE should be
recorded as property, plant and equipment. This decrease offset $1.4 million of
increases we expected from general inflation. The decrease in oil and gas
production revenues caused a corresponding $1.6 million decrease in production
taxes. Total oil and gas production costs per MCFE decreased 2% to $0.93 for the
six months ended June 30, 2002 compared with $0.95 for 2001. A $0.07 per MCFE
decrease in production taxes offset a $0.05 per MCFE increase in LOE and
transportation costs. We continue to concentrate on these costs in an effort to
decrease the per MCFE amounts using a cost-benefit approach that will still
justify additional expenditures when appropriate.

         Depreciation, Depletion, Amortization and Impairment. DD&A
increased $2.2 million or 9% to $26.3 million for the six months ended June 30,
2002, from $24.2 million in 2001. DD&A per MCFE increased by 7% to $0.96 for
the six months ended June 30, 2002 compared with $.90 in 2001. This increase
reflects acquisitions and drilling results in 2001 and 2002 that added costs at
a higher per unit rate.

         Exploration. Exploration expense increased $701,000 or 7% to $11.2
million for the six months ended June 30, 2002, compared with $10.5 million in
2001. Percentages of total exploration expense are as follows:

                                                    2002       2001
                                                    ----       ----
     o   Geological and geophysical expenses         11%        22%
     o   Exploratory dry holes                       55%        42%
     o   Overhead and other expenses                 34%        36%


         General and Administrative. General and administrative expenses
decreased $1.4 million or 19% to $6.2 million for the six months ended June 30,
2002, compared with $7.6 million in 2001. We experienced a $955,000 increase in
COPAS overhead reimbursement from operations in this period and a $275,000
decrease in compensation expense caused primarily by decreased compensation
related to our incentive plans.

                                       15

         Interest Expense. Interest expense increased to $1.5 million for the
six months ended June 30, 2002. This amount reflects accrued interest on our
senior convertible notes and will increase significantly on a comparative basis
with last year as we accrue and pay the interest due on the notes in 2002. The
amount we accrue and pay will be affected by the fixed-rate to floating-rate
interest rate swap we entered into in March 2002.

         Income Taxes. Income tax expense totaled $6.4 million for the six
months ended June 30, 2002, and $20.4 million in 2001, resulting in effective
tax rates of 33.1% and 37.0%, respectively. This decrease is a result of the tax
effect of interest expense on convertible debt with contingent interest
provisions combined with a lesser effect of state income taxes and an increase
in the effect on Section 29 credits on a lesser net income in 2002.

         Net Income. Net income for the six months ended June 30, 2002 decreased
$21.7 million or 63% to $12.9 million compared with $34.6 million in 2001. A 41%
decrease in gas prices and a 2% decrease in oil prices combined with a 14%
increase in oil production and a 2% decrease in gas production resulted in a
$36.0 million decrease in oil and gas production revenue. This decrease was
offset by a corresponding $14.0 million decrease in income tax expense.

Liquidity and Capital Resources

         Our primary sources of liquidity are the cash provided by operating
activities, debt financing, sales of non-strategic properties and access to the
capital markets. All of these sources can be impacted by significant
fluctuations in oil and gas prices. An unexpected decrease in prices would
reduce expected cash flow from operating activities, might reduce the borrowing
base on our credit facility, could reduce the value of our non-strategic
properties and historically has limited our industry's access to the capital
markets.

         We use cash for the acquisition, exploration and development of oil and
gas properties and for the payment of debt obligations, trade payables and
stockholder dividends. Exploration and development programs are generally
financed from internally generated cash flow, debt financing and cash and cash
equivalents on hand. In the event of an unexpected decrease in oil and gas
prices, cash uses such as the acquisition of oil and gas properties and the
payment of stockholder dividends are discretionary and can be reduced or
eliminated. At any given point in time, we may be obligated to pay for
commitments to explore for or develop oil and gas properties or incur trade
payables. However, future obligations can be reduced or eliminated when
necessary. We are currently only required to make interest payments on our debt
obligations. An unexpected increase in oil and gas prices provides flexibility
to modify our uses of cash flow.

         We continually review our capital expenditure budget to reflect changes
in current and projected cash flow, acquisition opportunities, debt requirements
and other factors.

         Cash Flow. Net cash provided by operating activities increased $3.2
million or 4% to $76.1 million for the six months ended June 30, 2002 compared
with $72.9 million in 2001. The increase reflects the effect of a change between
years of $14.9 million from the collection of receivables and $15.1 million in
decreases of cash spent for other current assets and liabilities offset by the
effect of the decrease in oil and gas production revenues.

         Net cash used in investing activities increased $10.5 million or 19% to
$64.5 million for the six months ended June 30, 2002, compared with $54.0
million in 2001. This increase is due to a $9.4 million investment in short-term
securities in 2002 and a $3.9 million decrease in receipts from sales of KMOC
stock offset by decreased capital expenditures. Total capital expenditures,
including acquisitions of oil and gas properties, in the first six months of
2002 decreased $5.5 million or 9% to $56.2 million compared with $61.7 million
in the first half of 2001.

                                       16

         Net cash provided by financing activities increased $51.4 million to
$32.1 million for the six months ended June 30, 2002, compared with net cash
used in financing activities of $19.2 million in 2001. This increase reflects
our March 2002 private placement of $100.0 million of 5.75% senior convertible
notes due 2022. A portion of the net proceeds of $96.8 million was used to repay
the balance due on the credit facility. We have not repurchased any common stock
in the first six months of 2002.

         St. Mary had $47.9 million in cash and cash equivalents and had working
capital of $60.0 million as of June 30, 2002, compared with $4.1 million in cash
and cash equivalents and working capital of $34.0 million at December 31, 2001.
The increase in cash and cash equivalents reflects our issuance of $100.0
million of senior convertible notes during the first quarter of 2002.

         Senior Convertible Notes. In March 2002 we issued in a private
placement a total of $100.0 million of 5.75% senior convertible notes due 2022
with a 1/2% contingent interest provision. Interest payments will commence
September 15, 2002 and will be made on March 15 and September 15 of every year.
We received net proceeds of $96.8 million after deducting the initial
purchasers' discount and estimated offering expenses payable by us. The notes
are general unsecured obligations and rank on a parity in right of payment with
all our existing and future senior indebtedness and other general unsecured
obligations, and are senior in right of payment with all our future subordinated
indebtedness. The notes are convertible into our common stock at a conversion
price of $26.00 per share, subject to adjustment. We can redeem the notes with
cash in whole or in part at a repurchase price of 100% of the principal amount
plus accrued and unpaid interest including contingent interest beginning on
March 20, 2007. The note holders have the option of requiring us to repurchase
the notes for cash at 100% of the principal amount plus accrued and unpaid
interest including contingent interest upon (1) a change in control of St. Mary
or (2) on March 20, 2007, March 15, 2012 and March 15, 2017. If the note holders
request repurchase on March 20, 2007, we may pay the repurchase price with cash,
shares of our common stock valued at a discount to the market price at the time
of repurchase or any combination of cash and our discounted common stock. We are
not restricted from paying dividends, incurring debt, or issuing or repurchasing
our securities under the indenture for the notes. There are no financial
covenants in the indenture. We used a portion of the net proceeds from the notes
to repay our credit facility balance and will use the remaining net proceeds to
fund a portion of our 2002 capital budget. On March 25, 2002 we entered into a
five-year fixed-rate to floating-rate interest rate swap on $50.0 million of the
notes. The floating rate for each applicable six-month period will be determined
as LIBOR plus 0.36%. For the initial calculation period this rate was 2.69%.

         Credit Facility. The maximum loan amount under our long-term revolving
credit facility is $200.0 million. The amount actually available depends upon a
borrowing base that the lenders periodically redetermine based on the value of
our oil and gas properties and other assets. Since we pay commitment fees based
on the unused portion of the borrowing base, we have generally limited the
borrowing base which we have accepted to correspond to our actual funding
requirements. On April 10, 2002 the stated total possible borrowing base was
reduced by $10.0 million to $160.0 million and the accepted borrowing base was
reduced by $60.0 million to $40.0 million. The facility has a maturity date of
December 31, 2006, and includes a revolving period that matures on June 30, 2003
at which time all outstanding borrowings convert to a term loan payable in
quarterly installments through the facility maturity date. We must comply with
certain covenants including maintenance of stockholders' equity at a specified
level, restrictions on additional indebtedness, sales of oil and gas properties,
activities outside our ordinary course of business and certain merger
transactions. Borrowings under the facility are secured by a pledge of
collateral in favor of the banks and guarantees by subsidiaries. Such collateral
consists primarily of security interests in the oil and gas properties of St.
Mary and its subsidiaries.

         As of June 30, 2002 we had no balance outstanding under this credit
agreement, compared to $64 million at December 31, 2001. Pursuant to a March 4,
2002 amendment to the credit agreement, during the revolving period of the loan,
loan balances will accrue interest at our option of either (1) the higher of the
federal funds rate plus 1/2% or the prime rate, plus an additional 1/4% when our
debt to capitalization ratio is greater than 50%, or (2) the LIBOR rate plus (a)
1% when our debt to total capitalization ratio is less than 30%, (b) 1 1/4 %
when our debt to capitalization ratio is greater than or equal to 30% but less
than 40%, (c) 1 3/8% when our debt to capitalization ratio is greater than or

                                       17

equal to 40% but less than 50%, or (d) 1 5/8% when our debt to capitalization
ratio is greater than 50%. At June 30, 2002 our debt to capitalization ratio as
defined under the credit agreement was 25.2%.

     Schedule of Contractual Obligations.  The following table summarizes our
future estimated principal payments for the periods specified:

     Contractual                                                   Total Cash
     Obligations           Long-Term Debt    Operating Leases      Obligation
     -----------           --------------    ----------------    --------------
     Less than 1 year              -           $1.1 million      $  1.1 million
     1-3 years                     -           $1.2 million      $  1.2 million
     4-5 years                     -           $1.4 million      $  1.4 million
     After 5 years         $100.0 million      $3.2 million      $103.2 million
                           --------------      ------------      --------------
     Total                 $100.0 million      $6.9 million      $106.9 million
                           ==============      ============      ==============

         In the period from 1-3 years, we have two leases of office space for
our regional offices that will expire. A third lease for office space will
expire in year 4. Estimated costs to replace these leases are not included in
the table above. For purposes of the table we assume that the holders of our
senior convertible notes will not exercise the conversion feature.

         Common Stock. In August 1998 St. Mary's Board of Directors authorized a
stock repurchase program whereby we may purchase from time-to-time, in open
market transactions or negotiated sales, up to two million of our common shares.
Through June 30, 2002 we have repurchased a cumulative total of 1,009,900 shares
of St. Mary's common stock under the program for $16.2 million at a weighted
average price of $15.86 per share, net of put option sale premiums received. We
anticipate that additional purchases of shares may occur as market conditions
warrant. Any future purchases will be funded with internal cash flow and
borrowings under our credit facility.

         Capital and Exploration Expenditures Incurred. Expenditures for
exploration and development of oil and gas properties and acquisitions are the
primary use of our capital resources. The following table sets forth certain
information regarding the costs incurred by us in our oil and gas activities
during the periods indicated.

                                           Capital and Exploration Expenditures
                                           ------------------------------------
                                                 Six Months Ended June 30,
                                                 -------------------------
                                                     2002        2001
                                                     ----        ----
                                                      (In thousands)

                  Development                     $ 30,444    $ 43,451
                  Domestic Exploration               9,034      14,639
                  Acquisitions:
                    Proved                           7,040         301
                    Unproved                         8,597      10,110
                                                  --------    --------

                  Total                           $ 55,115    $ 68,501
                                                  ========    ========

         We continuously evaluate opportunities in the marketplace for oil and
gas properties and, accordingly, may be a buyer or a seller of properties at
various times. We will continue to emphasize smaller niche acquisitions
utilizing St. Mary's technical expertise, financial flexibility and structuring
experience. In addition, we are also actively seeking larger acquisitions of
assets or companies that would afford opportunities to expand our existing core
areas, to acquire additional geoscientists or to gain a significant acreage and
production foothold in a new basin.

                                       18

         St. Mary's total costs incurred in the first six months of 2002
decreased $13.4 million or 20% compared to the first six months of 2001. We
spent $48.1 million in the first six months of 2002 for unproved property
acquisitions and domestic exploration and development compared to $68.2 million
for the comparable period in 2001. This decrease was a result of planned
decreases in drilling activity and a $1.5 million decrease in unproved leasehold
acquisition activity. We successfully obtained permits to begin producing our
two coalbed methane pilot programs located on fee acreage in the Hanging Woman
Basin. A total of 17 wells are being equipped for production and dewatering
began in May. In April we were successful in obtaining an additional 10,000
acres of leases bringing our total to 127,000 acres in the Hanging Woman Basin.
We are subject to an environmental public interest group lawsuit on 47,500 of
these acres. See "Legal Proceedings" for a discussion of this lawsuit.

         On April 26, 2002 the Interior Board of Land Appeals of the U.S.
Department of the Interior issued an order that reversed a decision by the U.S.
Bureau of Land Management dismissing a protest by the Wyoming Outdoor Council
and Powder River Basin Resource Council of the offer for sale in February 2000
of three oil and gas leases in the Powder River Basin in Wyoming. The Board held
that the BLM determination to allow the offer for sale of the three particular
leases did not comply with environmental laws since the environmental analysis
used by the BLM in making that determination did not contain a discussion of the
unique potential impacts associated with coalbed methane extraction and
development or consider reasonable alternatives relevant to a pre-leasing
environmental analysis. The order addressed only three particular leases
covering approximately 2,600 acres that are not included in our Hanging Woman
Basin project. However, we cannot assure you that other leases, including issued
leases that we hold in the Hanging Woman Basin, will not be challenged on a
similar basis.

         In November 2001 we purchased oil and gas properties from Choctaw II
Oil & Gas, Ltd. for $40.5 million in cash. We used a portion of our credit
facility for this acquisition. The properties are primarily located in the
Williston Basin of Montana and North Dakota and in the Green River Basin of
Wyoming.

         Capital Expenditure Budget. We anticipate spending approximately $164.0
million for capital and exploration expenditures in 2002 with $60.0 million for
acquisitions. Budgeted ongoing exploration and development expenditures in 2002
for each of our core areas is as follows (in millions):

     o   Mid-Continent region                                  $  40.0
     o   Gulf Coast and Gulf of Mexico region                     15.0
     o   ArkLaTex region                                          14.0
     o   Williston Basin                                          20.0
     o   Permian Basin                                             8.0
     o   Other                                                     7.0
                                                               -------
         Total                                                 $ 104.0
                                                               =======

         We believe the amount not funded from our internally generated cash
flow in 2002 can be funded from our existing cash and our credit facility. The
amount and allocation of future capital and exploration expenditures will depend
upon a number of factors including the number and size of available acquisition
opportunities and our ability to assimilate these acquisitions. Also, the impact
of oil and gas prices on investment opportunities, the availability of capital
and borrowing capability and the success of our development and exploratory
activity could lead to funding requirements for further development. If
additional development or attractive acquisition opportunities arise, we may
consider other forms of financing, including the public offering or private
placement of equity or debt securities.

         Derivatives. We seek to protect our rate of return on acquisitions of
producing properties by hedging cash flow when the economic criteria from our
evaluation and pricing model indicate it would be appropriate. Management's

                                       19

strategy is to hedge cash flows from investments requiring a gas price in excess
of $3.25 per Mcf and an oil price in excess of $22.50 per Bbl in order to meet
minimum rate-of-return criteria. Management reviews these hedging parameters on
a quarterly basis. We anticipate this strategy will result in the hedging of
future cash flow from acquisitions. We generally limit our aggregate hedge
position to no more than 35% of total production but will hedge up to 50% of
total production in certain circumstances. We seek to minimize basis risk and
index the majority of oil hedges to NYMEX prices and the majority of gas hedges
to various regional index prices associated with pipelines in proximity to our
areas of gas production. Including hedges entered into since June 30, 2002 we
have the following swaps in place:

Swaps:
                        Average       Quantity      Average
        Product      Volumes/month      Type      Fixed price      Duration
        -------      -------------    --------    -----------      --------

      Natural Gas      1,058,000       MMBtu         $2.85       07/02 - 12/02
      Natural Gas        468,000       MMBtu         $3.34       01/03 - 12/03
      Natural Gas        229,000       MMBtu         $3.81       01/04 - 12/04

         Oil              57,700        Bbls        $24.77       07/02 - 12/02
         Oil              49,800        Bbls        $22.68       01/03 - 12/03

         On February 4, 2002 we entered into an agreement to monetize our
unrealized hedge gain receivable due from Enron for $1.1 million. This amount
was included in other comprehensive income at December 31, 2001, is recorded in
oil hedge gain and is reported in oil and gas production revenues on our
consolidated statements of operations. Amortization of $609,000 of other
comprehensive income related to our commodity positions with Enron is also
recorded in oil hedge gain. Additional amortization will be recorded in oil
hedge gain in future months. Unrealized derivative gain on the consolidated
statements of operations includes $54,000 of net gain from oil and gas hedge
ineffectiveness.

         Our senior convertible notes contain a provision for payment of
contingent interest if certain conditions are met. Under Statement of Financial
Accounting Standards No. 133 this provision is considered an embedded
equity-related derivative that is not clearly and closely related to the fair
value of an equity interest and therefore must be separated and accounted for as
a derivative instrument. The value of the derivative at issuance was $474,000.
This amount was recorded as a decrease to the convertible notes payable on the
consolidated balance sheets. Of this amount, $28,000 has been amortized through
interest expense. Unrealized derivative gain on the consolidated statements of
operations includes $245,000 of net loss from mark-to-market adjustments for
this derivative.

         Our fixed-rate to floating-rate interest rate swap on $50.0 million of
senior convertible notes did not qualify for fair value hedge treatment under
SFAS No. 133. Unrealized derivative gain on the consolidated statements of
operations includes $2.2 million of net gain from mark-to-market adjustments for
this derivative.

         We anticipate that all hedge transactions will occur as expected.

Accounting Matters

New Accounting Standards

         In June 2002 the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." FASB No. 146 requires recognition
of a liability for a cost associated with an exit or disposal activity when the
liability is incurred, as opposed to when the entity commits to an exit plan
under EITF No. 94-3. This statement is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. We have not determined
the impact of adoption of this statement.

                                       20

         In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." FASB No. 4 required all gains or losses from extinguishment of
debt to be classified as extraordinary items net of income taxes. SFAS No. 145
requires that gains and losses from extinguishment of debt be evaluated under
the provisions of Accounting Principles Board Opinion No. 30, and be classified
as ordinary items unless they are unusual or infrequent or meet the specific
criteria for treatment as an extraordinary item. This statement is effective for
fiscal years beginning after May 15, 2002. We do not anticipate that the
adoption of this statement will have a material effect on our financial position
or results of operations.

         In June 2001 the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement requires companies to recognize the fair
value of an asset retirement liability in the financial statements by
capitalizing that cost as part of the cost of the related long-lived asset. The
asset retirement liability should then be allocated to expense by using a
systematic and rational method. The statement is effective January 1, 2003. We
have not determined the impact of adoption of this statement.

Compensation Expense

         We have a net profits interest incentive bonus plan for key employees
designated as participants by our board of directors. Under the plan oil and gas
wells that are completed or acquired during a year are designated as a pool.
Participants employed by us on the last day of that year vest and become
entitled to bonus payments after we recover net revenues generated by the pool
equal to 100% of our investment in that pool. Thereafter an amount equal to10%
of net revenues generated by the pool will be split among the participants and
paid on a quarterly basis. The percentage of net revenues from the pool to be
split among the participants increases to 20% after we recover net revenues
equal to 200% of our investment.

         Beginning in 2002 we changed our method of accounting to record
estimated compensation expense related to future amounts payable to participants
under the plan on a quarterly basis in the plan year that the participants vest.
The estimated compensation expense will be based on a number of assumptions
including estimates of oil and gas production, oil and gas prices, recurring and
non-recurring lease operating expense and a present value discount factor. We
use a discount factor to calculate present value that reflects recovery of our
investment, the timing of payments to participants and uncertainties associated
with our estimates. The estimates we use will change from year-to-year based on
new information and any change in estimated compensation will be recorded in the
period that information becomes available.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We hold derivative contracts and financial instruments that have cash
flow and net income exposure to changes in commodity prices or interest rates.
Financial and commodity-based derivative contracts are used to limit the risks
inherent in some crude oil and natural gas price changes that have an effect on
us.

         Our board of directors has adopted a policy regarding the use of
derivative instruments. This policy requires every derivative used by St. Mary
to relate to underlying offsetting positions, anticipated transactions or firm
commitments. It prohibits the use of speculative, highly complex or leveraged
derivatives. Under the policy, the Chief Executive Officer and Vice President -
Finance must review and approve all risk management programs that use
derivatives. The board of directors periodically reviews these programs.

         Commodity Price Risk. We use various hedging arrangements to manage our
exposure to price risk from natural gas and crude oil production. These hedging
arrangements have the effect of locking in for specified periods, at
predetermined prices or ranges of prices, the prices we will receive for the

                                       21

volumes to which the hedge relates. Consequently, while these hedging
arrangements are structured to reduce our exposure to decreases in prices
associated with the hedged commodity, they also limit the benefit we might
otherwise receive from any price increases associated with the hedged commodity.
The derivative gain or loss effectively offsets the loss or gain on the
underlying commodity exposures that have been hedged. The fair value of the
swaps are estimated based on quoted market prices of comparable contracts and
approximate the net gains or losses that would have been realized if the
contracts had been closed out at quarter-end. The fair value of the futures are
based on quoted market prices obtained from the New York Mercantile Exchange and
have been adjusted for our hedging of the basis differential accorded to the
pipelines relative to our areas at production.

