Stone Energy Corporation Announces Third Quarter 2012 Results

06 Nov, 2012, 16:03 ET from Stone Energy Corporation

LAFAYETTE, La., Nov. 6, 2012 /PRNewswire/ -- Stone Energy Corporation (NYSE: SGY) today announced financial and operational results for the third quarter of 2012 and provided updated guidance.  Some of the highlights include:

  • Produced an average of 41.8 MBoe (251 MMcfe) per day during the third quarter of 2012, which represents an 18% increase when compared to the third quarter of 2011.  The volumes were impacted by shut-ins due to Hurricane Isaac. Average production for October was approximately 42.6 MBoe (255 MMcfe) per day.
  • Brought the second La Cantera delineation well on line in September. Current net production from the two well field is approximately 13 MMcf of gas, 600 Bbls of NGLs and 260 Bbls of oil per day (18 MMcfe per day, net).
  • Entered into a joint venture deal with Conoco on four deep water Gulf of Mexico prospects.
  • BOEM awarded Stone and its partners 23 high bid leases from the June 2012 lease sale.
  • Reached total depth on the Parmer deep water appraisal well and encountered approximately 240 net feet of gas pay in a new zone.
  • Drilled 17 wells and completed 21 wells in the condensate rich Mary and Heather fields in the Marcellus shale during the first nine months of 2012. Current net daily production is approximately 53 MMcfe in Appalachia. In late October, some drilling, completion, and facility operations were suspended in this area due to Hurricane Sandy.
  • On October 23, 2012, agreed to issue $300 million 7.50% Senior Notes due 2022 and tendered for the $200 million 2014 Notes.

Chairman, President and Chief Executive Officer David Welch stated, "Production showed quarterly and annual growth despite temporary shut-ins due to Hurricane Isaac.  Incremental volumes from Appalachia and the additional 25% working interest purchased at the Pompano field spurred this quarterly growth.  We brought on line the second La Cantera well in late September which should help boost volumes in the fourth quarter.  We are very excited about our deep water joint venture arrangement with Conoco on four deep water prospects which allows us to share risk while maintaining material upside in these prospects. The final awarding of 23 blocks from the June 2012 lease sale further strengthens our deep water leasehold position.  In our Parmer deep water well, we encountered encouraging liquids rich gas zones and will be further evaluating the project with our partners. Finally, in late October we agreed to issue $300 million 7.50% Senior Notes due 2022 to retire our 2014 Notes and extend our debt maturity and provide additional flexibility."

Financial Results

For the third quarter of 2012, Stone reported net income of $23.7 million, or $0.48 per share, on oil, gas, and natural gas liquids (NGLs) revenue of $226.7 million, compared to net income of $51.8 million, or $1.06 per share, on oil, gas, and NGL revenue of $209.3 million in the third quarter of 2011.  Discretionary cash flow totaled $142.8 million during the third quarter of 2012, as compared to $160.0 million during the third quarter of 2011. Please see "Non-GAAP Financial Measures" and the accompanying financial statements for a reconciliation of discretionary cash flow, a non-GAAP financial measure, to net cash flow provided by operating activities.  

Net daily production during the third quarter of 2012 averaged 41.8 thousand barrels of oil equivalent (MBoe) per day (251 million cubic feet of gas equivalent (MMcfe) per day), compared with net daily production of 40.5 MBoe (243 MMcfe) per day in the second quarter of 2012, and net daily production of 35.4 MBoe (213 MMcfe) per day in the third quarter of 2011.  The production mix for the third quarter of 2012 was 45% oil, 9% NGLs and 46% natural gas.   

Prices realized during the third quarter of 2012 averaged $104.15 per barrel of oil, $34.93 per barrel of NGLs and $3.20 per Mcf of natural gas.  Average realized prices for the third quarter of 2011 were $103.51 per barrel of oil, $60.81 per barrel of NGLs and $4.48 per Mcf of natural gas. Effective hedging transactions increased the average realized price of natural gas by $0.55 per Mcf and increased the average realized price of oil by $2.34 per barrel in the third quarter of 2012. 