         A hypothetical $0.10 per MMBtu change in our quarter-end market prices
for natural gas swaps and futures contracts on a notional amount of 18.1 million
MMBtu would cause a potential $1.6 million change in net income before income
taxes for contracts in place on June 30, 2002. A hypothetical $1.00 per Bbl
change in our quarter-end market prices for crude oil swaps and future contracts
on a notional amount of 1.4 million Bbls would cause a potential $1.3 million
change in net income before income taxes for oil contracts in place on June 30,
2002. These hypothetical changes were discounted to present value using a 7.5%
discount rate since the latest expected maturity date of certain swaps and
futures contracts is greater than one year from the reporting date.

         Interest Rate Risk. Market risk is estimated as the potential change in
fair value resulting from an immediate hypothetical one percentage point
parallel shift in the yield curve. A sensitivity analysis presents the
hypothetical change in fair value of those financial instruments held by St.
Mary at June 30, 2002, which are sensitive to changes in interest rates. For
fixed-rate debt, interest rate changes affect the fair market value but do not
impact results of operations or cash flows. Conversely for floating rate debt,
interest rate changes generally do not affect the fair market value but do
impact future results of operations and cash flows, assuming other factors are
held constant. The carrying amount of our floating rate debt approximates its
fair value. At June 30, 2002, we had floating rate debt of $50.0 million and
$50.0 million of fixed rate debt. Assuming constant debt levels, the impact on
results of operations and cash flows for the remainder of the year resulting
from a one-percentage-point change in interest rates would be approximately
$250,000 before taxes.

PART II.  OTHER INFORMATION

ITEM 1.  Legal Proceedings
         -----------------

                  On March 27, 2002 Nance Petroleum Corporation, a wholly owned
         subsidiary, was named along with several other leaseholders and
         interested parties as an additional co-defendant in a lawsuit that was
         originally filed on June 12, 2001 in the U.S. District Court for the
         District of Montana by the Northern Plains Resource Council, Inc., an
         environmental public interest group, against the U.S. Bureau of Land
         Management, the U.S. Secretary of the Interior, the Montana BLM State
         Director and Fidelity Exploration & Production Company. The
         lawsuit, which was reported in our 2001 Form 10-K and our first quarter
         2002 Form 10-Q, seeks the cancellation of all federal leases related to
         coalbed methane development issued by the BLM in Montana since January
         1, 1997, primarily on the grounds of an alleged failure of the BLM to
         comply with federal environmental laws by analyzing the environmental
         impacts of coalbed methane development before issuing the challenged
         leases. The lawsuit potentially affects 47,500 acres subject to federal
         leases of the 127,000 total acres in our Hanging Woman Basin coalbed
         methane project. While we believe, based on information presently
         available to us that the applicable environmental laws have been
         complied with, there is no assurance of the outcome of the lawsuit and
         therefore there is no assurance that it will not adversely affect our
         coalbed methane project. However, even if the federal leases in Montana
         become unavailable, we anticipate continuing with the Hanging Woman
         Basin project in Wyoming and obtaining additional non-federal leases in
         Montana. See "Management's Discussion and Analysis of Financial
         Condition and Results of Operations" for a discussion of other recent
         coalbed methane legal developments.

                                       22

                  As previously reported in our first quarter 2002 Form 10-Q, on
         May 1, 2002 GNK Acquisition Corp., a recently acquired wholly owned
         subsidiary, was served in a lawsuit that was filed earlier in 2002 in
         the District Court in Shelby County, Texas, by Samson Lone Star Limited
         Partnership against GNK Acquisition Corp. and GNK, Inc., the previous
         owner of GNK Acquisition Corp. The lawsuit primarily involves a claim
         related to certain oil and gas leasehold positions acquired by GNK
         Acquisition Corp. under a contractual preferential right to purchase
         that was triggered by an attempt by Samson to acquire such leasehold
         positions from the party that sold the positions to GNK Acquisition
         Corp. Samson alleges that it should be entitled to acquire a portion of
         such positions as a result of an agreement it had with GNK, Inc. An
         answer by GNK Acquisition Corp. to the underlying petition by Samson
         has been filed, and discovery has begun. Although the lawsuit is in a
         very preliminary stage and there can be no assurance of the ultimate
         outcome, we do not believe based on the information presently available
         that the lawsuit will have a material adverse effect on our financial
         condition or results of operations.

ITEM 2.  Changes in Securities and Use of Proceeds
         -----------------------------------------

(c)      On June 4, 2002 St. Mary issued 800 restricted shares of common stock
         to a newly elected director as compensation recorded in the amount of
         $14,763 for services as a member of the board of directors. These
         shares were not registered under the Securities Act of 1933 in reliance
         on Rule 506 of Regulation D promulgated under the Securities Act since
         the director is an accredited investor and certificates representing
         the shares bear a legend restricting the transfer of those shares.

ITEM 4.  Submission of Matters to a Vote of Security Holders
         ----------------------------------------------------

         At the Company's annual stockholders' meeting on May 20, 2002, the
         stockholders approved management's current slate of directors. The
         directors elected and the vote tabulation for each director are as
         follows:

                  Director                       For              Withheld
                  --------                       ---              --------
                  Larry W. Bickle             19,273,354           558,050
                  Barbara M. Baumann          19,292,967           538,437
                  Ronald D. Boone             19,273,374           558,030
                  Thomas E. Congdon           18,913,554           917,850
                  William J. Gardiner         19,273,354           558,050
                  Mark A. Hellerstein         19,273,374           558,030
                  Robert L. Nance             19,273,354           558,050
                  Arend J. Sandbulte          19,273,354           558,050
                  John M. Seidl               19,273,354           558,050

         Also at the Company's annual stockholders' meeting on May 20, 2002, the
         stockholders did not approve a proposed amendment to the Company's
         certificate of incorporation to authorize the issuance of up to a total
         of 5,000,000 shares of preferred stock with such powers, preferences,
         rights and limitations as the board of directors may designate from
         time to time. The tabulation of votes for that proposal is as follows:

                  For:               7,822,200
                  Against:           8,963,607
                  Abstain:             377,120
                  Not Voted:         2,668,477

                                       23

ITEM 6.  Exhibits and Reports on Form 8-K
         --------------------------------

    (a)  Exhibits

                 The following exhibits are furnished as part of this report:

         Exhibit     Description
         -------     -----------
         10.1        Security Agreement made as of May 1, 2002 by St. Mary Land
                     & Exploration Company, St. Mary Operating Company, St.
                     Mary Energy Company, Nance Petroleum Corporation, St. Mary
                     Minerals Inc., Parish Corporation, Four Winds Marketing,
                     LLC and Roswell, L.L.C. in favor of Bank of America, N.A.

         10.2        Stock Pledge Agreement made as of May 1, 2002 by St. Mary
                     Land & Exploration Company in favor of Bank of America,
                     N.A.

         10.3        LLC Pledge Agreement made as of May 1, 2002 by St. Mary
                     Land & Exploration Company in favor of Bank of America,
                     N.A.

         10.4       Guaranty made as of May 1, 2002 by St. Mary Operating
                    Company, St. Mary Energy Company, Nance Petroleum
                    Corporation, St. Mary Minerals, Inc., Parish Corporation,
                    Four Winds Marketing LLC and Roswell LLC in favor of Bank of
                    America, N.A.

    (b)  Reports on Form 8-K

         St. Mary Land & Exploration Company filed the following current
         reports on Form 8-K during the quarter ended June 30, 2002:

                  On April 30, 2002 we filed a current report on Form 8-K
         reporting under Item 9 that we had issued a press release announcing an
         update of our first quarter 2002 operations and an update of our 2002
         forecast.

                  On May 10, 2002 we filed a current report on Form 8-K
         reporting under Item 9 that we had issued a press release announcing
         our earnings and financial highlights for the first quarter of 2002.

                  On May 30, 2002 we filed a current report on Form 8-K
         reporting under Item 4 that we had dismissed Arthur Andersen LLP as our
         independent accountants.

                  On June 4, 2002 we filed a current report on Form 8-K
         reporting under Item 4 that we had engaged Deloitte & Touche LLP as
         our new independent accountants.

                  On July 9, 2002 we filed a current report on Form 8-K
         reporting under Item 9 that we had issued a press release announcing an
         update of our operations for the second quarter of 2002 and an updating
         of our 2002 forecast.

                  On August 8, 2002 we filed a current report on Form 8-K
         reporting under Item 9 that we had issued a press release announcing
         our earnings and financial highlights for the second quarter of 2002.

                                       24

                  On August 8, 2002 we filed an amended current report on Form
         8-K/A to include a conformed signature for the Form 8-K filed August 8,
         2002. The conformed signature was inadvertently omitted from the
         originally-filed Form 8-K.

                                       25




                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                         ST. MARY LAND & EXPLORATION COMPANY



August 14, 2002                          By  /s/ MARK A. HELLERSTEIN
                                           -----------------------------------
                                           Mark A. Hellerstein
                                           President and Chief Executive Officer


August 14, 2002                          By  /s/ RICHARD C. NORRIS
                                           -----------------------------------
                                           Richard C. Norris
                                           Vice President - Finance, Secretary
                                           and Treasurer


August 14, 2002                          By  /s/ GARRY A. WILKENING
                                           -----------------------------------
                                           Garry A. Wilkening
                                           Vice President - Administration and
                                           Controller

EX-10

                                                                    EXHIBIT 10.1


                                                                     [Execution]

                               SECURITY AGREEMENT
                               ------------------

         THIS SECURITY AGREEMENT (this "Agreement") is made as of May 1, 2002,
                                        ---------
by St. Mary Land & Exploration Company, a Delaware corporation, St. Mary
Operating Company, a Colorado corporation, St. Mary Energy Company, a Delaware
corporation, Nance Petroleum Corporation, a Montana corporation, St. Mary
Minerals Inc. a Colorado corporation, Parish Corporation, a Colorado
corporation, Four Winds Marketing, LLC, a Colorado limited liability company and
Roswell, L.L.C., a Texas limited liability company, as debtors (collectively
"Debtors" and each individually a "Debtor"), in favor of Bank of America, N.A.,
 -------                           ------
individually and as agent ("Secured Party").
                            -------------

                              W I T N E S S E T H:
                              - - - - - - - - - -

         WHEREAS, St. Mary Land & Exploration Company, as borrower (in such
capacity, "Borrower"), Secured Party, as Agent, and certain lenders
           --------
(collectively, the "Lenders") are parties to a Credit Agreement dated as of June
                    -------
30, 1998 (as from time to time amended, supplemented, or restated, the "Credit
Agreement");                                                            ------
- ---------

         WHEREAS, pursuant to the Credit Agreement, Lenders have agreed to
extend credit to Borrower;

         WHEREAS, in order to induce Lenders to extend such credit pursuant to
the Credit Agreement, Debtors have agreed to grant to Secured Party, for the
benefit of Lenders, a security interest in the Collateral as defined herein;

         WHEREAS, Borrower owns, directly, or indirectly through one or more of
its subsidiaries, all of the equity interests of each other Debtor;

         NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to extend such credit under the Credit Agreement, Debtor hereby agrees
with Secured Party, for the benefit of Lenders and Secured Party, as follows:

                                    ARTICLE I

                           Definitions and References
                           --------------------------

         Section 1.1. General Definitions. As used herein, the terms
                      -------------------
"Agreement", "Debtor", and "Credit Agreement" shall have the meanings indicated
above, and the following terms shall have the following meanings:

         "Collateral" means all property, of whatever type, which is described
          ----------
in Section 2.1 as being at any time subject to a security interest granted
hereunder to Secured Party.

         "Commercial Tort Claims" means a claim arising in tort with respect to
          ----------------------
which the claimant is Debtor.

         "Commitment" means the agreement or commitment by Lenders to make loans
          ----------
or otherwise extend credit to Borrower under the Credit Agreement, and any other
agreement, commitment, statement of terms or other document contemplating the
making of loans or advances or other extension of credit by Lenders to or for
the account of Borrower which is now or at any time hereafter intended to be
secured by the Collateral under this Agreement.

         "Deposit Accounts" means all "deposit accounts" (as defined in the UCC)
          ----------------
or other demand, time, savings, passbook, or similar accounts maintained with a
bank, including nonnegotiable certificates of deposit.

         "Documents" means all "documents" (as defined in the UCC) or other
          ---------
receipts covering, evidencing or representing inventory, equipment, or other
goods.

         "Equipment" means all "equipment" (as defined in the UCC) in whatever
          ---------
form, wherever located, and whether now or hereafter existing, and all parts
thereof, all accessions thereto, and all replacements therefor.

         "General Intangibles" means all "general intangibles" (as defined in
          -------------------
the UCC) of any kind (including choses in action, Commercial Tort Claims,
Software, Payment Intangibles, tax refunds, insurance proceeds, and contract
rights), and all instruments, security agreements, leases, contracts, and other
rights (except those constituting Receivables, Documents, or Instruments) to
receive payments of money or the ownership or possession of property, including
all general intangibles under which an account debtor's principal obligation is
a monetary obligation.

         "Guaranty" means that certain Guaranty of even date herewith from
          --------
Debtors (not including Borrower) in favor of Secured Party for the benefit of
Lenders.

         "Instruments" means all "instruments", "chattel paper" or "letters of
          -----------
credit" (as each is defined in the UCC) and all Letter-of-Credit Rights.

         "Inventory" means all "inventory" (as defined in the UCC) in all of its
          ---------
forms, wherever located and whether now or hereafter existing, including (a) all
movable property and other goods held for sale or lease, all movable property
and other goods furnished or to be furnished under contracts of service, all raw
materials and work in process, and all materials and supplies used or consumed
in a business, (b) all movable property and other goods which are part of a
product or mass, (c) all movable property and other goods which are returned to
or repossessed by the seller, lessor, or supplier thereof, (d) all goods and
substances in which any of the foregoing is commingled or to which any of the
foregoing is added, and (e) all accessions to, products of, and documents for
any of the foregoing.

                                       2

         "Investment Property" means all "investment property" (as defined in
          -------------------
the UCC) and all other securities, whether certificated or uncertificated,
securities entitlements, securities accounts, commodity contracts, or commodity
accounts.

         "Letter-of-Credit Rights" means all rights to payment or performance
          -----------------------
under a "letter of credit" (as defined in the UCC) whether or not the
beneficiary has demanded or is at the time entitled to demand payment or
performance.

         "Lenders" means the Persons who are from time to time "Lenders" as
          -------
defined in the Credit Agreement.

         "Obligation Documents" means the Credit Agreement, the Notes, the Loan
          --------------------
Documents, and all other documents and instruments under, by reason of which, or
pursuant to which any or all of the Secured Obligations are evidenced, governed,
secured, or otherwise dealt with, and all other agreements, certificates, and
other documents, instruments and writings heretofore or hereafter delivered in
connection herewith or therewith.

         "Other Liable Party" means any Person, other than Debtors, who may now
          ------------------
or may at any time hereafter be primarily or secondarily liable for any of the
Secured Obligations or who may now or may at any time hereafter have granted to
Secured Party or Lenders a Lien upon any property as security for the Secured
Obligations.

         "Payment Intangibles" means all "payment intangibles" (as defined in
          -------------------
the UCC).

         "Proceeds" means, with respect to any property of any kind, all
          --------
proceeds of, and all other profits, products, rentals or receipts, in whatever
form, arising from any sale, exchange, collection, lease, licensing or other
disposition of, distribution in respect of, or other realization upon, such
property, including all claims against third parties for loss of, damage to or
destruction of, or for proceeds payable under (or unearned premiums with respect
to) insurance in respect of, such property (regardless of whether Secured Party
is named a loss payee thereunder), and any payments paid or owing by any third
party under any indemnity, warranty, or guaranty with respect to such property,
and any condemnation or requisition payments with respect to such property, in
each case whether now existing or hereafter arising.

         "Receivables" means (a) all "accounts" (as defined in the UCC) and all
          -----------
other rights to payment for goods or other personal property which have been (or
are to be) sold, leased, or exchanged or for services which have been (or are to
be) rendered, regardless of whether such accounts or other rights to payment
have been earned by performance and regardless of whether such accounts or other
rights to payment are evidenced by or characterized as accounts receivable,
contract rights, book debts, notes, drafts or other obligations of indebtedness,
(b) all Documents and Instruments of any kind relating to such accounts or other
rights to payment or otherwise arising out of or in connection with the sale,
lease or exchange of goods or other personal property or the rendering of
services, (c) all rights in, to, or under all security agreements, leases and
other contracts securing or otherwise relating to any such accounts, rights to
payment, Documents, or Instruments, (d) all rights in, to and under any purchase
orders, service contracts, or other contracts out of which such accounts and

                                       3

other rights to payment arose (or will arise on performance), and (e) all rights
in or pertaining to any goods arising out of or in connection with any such
purchase orders, service contracts, or other contracts, including rights in
returned or repossessed goods and rights of replevin, repossession, and
reclamation.

         "Related Person" means Debtors, each Subsidiary of Debtors and each
          --------------
Other Liable Party.

         "Secured Obligations" has the meaning given such term in Section 2.2.
          -------------------

         "Secured Party" means the Person named as such at the beginning of this
          -------------
Agreement, together with its successors and assigns as the "Agent" under the
Credit Agreement.

         "Software" means all "software" (as defined in the UCC), including all
          --------
computer programs, any supporting information provided in connection with a
transaction relating to a computer program, all licenses or other rights to use
any of such computer programs, and all license fees and royalties arising from
such use to the extent permitted by such license or rights.

         "Subsidiary Debtor" means any Debtor other than Borrower.
          -----------------

         "UCC" means the Uniform Commercial Code in effect in the State of
          ---
Colorado from time to time.

         Section 1.2. Other Definitions. Reference is hereby made to the Credit
                      -----------------
Agreement for a statement of the terms thereof. All capitalized terms used in
this Agreement which are defined in the Credit Agreement and not otherwise
defined herein shall have the same meanings herein as set forth therein. All
terms used in this Agreement which are defined in the UCC and not otherwise
defined herein or in the Credit Agreement shall have the same meanings herein as
set forth therein, except where the context otherwise requires. The parties
intend that the terms used herein which are defined in the UCC have, at all
times, the broadest and most inclusive meanings possible. Accordingly, if the
UCC shall in the future be amended or held by a court to define any term used
herein more broadly or inclusively than the UCC in effect on the date hereof,
then such term, as used herein, shall be given such broadened meaning. If the
UCC shall in the future be amended or held by a court to define any term used
herein more narrowly, or less inclusively, than the UCC in effect on the date
hereof, such amendment or holding shall be disregarded in defining terms used
herein.

         Section 1.3. Attachments. All exhibits or schedules which may be
                      -----------
attached to this Agreement are a part hereof for all
purposes.

         Section 1.4. Amendment of Defined Instruments. Unless the context
                      --------------------------------
otherwise requires or unless otherwise provided herein, references in this
Agreement to a particular agreement, instrument or document (including, but not
limited to, references in Section 2.1) also refer to and include all renewals,
extensions, amendments, modifications, supplements or restatements of any such
agreement, instrument or document, provided that nothing contained in this
Section shall be construed to authorize any Person to execute or enter into any
such renewal, extension, amendment, modification, supplement or restatement.

                                       4

         Section 1.5. References and Titles. All references in this Agreement to
                      ---------------------
Exhibits, Articles, Sections, subsections, and other subdivisions refer to the
Exhibits, Articles, Sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the beginning
of any subdivision are for convenience only and do not constitute any part of
any such subdivision and shall be disregarded in construing the language
contained in this Agreement. The words "this Agreement", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited. The
phrases "this Section" and "this subsection" and similar phrases refer only to
the Sections or subsections hereof in which the phrase occurs. The word "or" is
not exclusive, and the word "including" (in all of its forms) means "including
without limitation". Pronouns in masculine, feminine and neuter gender shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise
requires.

                                   ARTICLE II

                                Security Interest
                                -----------------

         Section 2.1. Grant of Security Interest. As collateral security for all
                      --------------------------
of the Secured Obligations, each Debtor hereby pledges and assigns to Secured
Party and grants to Secured Party a continuing security interest, for the
benefit of Lenders, in and to all right, title and interest of such Debtor in
and to any and all of the following property, whether now owned or existing or
hereafter acquired or arising and regardless of where located:

         (a)  all Receivables.

         (b)  all General Intangibles.

         (c)  all Documents.

         (d)  all Instruments.

         (e)  all Inventory.

         (f)  all Equipment.

         (g)  all Deposit Accounts.

         (h)  all Investment Property.

         (i)  All books and records (including, without limitation, customer
lists, marketing information, credit files, price lists, operating records,
vendor and supplier price lists, sales literature, computer software, computer

                                       5

hardware, computer disks and tapes and other storage media, printouts and other
materials and records) of such Debtor pertaining to any of the Collateral.

         (j)  All moneys and property of any kind of such Debtor in the
possession or under the control of Secured Party.

         (k)  All Proceeds of any and all of the foregoing Collateral.

In each case, the foregoing shall be covered by this Agreement, whether Debtors'
ownership or other rights therein are presently held or hereafter acquired and
howsoever Debtors' interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).

         Section 2.2. Secured Obligations Secured. The security interest created
                      ---------------------------
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, indebtedness and liabilities, whether now existing or
hereafter incurred or arising:

         (a) Credit Agreement Indebtedness. The payment by Borrower, as and when
             -----------------------------
due and payable, of all amounts from time to time owing by Borrower under or in
respect of the Credit Agreement, the Notes, or any of the other Obligation
Documents.

         (b) Guaranteed Indebtedness. The payment by any Debtor, when due and
             -----------------------
payable, of all amounts from time to time owing by such Debtor under or in
respect of the Guaranty or any of the other Obligation Documents to which such
Debtor is a party, and the due performance by such Debtor of all of its other
respective obligations under or in respect of the Guaranty and such other
Obligation Documents.

         (c) Other Indebtedness. All loans and future advances made by Lenders
             ------------------
to Borrower and all other debts, obligations and liabilities of every kind and
character of Borrower now or hereafter existing in favor of Lenders, whether
such debts, obligations or liabilities be direct or indirect, primary or
secondary, joint or several, fixed or contingent, and whether originally payable
to Lenders or to a third party and subsequently acquired by Lenders and whether
such debts, obligations or liabilities are evidenced by notes, open account,
overdraft, endorsement, security agreement, guaranty or otherwise (it being
contemplated that Borrower may hereafter become indebted to Lenders in further
sum or sums but Lenders shall have no obligation to extend further indebtedness
by reason of this Agreement).

         (d) Renewals. All renewals, extensions, amendments, modifications,
             --------
supplements, or restatements of or substitutions for any of the foregoing.

         (e) Performance. The due performance and observance by Debtors of all
             -----------
of their other obligations from time to time existing under or in respect of any
of the Obligation Documents.

As used herein, the term "Secured Obligations" refers to all present and future
indebtedness, obligations and liabilities of whatever type which are described
above in this section, including any interest which accrues after the

                                       6

commencement of any case, proceeding, or other action relating to the
bankruptcy, insolvency, or reorganization of any Debtor. Each Debtor hereby
acknowledges that the Secured Obligations are owed to the various Lenders and
that each Lender is entitled to the benefits of the Liens given under this
Agreement.

         It is the intention of each Subsidiary Debtor and Secured Party that
this Agreement not constitute a fraudulent transfer or fraudulent conveyance
under any state or federal law that may be applied hereto. Each Subsidiary
Debtor and, by its acceptance hereof, Secured Party hereby acknowledge and agree
that, notwithstanding any other provision of this Agreement: (a) the
indebtedness secured hereby by such Subsidiary Debtor shall be limited to the
maximum amount of indebtedness that can be incurred or secured by such
Subsidiary Debtor without rendering this Agreement subject to avoidance under
Section 548 of the United States Bankruptcy Code or any comparable provisions of
any applicable state or federal law, and (b) the Collateral pledged by such
Subsidiary Debtor hereunder shall be limited to the maximum amount of Collateral
that can be pledged by such Subsidiary Debtor without rendering this Agreement
subject to avoidance under Section 548 of the United States Bankruptcy Code or
any comparable provisions of any applicable state or federal law.

                                   ARTICLE III

                    Representations, Warranties and Covenants
                    -----------------------------------------

         Section 3.1. Representations, Warranties and Covenants. Each of the
                      -----------------------------------------
representations and warranties in the Credit Agreement made by any Debtor or any
Restricted Person is true and correct. Unless Secured Party shall otherwise
consent in writing, each Debtor will at all times comply with the covenants
contained in the Credit Agreement which are applicable to such Debtor for so
long as any part of the Secured Obligations or the Commitment is outstanding. In
addition, each Debtor hereby represents, warrants and covenants to Secured Party
and Lenders as follows:

         (a) Name, Place of Business and Formation. Each Debtor is a corporation
             -------------------------------------
or limited liability company organized under the laws of the State listed for
such Debtor on the first page of this Agreement, which is such Debtor's location
pursuant to the UCC. During the past five years, no Debtor has conducted
business under any name except the name in which such Debtor has executed this
Agreement, which is the exact name as it appears in such Debtor's organizational
documents, as amended, as filed with such Debtor's jurisdiction of organization.
Each Debtor's principal place of business and chief executive office, and the
place where such Debtor kept its books and records concerning the Collateral was
for the four month period prior to July 1, 2001 located at such Debtor's address
set forth in Section 5.1 below.

         (b) Ownership Free of Liens. Each Debtor has good and marketable title
             -----------------------
to the Collateral, free and clear of all Liens, encumbrances or adverse claims
except for the security interest created by this Agreement. No effective
financing statement or other registration or instrument similar in effect
covering all or any part of the Collateral is on file in any recording office
except any which have been filed in favor of Secured Party relating to this

                                       7

Agreement. None of the Collateral is in the possession of any Person other than
the Debtor owning such Collateral or Secured Party, except for Collateral being
transported in the ordinary course of business.

         (c) No Conflicts or Consents. Neither the ownership or the intended use
             ------------------------
of the Collateral by any Debtor, nor the grant of the security interest by
Debtors to Secured Party herein, nor the exercise by Secured Party of its rights
or remedies hereunder, will (i) conflict with any provision of (a) any domestic
or foreign law, statute, rule or regulation, (b) the articles or certificate of
incorporation, charter or bylaws of any Debtor, or (c) any agreement, judgment,
license, order or permit applicable to or binding upon any Debtor, or (ii)
result in or require the creation of any Lien, charge or encumbrance upon any
assets or properties of any Debtor or of any Related Person. Except as expressly
contemplated in the Obligation Documents, no consent, approval, authorization or
order of, and no notice to or filing with any court, governmental authority or
third party is required in connection with the grant by Debtors of the security
interest herein, or the exercise by Secured Party of its rights and remedies
hereunder.

         (d) Security Interest. Each Debtor has and will have at all times full
             -----------------
right, power and authority to grant a security interest in the Collateral owned
by such Debtor to Secured Party as provided herein, free and clear of any Lien,
adverse claim, or encumbrance. This Agreement creates a valid and binding
security interest in favor of Secured Party in the Collateral, which security
interest secures all of the Secured Obligations.

         (e) Change of Name, Location, or Structure; Additional Filings. Each
             ----------------------------------------------------------
Debtor recognizes that financing statements pertaining to the Collateral have
been or may be filed with the secretary of state (or equivalent governmental
official) of the state in which such Debtor is organized. Without limitation of
any other covenant herein, no Debtor will cause or permit any change to be made
in its name, identity or corporate or limited liability company structure, or
any change to be made to its jurisdiction of organization, unless such Debtor
shall have first (1) notified Secured Party of such change at least forty-five
(45) days prior to the effective date of such change, (2) taken all action
requested by Secured Party for the purpose of further confirming and protecting
Secured Party's security interests and rights under this Agreement and the
perfection and priority thereof, and (3) if requested by Secured Party, provided
to Secured Party a legal opinion to its satisfaction confirming that such change
will not adversely affect in any way Secured Party's security interests and
rights under this Agreement or the perfection or priority thereof. In any notice
furnished by any Debtor pursuant to this subsection, such Debtor will expressly
state that the notice is required by this Agreement and contains facts that may
require additional filings of financing statements or other notices for the
purposes of continuing perfection of Secured Party's security interest in the
Collateral.

         (f) Further Assurances. Debtors will, at their expense as from time to
             ------------------
time reasonably requested by Secured Party, promptly execute and deliver all
further instruments, agreements, filings and registrations, and take all further
action, in order: (i) to confirm and validate this Agreement and Secured Party's
rights and remedies hereunder, (ii) to correct any errors or omissions in the
descriptions herein of the Secured Obligations or the Collateral or in any other
provisions hereof, (iii) to perfect, register and protect the security interests

                                       8

and rights created or purported to be created hereby or to maintain or upgrade
in rank the priority of such security interests and rights, (iv) to enable
Secured Party to exercise and enforce its rights and remedies hereunder in
respect of the Collateral, or (v) to otherwise give Secured Party the full
benefits of the rights and remedies described in or granted under this
Agreement. As part of the foregoing Debtors will, whenever reasonably requested
by Secured Party (1) execute and file any financing statements, continuation
statements, and other filings or registrations relating to Secured Party's
security interests and rights hereunder, and any amendments thereto, and (2)
mark their books and records relating to any Collateral to reflect that such
Collateral is subject to this Agreement and the security interests hereunder. To
the extent reasonably requested by Secured Party from time to time, Debtors will
obtain from any material account debtor or other obligor on the Collateral the
acknowledgment of such account debtor or obligor that such Collateral is subject
to this Agreement.

         (g) Inspection of Collateral. Debtors will keep adequate records
             ------------------------
concerning the Collateral and will permit Secured Party and all representatives
appointed by Secured Party, including independent accountants, agents,
attorneys, appraisers and any other persons, to inspect any of the Collateral
and the books and records of or relating to the Collateral at any time during
normal business hours, and to make photocopies and photographs thereof, and to
write down and record any information which such representatives obtain.

         (h) Information. Upon request from time to time by Secured Party,
             -----------
Debtors will furnish to Secured Party (i) any information concerning any
covenant, provision or representation contained herein or any other matter in
connection with the Collateral or such Debtor's business, properties, or
financial condition, and (ii) statements and schedules identifying and
describing the Collateral and other reports and information requested in
connection with the Collateral, all in reasonable detail.

         (i) Ownership, Liens, Possession and Transfers. Each Debtor will
             ------------------------------------------
maintain good and marketable title to all Collateral owned by such Debtor, free
and clear of all Liens, encumbrances or adverse claims except for the security
interest created by this Agreement, and no Debtor will grant or allow any such
Liens, encumbrances or adverse claims to exist. No Debtor will grant or allow to
remain in effect, and Debtors will cause to be terminated, any financing
statement or other registration or instrument similar in effect covering all or
any part of the Collateral, except any which have been filed in favor of Secured
Party relating to this Agreement. Debtors will defend Secured Party's right,
title and special property and security interest in and to the Collateral
against the claims of any Person. Each Debtor (i) will insure that all of the
Collateral owned by such Debtor -- whether goods, Documents, Instruments, or
otherwise -- is and remains in the possession of such Debtor or Secured Party
(or a bailee selected by Secured Party who is holding such Collateral for the
benefit of Secured Party), except for goods being transported in the ordinary
course of business, and (ii) will not sell, assign (by operation of law or
otherwise), transfer, exchange, lease or otherwise dispose of any of the
Collateral, except in the ordinary course of its business.

                                       9

         (j) Impairment of Security Interest. No Debtor will take or fail to
             -------------------------------
take any action which would in any manner impair the value or enforceability of
Secured Party's security interest in any Collateral.

         (k) Commercial Tort Claims. If any Debtor shall at any time hold or
             ----------------------
acquire a Commercial Tort Claim, such Debtor shall immediately notify Secured
Party in writing of the details thereof and grant to Secured Party in such
writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
acceptable to Secured Party.

                                   ARTICLE IV.

                       Remedies, Powers and Authorizations
                       -----------------------------------

         Section 4.1. Normal Provisions Concerning the Collateral.
                      -------------------------------------------

         (a) Authorization to File Financing Statements. Each Debtor hereby
             ------------------------------------------
irrevocably authorizes Secured Party at any time and from time to time to file,
without the signature of such Debtor, in any jurisdiction any amendments to
existing financing statements and any initial financing statements and
amendments thereto that (a) indicate the Collateral (i) as "all assets of Debtor
and all proceeds thereof, and all rights and privileges with respect thereto" or
words of similar effect, regardless of whether any particular asset comprised in
the Collateral falls within the scope of Article 9 of the UCC, or (ii) as being
of an equal or lesser scope or with greater detail; (b) contain any other
information required by subchapter E of Article 9 of the UCC for the sufficiency
or filing office acceptance of any financing statement or amendment, including
whether such Debtor is an organization, the type of organization and any
organization identification number issued to such Debtor; and (c) are necessary
to properly effectuate the transactions described in the Loan Documents, as
determined by Secured Party in its discretion. Each Debtor agrees to furnish any
such information to Secured Party promptly upon request. Each Debtor further
agrees that a carbon, photographic or other reproduction of this Agreement or
any financing statement describing any Collateral is sufficient as a financing
statement and may be filed in any jurisdiction by Secured Party.

         (b) Power of Attorney. Each Debtor hereby appoints Secured Party as
             -----------------
such Debtor's attorney-in-fact and proxy, with full authority in the place and
stead of such Debtor and in the name of such Debtor or otherwise, from time to
time in Secured Party's discretion, to take any action and to execute any
instrument which Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement including any action or instrument: (i) to obtain and
adjust any insurance required to be paid to Secured Party pursuant hereto; (ii)
to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral; (iii) to receive, indorse and collect any drafts or other
Instruments or Documents; (iv) to enforce any obligations included among the
Collateral; and (v) to file any claims or take any action or institute any
proceedings which Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of such

                                       10

Debtor or Secured Party with respect to any of the Collateral. Each Debtor
hereby acknowledges that such power of attorney and proxy are coupled with an
interest, are irrevocable, and are to be used by Secured Party for the sole
benefit of Lenders.

         (c) Performance by Secured Party. If any Debtor fails to perform any
             ----------------------------
agreement or obligation contained herein, Secured Party may itself perform, or
cause performance of, such agreement or obligation, and the expenses of Secured
Party incurred in connection therewith shall be payable by such Debtor under
Section 4.5.

         (d) Bailees. If any Collateral is at any time in the possession or
             -------
control of any warehouseman, bailee or any of any Debtor's agents or processors,
such Debtor shall, upon the request of Secured Party, notify such warehouseman,
bailee, agent or processor of Secured Party's rights hereunder and instruct such
Person to hold all such Collateral for Secured Party's account subject to
Secured Party's instructions. (No such request by Secured Party shall be deemed
a waiver of any provision hereof which was otherwise violated by such Collateral
being held by such Person prior to such instructions by such Debtor.)

         (e) Collection. Secured Party shall have the right at any time, upon
             ----------
the occurrence and during the continuance of a Default or an Event of Default,
to notify (or to require Debtors to notify) any and all obligors under any
Receivables, General Intangibles, Instruments, or other rights to payment
included among the Collateral of the assignment thereof to Secured Party under
this Agreement and to direct such obligors to make payment of all amounts due or
to become due to Debtors thereunder directly to Secured Party and, upon such
notification and at the expense of Debtors and to the extent permitted by law,
to enforce collection of any such Receivables, General Intangibles, Instruments,
or other rights to payment and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as Debtors could have
done. After any Debtor receives notice that Secured Party has given (and after
Secured Party has required any Debtor to give) any notice referred to above in
this subsection:
                  (i) all amounts and proceeds (including instruments and
         writings) received by Debtors in respect of such Receivables, General
         Intangibles, Instruments, or other rights to payment shall be received
         in trust for the benefit of Secured Party hereunder, shall be
         segregated from other funds of Debtors and shall be forthwith paid over
         to Secured Party in the same form as so received (with any necessary
         indorsement) to be, at Secured Party's discretion, either (A) held as
         cash collateral and released to Debtors upon the remedy of all Defaults
         and Events of Default, or (B) while any Event of Default is continuing,
         applied as specified in Section 4.3, and

                  (ii) Debtors will not adjust, settle or compromise the amount
         or payment of any such Receivable, General Intangible, Instrument, or
         other right to payment or release wholly or partly any account debtor
         or obligor thereof or allow any credit or discount thereon.

         Section 4.2. Event of Default Remedies. If an Event of Default shall
                      -------------------------
have occurred and be continuing, Secured Party may from time to time in its
discretion, without limitation and without notice except as expressly provided
below:

                                       11

         (a) exercise in respect of the Collateral, in addition to any other
rights and remedies provided for herein, under the other Obligation Documents,
or otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral);

         (b) require Debtors to, and each Debtor hereby agrees that it will at
its expense and upon request of Secured Party forthwith, assemble all or part of
the Collateral as directed by Secured Party and make it (together with all
books, records and information of such Debtor relating thereto) available to
Secured Party at a place to be designated by Secured Party which is reasonably
convenient to both parties;

         (c) prior to the disposition of any Collateral, (i) to the extent
permitted by applicable law, enter, with or without process of law and without
breach of the peace, any premises where any of the Collateral is or may be
located, and without charge or liability to Secured Party seize and remove such
Collateral from such premises, (ii) have access to and use Debtors' books,
records, and information relating to the Collateral, and (iii) store or transfer
any of the Collateral without charge in or by means of any storage or
transportation facility owned or leased by Debtors, process, repair or
recondition any of the Collateral or otherwise prepare it for disposition in any
manner and to the extent Secured Party deems appropriate and, in connection with
such preparation and disposition, use without charge any copyright, trademark,
trade name, patent or technical process used by Debtors;

         (d) reduce its claim to judgment or foreclose or otherwise enforce, in
whole or in part, the security interest created hereby by any available judicial
procedure;

         (e) dispose of, at its office, on the premises of Debtors or elsewhere,
all or any part of the Collateral, as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts (it being agreed that the sale
of any part of the Collateral shall not exhaust Secured Party's power of sale,
but sales may be made from time to time, and at any time, until all of the
Collateral has been sold or until the Secured Obligations have been paid and
performed in full), and at any such sale it shall not be necessary to exhibit
any of the Collateral;

         (f) buy (or allow one or more of the Lenders to buy) the Collateral, or
any part thereof, at any public sale in accordance with the UCC;

         (g) buy (or allow one or more of the Lenders to buy) the Collateral, or
any part thereof, at any private sale if the Collateral is of a type customarily
sold in a recognized market or is of a type which is the subject of widely
distributed standard price quotations, in accordance with the UCC; and

         (h) apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and each Debtor hereby
consents to any such appointment.

                                       12

Each Debtor agrees that, to the extent notice of sale shall be required by law,
at least ten (10) days' notice to such Debtor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Secured Party shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.

         Section 4.3. Application of Proceeds. If any Event of Default shall
                      -----------------------
have occurred and be continuing, Secured Party may in its discretion apply any
cash held by Secured Party as Collateral, and any cash proceeds received by
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral, to any or all of the following in such
order as Secured Party may (subject to the rights of Lenders under the Credit
Agreement) elect:

         (a) To the repayment of the reasonable costs and expenses, including
reasonable attorneys' fees and legal expenses, incurred by Secured Party in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral, (iii) the exercise or enforcement of any of
the rights of Secured Party hereunder, or (iv) the failure of any Debtor to
perform or observe any of the provisions hereof;

         (b) To the payment or other satisfaction of any Liens, encumbrances, or
adverse claims upon or against any of the Collateral;

         (c) To the reimbursement of Secured Party for the amount of any
obligations of any Debtor or any Other Liable Party paid or discharged by
Secured Party pursuant to the provisions of this Agreement or the other
Obligation Documents, and of any expenses of Secured Party payable by any Debtor
hereunder or under the other Obligation Documents;

         (d)  To the satisfaction of any other Secured Obligations;

         (e)  By holding the same as Collateral;

         (f) To the payment of any other amounts required by applicable law
(including any provision of the UCC); and

         (g) By delivery to Debtors or to whoever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.

         Section 4.4. Deficiency. In the event that the proceeds of any sale,
                      ----------
collection or realization of or upon Collateral by Secured Party are
insufficient to pay all Secured Obligations and any other amounts to which
Secured Party is legally entitled, Debtors shall be liable for the deficiency,
together with interest thereon as provided in the governing Obligation Documents
or (if no interest is so provided) at such other rate as shall be fixed by
applicable law, together with the costs of collection and the reasonable fees of

                                       13

any attorneys employed by Secured Party or Lenders to collect such deficiency.

         Section 4.5. Indemnity and Expenses. In addition to, but not in
                      ----------------------
qualification or limitation of, any similar obligations under other Obligation
Documents:

         (a) Debtors will indemnify Secured Party and each Lender from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including enforcement of this Agreement), WHETHER OR NOT
SUCH CLAIMS, LOSSES AND LIABILITIES ARE IN ANY WAY OR TO ANY EXTENT CAUSED BY OR
ARISING OUT OF SUCH INDEMNIFIED PARTY'S OWN NEGLIGENCE, except to the extent
such claims, losses or liabilities are proximately caused by such indemnified
party's individual gross negligence or willful misconduct.

         (b) Debtors will upon demand pay to Secured Party the amount of any and
all reasonable costs and expenses, including the reasonable fees and
disbursements of Secured Party's counsel and of any experts and agents, which
Secured Party may incur in connection with (i) the transactions which give rise
to this Agreement, (ii) the preparation of this Agreement and the perfection and
preservation of this security interest created under this Agreement, (iii) the
administration of this Agreement; (iv) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Collateral; (v) the exercise or enforcement of any of the rights of Secured
Party hereunder; or (vi) the failure by any Debtor to perform or observe any of
the provisions hereof, except expenses resulting from Secured Party's individual
gross negligence or willful misconduct.

         Section 4.6. Non-Judicial Remedies. In granting to Secured Party the
                      ---------------------
power to enforce its rights hereunder without prior judicial process or judicial
hearing, each Debtor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its rights by
judicial process. In so providing for non-judicial remedies, Debtors recognize
and concede that such remedies are consistent with the usage of trade, are
responsive to commercial necessity, and are the result of a bargain at arm's
length. Nothing herein is intended, however, to prevent Secured Party from
resorting to judicial process at its option.

         Section 4.7. Other Recourse. Each Debtor waives any right to require
                      --------------
Secured Party or any Lender to proceed against any other Person, to exhaust any
Collateral or other security for the Secured Obligations, to have any Other
Liable Party or any other Debtor joined with such Debtor in any suit arising out
of the Secured Obligations or this Agreement, or to pursue any other remedy in
Secured Party's power. Each Debtor further waives any and all notice of
acceptance of this Agreement and of the creation, modification, rearrangement,
renewal or extension for any period of any of the Secured Obligations of any
Other Liable Party or any other Debtor from time to time. Each Debtor further
waives any defense arising by reason of any disability or other defense of any
Other Liable Party or any other Debtor or by reason of the cessation from any
cause whatsoever of the liability of any Other Liable Party or any other Debtor.
This Agreement shall continue irrespective of the fact that the liability of any

                                       14

Other Liable Party or any other Debtor may have ceased and irrespective of the
validity or enforceability of any other Obligation Document to which such
Debtor, any Other Liable Party or any other Debtor may be a party, and
notwithstanding any death, incapacity, reorganization, or bankruptcy of any
Other Liable Party or any other Debtor or any other event or proceeding
affecting any Other Liable Party or any other Debtor. Until all of the Secured
Obligations shall have been paid in full, no Debtor shall have right to
subrogation and each Debtor waives the right to enforce any remedy which Secured
Party or any Lender has or may hereafter have against any Other Liable Party or
any other Debtor, and waives any benefit of and any right to participate in any
other security whatsoever now or hereafter held by Secured Party. Each Debtor
authorizes Secured Party and each Lender, without notice or demand, without any
reservation of rights against such Debtor, and without in any way affecting such
Debtor's liability hereunder or on the Secured Obligations, from time to time to
(a) take or hold any other property of any type from any other Person as
security for the Secured Obligations, and exchange, enforce, waive and release
any or all of such other property, (b) apply the Collateral or such other
property and direct the order or manner of sale thereof as Secured Party may in
its discretion determine, (c) renew, extend for any period, accelerate, modify,
compromise, settle or release any of the obligations of any Other Liable Party
or any other Debtor in respect to any or all of the Secured Obligations or other
security for the Secured Obligations, (d) waive, enforce, modify, amend or
supplement any of the provisions of any Obligation Document with any Person
other than such Debtor, and (e) release or substitute any Other Liable Party or
any other Debtor.