Lease operating expenses (LOE) during the third quarter of 2012 totaled $61.0 million ($15.86 per Boe or $2.64 per Mcfe), compared to $46.6 million ($14.29 per Boe or $2.38 per Mcfe), in the third quarter of 2011.  The increase in the quarter was primarily due to high seasonal major maintenance costs, added expense from Hurricane Isaac and incremental LOE from the acquired Pompano field.

Depreciation, depletion and amortization (DD&A) on oil and gas properties for the third quarter of 2012 totaled $88.4 million ($22.99 per Boe or $3.83 per Mcfe), compared to $63.8 million ($19.55 per Boe or $3.26 per Mcfe), in the third quarter of 2011.

Salaries, general and administrative (SG&A) expenses (excluding incentive compensation expense) for the third quarter of 2012 were $13.7 million ($3.56 per Boe or $0.59 per Mcfe), compared to $7.2 million ($2.19 per Boe or $0.37 per Mcfe), in the third quarter of 2011.  The third quarter of 2011 had a one-time positive insurance adjustment which reduced the SG&A reported expenses for the period.

Capital expenditures before capitalized SG&A and interest during the third quarter of 2012 were approximately $141.0 million, which includes $25.3 million of plugging and abandonment expenditures.  Additionally, $5.5 million of SG&A expenses and $9.5 million of interest were capitalized during the quarter. Capital expenditures before capitalized SG&A and interest for the first nine months of 2012 were approximately $438 million, which includes $47 million of plugging and abandonment expenditures.  Additionally, $17.7 million of SG&A expenses and $27.7 million of interest were capitalized during the first nine months of 2012.

As of September 30, 2012, we had no outstanding borrowings under our bank credit facility and letters of credit totaling $21.0 million had been issued pursuant to the facility, leaving $379.0 million of availability under the facility.   On October 22, 2012, our borrowing base was reaffirmed at $400 million.

On October 23, 2012, we priced an offering of $300 million in aggregate principal amount of 7.50% Senior Notes due 2022 (Senior Notes).  The Senior Notes were offered at a price equal to 98.277% of the principal amount thereof, resulting in a yield to maturity of 7.75%.  Stone expects to close the sale of the Senior Notes on November 8, 2012, subject to the satisfaction of customary closing conditions.  Stone intends to use the net proceeds from the offering to fund its pending tender offer and consent solicitation for its existing $200 million 6.75% Senior Subordinated Notes due 2014 and the redemption of any notes not tendered and for general corporate purposes.  The early tender and consent solicitation expired on November 5, 2012 at 5:00 p.m. eastern standard time with approximately $136.1 million tendered.

Operational Update

La Cantera (Deep Gas).  The second well (Broussard #2) at the La Cantera deep gas field located in Vermilion Parish, Louisiana commenced production on September 18, 2012.  The well is currently producing at an average net rate of 9 MMcf of gas per day, 400 barrels of NGLs per day and 170 barrels of condensate per day. The Thibodeaux #1 well and the Broussard #2 well are currently producing at a combined average daily net rate of approximately 13 MMcf of gas, 600 barrels of NGLs and 260 barrels of oil.  A third well has been proposed and is expected to be drilled in the first half of 2013.  Stone holds an approximate 34.5% working interest in this project.

Upper Mississippi Canyon Joint Venture.  Stone entered into an Exploration Agreement with ConocoPhillips Company ("Conoco") covering four deep water prospects in the Mississippi Canyon / Viosca Knoll areas. This agreement provides Conoco with an option to participate in four deep water prospects. Stone and Conoco were successful in acquiring six blocks in the Outer Continental Shelf Sale 216/222 held in June 2012.  

Lease Sale Results. The Bureau of Ocean Energy Management (BOEM) awarded Stone and its partners leases on 23 offshore blocks from the June 2012 Gulf of Mexico lease sale. These blocks include De Soto Canyon 448, 492, 493, 851 & 895; East Cameron 63; Green Canyon 354, 647, 691, 692, & 821; Mississippi Canyon 205, 206, 554, 555, 900, 901, & 983; Viosca Knoll 865, 907, 909, & 952; and West Cameron 175.  The BOEM rejected three of Stone's apparent high bids due to insufficient consideration.