         Section 4.8. Limitation on Duty of Secured Party in Respect of
                      -------------------------------------------------
Collateral. Beyond the exercise of reasonable care in the custody thereof,
- ----------
Secured Party shall have no duty as to any Collateral in its possession or
control or in the possession or control of any agent or bailee or as to the
preservation of rights against prior parties or any other rights pertaining
thereto. Secured Party shall be deemed to have exercised reasonable care in the
custody of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which it accords its own property, and
shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by Secured Party in good faith.

         Section 4.9. Appointment of Collateral Agents. At any time or times, in
                      --------------------------------
order to comply with any legal requirement in any jurisdiction, Secured Party
may appoint any bank or trust company or one or more other Persons, either to
act as co-agent or co-agents, jointly with Secured Party, or to act as separate
agent or agents on behalf of the Lenders, with such power and authority as may
be necessary for the effectual operation of the provisions hereof and may be
specified in the instrument of appointment. In so doing Secured Party may, in
the name and on behalf of Debtors, give to such co-agent or separate agent
indemnities and other protections similar to those provided in Section 4.5.

                                       15

                                   ARTICLE V.

                                  Miscellaneous
                                  -------------
         Section 5.1. Notices. Any notice or communication required or permitted
                      -------
hereunder shall be given in writing, sent by (a) personal delivery, (b)
expedited delivery service with proof of delivery, (c) registered or certified
United States mail, postage prepaid, or (d) telegram or facsimile (i) for
Secured Party and Borrower, at the address set forth for such Person in the
Credit Agreement, and (ii) for each Debtor (other than Borrower), at the address
set forth for such Person on its signature page hereto, or to such other address
or to the attention of such other individual as hereafter shall be designated in
writing by the applicable party sent in accordance herewith. Any such notice or
communication shall be deemed to have been given either at the time of personal
delivery or, in the case of delivery service or mail, as of the date of first
attempted delivery at the address and in the manner provided herein, or in the
case of telegram, telex or facsimile, upon receipt.

         Section 5.2. Amendments. No amendment of any provision of this
                      ----------
Agreement shall be effective unless it is in writing and signed by each Debtor
and Secured Party, and no waiver of any provision of this Agreement, and no
consent to any departure by Debtors therefrom, shall be effective unless it is
in writing and signed by Secured Party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given and to the extent specified in such writing. In addition, all such
amendments and waivers shall be effective only if given with the necessary
approvals of Lenders as required in the Credit Agreement.

         Section 5.3. Preservation of Rights. No failure on the part of Secured
                      ----------------------
Party or any Lender to exercise, and no delay in exercising, any right hereunder
or under any other Obligation Document shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. Neither the
execution nor the delivery of this Agreement shall in any manner impair or
affect any other security for the Secured Obligations. The rights and remedies
of Secured Party provided herein and in the other Obligation Documents are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law or otherwise. The rights of Secured Party under any Obligation
Document against any party thereto are not conditional or contingent on any
attempt by Secured Party to exercise any of its rights under any other
Obligation Document against such party or against any other Person.

         Section 5.4. Unenforceability. Any provision of this Agreement which is
                      ----------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.

         Section 5.5. Survival of Agreements. All representations and warranties
                      ----------------------
of Debtors herein, and all covenants and agreements herein shall survive the
execution and delivery of this Agreement, the execution and delivery of any

                                       16

other Obligation Documents and the creation of the Secured Obligations.

         Section 5.6. Other Liable Parties; Joint and Several Liability. Neither
                      -------------------------------------------------
this Agreement nor the exercise by Secured Party or the failure of Secured Party
to exercise any right, power or remedy conferred herein or by law shall be
construed as relieving any Other Liable Party from liability on the Secured
Obligations or any deficiency thereon. All undertakings, warranties and
covenants made by Debtors herein and all rights, powers and authorities given to
or conferred upon Agent and Lenders herein are made or given jointly and
severally by Debtors.

         Section 5.7. Binding Effect and Assignment. This Agreement creates a
                      -----------------------------
continuing security interest in the Collateral and (a) shall be binding on
Debtors and their respective successors and permitted assigns and (b) shall
inure, together with all rights and remedies of Secured Party hereunder, to the
benefit of Secured Party and Lenders and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing,
Secured Party and any Lender may (except as otherwise provided in the Credit
Agreement) pledge, assign or otherwise transfer any or all of their respective
rights under any or all of the Obligation Documents to any other Person, and
such other Person shall thereupon become vested with all of the benefits in
respect thereof granted herein or otherwise. None of the rights or duties of
Debtors hereunder may be assigned or otherwise transferred without the prior
written consent of Secured Party.

         Section 5.8. Termination. It is contemplated by the parties hereto that
                      -----------
there may be times when no Secured Obligations are outstanding, but
notwithstanding such occurrences, this Agreement shall remain valid and shall be
in full force and effect as to subsequent outstanding Secured Obligations. Upon
the satisfaction in full of the Secured Obligations and the termination or
expiration of the Credit Agreement and any other commitment of Lenders to extend
credit to Borrower, then upon written request for the termination hereof
delivered by Debtors to Secured Party this Agreement and the security interest
created hereby shall terminate and all rights to the Collateral shall revert to
Debtors. Secured Party will thereafter, upon Debtors' request and at Debtors'
expense, (a) return to Debtors such of the Collateral in Secured Party's
possession as shall not have been sold or otherwise disposed of or applied
pursuant to the terms hereof, and (b) execute and deliver to Debtors such
documents as Debtor shall reasonably request to evidence such termination.

         Section 5.9. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
                      -------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE
PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY
INTEREST CREATED HEREBY HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF COLORADO.

         Section 5.10. Final Agreement. THIS WRITTEN AGREEMENT AND THE OTHER
                       ---------------
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES HERETO.

                                       17

         Section 5.11. Counterparts; Fax. This Agreement may be separately
                       -----------------
executed in any number of counterparts, all of which when so executed shall be
deemed to constitute one and the same Agreement. This Agreement may be validly
executed and delivered by facsimile or other electronic transmission.

         Section 5.12. "Loan Document". This Agreement is a "Loan Document", as
                        -------------
defined in the Credit Agreement, and, except as expressly provided herein to the
contrary, this Agreement is subject to all provisions of the Credit Agreement
governing such Loan Documents.

                                       18

         IN WITNESS WHEREOF, each Debtor has executed and delivered this
Agreement as of the date first above written.


                                         ST. MARY LAND & EXPLORATION COMPANY


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal


                                         ST. MARY OPERATING COMPANY


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal

                                         Address: 1776 Lincoln Street
                                                  Suite 1100
                                                  Denver, Colorado 80202
                                                  Fax: (303) 861-0934


                                         ST. MARY ENERGY COMPANY


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal


                                         Address: 1776 Lincoln Street
                                                  Suite 1100
                                                  Denver, Colorado 80202
                                                  Fax: (303) 861-0934


                                         NANCE PETROLEUM CORPORATION


                                         By: /s/ RONALD B. SANTI
                                            -----------------------------------
                                            Ronald B. Santi
                                            Vice President - Land

                                         Address: 550 N. 31st Street
                                                  Suite 500
                                                  Box 7168
                                                  Billings, Montana 59103
                                                  Fax:
                                                      -------------------

                                         ST. MARY MINERALS INC.


                                         By: /s/ RICHARD C. NORRIS
                                            -----------------------------------
                                            Richard C. Norris
                                            Vice President - Finance

                                         Address: 1776 Lincoln Street
                                                  Suite 1100
                                                  Denver, Colorado 80202
                                                  Fax: (303) 861-0934


                                         PARISH CORPORATION


                                         By: /s/ RICHARD C. NORRIS
                                            -----------------------------------
                                            Richard C. Norris
                                            Vice President - Finance

                                         Address: 1776 Lincoln Street
                                                  Suite 1100
                                                  Denver, Colorado 80202
                                                  Fax: (303) 861-0934


                                         FOUR WINDS MARKETING, LLC


                                         By:    ST. MARY LAND & EXPLORATION
                                                COMPANY, as Manager


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal

                                         Address: 1776 Lincoln Street
                                                  Suite 1100
                                                  Denver, Colorado 80202
                                                  Fax: (303) 861-0934


                                         ROSWELL, L.L.C.


                                         By:    ST. MARY LAND & EXPLORATION
                                                COMPANY, as a Member


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal

                                         Address: 350 N. St. Paul Street
                                                  Dallas, Texas 75201
                                                  Fax:
                                                      ---------------

EX-10

                                                                    EXHIBIT 10.2

                                                                     [Execution]

                             STOCK PLEDGE AGREEMENT
                             ----------------------

         THIS PLEDGE AGREEMENT (this "Agreement") is made as of May 1, 2002, by
St. Mary Land & Exploration Company, a Delaware corporation (herein called
"Debtor"), in favor of Bank of America, N.A., individually and as agent (herein
called "Secured Party").

                                    RECITALS:

         Debtor has executed in favor of Agent and Lenders (as hereinafter
defined) those certain promissory notes dated June 24, 2000, payable to the
order of Lenders in the aggregate principal amount of $200,000,000 (such
promissory notes, as from time to time amended, and all promissory notes given
in substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively called the "Note").

         The Note was executed pursuant to a Credit Agreement dated June 30,
1998 (herein, as from time to time amended, supplemented or restated, called the
"Credit Agreement"), by and between Borrower, Agent and Lenders, pursuant to
which Lenders have agreed to advance funds to Borrower under the Note.

         Debtor is executing and delivering this Agreement to Secured Party
pursuant to the terms of the Credit Agreement.

         The board of directors of Debtor has determined that Debtor's
execution, delivery and performance of this Agreement may reasonably be expected
to benefit Debtor, directly or indirectly, and are in the best interests of
Debtor.

         NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Debtor from Lenders' extensions of credit under the Credit
Agreement, and of Ten Dollars and other good and valuable consideration, the
receipt and sufficiency of all of which are hereby acknowledged, and in order to
induce Lenders to extend credit under the Credit Agreement, Debtor hereby agrees
with Secured Party for the benefit of each Lender as follows:

                                   AGREEMENTS

                     ARTICLE I -- Definitions and References
                     ---------------------------------------

         Section 1.1. General Definitions. As used herein, the terms
                      -------------------
"Agreement", "Debtor", "Secured Party", "Note" and "Credit Agreement" shall have
the meanings indicated above, and the following terms shall have the following
meanings:

         "Collateral" means all property, of whatever type, which is described
          ----------
in Section 2.1 as being at any time subject to a security interest granted
hereunder to Secured Party.

                                       1

         "Commitment" means the agreement or commitment by Lenders to make loans
          ----------
or otherwise extend credit to Debtor under the Credit Agreement, and any other
agreement, commitment, statement of terms or other document contemplating the
making of loans or advances or other extension of credit by Lenders to or for
the account of Debtor which is now or at any time hereafter intended to be
secured by the Collateral under this Agreement.

         "Issuer" means any issuer of Pledged Shares and any successor of such
          ------
Issuer.

         "Lenders" means the Persons who are from time to time "Lenders" as
          -------
defined in the Credit Agreement.

         "Obligation Documents" means the Credit Agreement, all other Loan
          --------------------
Documents, and all other documents and instruments under, by reason of which, or
pursuant to which any or all of the Secured Obligations are evidenced, governed,
secured, guarantied, or otherwise dealt with, and all other agreements,
certificates, and other documents, instruments and writings heretofore or
hereafter delivered in connection herewith or therewith.

         "Other Liable Party" means any Person, other than Debtor, who may now
          ------------------
or may at any time hereafter be primarily or secondarily liable for any of the
Secured Obligations or who may now or may at any time hereafter have granted to
Secured Party or Lenders a Lien upon any property as security for the Secured
Obligations.

         "Pledged Shares" has the meaning given it in Section 2.1(a).
          --------------

         "Secured Obligations" shall have the meaning given it in Section 2.2.
          -------------------

         "UCC" means the Uniform Commercial Code in effect in the State of
          ---
Colorado on the date hereof.

         Section 1.2. Incorporation of Other Definitions. Reference is hereby
                      ----------------------------------
made to the Credit Agreement for a statement of the terms thereof. All
capitalized terms used in this Agreement which are defined in the Credit
Agreement and not otherwise defined herein shall have the same meanings herein
as set forth therein. All terms used in this Agreement which are defined in the
UCC and not otherwise defined herein or in the Credit Agreement shall have the
same meanings herein as set forth therein, except where the context otherwise
requires.

         Section 1.3. Attachments. All exhibits or schedules which may be
                      -----------
attached to this Agreement are a part hereof for all purposes.

         Section 1.4. Amendment of Defined Instruments. Unless the context
                      --------------------------------
otherwise requires or unless otherwise provided herein, references in this
Agreement to a particular agreement, instrument or document (including, but not
limited to, references in Section 2.1) also refer to and include all renewals,
extensions, amendments, modifications, supplements or restatements of any such
agreement, instrument or document, provided that nothing contained in this
Section shall be construed to authorize any Person to execute or enter into any
such renewal, extension, amendment, modification, supplement or restatement.

                                       2

         Section 1.5. References and Titles. All references in this Agreement to
                      ---------------------
Exhibits, Articles, Sections, subsections, and other subdivisions refer to the
Exhibits, Articles, Sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the beginning
of any subdivision are for convenience only and do not constitute any part of
any such subdivision and shall be disregarded in construing the language
contained in this Agreement. The words "this Agreement", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited. The
phrases "this Section" and "this subsection" and similar phrases refer only to
the Sections or subsections hereof in which the phrase occurs. The word "or" is
not exclusive, and the word "including" (in all of its forms) means "including
without limitation". Pronouns in masculine, feminine and neuter gender shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise
requires.

                         ARTICLE II -- Security Interest
                         -------------------------------

         Section 2.1. Grant of Security Interest. As collateral security for all
                      --------------------------
of the Secured Obligations, Debtor hereby pledges and assigns to Secured Party
and grants to Secured Party a continuing security interest, for the benefit of
each Lender, in and to all right, title and interest of the following:

         (a) Pledged Shares. All of the following, whether now or hereafter
             --------------
existing, which are owned by Debtor or in which Debtor otherwise has any rights:
all shares of stock of each of Debtor's Subsidiaries, including but not limited
to the shares of stock described in Exhibit A hereto, all certificates
representing any such shares, all options and other rights, contractual or
otherwise, at any time existing with respect to such shares, and all dividends,
cash, instruments and other property now or hereafter received, receivable or
otherwise distributed in respect of or in exchange for any or all of such shares
(any and all such shares, certificates, options, rights, dividends, cash,
instruments and other property being herein called the "Pledged Shares").

         (b)  Proceeds. All proceeds of any and all of the foregoing Collateral.
              --------

In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).

         Section 2.2. Secured Obligations Secured. The security interest created
                      ---------------------------
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, indebtedness and liabilities, whether now existing or
hereafter incurred or arising:

         (a) Credit Agreement Indebtedness. The payment by Debtor, as and when
             -----------------------------
due and payable, of the "Obligations", as defined in the Credit Agreement, of
all amounts from time to time owing by Debtor under or in respect of the Credit
Agreement, the Note, or any of the other Obligation Documents, and the due
performance by Debtor of all of its other obligations under or in respect of the
various Obligation Documents.

                                       3

         (b) Other Indebtedness. All loans and future advances made by Lenders
             ------------------
to Debtor and all other debts, obligations and liabilities of every kind and
character of Debtor now or hereafter existing in favor of Lenders, whether such
debts, obligations or liabilities be direct or indirect, primary or secondary,
joint or several, fixed or contingent, and whether originally payable to Lenders
or to a third party and subsequently acquired by Lenders and whether such debts,
obligations or liabilities are evidenced by notes, open account, overdraft,
endorsement, security agreement, guaranty or otherwise (it being contemplated
that Debtor may hereafter become indebted to Lenders in further sum or sums but
Lenders shall have no obligation to extend further indebtedness by reason of
this Agreement).

         (c) Renewals. All renewals, extensions, amendments, modifications,
             --------
supplements, or restatements of or substitutions for any of the foregoing.

         As used herein, the term "Secured Obligations" refers to all present
and future indebtedness, obligations and liabilities of whatever type which are
described above in this section, including any interest which accrues after the
commencement of any case, proceeding, or other action relating to the
bankruptcy, insolvency, or reorganization of Debtor. Debtor hereby acknowledges
that the Secured Obligations are owed to the various Lenders and that each
Lender is entitled to the benefits of the Liens given under this Agreement.

            ARTICLE III -- Representations, Warranties and Covenants
            --------------------------------------------------------

         Section 3.1. Representations and Warranties. Debtor hereby represents
                      ------------------------------
and warrants to Secured Party and Lenders as follows:


         (a) Security Interest. Debtor has and will have at all times full
             -----------------
right, power and authority to grant a security interest in the Collateral to
Secured Party as provided herein, free and clear of any Lien, adverse claim, or
encumbrance. This Agreement creates a valid and binding first priority security
interest in favor of Secured Party in the Collateral, which security interest
secures all of the Secured Obligations.

         (b) Perfection. The taking possession by Secured Party of all
             ----------
certificates, instruments and cash constituting Collateral from time to time and
the filing of financing statements with the Secretary of State (or equivalent
governmental official) of the State in which Debtor is organized will perfect,
and establish the first priority of, Secured Party's security interest hereunder
in the Collateral securing the Secured Obligations. No further or subsequent
filing, recording, registration, other public notice or other action is
necessary or desirable to perfect or otherwise continue, preserve or protect
such security interest except (i) for continuation statements described in UCC
Section 9.515(d), (ii) for filings required to be filed in the event of a change
in the name, identity, or corporate structure of Debtor, or (iii) in the event
any financing statement filed by Secured Party relating hereto otherwise becomes
inaccurate or incomplete.

         (c) Pledged Shares. Debtor has delivered to Secured Party all
             --------------
certificates evidencing Pledged Shares. All such certificates are valid and
genuine and have not been altered. All shares and other securities constituting
the Pledged Shares have been duly authorized and validly issued, are fully paid
and non-assessable, and were not issued in violation of the preemptive rights of

                                       4

any Person or of any agreement by which Debtor or the Issuer thereof is bound.
All documentary, stamp or other taxes or fees owing in connection with the
issuance, transfer or pledge of Pledged Shares (or rights in respect thereof)
have been paid. No restrictions or conditions exists with respect to the
transfer, voting or capital of any Pledged Shares. The Pledged Shares constitute
the percentage of the class of issued shares of capital stock which is indicated
on Exhibit A. No Issuer of any Pledged Shares has any outstanding stock rights,
rights to subscribe, options, warrants or convertible securities outstanding or
any other rights outstanding whereby any Person would be entitled to have issued
to him capital stock of such Issuer. The Pledged Shares do not constitute
"margin stock" as such term is defined in Regulation U promulgated by the Board
of Governors of the Federal Reserve System.

         Section 3.2. Covenants. Unless Secured Party shall otherwise consent in
                      ---------
writing, Debtor will at all times (i) comply with the covenants contained in the
Credit Agreement which are applicable to Debtor and (ii) comply with the
covenants contained in this Section 3.2 so long as any part of the Secured
Obligations or the Commitment is outstanding.

         (a) Delivery of Pledged Shares. All instruments, certificates, and
             --------------------------
writings evidencing the Pledged Shares shall be delivered to Secured Party on or
prior to the execution and delivery of this Agreement, together with a true and
correct copy of the articles of incorporation and bylaws of each Issuer and all
amendments and supplements thereto. All other certificates, instruments, or
writings hereafter evidencing or constituting Pledged Shares, and all amendments
or supplements to the articles of incorporation or bylaws of any Issuer (whether
or not authorized hereunder), shall be delivered to Secured Party promptly upon
the receipt thereof by or on behalf of Debtor. All such Pledged Shares shall be
held by or on behalf of Secured Party pursuant hereto and shall be delivered in
suitable form for transfer by delivery with any necessary endorsement or shall
be accompanied by fully executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to Secured Party.

         (b) Proceeds of Pledged Shares. If Debtor shall receive, by virtue of
             --------------------------
its being or having been an owner of any Pledged Shares, any (i) stock
certificate (including any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reorganization, reclassification, merger, consolidation, sale of assets,
combination of shares, stock split, spinoff or split-off), promissory note or
other instrument or writing; (ii) option or right, whether as an addition to,
substitution for, or in exchange for, any Pledged Shares, or otherwise; (iii)
dividends payable in cash (except such dividends permitted to be retained by
Debtor pursuant to Section 4.8 hereof) or in securities or other property, or
(iv) dividends or other distributions in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus (except such dividends or distributions permitted to
be retained by Debtor pursuant to Section 4.8 hereof), Debtor shall receive the
same in trust for the benefit of Secured Party, shall segregate it from Debtor's
other property, and shall promptly deliver it to Secured Party in the exact form
received, with any necessary endorsement or appropriate stock powers duly
executed in blank, to be held by Secured Party as Collateral.

         (c) Status of Pledged Shares. The certificates evidencing the Pledged
             ------------------------
Shares shall at all times be valid and genuine and shall not be altered. The

                                       5

Pledged Shares at all times shall be duly authorized, validly issued, fully
paid, and non-assessable, and shall not be issued in violation of the
pre-emptive rights of any Person or of any agreement by which Debtor or the
Issuer thereof is bound and shall not be subject to any restrictions with
respect to transfer, voting or Capital of such Pledged Shares.

         (d) Dilution of Shareholdings. Debtor will not permit the issuance of
             -------------------------
(i) any additional shares of any class of capital stock of any Issuer (unless
immediately upon issuance the same are pledged and delivered to Secured Party
pursuant to the terms hereof to the extent necessary to give Secured Party a
first priority security interest after such issue in at least the same
percentage of such Issuer's outstanding shares as Debtor had before such issue),
(ii) any securities convertible voluntarily by the holder thereof or
automatically upon the occurrence or non-occurrence of any event or condition
into, or exchangeable for, any such shares of capital stock, or (iii) any
warrants, options, contracts or other commitments entitling any Person to
purchase or otherwise acquire any such shares of capital stock not outstanding
as of the date of this Agreement.

         (e) Restrictions on Pledged Shares. Debtor will not enter into any
             ------------------------------
agreement creating, or otherwise permit to exist, any restriction or condition
upon the transfer, voting or control of any Pledged Shares.


                ARTICLE IV -- Remedies, Powers and Authorizations
                -------------------------------------------------

         Section 4.1.  Provisions Concerning the Collateral.
                       ------------------------------------

         (a) Additional Filings. Debtor hereby authorizes Secured Party to file,
             ------------------
without the signature of Debtor where permitted by law, one or more financing or
continuation statements, and amendments thereto, covering or otherwise relating
to the Collateral. Without limitation of the foregoing sentence, Debtor hereby
authorizes Secured Party to file one or more financing statements without the
signature of Debtor which describe the Collateral as "as assets of Debtor" or
use words of similar import. Debtor further agrees that a carbon, photographic
or other reproduction of this Security Agreement or of any financing statement
describing any Collateral is sufficient as a financing statement and may be
filed in any jurisdiction by Secured Party.

         (b) Power of Attorney. Debtor hereby irrevocably appoints Secured Party
             -----------------
as Debtor's attorney-in-fact and proxy, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time in
Secured Party's discretion, to take any action, and to execute or indorse any
instrument, certificate or notice, which Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement including any action or
instrument: (i) to request or instruct each Issuer (and each registrar, transfer
agent, or similar Person acting on behalf of each Issuer) to register the pledge
or transfer of the Collateral to Secured Party; (ii) to otherwise give
notification to any Issuer, registrar, transfer agent, financial intermediary,
or other Person of Secured Party's security interests hereunder; (iii) to ask,
demand, collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral; (iv) to receive, indorse and collect any drafts or other instruments
or documents; (v) to enforce any obligations included among the Collateral; and

                                       6

(vi) to file any claims or take any action or institute any proceedings which
Secured Party may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce, perfect, or establish the priority of the
rights of Secured Party with respect to any of the Collateral. Debtor hereby
acknowledges that such power of attorney and proxy are coupled with an interest,
and are irrevocable.

         (c) Performance by Secured Party. If Debtor fails to perform any
             ----------------------------
agreement or obligation contained herein, Secured Party may itself perform, or
cause performance of, such agreement or obligation, and the expenses of Secured
Party incurred in connection therewith shall be payable by Debtor under Section
4.5.

         (d) Collection Rights. Secured Party shall have the right at any time,
             -----------------
upon the occurrence and during the continuance of an Event of Default, to notify
(or require Debtor to notify) any or all Persons (including any Issuer)
obligated to make payments which are included among the Collateral (whether
accounts, general intangibles, dividends, or otherwise) of the assignment
thereof to Secured Party under this Agreement and to direct such obligors to
make payment of all amounts due or to become due to Debtor thereunder directly
to Secured Party and, upon such notification and at the expense of Debtor and to
the extent permitted by law, to enforce collection thereof and to adjust, settle
or compromise the amount or payment thereof, in the same manner and to the same
extent as Debtor could have done. After Debtor receives notice that Secured
Party has given (and after Secured Party has required Debtor to give) any notice
referred to above in this subsection:

         (i) all amounts and proceeds (including instruments and writings)
         received by Debtor in respect of such rights to payments, accounts, or
         general intangibles shall be received in trust for the benefit of
         Secured Party hereunder, shall be segregated from other funds of Debtor
         and shall be forthwith paid over to Secured Party in the same form as
         so received (with any necessary indorsement) to be, at Secured Party's
         discretion, either (A) held as cash collateral and released to Debtor
         upon the remedy of all Defaults or Events of Default, or (B) if any
         Event of Default shall have occurred and be continuing, applied as
         specified in Section 4.3, and

         (ii) Debtor will not adjust, settle or compromise the amount or payment
         of any such account or general intangible or release wholly or partly
         any account debtor or obligor thereof (including any Issuer) or allow
         any credit or discount thereon.

         Section 4.2. Event of Default Remedies. If an Event of Default shall
                      -------------------------
have occurred and be continuing, Secured Party may from time to time in its
discretion, without limitation and without notice except as expressly provided
below:

         (a) exercise in respect of the Collateral, in addition to any other
rights and remedies provided for herein, under the other Obligation Documents or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral);

                                       7

         (b) require Debtor to, and Debtor hereby agrees that it will at its
expense and upon request of Secured Party, promptly assemble all books, records
and information of Debtor relating to the Collateral at a place to be designated
by Secured Party which is reasonably convenient to both parties;

         (c) reduce its claim to judgment or foreclose or otherwise enforce, in
whole or in part, the security interest created hereby by any available judicial
procedure;

         (d) dispose of, at its office, on the premises of Debtor or elsewhere,
all or any part of the Collateral, as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts (it being agreed that the sale
of any part of the Collateral shall not exhaust Secured Party's power of sale,
but sales may be made from time to time, and at any time, until all of the
Collateral has been sold or until the Secured Obligations have been paid and
performed in full), and at any such sale it shall not be necessary to exhibit
any of the Collateral;

         (e) buy (or allow one or more of the Lenders to buy) the Collateral, or
any part thereof, at any public sale in accordance with the UCC;

         (f) buy (or allow one or more of the Lenders to buy) the Collateral, or
any part thereof, at any private sale if the Collateral is of a type customarily
sold in a recognized market or is of a type which is the subject of widely
distributed standard price quotations, in accordance with the UCC;

         (g) apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Debtor hereby consents to
any such appointment; and

         (h) at its discretion, retain the Collateral in satisfaction of the
Secured Obligations whenever the circumstances are such that Secured Party is
entitled to do so under the UCC or otherwise (provided that Secured Party shall
in no circumstances be deemed to have retained the Collateral in satisfaction of
the Secured Obligations in the absence of an express notice by Secured Party to
Debtor that Secured Party has either done so or intends to do so).

Debtor agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days' notice to Debtor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. Secured Party shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.

         Section 4.3. Application of Proceeds. If any Event of Default shall
                      -----------------------
have occurred and be continuing, Secured Party may in its discretion apply any
cash held by Secured Party as Collateral, and any cash proceeds received by
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral, to any or all of the following in such
order as Secured Party may (subject to the rights of Lenders under the Credit
Agreement) elect:

                                       8

         (a) To the repayment of all costs and expenses, including reasonable
attorneys' fees and legal expenses, incurred by Secured Party in connection with
(i) the administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Collateral, (iii) the exercise or enforcement of any of the rights of Secured
Party hereunder, or (iv) the failure of Debtor to perform or observe any of the
provisions hereof;

         (b) To the payment or other satisfaction of any Liens, encumbrances, or
adverse claims upon or against any of the Collateral;

         (c) To the reimbursement of Secured Party for the amount of any
obligations of Debtor or any Other Liable Party paid or discharged by Secured
Party pursuant to the provisions of this Agreement or the other Obligation
Documents, and of any expenses of Secured Party payable by Debtor hereunder or
under the other Obligation Documents;

         (d)  To the satisfaction of any other Secured Obligations;

         (e)  By holding the same as Collateral;

         (f) To the payment of any other amounts required by applicable law
(including any provision of the UCC); and

         (g) By delivery to Debtor or to whomever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.

         Section 4.4. Deficiency. In the event that the proceeds of any sale,
                      ----------
collection or realization of or upon Collateral by Secured Party are
insufficient to pay all Secured Obligations and any other amounts to which
Secured Party is legally entitled, Debtor shall be liable for the deficiency,
together with interest thereon as provided in the governing Obligation Documents
or (if no interest is so provided) at such other rate as shall be fixed by
applicable law, together with the costs of collection and the reasonable fees of
any attorneys employed by Secured Party or Lenders to collect such deficiency.

         Section 4.5. Indemnity and Expenses. In addition to, but not in
                      ----------------------
qualification or limitation of, any similar obligations under other Obligation
Documents:

         (a) Debtor will indemnify Secured Party and each Lender from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including enforcement of this Agreement), WHETHER OR NOT
SUCH CLAIMS, LOSSES IN AND LIABILITIES ARE IN ANY WAY OR TO ANY EXTENT OWED, IN
WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED
BY OR ARISE OUT OF SUCH INDEMNIFIED PARTY'S OWN NEGLIGENCE, except to the extent
such claims, losses or liabilities are proximately caused by such indemnified
party's individual gross negligence or willful misconduct.

                                       9

         (b) Debtor will upon demand pay to Secured Party the amount of any and
all reasonable costs and expenses, including the reasonable fees and
disbursements of Secured Party's counsel and of any experts and agents, which
Secured Party may incur in connection with (i) the transactions which give rise
to this Agreement, (ii) the preparation of this Agreement and the perfection and
preservation of this security interest created under this Agreement, (iii) the
administration of this Agreement; (iv) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Collateral; (v) the exercise or enforcement of any of the rights of Secured
Party hereunder; or (vi) the failure by Debtor to perform or observe any of the
provisions hereof, except expenses resulting from Secured Party's gross
negligence or willful misconduct.

         Section 4.6. Non-Judicial Remedies. In granting to Secured Party the
                      ---------------------
power to enforce its rights hereunder without prior judicial process or judicial
hearing, Debtor expressly waives, renounces and knowingly relinquishes any legal
right which might otherwise require Secured Party to enforce its rights by
judicial process. In so providing for non-judicial remedies, Debtor recognizes
and concedes that such remedies are consistent with the usage of trade, are
responsive to commercial necessity, and are the result of a bargain at arm's
length. Nothing herein is intended, however, to prevent Secured Party from
resorting to judicial process at its option.

         Section 4.7. Other Recourse. Debtor waives any right to require Secured
                      --------------
Party or any Lender to proceed against any other Person, to exhaust any
Collateral or other security for the Secured Obligations, or to have any Other
Liable Party joined with Debtor in any suit arising out of the Secured
Obligations or this Agreement, or pursue any other remedy in Secured Party's
power. Debtor further waives any and all notice of acceptance of this Agreement
and of the creation, modification, rearrangement, renewal or extension for any
period of any of the Secured Obligations of any Other Liable Party from time to
time. Debtor further waives any defense arising by reason of any disability or
other defense of any Other Liable Party or by reason of the cessation from any
cause whatsoever of the liability of any Other Liable Party. This Agreement
shall continue irrespective of the fact that the liability of any Other Liable
Party may have ceased and irrespective of the validity or enforceability of any
other Obligation Document to which Debtor or any Other Liable Party may be a
party, and notwithstanding any death, incapacity, reorganization, or bankruptcy
of any Other Liable Party or any other event or proceeding affecting any Other
Liable Party. Until all of the Secured Obligations shall have been paid in full,
Debtor shall have no right to subrogation and Debtor waives the right to enforce
any remedy which Secured Party or any Lender has or may hereafter have against
any Other Liable Party, and waives any benefit of and any right to participate
in any other security whatsoever now or hereafter held by Secured Party and each
Lender. Debtor authorizes Secured Party and each Lender, without notice or
demand, without any reservation of rights against Debtor, and without in any way
affecting Debtor's liability hereunder or on the Secured Obligations, from time
to time to (a) take or hold any other property of any type from any other Person
as security for the Secured Obligations, and exchange, enforce, waive and
release any or all of such other property, (b) apply the Collateral or such
other property and direct the order or manner of sale thereof as Secured Party
may in its discretion determine, (c) renew, extend for any period, accelerate,
modify, compromise, settle or release any of the obligations of any Other Liable
Party in respect to any or all of the Secured Obligations or other security for
the Secured Obligations, (d) waive, enforce, modify, amend, restate or

                                       10

supplement any of the provisions of any Obligation Document with any Person
other than Debtor, and (e) release or substitute any Other Liable Party.

         Section 4.8.  Voting Rights, Dividends, Etc. in Respect of Pledged
                       ----------------------------------------------------
Shares.
- ------
         (a) So long as no Default or Event of Default shall have occurred and
be continuing Debtor may receive and retain any and all dividends or interest
paid in respect of the Pledged Shares; provided, however, that any and all
                                       --------  -------

                  (i) dividends and interest paid or payable other than in cash
         in respect of, and instruments and other property received, receivable
         or otherwise distributed in respect of or in exchange for, any Pledged
         Shares,

                  (ii) dividends and other distributions paid or payable in cash
         in respect of any Pledged Shares in connection with a partial or total
         liquidation or dissolution or in connection with a reduction of
         capital, capital surplus or paid-in surplus, and

                  (iii) cash paid, payable or otherwise distributed in
         redemption of, or in exchange for, any Pledged Shares,

shall be, and shall forthwith be delivered to Secured Party to hold as, Pledged
Shares and shall, if received by Debtor, be received in trust for the benefit of
Secured Party, be segregated from the other property or funds of Debtor, and be
forthwith delivered to Secured Party in the exact form received with any
necessary indorsement or appropriate stock powers duly executed in blank, to be
held by Secured Party as Collateral.

         (b) Upon the occurrence and during the continuance of a Default or an
Event of Default:

                  (i) all rights of Debtor to receive and retain the dividends
         and interest payments which it would otherwise be authorized to receive
         and retain pursuant to subsection (a) of this section shall
         automatically cease, and all such rights shall thereupon become vested
         in Secured Party which shall thereupon have the sole right to receive
         and hold as Pledged Shares such dividends and interest payments;

                  (ii) without limiting the generality of the foregoing, Secured
         Party may at its option exercise any and all rights of conversion,
         exchange, subscription or any other rights, privileges or options
         pertaining to any of the Pledged Shares as if it were the absolute
         owner thereof, including, without limitation, the right to exchange, in
         its discretion, any and all of the Pledged Shares upon the merger,
         consolidation, reorganization, recapitalization or other adjustment of
         any Issuer, or upon the exercise by any Issuer of any right, privilege
         or option pertaining to any Pledged Shares, and, in connection
         therewith, to deposit and deliver any and all of the Pledged Shares
         with any committee, depository, transfer, agent, registrar or other
         designated agent upon such terms and conditions as it may determine;
         and

                                       11

                  (iii) all dividends and interest payments which are received
         by Debtor contrary to the provisions of subsection (b)(i) of this
         section shall be received in trust for the benefit of Secured Party,
         shall be segregated from other funds of Debtor, and shall be forthwith
         paid over to Secured Party as Pledged Shares in the exact form
         received, to be held by Secured Party as Collateral.

         Section 4.9. Private Sale of Pledged Shares. Debtor recognizes that
                      ------------------------------
Secured Party may deem it impracticable to effect a public sale of all or any
part of the Pledged Shares and that Secured Party may, therefore, determine to
make one or more private sales of any such securities to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
securities for their own account, for investment and not with a view to the
distribution or resale thereof. Debtor acknowledges that any such private sale
may be at prices and on terms less favorable to the seller than the prices and
other terms which might have been obtained at a public sale and, notwithstanding
the foregoing, agrees that such private sales shall be deemed to have been made
in a commercially reasonable manner and that Secured Party shall have no
obligation to delay sale of any such securities for the period of time necessary
to permit the Issuer of such securities to register such securities for public
sale under the Securities Act of 1933, as amended (the "Securities Act"). Debtor
further acknowledges and agrees that any offer to sell such securities which has
been (a) publicly advertised on a bona fide basis in a newspaper or other
publication of general circulation in the financial community of Denver,
Colorado (to the extent that such an offer may be so advertised without prior
registration under the Securities Act), or (b) made privately in the manner
described above to not less than fifteen (15) bona fide offerees shall be deemed
to involve a "public disposition" for the purposes of Section 9.610(c) of the
UCC (or any successor or similar, applicable statutory provision),
notwithstanding that such sale may not constitute a "public offering" under the
Securities Act, and that Secured Party may, in such event, bid for the purchase
of such securities.

                           ARTICLE V. -- Miscellaneous
                           ---------------------------

         Section 5.1. Notices. Any notice or communication required or permitted
                      -------
hereunder shall be given as provided in the Credit Agreement.


         Section 5.2. Amendments. No amendment of any provision of this
                      ----------
Agreement shall be effective unless it is in writing and signed by Debtor and
Secured Party, and no waiver of any provision of this Agreement, and no consent
to any departure by Debtor therefrom, shall be effective unless it is in writing
and signed by Secured Party, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given and
to the extent specified in such writing. In addition to all such amendments and
waivers shall be effective only if given with the necessary approvals of Lenders
as required in the Credit Agreement.

         Section 5.3. Preservation of Rights. No failure on the part of Secured
                      ----------------------
Party or any Lender to exercise, and no delay in exercising, any right hereunder
or under any other Obligation Document shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. Neither the

                                       12

execution nor the delivery of this Agreement shall in any manner impair or
affect any other security for the Secured Obligations. The rights and remedies
of Secured Party provided herein and in the other Obligation Documents are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law. The rights of Secured Party under any Obligation Document
against any party thereto are not conditional or contingent on any attempt by
Secured Party to exercise any of its rights under any other Obligation Document
against such party or against any other Person.

         Section 5.4. Unenforceability. Any provision of this Agreement which is
                      ----------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.

         Section 5.5. Survival of Agreements. All representations and warranties
                      ----------------------
of Debtor herein, and all covenants and agreements herein shall survive the
execution and delivery of this Agreement, the execution and delivery of any
other Obligation Documents and the creation of the Secured Obligations.

         Section 5.6. Other Liable Party. Neither this Agreement nor the
                      ------------------
exercise by Secured Party or the failure of Secured Party to exercise any right,
power or remedy conferred herein or by law shall be construed as relieving any
Other Liable Party from liability on the Secured Obligations or any deficiency
thereon. This Agreement shall continue irrespective of the fact that the
liability of any Other Liable Party may have ceased or irrespective of the
validity or enforceability of any other Obligation Document to which Debtor or
any Other Liable Party may be a party, and notwithstanding the reorganization,
death, incapacity or bankruptcy of any Other Liable Party, and notwithstanding
the reorganization or bankruptcy or other event or proceeding affecting any
Other Liable Party.

         Section 5.7. Binding Effect and Assignment. This Agreement creates a
                      -----------------------------
continuing security interest in the Collateral and (a) shall be binding on
Debtor and its successors and permitted assigns and (b) shall inure, together
with all rights and remedies of Secured Party hereunder, to the benefit of
Secured Party and Lenders and their respective successors, transferees and
assigns. Without limiting the generality of the foregoing, Secured Party and any
Lender may (except as otherwise provided in the Credit Agreement) pledge, assign
or otherwise transfer any or all of its rights under any or all of the
Obligation Documents to any other Person, and such other Person shall thereupon
become vested with all of the benefits in respect thereof granted to Secured
Party, herein or otherwise. None of the rights or duties of Debtor hereunder may
be assigned or otherwise transferred without the prior written consent of
Secured Party.

         Section 5.8. Termination. It is contemplated by the parties hereto that
                      -----------
there may be times when no Secured Obligations are outstanding, but
notwithstanding such occurrences, this Agreement shall remain valid and shall be
in full force and effect as to subsequent outstanding Secured Obligations. Upon
the satisfaction in full of the Secured Obligations, and the termination or
expiration of the Credit Agreement and any other commitment of Lenders to extend
credit to Debtor, then upon written request for the termination hereof delivered
by Debtor to Secured Party this Agreement and the security interest created

                                       13

hereby shall terminate and all rights to the Collateral shall revert to Debtor.
Secured Party will, upon Debtor's request and at Debtor's expense, (a) return to
Debtor such of the Collateral as shall not have been sold or otherwise disposed
of or applied pursuant to the terms hereof; and (b) execute and deliver to
Debtor such documents as Debtor shall reasonably request to evidence such
termination.

         SECTION 5.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
                      -------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE
PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY
INTEREST CREATED HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

         SECTION 5.10. FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER
                       ---------------
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES HERETO.

         Section 5.11. Counterparts. This Agreement may be separately executed
                       ------------
in any number of counterparts, all of which when so executed shall be deemed to
constitute one and the same Agreement.

         Section 5.12. "Loan Document". This Agreement is a "Loan Document", as
                        -------------
defined in the Credit Agreement, and, except as expressly provided herein to the
contrary, this Agreement is subject to all provisions of the Credit Agreement
governing such Loan Documents.

           *[The remainder of this page is intentionally left blank.]

                                       14

         IN WITNESS WHEREOF, Debtor has caused this Agreement to be executed and
delivered this Agreement by its officer thereunto duly authorized, as of the
date first above written.


                                         ST MARY LAND & EXPLORATION COMPANY


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal










                                                                       EXHIBIT A



                       Description of Interests in Issuers
                       -----------------------------------


Issuer                          Stock Certificate      # of Shares    % of Class
- ------                          -----------------      -----------    ----------
                                      Number
                                      ------
St. Mary Operating Company               029              891         100%
St. Mary Energy Company                  001              100         100%
Nance Petroleum Corporation              34            20,000
                                         15             5,000         100% (aggregate)
St. Mary Minerals Inc.                   1              5,000         100%
Parish Corporation                       4              1,000         100%

together with all other shares of stock issued by any Issuer now owned or
hereafter owned by Debtor

EX-10

                                                                    EXHIBIT 10.3

                                                                     [Execution]

                              LLC PLEDGE AGREEMENT
                              --------------------

         THIS PLEDGE AGREEMENT (this "Agreement") is made as of May 1, 2002, by
St. Mary Land & Exploration Company, a Delaware corporation (herein called
"Debtor"), in favor of Bank of America, N.A., individually and as agent (herein
called "Secured Party").