Green Canyon 823/867 – Parmer (Deep Water). Drilling operations for the Parmer appraisal well were completed during the third quarter of 2012. The well found approximately 240 net feet of condensate-rich gas pay in two gas sands that are full to base, as well as 40 net feet of oil pay in two sands that both encountered oil on water. After selling down a promoted 15% interest, Stone holds a 35% working interest in the prospect which includes Apache (35% – operator) and Ecopetrol America (30%). Plans for future development are currently being evaluated.

Walker Ridge 719 – Phinisi (Deep Water). The deep water Phinisi exploration well is currently scheduled to spud in the second quarter of 2013. Stone holds a 20% working interest in the prospect which is operated by ENI.

Appalachian Basin (Marcellus Shale).  Current net production from the Mary, Heather, Buddy and Katie fields in the Marcellus shale is approximately 53 MMcfe per day.  Production increased with the initiation of production from the 7-well Potts pad at our Mary field in August 2012.  Drilling continues in the condensate and NGL rich Mary and Heather fields in West Virginia with a total of 17 horizontal wells drilled year to date.  Additionally, Stone has fracture-stimulated 21 wells in its Mary field this year.  Stone has drilled a total of 59 horizontal wells in the Marcellus Shale and is currently producing from 35 wells. Production from the 6-well Weekly pad and 3-well Maury pad is expected to begin during the fourth quarter of 2012 (all located in the Mary field).  Stone expects to drill 25 horizontal wells and complete 24 to 28 wells in the Mary and Heather fields during 2012. 

Conventional Shelf.  The Pounder well in the Ship Shoal 113 field commenced production on August 6, 2012. Current net production is approximately 1,300 barrels of oil per day.  Stone's Calico Bass prospect was unsuccessful and has been abandoned.

2012 Guidance

Guidance for the fourth quarter and full year 2012 has been updated (updated guidance numbers are italicized and bolded) and is shown in the table below. The guidance is subject to all the cautionary statements and limitations described below under the caption "Forward Looking Statements."

Fourth Quarter

Full Year

Production - MBoe per day

                   (MMcfe per day)

42.5 – 45

(255– 270)

42 – 42.5

(250 – 255)

Lease operating  expenses (in millions)

(excluding transportation/processing expenses)

-

$210 - $215

Transportation, processing and gathering (in millions)

-

$22 - $26

Salaries, General & Administrative expenses (in millions)

-

$52 - $55

(excluding incentive compensation)

Depreciation, Depletion & Amortization (per Boe)

-

$22.20 - $23.70

                                                           (per Mcfe)

$3.70 - $3.95

Corporate Tax Rate (%)

-

36% - 37%

Capital Expenditure Budget (in millions)

  (excluding material acquisitions)

-

$625

                

Hedge Position

The following table illustrates our derivative positions for 2012, 2013, 2014 and 2015 as of November 6, 2012: 

Fixed-Price Swaps

NYMEX (except where noted)

Natural Gas

Oil

Daily

Volume

(MMBtus/d)

Swap

Price

Daily

Volume

(Bbls/d)