                                    RECITALS:

         1. Debtor has executed in favor of Agent and Lenders (as hereinafter
defined) those certain promissory notes dated June 24, 2000, payable to the
order of Lenders in the aggregate principal amount of $200,000,000 (such
promissory notes, as from time to time amended, and all promissory notes given
in substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively called the "Note").

         2. The Note was executed pursuant to a Credit Agreement dated June 30,
1998 (herein, as from time to time amended, supplemented or restated, called the
"Credit Agreement"), by and between Borrower, Agent and Lenders, pursuant to
which Lenders have agreed to advance funds to Borrower under the Note.

         3. Debtor is executing and delivering this Agreement to Secured Party
pursuant to the terms of the Credit Agreement.

         4. The board of directors of Debtor has determined that Debtor's
execution, delivery and performance of this Agreement may reasonably be expected
to benefit Debtor, directly or indirectly, and are in the best interests of
Debtor.

         NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to Debtor from Lenders' extensions of credit under the Credit
Agreement, and of Ten Dollars and other good and valuable consideration, the
receipt and sufficiency of all of which are hereby acknowledged, and in order to
induce Lenders to extend credit under the Credit Agreement, Debtor hereby agrees
with Secured Party for the benefit of each Lender as follows:

                                   AGREEMENTS

                     ARTICLE I -- Definitions and References
                     ---------------------------------------

         Section 1.1. General Definitions. As used herein, the terms
                      -------------------
"Agreement", "Debtor", "Secured Party", "Note" and "Credit Agreement" shall have
the meanings indicated above, and the following terms shall have the following
meanings:

         "Collateral" means all property, of whatever type, which is described
          ----------
in Section 2.1 as being at any time subject to a security interest granted
hereunder to Secured Party.

         "Commitment" means the agreement or commitment by Lenders to make loans
          ----------
or otherwise extend credit to Debtor under the Credit Agreement, and any other
agreement, commitment, statement of terms or other document contemplating the
making of loans or advances or other extension of credit by Lenders to or for
the account of Debtor which is now or at any time hereafter intended to be
secured by the Collateral under this Agreement.

         "Lenders" means the Persons who are from time to time "Lenders" as
          -------
defined in the Credit Agreement.

         "LLC" means any limited liability company which is included within the
          ---
term "Limited Liability Company" pursuant to Section 2.1(a), and any successor
of any such limited liability company.

         "LLC Agreements", "LLC Rights", and "LLC Rights to Payments" have the
          --------------
meanings given them in Section 2.1(a).

         "Obligation Documents" means the Credit Agreement, all other Loan
          --------------------
Documents, and all other documents and instruments under, by reason of which, or
pursuant to which any or all of the Secured Obligations are evidenced, governed,
secured, guarantied, or otherwise dealt with, and all other agreements,
certificates, and other documents, instruments and writings heretofore or
hereafter delivered in connection herewith or therewith.

         "Other Liable Party" means any Person, other than Debtor, who may now
          ------------------
or may at any time hereafter be primarily or secondarily liable for any of the
Secured Obligations or who may now or may at any time hereafter have granted to
Secured Party or Lenders a Lien upon any property as security for the Secured
Obligations.

         "Other LLC Rights" has the meaning given it in Section 2.1(a).
          ----------------

         "Secured Obligations" shall have the meaning given to it in Section
2.2.      -------------------

         "UCC" means the Uniform Commercial Code in effect in the State of
          ---
Colorado on the date hereof.

         Section 1.2. Incorporation of Other Definitions. Reference is hereby
                      ----------------------------------
made to the Credit Agreement for a statement of the terms thereof. All
capitalized terms used in this Agreement which are defined in the Credit
Agreement and not otherwise defined herein shall have the same meanings herein
as set forth therein. All terms used in this Agreement which are defined in the
UCC and not otherwise defined herein or in the Credit Agreement shall have the
same meanings herein as set forth therein, except where the context otherwise
requires.

         Section 1.3. Attachments. All exhibits or schedules which may be
                      -----------
attached to this Agreement are a part hereof for all purposes.

         Section 1.4. Amendment of Defined Instruments. Unless the context
                      --------------------------------
otherwise requires or unless otherwise provided herein, references in this
Agreement to a particular agreement, instrument or document (including, but not

                                       2

limited to, references in Section 2.1) also refer to and include all renewals,
extensions, amendments, modifications, supplements or restatements of any such
agreement, instrument or document, provided that nothing contained in this
Section shall be construed to authorize any Person to execute or enter into any
such renewal, extension, amendment, modification, supplement or restatement.

         Section 1.5. References and Titles. All references in this Agreement to
                      ---------------------
Exhibits, Articles, Sections, subsections, and other subdivisions refer to the
Exhibits, Articles, Sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the beginning
of any subdivision are for convenience only and do not constitute any part of
any such subdivision and shall be disregarded in construing the language
contained in this Agreement. The words "this Agreement", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited. The
phrases "this Section" and "this subsection" and similar phrases refer only to
the Sections or subsections hereof in which the phrase occurs. The word "or" is
not exclusive, and the word "including" (in all of its forms) means "including
without limitation". Pronouns in masculine, feminine and neuter gender shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise
requires.

                         ARTICLE II -- Security Interest
                         -------------------------------

         Section 2.1. Grant of Security Interest. As collateral security for all
                      --------------------------
of the Secured Obligations, Debtor hereby pledges and assigns to Secured Party
and grants to Secured Party a continuing security interest for the benefit of
each Lender in and to all right, title and interest of the following:

         (a) LLC Rights. All of the following (herein collectively called the
             ----------
"LLC Rights"), whether now or hereafter existing, which are owned by Debtor or
in which Debtor otherwise has any rights:

                  (i) all units of limited liability company ownership interests
         and all proceeds, interest, profits, and other payments or rights to
         payment attributable to Debtor's interests in each limited liability
         company (whether one or more, herein called the "LLCs") described in
         Exhibit A hereto, and all distributions, cash, instruments and other
         property now or hereafter received, receivable or otherwise made with
         respect to or in exchange for any interest of Debtor in any LLC,
         including interim distributions, returns of capital, loan repayments,
         and payments made in liquidation of any LLC, and whether or not the
         same arise or are payable under any LLC agreement or certificate
         forming any LLC or any other agreement governing any LLC or the
         relations among the members of any LLC (any and all such proceeds,
         interest, profits, payments, rights to payment, distributions, cash,
         instruments, other property, interim distributions, returns of capital,
         loan repayments, and payments made in liquidation being herein called
         the "LLC Rights to Payments", and any and all such LLC agreements,
         certificates, and other agreements being herein called the "LLC
         Agreements"); and

                                       3

                  (ii) all other interests and rights of Debtor in any of the
         LLCs, whether under the LLC Agreements or otherwise, including without
         limitation any right to cause the dissolution of any LLC or to appoint
         or nominate a successor to Debtor as a member in any LLC (all such
         other interests and rights being herein called the "Other LLC Rights").

         (b)  Proceeds. All proceeds of any and all of the foregoing Collateral.
              --------

In each case, the foregoing shall be covered by this Agreement, whether Debtor's
ownership or other rights therein are presently held or hereafter acquired and
however Debtor's interests therein may arise or appear (whether by ownership,
security interest, claim or otherwise).

         The granting of the foregoing security interest does not make Secured
Party a successor to Debtor as a member of any LLC, and neither Secured Party
nor any of its successors or assigns hereunder shall be deemed to have become a
member of any LLC by accepting this Agreement or exercising any right granted
herein unless and until such time, if any, when Secured Party or any such
successor or assign expressly becomes a member of any LLC after a foreclosure
upon Other LLC Rights. Anything herein to the contrary notwithstanding (except
to the extent, if any, that Secured Party or any of its successors or assigns
hereafter expressly becomes a member of any LLC), neither Secured Party nor any
of its successors or assigns shall be deemed to have assumed or otherwise become
liable for any debts or obligations of any LLC or of Debtor to or under any LLC,
and the above definition of "Other LLC Rights" shall be deemed modified, if
necessary, to prevent any such assumption or other liability.

         Section 2.2. Secured Obligations Secured. The security interest created
                      ---------------------------
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, indebtedness and liabilities, whether now existing or
hereafter incurred or arising:

         (a) Credit Agreement Indebtedness. The payment by Debtor , as and when
             -----------------------------
due and payable, of the "Obligations", as defined in the Credit Agreement, of
all amounts from time to time owing by Debtor under or in respect of the Credit
Agreement, the Note, or any of the other Obligation Documents, and the due
performance by Debtor of all of its other obligations under or in respect of the
various Obligation Documents.

         (b) Other Indebtedness. All loans and future advances made by Lenders
             ------------------
to Debtor and all other debts, obligations and liabilities of every kind and
character of Debtor now or hereafter existing in favor of Lenders, whether such
debts, obligations or liabilities be direct or indirect, primary or secondary,
joint or several, fixed or contingent, and whether originally payable to Lenders
or to a third party and subsequently acquired by Lenders and whether such debts,
obligations or liabilities are evidenced by notes, open account, overdraft,
endorsement, security agreement, guaranty or otherwise (it being contemplated
that Debtor may hereafter become indebted to Lenders in further sum or sums but
Lenders shall have no obligation to extend further indebtedness by reason of
this Agreement).

         (c) Renewals. All renewals, extensions, amendments, modifications,
             --------
supplements, or restatements of or substitutions for any of the foregoing.

                                       4

As used herein, the term "Secured Obligations" refers to all present and future
indebtedness, obligations, and liabilities of whatever type which are described
above in this section, including any interest which accrues after the
commencement of any case, proceeding, or other action relating to the
bankruptcy, insolvency, or reorganization of Debtor. Debtor hereby acknowledges
that the Secured Obligations are owed to the various Lenders and that each
Lender is entitled to the benefits of the Liens given under this Agreement.


            ARTICLE III -- Representations, Warranties and Covenants
            --------------------------------------------------------

         Section 3.1. Representations and Warranties. Debtor hereby represents
                      ------------------------------
and warrants to Secured Party and Lenders as follows:


         (a) Security Interest. Debtor has and will have at all times full
             -----------------
right, power and authority to grant a security interest in the Collateral to
Secured Party as provided herein, free and clear of any Lien, adverse claim, or
encumbrance. This Agreement creates a valid and binding first priority security
interest in favor of Secured Party in the Collateral, which security interest
secures all of the Secured Obligations.

         (b) Perfection. The taking possession by Secured Party of all
             ----------
certificates, instruments and cash constituting Collateral from time to time and
the filing of financing statements with the Secretary of State (or equivalent
governmental official) of the State in which Debtor is organized will perfect,
and establish the first priority of, Secured Party's security interest hereunder
in the Collateral securing the Secured Obligations. No further or subsequent
filing, recording, registration, other public notice or other action is
necessary or desirable to perfect or otherwise continue, preserve or protect
such security interest except (i) for continuation statements described in UCC
Section 9.515(d), (ii) for filings required to be filed in the event of a change
in the name, identity, or corporate structure of Debtor, or (iii) in the event
any financing statement filed by Secured Party relating hereto otherwise becomes
inaccurate or incomplete.

         (c) LLC Rights. All units and other securities constituting the LLC
             ----------
Rights have been duly authorized and validly issued, are fully paid and
non-assessable, and were not issued in violation of the preemptive rights of any
person or of any agreement by which Debtor or any LLC is bound. All documentary,
stamp or other taxes or fees owing in connection with the issuance, transfer or
pledge of the LLC Rights (or rights in respect thereof) have been paid. No
restrictions or conditions exist with respect to the transfer, voting or capital
of any LLC Rights. Except as disclosed to Secured Party in writing on or prior
to the date hereof, no LLC has any outstanding rights to subscribe, options,
warrants or convertible securities outstanding or any other rights outstanding
whereby any person would be entitled to have issued to it units of ownership
interest in any LLC. Debtor has taken or concurrently herewith is taking all
actions necessary to perfect Secured Party's security interest in the LLC
Rights, including any registrations, filings or notices which may be necessary
or advisable under Article 8 of the UCC as in effect in the state or states in
which any LLC was organized. No other Person has any such registration in
effect. Debtor owns the interests in each LLC which are described on Exhibit A.
No LLC has made any calls for capital which have not been fully paid by Debtor
and by each other member of such LLC. Debtor is not in default under any of the
LLC Agreements, nor is any other member of any LLC. Neither the making of this

                                       5

Agreement nor the exercise of any rights or remedies of Secured Party hereunder
will cause a default under any of the LLC Agreements or otherwise adversely
affect or diminish any of the LLC Rights. Debtor's rights under the LLC
Agreements are enforceable in accordance with their terms, except as such
enforcement may be limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights.

         Section 3.2. Covenants. Unless Secured Party shall otherwise consent in
                      ---------
writing, Debtor will at all times (i) comply with the covenants contained in the
Credit Agreement which are applicable to Debtor and (ii) comply with the
covenants contained in this Section 3.2 so long as any part of the Secured
Obligations or the Commitment is outstanding.

         (a) LLC Rights. Debtor will maintain its ownership of the interests in
             ----------
each LLC listed on Exhibit A. Debtor will timely honor all calls under any LLC
Agreement to provide capital to any LLC, and Debtor will not otherwise default
in performing any of Debtor's obligations under any LLC Agreement or allow any
LLC Rights to be adversely affected or diminished. Debtor will promptly inform
Secured Party of any such failure to honor a capital call, default, adverse
effect, or diminution. Debtor will promptly inform Secured Party of any such
failure to honor a capital call or default by another member of any LLC. The LLC
Rights shall at all times be duly authorized and validly issued and shall not be
issued in violation of the pre-emptive rights of any Person or of any agreement
by which Debtor or the LLC thereof is bound.

         (b) Delivery of Certificates. All certificates, instruments, or
             ------------------------
writings evidencing the LLC Rights shall be delivered to Secured Party on or
prior to the execution and delivery of this Agreement, together with a true and
correct copy of each LLC Agreement and all amendments and supplements thereto.
All other certificates, instruments, or writings hereafter evidencing or
constituting LLC Rights, and all amendments or supplements to any LLC Agreement
(whether or not authorized hereunder), shall be delivered to Secured Party
promptly upon the receipt thereof by or on behalf of Debtor. All such
certificates, instruments, or writings shall be held by or on behalf of Secured
Party pursuant hereto and shall be delivered in suitable form for transfer by
delivery with any necessary endorsement or shall be accompanied by fully
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Secured Party.

         (c) Proceeds of LLC Rights. If Debtor shall receive, by virtue of its
             ----------------------
being or having been an owner of any LLC Rights, any (i) certificate,
instrument, deed, bill of sale, promissory note, or other instrument or writing
(including any given in connection with any increase or reduction of capital,
reorganization, reclassification, merger, consolidation, sale of assets,
liquidation, or partial liquidation); (ii) option or right, whether as an
addition to, substitution for, or in exchange for, any LLC Rights, or otherwise;
or (iii) distributions payable in cash (except distributions permitted to be
retained by Debtor pursuant to Section 4.8 hereof) or in securities or other
property, Debtor shall receive the same in trust for the benefit of Secured
Party, shall segregate it from Debtor's other property, and shall promptly
deliver it to Secured Party in the exact form received, with any necessary
endorsement or instruments of transfer duly executed in blank, to be held by
Secured Party as Collateral.

         (d) Notices from LLC. Debtor will promptly deliver to Secured Party a
             ----------------
copy of each notice or other communication received by Debtor from any LLC in
respect of any LLC Rights.

                                       6

         (e) Diminution of LLC Rights. Debtor will not adjust, settle,
             ------------------------
compromise, amend or modify any of the LLC Rights or the LLC Agreements. Debtor
will not permit the creation of any additional interests in any LLC (unless
immediately upon creation the same are pledged to Secured Party pursuant to the
terms hereof to the extent necessary to give Secured Party a first priority
security interest in total LLC Rights after such creation which are in the
aggregate at least the same percentage of the outstanding rights of the same
kind in any LLC as were subject hereto before such issue), whether such
additional interests are presently vested or will vest upon the payment of money
or the occurrence or nonoccurrence of any other condition. Debtor will not enter
into any agreement (other than the Obligation Documents) creating, or otherwise
permit to exist, any restriction or condition upon the transfer or exercise of
any LLC Rights.

         (f) Status of LLC Rights. Any certificates evidencing the LLC Rights
             --------------------
shall at all times be valid and genuine and shall not be altered. The LLC Rights
at all times shall be duly authorized, validly issued, fully paid, and
non-assessable, and shall not be issued in violation of the preemptive rights of
any person or of any agreement by which Debtor or any LLC is bound and shall not
be subject to any restrictions with respect to transfer, voting or capital of
such LLC Rights.

         (g) Restrictions on LLC Rights. Debtor will not enter into any
             --------------------------
agreement creating, or otherwise permit to exist, any restriction or condition
upon the transfer, voting or control of any LLC Rights.


                ARTICLE IV -- Remedies, Powers and Authorizations
                -------------------------------------------------

         Section 4.1.  Provisions Concerning the Collateral.
                       ------------------------------------

         (a) Additional Filings. Debtor hereby authorizes Secured Party to file,
             ------------------
without the signature of Debtor where permitted by law, one or more financing or
continuation statements, and amendments thereto, covering or otherwise relating
to the Collateral. Debtor further agrees that a carbon, photographic or other
reproduction of this Security Agreement or of any financing statement describing
any Collateral is sufficient as a financing statement and may be filed in any
jurisdiction by Secured Party.

         (b) Power of Attorney. Debtor hereby irrevocably appoints Secured Party
             -----------------
as Debtor's attorney-in-fact and proxy, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time in
Secured Party's discretion, to take any action, and to execute or indorse any
instrument, certificate or notice, which Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement including any action or
instrument: (i) to request or instruct each LLC (and each registrar, transfer
agent, or similar Person acting on behalf of each LLC) to register the pledge or
transfer of the Collateral to Secured Party; (ii) to otherwise give notification
to any LLC, registrar, transfer agent, financial intermediary, or other Person
of Secured Party's security interests hereunder; (iii) to ask, demand, collect,
sue for, recover, compound, receive and give acquittance and receipts for moneys
due and to become due under or in respect of any of the Collateral; (iv) to
receive, indorse and collect any drafts or other instruments or documents; (v)
to enforce any obligations included among the Collateral; and (vi) to file any

                                       7

claims or take any action or institute any proceedings which Secured Party may
deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce, perfect, or establish the priority of the rights of
Secured Party with respect to any of the Collateral. Debtor hereby acknowledges
that such power of attorney and proxy are coupled with an interest, and are
irrevocable.

         (c) Performance by Secured Party. If Debtor fails to perform any
             ----------------------------
agreement or obligation contained herein, Secured Party may itself perform, or
cause performance of, such agreement or obligation, and the expenses of Secured
Party incurred in connection therewith shall be payable by Debtor under Section
4.5.

         (d) Collection Rights. Secured Party shall have the right at any time,
             -----------------
upon the occurrence and during the continuance of an Event of Default, to notify
(or require Debtor to notify) any or all Persons (including any LLC) obligated
to make payments which are included among the Collateral (whether accounts,
general intangibles, dividends, distribution rights, LLC Rights to Payment, or
otherwise) of the assignment thereof to Secured Party under this Agreement and
to direct such obligors to make payment of all amounts due or to become due to
Debtor thereunder directly to Secured Party and, upon such notification and at
the expense of Debtor and to the extent permitted by law, to enforce collection
thereof and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Debtor could have done. After Debtor
receives notice that Secured Party has given (and after Secured Party has
required Debtor to give) any notice referred to above in this subsection:

         (i) all amounts and proceeds (including instruments and writings)
         received by Debtor in respect of such accounts, general intangibles,
         dividends, distribution rights, or LLC Rights to Payments shall be
         received in trust for the benefit of Secured Party hereunder, shall be
         segregated from other funds of Debtor and shall be forthwith paid over
         to Secured Party in the same form as so received (with any necessary
         indorsement) to be, at Secured Party's discretion, either (A) held as
         cash collateral and released to Debtor upon the remedy of all Defaults
         or Events of Default or (B) if any Event of Default shall have occurred
         and be continuing, applied as specified in Section 4.3, and

         (ii) Debtor will not adjust, settle or compromise the amount or payment
         of any such account or general intangible or LLC Right to Payments or
         release wholly or partly any account debtor or obligor thereof
         (including any LLC) or allow any credit or discount thereon.

         Section 4.2. Event of Default Remedies. If an Event of Default shall
                      -------------------------
have occurred and be continuing, Secured Party may from time to time in its
discretion, without limitation and without notice except as expressly provided
below:

         (a) exercise in respect of the Collateral, in addition to any other
rights and remedies provided for herein, under the other Obligation Documents or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral);

                                       8

         (b) require Debtor to, and Debtor hereby agrees that it will at its
expense and upon request of Secured Party, promptly assemble all books, records
and information of Debtor relating to the Collateral at a place to be designated
by Secured Party which is reasonably convenient to both parties;

         (c) reduce its claim to judgment or foreclose or otherwise enforce, in
whole or in part, the security interest created hereby by any available judicial
procedure;

         (d) dispose of, at its office, on the premises of Debtor or elsewhere,
all or any part of the Collateral, as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts (it being agreed that the sale
of any part of the Collateral shall not exhaust Secured Party's power of sale,
but sales may be made from time to time, and at any time, until all of the
Collateral has been sold or until the Secured Obligations have been paid and
performed in full), and at any such sale it shall not be necessary to exhibit
any of the Collateral;

         (e) buy (or allow one or more of the Lenders to buy) the Collateral, or
any part thereof, at any public sale in accordance with the UCC;

         (f) buy (or allow one or more of the Lenders to buy) the Collateral, or
any part thereof, at any private sale if the Collateral is of a type customarily
sold in a recognized market or is of a type which is the subject of widely
distributed standard price quotations, in accordance with the UCC;

         (g) apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Debtor hereby consents to
any such appointment; and

         (h) at its discretion, retain the Collateral in satisfaction of the
Secured Obligations whenever the circumstances are such that Secured Party is
entitled to do so under the UCC or otherwise (provided that Secured Party shall
in no circumstances be deemed to have retained the Collateral in satisfaction of
the Secured Obligations in the absence of an express notice by Secured Party to
Debtor that Secured Party has either done so or intends to do so).