Swap

Price

2012

10,000

$5.035

1,000

$90.30

2012

10,000

5.040

1,000

90.41

2012

10,000

5.050

1,000

90.45

2012

1,000

95.50

2012

2,000

97.60

2012

1,000

98.15

2012

1,000

100.00

2012

1,000

101.55

2012

1,000

104.25

2012

 1,000*

111.02

2013

10,000

4.000

1,000

92.80

2013

10,000

5.270

    2,000 **

94.05

2013

10,000

5.320

1,000

94.45

2013

1,000

94.60

2013

1,000

97.15

2013

1,000

101.53

2013

1,000

103.00

2013

1,000

103.15

2013

1,000

104.25

2013

1,000

104.47

2013

1,000

104.50

2013

 1,000*

107.30

2014

10,000

4.000

1,000

90.06

2014

10,000

4.250

1,000

93.55

2014

1,000

98.00

2014

1,000

98.30

2014

1,000

99.65

2014

 1,000*

103.30

2015

10,000

4.005

1,000

90.00

* Brent oil contract

 ** January through June

Other Information

Stone Energy has planned a conference call for 10:00 a.m. Central Time on Wednesday, November 7, 2012 to discuss the operational and financial results for the third quarter of 2012. Anyone wishing to participate should visit our website at www.StoneEnergy.com for a live web cast or dial 1-877-228-3598 and request the "Stone Energy Call."  If you are unable to participate in the original conference call, a replay will be available immediately following the completion of the call on Stone Energy's website.  The replay will be available for one month.

Non-GAAP Financial Measures

In this press release, we refer to a non-GAAP financial measure we call "discretionary cash flow."  Management believes discretionary cash flow is a financial indicator of our company's ability to internally fund capital expenditures and service debt.  Management also believes this non-GAAP financial measure of cash flow is useful information to investors because it is widely used by professional research analysts in the valuation, comparison, rating and investment recommendations of companies in the oil and gas exploration and production industry. Discretionary cash flow should not be considered an alternative to net cash provided by operating activities or net income, as defined by GAAP.  Please see the "Reconciliation of Non-GAAP Financial Measure" for a reconciliation of discretionary cash flow to cash flow provided by operating activities.

Forward Looking Statements

Certain statements in this press release are forward-looking and are based upon Stone's current belief as to the outcome and timing of future events. All statements, other than statements of historical facts, that address activities that Stone plans, expects, believes, projects, estimates or anticipates will, should or may occur in the future, including future production of oil and gas, future capital expenditures and drilling of wells and future financial or operating results are forward-looking statements.  Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include the timing and extent of changes in commodity prices for oil and gas, operating risks, liquidity risks, political and regulatory developments and legislation, including developments and legislation relating to our operations in the Gulf of Mexico and Appalachia, and other risk factors and known trends and uncertainties as described in Stone's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the SEC. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, Stone's actual results and plans could differ materially from those expressed in the forward-looking statements.

Estimates for Stone's future production volumes are based on assumptions of capital expenditure levels and the assumption that market demand and prices for oil and gas will continue at levels that allow for economic production of these products. The production, transportation and marketing of oil and gas are subject to disruption due to transportation and processing availability, mechanical failure, human error, hurricanes and numerous other factors.  Stone's estimates are based on certain other assumptions, such as well performance, which may vary significantly from those assumed. Delays experienced in well permitting could affect the timing of drilling and production. Lease operating expenses, which include major maintenance costs, vary in response to changes in prices of services and materials used in the operation of our properties and the amount of maintenance activity required.  Estimates of DD&A rates can vary according to reserve additions, capital expenditures, future development costs, and other factors. Therefore, we can give no assurance that our future production volumes, lease operating expenses or DD&A rates will be as estimated.

Stone Energy is an independent oil and natural gas exploration and production company headquartered in Lafayette, Louisiana with additional offices in New Orleans, Houston and Morgantown, West Virginia. Our business strategy is to leverage cash flow generated from existing assets to maintain relatively stable GOM shelf oil production, profitably grow gas reserves and production in price-advantaged basins such as Appalachia and the Gulf Coast Basin, and profitably grow oil reserves and production in material impact areas such as the deep water GOM and onshore oil.  For additional information, contact Kenneth H. Beer, Chief Financial Officer, at 337-521-2210 phone, 337-521-9880 fax or via e-mail at CFO@StoneEnergy.com.

STONE ENERGY CORPORATION

SUMMARY STATISTICS

(In thousands, except per share/unit amounts)

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2012

2011

2012

2011

FINANCIAL RESULTS

Net income

$23,659

$51,821

$105,180

$148,809

Net income per share

$0.48

$1.06

$2.13

$3.04

PRODUCTION QUANTITIES

  Oil (MBbls)

1,736

1,521

5,289

4,804

  Natural Gas (MMcf)

10,615

9,544

31,031

29,025

  Natural gas liquids (MBbls)

341

149

794

429

  Oil, gas and NGLs (MBoe)