Debtor agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days' notice to Debtor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. Secured Party shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.

         Section 4.3. Application of Proceeds. If any Event of Default shall
                      -----------------------
have occurred and be continuing, Secured Party may in its discretion apply any
cash held by Secured Party as Collateral, and any cash proceeds received by
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral, to any or all of the following in such
order as Secured Party may (subject to the rights of Lenders under the Credit
Agreement) elect:

                                       9

         (a) To the repayment of all costs and expenses, including reasonable
attorneys' fees and legal expenses, incurred by Secured Party in connection with
(i) the administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Collateral, (iii) the exercise or enforcement of any of the rights of Secured
Party hereunder, or (iv) the failure of Debtor to perform or observe any of the
provisions hereof;

         (b) To the payment or other satisfaction of any Liens, encumbrances, or
adverse claims upon or against any of the
Collateral;

         (c) To the reimbursement of Secured Party for the amount of any
obligations of Debtor or any Other Liable Party paid or discharged by Secured
Party pursuant to the provisions of this Agreement or the other Obligation
Documents, and of any expenses of Secured Party payable by Debtor hereunder or
under the other Obligation Documents;

         (d)  To the satisfaction of any other Secured Obligations;

         (e)  By holding the same as Collateral;

         (f) To the payment of any other amounts required by applicable law
(including any provision of the UCC); and

         (g) By delivery to Debtor or to whomever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.

         Section 4.4. Deficiency. In the event that the proceeds of any sale,
                      ----------
collection or realization of or upon Collateral by Secured Party are
insufficient to pay all Secured Obligations and any other amounts to which
Secured Party is legally entitled, Debtor shall be liable for the deficiency,
together with interest thereon as provided in the governing Obligation Documents
or (if no interest is so provided) at such other rate as shall be fixed by
applicable law, together with the costs of collection and the reasonable fees of
any attorneys employed by Secured Party or Lenders to collect such deficiency.

         Section 4.5. Indemnity and Expenses. In addition to, but not in
                      ----------------------
qualification or limitation of, any similar obligations under other Obligation
Documents:

         (a) Debtor will indemnify Secured Party and each Lender from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including enforcement of this Agreement), WHETHER OR NOT
SUCH CLAIMS, LOSSES AND LIABILITIES ARE IN ANY WAY OR TO ANY EXTENT OWED, IN
WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR ARE CAUSED BY
OR ARISE OUT OF SUCH INDEMNIFIED PARTY'S OWN NEGLIGENCE, except to the extent
such claims, losses or liabilities are proximately caused by such indemnified
party's individual gross negligence or willful misconduct.

                                       10

         (b) Debtor will upon demand pay to Secured Party the amount of any and
all reasonable costs and expenses, including the reasonable fees and
disbursements of Secured Party's counsel and of any experts and agents, which
Secured Party may incur in connection with (i) the transactions which give rise
to this Agreement, (ii) the preparation of this Agreement and the perfection and
preservation of this security interest created under this Agreement, (iii) the
administration of this Agreement; (iv) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Collateral; (v) the exercise or enforcement of any of the rights of Secured
Party hereunder; or (vi) the failure by Debtor to perform or observe any of the
provisions hereof, except expenses resulting from Secured Party's gross
negligence or willful misconduct.

         Section 4.6. Non-Judicial Remedies. In granting to Secured Party the
                      ---------------------
power to enforce its rights hereunder without prior judicial process or judicial
hearing, Debtor expressly waives, renounces and knowingly relinquishes any legal
right which might otherwise require Secured Party to enforce its rights by
judicial process. In so providing for non-judicial remedies, Debtor recognizes
and concedes that such remedies are consistent with the usage of trade, are
responsive to commercial necessity, and are the result of a bargain at arm's
length. Nothing herein is intended, however, to prevent Secured Party from
resorting to judicial process at its option.

         Section 4.7. Other Recourse. Debtor waives any right to require Secured
                      --------------
Party or any Lender to proceed against any other Person, to exhaust any
Collateral or other security for the Secured Obligations, or to have any Other
Liable Party joined with Debtor in any suit arising out of the Secured
Obligations or this Agreement, or pursue any other remedy in Secured Party's
power. Debtor further waives any and all notice of acceptance of this Agreement
and of the creation, modification, rearrangement, renewal or extension for any
period of any of the Secured Obligations of any Other Liable Party from time to
time. Debtor further waives any defense arising by reason of any disability or
other defense of any Other Liable Party or by reason of the cessation from any
cause whatsoever of the liability of any Other Liable Party. This Agreement
shall continue irrespective of the fact that the liability of any Other Liable
Party may have ceased and irrespective of the validity or enforceability of any
other Obligation Document to which Debtor or any Other Liable Party may be a
party, and notwithstanding any death, incapacity, reorganization, or bankruptcy
of any Other Liable Party or any other event or proceeding affecting any Other
Liable Party. Until all of the Secured Obligations shall have been paid in full,
Debtor shall have no right to subrogation and Debtor waives the right to enforce
any remedy which Secured Party or any Lender has or may hereafter have against
any Other Liable Party, and waives any benefit of and any right to participate
in any other security whatsoever now or hereafter held by Secured Party and each
Lender. Debtor authorizes Secured Party and each Lender, without notice or
demand, without any reservation of rights against Debtor, and without in any way
affecting Debtor's liability hereunder or on the Secured Obligations, from time
to time to (a) take or hold any other property of any type from any other Person
as security for the Secured Obligations, and exchange, enforce, waive and
release any or all of such other property, (b) apply the Collateral or such
other property and direct the order or manner of sale thereof as Secured Party
may in its discretion determine, (c) renew, extend for any period, accelerate,
modify, compromise, settle or release any of the obligations of any Other Liable
Party in respect to any or all of the Secured Obligations or other security for
the Secured Obligations, (d) waive, enforce, modify, amend, restate, or
supplement any of the provisions of any Obligation Document with any Person

                                       11

other than Debtor, and (e) release or substitute any Other Liable Party.

         Section 4.8.  Exercise of LLC Rights.
                       ----------------------

         (a) So long as no Default or Event of Default shall have occurred and
be continuing, Debtor may receive and retain any and all distributions of
profits paid in cash in respect of the LLC Rights to Payments; provided,
                                                               --------
however, that any and all other payments in respect of the LLC Rights to
- -------
Payments shall be, and shall forthwith be delivered to Secured Party to hold as,
Collateral and shall, if received by Debtor, be received in trust for the
benefit of Secured Party, be segregated from the other property or funds of
Debtor, and be forthwith delivered to Secured Party in the exact form received
with any necessary indorsement or instruments of transfer duly executed in
blank, to be held by Secured Party as Collateral.

         (b) Upon the occurrence and during the continuance of a Default or an
Event of Default, all rights of Debtor to receive and retain any distributions
of profits or other payments of any kind in respect of LLC Rights to Payments
which Debtor would otherwise be authorized to receive and retain pursuant to
subsection (a) of this section shall automatically cease, and all such rights
shall thereupon become vested in Secured Party which shall thereupon have the
sole right to receive and hold as Collateral all such distributions and
payments, and all distributions of profits and other payments of any kind in
respect of LLC Rights to Payments which are nonetheless received by Debtor shall
be received in trust for the benefit of Secured Party, shall be segregated from
other funds of Debtor, and shall be forthwith paid over to Secured Party in the
exact form received, to be held by Secured Party as Collateral.

         Section 4.9. Private Sale of LLC Rights. Debtor recognizes that Secured
                      --------------------------
Party may deem it impracticable to effect a public sale of all or any part of
the LLC Rights and that Secured Party may, therefore, determine to make one or
more private sales of LLC Rights to a restricted group of purchasers who will be
obligated to agree, among other things, to acquire the same for their own
account, for investment and not with a view to the distribution or resale
thereof. Debtor acknowledges that any such private sale may be at prices and on
terms less favorable to the seller than the prices and other terms which might
have been obtained at a public sale and, notwithstanding the foregoing, agrees
that such private sales shall be deemed to have been made in a commercially
reasonable manner and that Secured Party shall have no obligation to delay sale
of any LLC Rights for the period of time necessary to permit their registration
for public sale under the Securities Act of 1933, as amended (the "Securities
Act"), to the extent, if any, that it is applicable thereto. Debtor further
acknowledges and agrees that any offer to sell any LLC Rights which has been (a)
publicly advertised on a bona fide basis in a newspaper or other publication of
general circulation in the financial community of Denver, Colorado (to the
extent that such an offer may be so advertised without prior registration under
the Securities Act), or (b) made privately in the manner described above to not
less than fifteen (15) bona fide offerees shall be deemed to involve a "public
disposition" for the purposes of Section 9.610(c) of the UCC (or any successor
or similar, applicable statutory provision), notwithstanding that such sale may
not constitute a "public offering" under the Securities Act and that Secured
Party may, in such event, bid for the purchase of such LLC Rights.

                                       12

                           ARTICLE V. -- Miscellaneous
                           ---------------------------

         Section 5.1. Notices. Any notice or communication required or permitted
                      -------
hereunder shall be given as provided in the Credit Agreement.

         Section 5.2. Amendments. No amendment of any provision of this
                      ----------
Agreement shall be effective unless it is in writing and signed by Debtor and
Secured Party, and no waiver of any provision of this Agreement, and no consent
to any departure by Debtor therefrom, shall be effective unless it is in writing
and signed by Secured Party, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given and
to the extent specified in such writing. In addition to all such amendments and
waivers shall be effective only if given with the necessary approvals of Lenders
as required in the Credit Agreement.

         Section 5.3. Preservation of Rights. No failure on the part of Secured
                      ----------------------
Party or any Lender to exercise, and no delay in exercising, any right hereunder
or under any other Obligation Document shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. Neither the
execution nor the delivery of this Agreement shall in any manner impair or
affect any other security for the Secured Obligations. The rights and remedies
of Secured Party provided herein and in the other Obligation Documents are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law. The rights of Secured Party under any Obligation Document
against any party thereto are not conditional or contingent on any attempt by
Secured Party to exercise any of its rights under any other Obligation Document
against such party or against any other Person.

         Section 5.4. Unenforceability. Any provision of this Agreement which is
                      ----------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or invalidity without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.

         Section 5.5. Survival of Agreements. All representations and warranties
                      ----------------------
of Debtor herein, and all covenants and agreements herein shall survive the
execution and delivery of this Agreement, the execution and delivery of any
other Obligation Documents and the creation of the Secured Obligations.

         Section 5.6. Other Liable Party. Neither this Agreement nor the
                      ------------------
exercise by Secured Party or the failure of Secured Party to exercise any right,
power or remedy conferred herein or by law shall be construed as relieving any
Other Liable Party from liability on the Secured Obligations or any deficiency
thereon. This Agreement shall continue irrespective of the fact that the
liability of any Other Liable Party may have ceased or irrespective of the
validity or enforceability of any other Obligation Document to which Debtor or
any Other Liable Party may be a party, and notwithstanding the reorganization,
death, incapacity or bankruptcy of any Other Liable Party, and notwithstanding
the reorganization or bankruptcy or other event or proceeding affecting any
Other Liable Party.

                                       13

         Section 5.7. Binding Effect and Assignment. This Agreement creates a
                      -----------------------------
continuing security interest in the Collateral and (a) shall be binding on
Debtor and its successors and permitted assigns and (b) shall inure, together
with all rights and remedies of Secured Party hereunder, to the benefit of
Secured Party and Lenders and their respective successors, transferees and
assigns. Without limiting the generality of the foregoing, Secured Party and any
Lender may (except as otherwise provided in the Credit Agreement) pledge, assign
or otherwise transfer any or all of its rights under any or all of the
Obligation Documents to any other Person, and such other Person shall thereupon
become vested with all of the benefits in respect thereof granted to Secured
Party, herein or otherwise. None of the rights or duties of Debtor hereunder may
be assigned or otherwise transferred without the prior written consent of
Secured Party.

         Section 5.8. Termination. It is contemplated by the parties hereto that
                      -----------
there may be times when no Secured Obligations are outstanding, but
notwithstanding such occurrences, this Agreement shall remain valid and shall be
in full force and effect as to subsequent outstanding Secured Obligations. Upon
the satisfaction in full of the Secured Obligations and the termination or
expiration of the Credit Agreement and any other commitment of Lenders to extend
credit to Debtor, then upon written request for the termination hereof delivered
by Debtor to Secured Party this Agreement and the security interest created
hereby shall terminate and all rights to the Collateral shall revert to Debtor.
Secured Party will, upon Debtor's request and at Debtor's expense, (a) return to
Debtor such of the Collateral as shall not have been sold or otherwise disposed
of or applied pursuant to the terms hereof; and (b) execute and deliver to
Debtor such documents as Debtor shall reasonably request to evidence such
termination.

         SECTION 5.9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
                      -------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE
PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY
INTEREST CREATED HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

         SECTION 5.10. FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER
                       ---------------
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES HERETO.

         Section 5.11. Counterparts. This Agreement may be separately executed
                       ------------
in any number of counterparts, all of which when so executed shall be deemed to
constitute one and the same Agreement.

                                       14

         Section 5.12. "Loan Document". This Agreement is a "Loan Document", as
                        -------------
defined in the Credit Agreement, and, except as expressly provided herein to the
contrary, this Agreement is subject to all provisions of the Credit Agreement
governing such Loan Documents.

            *[The remainder of this page is intentionally left blank]

                                       15


         IN WITNESS WHEREOF, Debtor has caused this Agreement to be executed and
delivered this Agreement by its officer thereunto duly authorized, as of the
date first above written.


                                         ST. MARY LAND & EXPLORATION COMPANY


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal








                                                                       EXHIBIT A



             Description of Interests in Limited Liability Companies
             -------------------------------------------------------

- ------------------------------------------------- ------------------------------
                 Limited Liability Company                    Interest
- ------------------------------------------------- ------------------------------
Box Church Gas Gathering, LLC                                 58.6754%
- ------------------------------------------------- ------------------------------
Four Winds Marketing, LLC                                         100%
- ------------------------------------------------- ------------------------------
Roswell, L.L.C.                                                   100%
- ------------------------------------------------- ------------------------------


together with all other limited liability company interests now owned or
hereafter owned by any Debtor in any Limited Liability Company.

EX-10

                                                                     EXHIBT 10.4

                                                                     [Execution]

                                    GUARANTY
                                    --------

         THIS GUARANTY is made as of May 1, 2002, by St. Mary Operating Company,
a Colorado corporation, St. Mary Energy Company, a Delaware corporation, Nance
Petroleum Corporation, a Montana corporation, St. Mary Minerals, Inc. a Colorado
corporation, Parish Corporation, a Colorado corporation, Four Winds Marketing
LLC, a Colorado limited liability company and Roswell LLC, a Texas limited
liability company (collectively herein called "Guarantors" and each a
"Guarantor"), in favor of Bank of America, N.A., individually and as agent for
Lenders, as such term is defined in the Credit Agreement described below (in
such capacity "Agent").

                                    RECITALS:

         1. St. Mary Land & Exploration Company, a Delaware corporation
("Borrower"), has executed in favor of Agent and Lenders those certain
promissory notes dated June 24, 2000, payable to the order of Lenders in the
aggregate principal amount of $200,000,000 (such promissory notes, as from time
to time amended, and all promissory notes given in substitution, renewal or
extension therefor or thereof, in whole or in part, being herein collectively
called the "Note").

         2. The Note was executed pursuant to a Credit Agreement dated June 30,
1998 (herein, as from time to time amended, supplemented or restated, called the
"Credit Agreement"), by and between Borrower, Agent and Lenders, pursuant to
which Lenders have agreed to advance funds to Borrower under the Note.

         3. It is a condition precedent to Lenders' obligations to advance funds
pursuant to the Credit Agreement that Guarantors shall execute and deliver to
Agent a satisfactory guaranty of Borrower's obligations under the Note and the
Credit Agreement.

         4. Borrower owns directly one hundred percent (100 %) of the
outstanding equity interests of each Guarantor.

         5. Borrower, Guarantors, and the other direct and indirect subsidiaries
of Borrower are mutually dependent on each other in the conduct of their
respective businesses under a holding company structure, with the credit needed
from time to time by each often being provided by another or by means of
financing obtained by one such affiliate with the support of the others for
their mutual benefit and the ability of each to obtain such financing being
dependent on the successful operations of the others.

         6. The board of directors of each Guarantor has determined that such
Guarantor's execution, delivery and performance of this Guaranty may reasonably
be expected to benefit such Guarantor, directly or indirectly, and are in the
best interests of such Guarantor.

         NOW, THEREFORE, in consideration of the premises, of the benefits which
will inure to each Guarantor from Lenders' advances of funds to Borrower under
the Credit Agreement, and of Ten Dollars and other good and valuable
consideration, the receipt and sufficiency of all of which are hereby
acknowledged, and in order to induce Lenders to advance funds under the Credit
Agreement, each Guarantor hereby agrees with Agent, for the benefit of Agent and
Lenders as follows:

                                   AGREEMENTS:

         Section 1. Definitions. Reference is hereby made to the Credit
                    -----------
Agreement for all purposes. All terms used in this Guaranty which are defined in
the Credit Agreement and not otherwise defined herein shall have the same
meanings when used herein. All references herein to this Guaranty, any
Obligation Document, Loan Document, or other document or instrument refer to the
same as from time to time amended, supplemented or restated. As used herein the
following terms shall have the following meanings:

         "Agent" means the Person who, at the time in question, is the "Agent"
          -----
under the Credit Agreement. Whenever there is only one Lender under the Credit
Agreement, "Agent" shall also refer to such Lender in such capacity as the only
Lender.

         "Lenders" means Bank of America, N.A. and all other Persons who at any
          -------
time are "Lenders" under the Credit Agreement.


         "Obligations" means collectively all of the indebtedness, obligations,
          -----------
and undertakings which are guaranteed by Guarantor and described in subsections
(a) and (b) of Section 2.

         "Obligation Documents" means the Note, the Credit Agreement, the Loan
          --------------------
Documents (other than this Guaranty), all other documents and instruments under,
by reason of which, or pursuant to which any or all of the Obligations are
evidenced, governed, secured, or otherwise dealt with, and all other documents,
instruments, agreements, certificates, legal opinions and other writings
heretofore or hereafter delivered in connection herewith or therewith.

         "Obligors" means Borrower, each Guarantor and any other endorsers,
          --------
guarantors or obligors, primary or secondary, of any or all of the Obligations.

         "Security" means any rights, properties, or interests of Agent or
          --------
Lenders, under the Obligation Documents or otherwise, which provide recourse or
other benefits to Agent or Lenders in connection with the Obligations or the
non-payment or non-performance thereof, including collateral (whether real or
personal, tangible or intangible) in which Agent or Lenders have rights under or
pursuant to any Obligation Documents, guaranties of the payment or performance
of any Obligation, bonds, surety agreements, keep-well agreements, letters of
credit, rights of subrogation, rights of offset, and rights pursuant to which
other claims are subordinated to the Obligations.

         "Security Agreement" means that certain Security Agreement of even date
          ------------------
herewith from Borrower and Guarantors in favor of Agent for the benefit of
Lenders.

                                       2

         Section 2.  Guaranty.
                     --------

         (a) Each Guarantor hereby, jointly and severally, irrevocably,
absolutely, and unconditionally guarantees to Agent and each Lender the prompt,
complete, and full payment when due, and no matter how the same shall become
due, of:

                  (i) the Note, including all principal, all interest thereon
         and all other sums payable thereunder; and

                  (ii) All other sums payable under the other Obligation
         Documents, whether for principal, interest, fees or otherwise; and

                  (iii) Any and all other indebtedness or liabilities which
         Borrower may at any time owe to Agent or any Lender, whether incurred
         heretofore or hereafter or concurrently herewith, voluntarily or
         involuntarily, whether owed alone or with others, whether fixed,
         contingent, absolute, inchoate, liquidated or unliquidated, whether
         such indebtedness or liability arises by notes, discounts, overdrafts,
         open account indebtedness or in any other manner whatsoever, and
         including interest, attorneys' fees and collection costs as may be
         provided by law or in any instrument or agreement evidencing any such
         indebtedness or liability.

Without limiting the generality of the foregoing, each Guarantor's liability
hereunder shall extend to and include all post-petition interest, expenses, and
other duties and liabilities of Borrower described above in this subsection (a),
or below in the following subsection (b), which would be owed by Borrower but
for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization, or similar proceeding involving Borrower.

         (b) Each Guarantor hereby, jointly and severally, irrevocably,
absolutely, and unconditionally guarantees to Agent and each Lender the prompt,
complete and full performance, when due, and no matter how the same shall become
due, of all obligations and undertakings of Borrower to Agent or such Lender
under, by reason of, or pursuant to any of the Obligation Documents.

         (c) If Borrower shall for any reason fail to pay any Obligation, as and
when such Obligation shall become due and payable, whether at its stated
maturity, as a result of the exercise of any power to accelerate, or otherwise,
each Guarantor will, upon demand by Agent, pay such Obligation in full to Agent
for the benefit of Agent or the Lender to whom such Obligation is owed. If
Borrower shall for any reason fail to perform promptly any Obligation,
Guarantors will, upon demand by Agent, cause such Obligation to be performed or,
if specified by Agent, provide sufficient funds, in such amount and manner as
Agent shall in good faith determine, for the prompt, full and faithful
performance of such Obligation by Agent or such other Person as Agent shall
designate.

         (d) If Borrower or Guarantors fail to pay or perform any Obligation as
described in the immediately preceding subsections (a), (b), or (c) Guarantors
will incur the additional obligation to pay to Agent, and Guarantors will
forthwith upon demand by Agent pay to Agent, the amount of any and all expenses,

                                       3

including fees and disbursements of Agent's counsel and of any experts or agents
retained by Agent, which Agent may incur as a result of such failure.

         (e) As between Guarantors and Agent or Lenders, this Guaranty shall be
considered a primary and liquidated liability of Guarantor.

         (f) The liability of each Guarantor hereunder shall be limited to the
maximum amount of liability that can be incurred without rendering this
Guaranty, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount.

         Section 3  Unconditional Guaranty; Joint and Several Liability.
                    ---------------------------------------------------

         (a) No action which Agent or any Lender may take or omit to take in
connection with any of the Obligation Documents, any of the Obligations (or any
other indebtedness owing by Borrower to Agent or any Lender), or any Security,
and no course of dealing of Agent or any Lender with any Obligor or any other
Person, shall release or diminish any Guarantor's obligations, liabilities,
agreements or duties hereunder, affect this Guaranty in any way, or afford any
Guarantor any recourse against Agent or any Lender, regardless of whether any
such action or inaction may increase any risks to or liabilities of Agent or any
Lender or any Obligor or increase any risk to or diminish any safeguard of any
Security. Without limiting the foregoing, each Guarantor hereby expressly agrees
that Agent and Lenders may, from time to time, without notice to or the consent
of such Guarantor, do any or all of the following:

                  (i) Amend, change or modify, in whole or in part, any one or
         more of the Obligation Documents and give or refuse to give any waivers
         or other indulgences with respect thereto.

                  (ii) Neglect, delay, fail, or refuse to take or prosecute any
         action for the collection or enforcement of any of the Obligations, to
         foreclose or take or prosecute any action in connection with any
         Security or Obligation Document, to bring suit against any Obligor or
         any other Person, or to take any other action concerning the
         Obligations or the Obligation Documents.

                  (iii) Accelerate, change, rearrange, extend, or renew the
         time, rate, terms, or manner for payment or performance of any one or
         more of the Obligations (whether for principal, interest, fees,
         expenses, indemnifications, affirmative or negative covenants, or
         otherwise).

                  (iv) Compromise or settle any unpaid or unperformed Obligation
         or any other obligation or amount due or owing, or claimed to be due or
         owing, under any one or more of the Obligation Documents.

                  (v) Take, exchange, amend, eliminate, surrender, release, or
         subordinate any or all Security for any or all of the Obligations,
         accept additional or substituted Security therefor, and perfect or fail
         to perfect Agent's or Lenders' rights in any or all Security.

                                       4

                  (vi) Discharge, release, substitute or add Obligors.

                  (vii) Apply all monies received from Obligors or others, or
         from any Security for any of the Obligations, as Agent or Lenders may
         determine to be in their best interest, without in any way being
         required to marshall Security or assets or to apply all or any part of
         such monies upon any particular Obligations.

         (b) No action or inaction of any Obligor or any other Person, and no
change of law or circumstances, shall release or diminish Guarantors'
obligations, liabilities, agreements, or duties hereunder, affect this Guaranty
in any way, or afford Guarantors any recourse against Agent or any Lender.
Without limiting the foregoing, the obligations, liabilities, agreements, and
duties of each Guarantor under this Guaranty shall not be released, diminished,
impaired, reduced, or affected by the occurrence of any or all of the following
from time to time, even if occurring without notice to or without the consent of
such Guarantor:

                  (i) Any voluntary or involuntary liquidation, dissolution,
         sale of all or substantially all assets, marshalling of assets or
         liabilities, receivership, conservatorship, assignment for the benefit
         of creditors, insolvency, bankruptcy, reorganization, arrangement, or
         composition of any Obligor or any other proceedings involving any
         Obligor or any of the assets of any Obligor under laws for the
         protection of debtors, or any discharge, impairment, modification,
         release, or limitation of the liability of, or stay of actions or lien
         enforcement proceedings against, any Obligor, any properties of any
         Obligor, or the estate in bankruptcy of any Obligor in the course of or
         resulting from any such proceedings.

                  (ii) The failure by Agent or any Lender to file or enforce a
         claim in any proceeding described in the immediately preceding
         subsection (i) or to take any other action in any proceeding to which
         any Obligor is a party.

                  (iii) The release by operation of law of any Obligor from any
         of the Obligations or any other obligations to Agent or any Lender.

                  (iv) The invalidity or unenforceability of any of the
         Obligation Documents, in whole or in part, or any defense or excuse for
         failure to perform on account of force majeure, act of God, casualty,
         impossibility, impracticability, or other defense or excuse whatsoever.

                  (v) The failure of any Obligor or any other Person to sign any
         guaranty or other instrument or agreement within the contemplation of
         any Obligor, Agent or any Lender.

                  (vi) The fact that any Guarantor may have incurred directly
         part of the Obligations or is otherwise primarily liable therefor.

                  (vii) Without limiting any of the foregoing, any fact or event
         (whether or not similar to any of the foregoing) which in the absence
         of this provision would or might constitute or afford a legal or
         equitable discharge or release of or defense to a guarantor or surety
         other than the actual payment and performance by Guarantors under this
         Guaranty.

                                       5

         (c) Agent and Lenders may invoke the benefits of this Guaranty before
pursuing any remedies against any Obligor or any other Person and before
proceeding against any Security now or hereafter existing for the payment or
performance of any of the Obligations. Agent and Lenders may maintain an action
against any one or more Guarantors on this Guaranty without joining any other
Obligor therein and without bringing a separate action against any other
Obligor.

         (d) If any payment to Agent or any Lender by any Obligor is held to
constitute a preference or a voidable transfer under applicable state or federal
laws, or if for any other reason Agent or any Lender is required to refund such
payment to the payor thereof or to pay the amount thereof to any other Person,
such payment to Agent or such Lender shall not constitute a release of any
Guarantor from any liability hereunder, and each Guarantor agrees to pay such
amount to Agent or such Lender on demand and agrees and acknowledges that this
Guaranty shall continue to be effective or shall be reinstated, as the case may
be, to the extent of any such payment or payments. Any transfer by subrogation
which is made as contemplated in Section 6 prior to any such payment or payments
shall (regardless of the terms of such transfer) be automatically voided upon
the making of any such payment or payments, and all rights so transferred shall
thereupon revert to and be vested in Agent and Lenders.

         (e) This is a continuing guaranty and shall apply to and cover all
Obligations and renewals and extensions thereof and substitutions therefor from
time to time.

         (f) The obligation of each Guarantor hereunder shall be several and
also joint with all other Guarantors, each Guarantor with all other Guarantors
and also each Guarantor with any one or more other Guarantors, and may be
enforced at the option of Agent and/or Lenders against each Guarantor severally,
any two or more Guarantors jointly, or some Guarantor's severally and some
Guarantor's jointly. Each Guarantor acknowledges that the effectiveness of this
Guaranty is not conditioned on any or all of the Obligations being guaranteed by
anyone else, including the other Guarantors.

         Section 4. Waiver. Each Guarantor hereby waives, with respect to the
                    ------
Obligations, this Guaranty, and the Obligation Documents:

         (a) notice of the incurrence of any Obligation by Borrower, and notice
of any kind concerning the assets, liabilities, financial condition,
creditworthiness, businesses, prospects, or other affairs of Borrower (it being
understood and agreed that: (i) each Guarantor shall take full responsibility
for informing itself of such matters, (ii) neither Agent nor any Lender shall
have any responsibility of any kind to inform any Guarantor of such matters, and
(iii) Agent and Lenders are hereby authorized to assume that Guarantors, by
virtue of their relationships with Borrower which are independent of this
Guaranty, has full and complete knowledge of such matters whenever Lenders
extend credit to Borrower or take any other action which may change or increase
Guarantors' liabilities or losses hereunder).

         (b) notice that Agent, any Lender, any Obligor, or any other Person has
taken or omitted to take any action under this Guaranty, any Obligation Document
or any other agreement or instrument relating thereto or relating to any
Obligation.

                                       6

         (c) notice of acceptance of this Guaranty and all rights of Guarantors
under any State law discharging Guarantors from liability hereunder for failure
to sue on this Guaranty.

         (d) default, demand, presentment for payment, and notice of default,
demand, dishonor, nonpayment, or nonperformance.

         (e) notice of intention to accelerate, notice of acceleration, protest,
notice of protest, notice of any exercise of remedies (as described in the
following Section 5 or otherwise), and all other notices of any kind whatsoever.

         Section 5. Exercise of Remedies. Agent and each Lender shall have the
                    --------------------
right to enforce, from time to time, in any order and at Agent's or such
Lender's sole discretion, any rights, powers and remedies which Agent or such
Lender may have under this Guaranty or the Obligation Documents or otherwise,
including judicial foreclosure, the exercise of rights of power of sale, the
taking of a deed or assignment in lieu of foreclosure, the appointment of a
receiver to collect rents, issues and profits, the exercise of remedies against
personal property, or the enforcement of any assignment of leases, rentals, oil
or gas production, or other properties or rights, whether real or personal,
tangible or intangible; and Guarantors shall be liable to Agent and each Lender
hereunder for any deficiency resulting from the exercise by Agent or any Lender
of any such right or remedy even though any rights which Guarantors may have
against Borrower or others may be destroyed or diminished by exercise of any
such right or remedy. No failure on the part of Agent or any Lender to exercise,
and no delay in exercising, any right hereunder or under any Obligation Document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right preclude any other or further exercise thereof or the exercise of any
other right. The rights, powers and remedies of Agent and each Lender provided
herein and in the Obligation Documents are cumulative and are in addition to,
and not exclusive of, any other rights, powers or remedies provided by law or in
equity. The rights of Agent and each Lender hereunder are not conditional or
contingent on any attempt by Agent or any Lender to exercise any of its rights
under any Obligation Document against any Obligor or any other Person.

         Section 6.  Limited Subrogation.
                     -------------------

         (a) Until all of the Obligations have been paid and performed in full
Guarantors shall have no right to exercise any right of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which it
may now or hereafter have against or to any Obligor or any Security in
connection with this Guaranty (including any right of subrogation under any
state law), and Guarantors hereby waive any rights to enforce any remedy which
Guarantor may have against Borrower and any right to participate in any Security
until such time. If any amount shall be paid to Guarantors on account of any
such subrogation or other rights, any such other remedy, or any Security at any
time when all of the Obligations and all other expenses guaranteed pursuant
hereto shall not have been paid in full, such amount shall be held in trust for
the benefit of Agent, shall be segregated from the other funds of Guarantors and
shall forthwith be paid over to Agent to be held by Agent as collateral for, or
then or at any time thereafter applied in whole or in part by Agent against, all
or any portion of the Obligations, whether matured or unmatured, in such order
as Agent shall elect.

                                       7

         (b) If Guarantors shall make payment to Agent of all or any portion of
the Obligations and if all of the Obligations shall be finally paid in full,
Agent will, at Guarantors' request and expense, execute and deliver to
Guarantors (without recourse, representation or warranty) appropriate documents
necessary to evidence the transfer by subrogation to Guarantors of an interest
in the Obligations resulting from such payment by Guarantors; provided that such
transfer shall be subject to Section 3(d) above and that without the consent of
Agent (which Agent may withhold in its discretion) Guarantors shall not have the
right to be subrogated to any claim or right against any Obligor which has
become owned by Agent or any Lender, whose ownership has otherwise changed in
the course of enforcement of the Obligation Documents, or which Agent otherwise
has released or wishes to release from its Obligations.

         Section 7. Successors and Assigns. Guarantors' rights or obligations
                    ----------------------
hereunder may not be assigned or delegated, but this Guaranty and such
obligations shall pass to and be fully binding upon the successors of
Guarantors, as well as Guarantors. This Guaranty shall apply to and inure to the
benefit of Agent and Lenders and their successors or assigns. Without limiting
the generality of the immediately preceding sentence, Agent and each Lender may
assign, grant a participation in, or otherwise transfer any Obligation held by
it or any portion thereof, and Agent and each Lender may assign or otherwise
transfer its rights or any portion thereof under this Guaranty and any
Obligation Document, to any other Person, and such other Person shall thereupon
become entitled to all of the benefits in respect thereof granted to Agent or
such Lender hereunder unless otherwise expressly provided by Agent or such
Lender in connection with such assignment or transfer.

         Section 8. Subordination and Offset. Guarantors hereby subordinate and
                    ------------------------
make inferior to the Obligations any and all indebtedness now or at any time
hereafter owed by Borrower to Guarantors on the terms set forth in this Section.
Guarantors agree that after the occurrence of any Default or Event of Default
they will neither permit Borrower to repay such indebtedness or any part thereof
nor accept payment from Borrower of such indebtedness or any part thereof
without the prior written consent of Agent and Lenders. If any Guarantor
receives any such payment without the prior written consent of Agent and
Lenders, the amount so paid shall be held in trust for the benefit of Lenders,
shall be segregated from the other funds of such Guarantor, and shall forthwith
be paid over to Agent to be held by Agent as collateral for, or then or at any
time thereafter applied in whole or in part by Agent against, all or any
portions of the Obligations, whether matured or unmatured, in such order as
Agent shall elect. Each Guarantor hereby grants to Lenders a right of offset to
secure the payment of the Obligations and such Guarantor's obligations and
liabilities hereunder, which right of offset shall be upon any and all monies,
securities and other property (and the proceeds therefrom) of such Guarantor now
or hereafter held or received by or in transit to Agent or any Lender from or
for the account of such Guarantor, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and also upon any and all deposits
(general or special), credits and claims of such Guarantor at any time existing
against Agent or any Lender. Upon the occurrence of any Default or Event of
Default Agent and each Lender is hereby authorized at any time and from time to
time, without notice to Guarantors, to offset, appropriate and apply any and all
items hereinabove referred to against the Obligations and Guarantors'
obligations and liabilities hereunder irrespective of whether or not Agent or
such Lender shall have made any demand under this Guaranty and although such
obligations and liabilities may be contingent or unmatured. Agent and each
Lender agrees promptly to notify Guarantors after any such offset and
application made by Agent or such Lender, provided that the failure to give such

                                       8

notice shall not affect the validity of such offset and application. The rights
of Agent and each Lender under this section are in addition to, and shall not be
limited by, any other rights and remedies (including other rights of offset)
which Agent and Lenders may have.

         Section 9. Representations and Warranties. Each Guarantor hereby
                    ------------------------------
represents and warrants to Agent and each Lender as follows:

         (a) The Recitals at the beginning of this Guaranty are true and correct
in all respects.

         (b) Such Guarantor is a corporation or limited liability company, as
applicable, duly organized, validly existing and in good standing under the laws
of the state of its incorporation or organization, as set forth in the Recitals
to this Guaranty; and such Guarantor has all requisite power and authority to
execute, deliver and perform this Guaranty.

         (c) The execution, delivery and performance by such Guarantor of this
Guaranty have been duly authorized by all necessary corporate action and do not
and will not contravene its certificate or articles of incorporation or bylaws.

         (d) The execution, delivery and performance by such Guarantor of this
Guaranty do not and will not contravene any law or governmental regulation or
any contractual restriction binding on or affecting such Guarantor or any of its
Affiliates or properties, and do not and will not result in or require the
creation of any lien, security interest or other charge or encumbrance upon or
with respect to any of its properties.

         (e) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or other regulatory body or third
party is required for the due execution, delivery and performance by such
Guarantor of this Guaranty.

         (f) This Guaranty is a legal, valid and binding obligation of such
Guarantor, enforceable against such Guarantor in accordance with its terms
except as limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights.

         (g) There is no action, suit or proceeding pending or, to the knowledge
of such Guarantor, threatened against or otherwise affecting such Guarantor
before any court, arbitrator or governmental department, commission, board,
bureau, agency or instrumentality which may materially and adversely affect such
Guarantor's financial condition or its ability to perform its obligations
hereunder.

         Section 10. No Oral Change. No amendment of any provision of this
                     --------------
Guaranty shall be effective unless it is in writing and signed by Guarantors and
Lenders, and no waiver of any provision of this Guaranty, and no consent to any
departure by Guarantors therefrom, shall be effective unless it is in writing
and signed by Lenders, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.

         Section 11. Invalidity of Particular Provisions. If any term or
                     -----------------------------------
provision of this Guaranty shall be determined to be illegal or unenforceable
all other terms and provisions hereof shall nevertheless remain effective and

                                       9

shall be enforced to the fullest extent permitted by applicable law.

         Section 12. Headings and References. The headings used herein are for
                     -----------------------
purposes of convenience only and shall not be used in construing the provisions
hereof. The words "this Guaranty," "this instrument," "herein," "hereof,"
"hereby" and words of similar import refer to this Guaranty as a whole and not
to any particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the
subdivisions hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.

         Section 13. Term. This Guaranty shall be irrevocable until all of the
                     ----
Obligations have been completely and finally paid and performed, no Lender has
any obligation to make any loans or other advances to Borrower, and all
obligations and undertakings of Borrower under, by reason of, or pursuant to
this Guaranty and the Obligation Documents have been completely performed, and
this Guaranty is thereafter subject to reinstatement as provided in Section
3(d). All extensions of credit and financial accommodations heretofore or
hereafter made by Agent or Lenders to Borrower shall be conclusively presumed to
have been made in acceptance hereof and in reliance hereon.

         Section 14. Excess Payment. To the extent that after payment in full of
                     --------------
the Obligations and termination of Lenders' commitments to advance funds to
Borrower, a court of competent jurisdiction enters a final judgment determining
that the aggregate amount of the Obligations received by the Lenders is in
excess of the amount which they were entitled to receive, each Guarantor shall
be entitled to recover its allocable portion of such excess.

         Section 15. Notices. Any notice or communication required or permitted
                     -------
hereunder shall be given as provided in the Security Agreement.

         Section 16. Limitation on Interest. Agent, Lenders and Guarantor intend
                     ----------------------
to contract in strict compliance with applicable usury law from time to time in
effect, and the provisions of the Credit Agreement limiting the interest for
which Guarantors are obligated are expressly incorporated herein by reference.

         Section 17. Loan Document. This Guaranty is a Loan Document, as defined
                     -------------
in the Credit Agreement, and is subject to the provisions of the Credit
Agreement governing Loan Documents. Guarantors hereby ratify, confirm and
approve the Credit Agreement and the other Loan Documents and, in particular,
any provisions thereof which relate to Guarantor.

         Section 18. Counterparts; Fax. This Guaranty may be executed in any
                     -----------------
number of counterparts, each of which when so executed shall be deemed to
constitute one and the same Guaranty. This Agreement may be validly executed and
delivered by facsimile or other electronic transmission.

                                       10

         SECTION 19. GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE
                     -------------
STATE OF COLORADO AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW. GUARANTOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS OF SUCH STATE. EACH GUARANTOR
HEREBY IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, AS AGENT OF
SUCH GUARANTOR TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST SUCH GUARANTOR
WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN COLORADO, SUCH SERVICE
BEING HEREBY ACKNOWLEDGED BY SUCH GUARANTOR TO BE EFFECTIVE AND BINDING SERVICE
IN EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED
BY LAW, BE SENT BY REGISTERED MAIL TO SUCH GUARANTOR AT ITS ADDRESS SET FORTH
BELOW, BUT THE FAILURE OF SUCH GUARANTOR TO RECEIVE SUCH COPIES SHALL NOT AFFECT
IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID. EACH GUARANTOR SHALL
FURNISH TO AGENT A CONSENT OF CT CORPORATION SYSTEM AGREEING TO ACT HEREUNDER
PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF AGENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT OF AGENT TO BRING PROCEEDINGS AGAINST ANY GUARANTOR IN THE
COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON CT CORPORATION SYSTEM SHALL
RESIGN OR OTHERWISE CEASE TO ACT AS ANY GUARANTOR'S AGENT, SUCH GUARANTOR HEREBY
IRREVOCABLY AGREES TO IMMEDIATELY DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE
TO AGENT TO SERVE IN SUCH CAPACITY AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE
DEEMED TO BE SUBSTITUTED FOR CT CORPORATION SYSTEM FOR ALL PURPOSES HEREOF AND
(A) PROMPTLY DELIVER TO AGENT THE WRITTEN CONSENT (IN FORM AND SUBSTANCE
SATISFACTORY TO AGENT) OF SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY.

         SECTION 20. FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
                     ---------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES HERETO.
            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                       11



         IN WITNESS WHEREOF, Guarantors have executed and delivered this
Guaranty as of the date first written above.


                                         ST. MARY OPERATING COMPANY


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal


                                         ST. MARY ENERGY COMPANY


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal


                                         NANCE PETROLEUM CORPORATION


                                         By: /s/ RONALD B. SANTI
                                            -----------------------------------
                                            Ronald B. Santi
                                            Vice President - Land


                                         ST. MARY MINERALS, INC.


                                         By: /s/ RICHARD C. NORRIS
                                            -----------------------------------
                                            Richard C. Norris
                                            Vice President - Finance


                                         PARISH CORPORATION


                                         By: /s/ RICHARD C. NORRIS
                                            -----------------------------------
                                            Richard C. Norris
                                            Vice President - Finance





                                         FOUR WINDS MARKETING, LLC


                                         By:    ST. MARY LAND & EXPLORATION
                                                COMPANY, as Manager


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal


                                         ROSWELL, L.L.C.


                                         By:    ST. MARY LAND & EXPLORATION
                                                COMPANY, as a Member


                                         By: /s/ MILAM RANDOLPH PHARO
                                            -----------------------------------
                                            Milam Randolph Pharo
                                            Vice President - Land and Legal