3,846

3,261

11,255

10,071

  Oil, gas and NGLs (MMcfe)

23,077

19,564

67,529

60,423

AVERAGE DAILY PRODUCTION

  Oil (MBbls)

19

17

19

18

  Gas (MMcf)

115

104

113

106

  Natural gas liquids (MBbls)

4

2

3

2

  Oil, gas and NGLs (MBoe)

42

35

41

37

  Oil, gas and NGLs (MMcfe)

251

213

246

221

REVENUE DATA

  Oil revenue 

$180,806

$157,436

$564,745

$484,788

  Natural Gas revenue

34,003

42,771

91,006

131,815

  Natural gas liquids revenue

11,910

9,060

35,228

25,290

  Total oil, natural gas and NGL revenue

$226,719

$209,267

$690,979

$641,893

AVERAGE PRICES

Prior to the cash settlement of effective hedging transactions:

  Oil (per Bbl)

$101.81

$105.67

$106.57

$106.34

  Natural Gas (per Mcf)

2.65

4.00

2.38

4.09

  Natural gas liquids (per Bbl)

34.93

60.81

44.37

58.95

  Oil, gas and NGLs (per Boe)

56.35

63.78

59.76

65.04

  Oil, gas and NGLs (per Mcfe)

9.39

10.63

9.96

10.84

Including the cash settlement of effective hedging transactions:

  Oil (per Bbl)

$104.15

$103.51

$106.78

$100.91

  Natural Gas (per Mcf)

3.20

4.48

2.93

4.54

  Natural gas liquids (per Bbl)

34.93

60.81

44.37

58.95

  Oil, gas and NGLs (per Boe)

58.95

64.17

61.39

63.74

  Oil, gas and NGLs (per Mcfe)

9.82

10.70

10.23

10.62

COST DATA

  Lease operating expenses

$60,995

$46,591

$157,030

$130,486

  Salaries, general and administrative

  expenses

13,673

7,151

40,521

29,494

  DD&A expense on oil and gas

  properties

88,417

63,757

258,598

201,934

AVERAGE COSTS

  Lease operating expenses (per Boe)

$15.86

$14.29

$13.95

$12.96

  Lease operating expenses (per Mcfe)

2.64

2.38

2.33

2.16

  Salaries, general and administrative

  expenses (per Boe)

3.56

2.19

3.60

2.93

  Salaries, general and administrative

  expenses (per Mcfe)

0.59

0.37

0.60

0.49

  DD&A expense on oil and gas properties

  (per Boe)

22.99

19.55

22.98

20.05

  DD&A expense on oil and gas properties

  (per Mcfe)

3.83

3.26

3.83

3.34

AVERAGE SHARES OUTSTANDING – Diluted

48,384

48,071

48,343

48,006

    

STONE ENERGY CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands)

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2012

2011

2012

2011

        Operating revenue:

         Oil production

$180,806

$157,436

$564,745

$484,788

         Gas production

34,003

42,771

91,006

131,815

         Natural gas liquids production

11,910

9,060

35,228

25,290

         Other operational income

678

1,245

2,520

2,994

         Derivative income, net

-

4,082

3,119

3,300

                     Total operating revenue

227,397

214,594

696,618

648,187

       Operating expenses:

         Lease operating expenses

60,995

46,591

157,030

130,486

         Transportation, processing and gathering

         expenses

6,762

2,763

15,911

7,311

         Other operational expenses

82

654

195

1,452

         Production taxes

1,842

2,492

7,578

6,828

         Depreciation, depletion and amortization

89,274

64,462

260,982

204,777

         Accretion expense

8,405

7,700

24,926

23,134

         Salaries, general and administrative

         expenses

13,673

7,151

40,521

29,494

         Incentive compensation expense

67

2,087

3,907

7,104

         Derivative expense, net

1,812

-

-

-

                     Total operating expenses

182,912

133,900

511,050

410,586

        Income from operations

44,485

80,694

185,568

237,601

        Other (income) expenses:

         Interest expense

7,692

1,379

21,107

6,470

         Interest income 

(117)

(23)

(227)

(170)

         Other income, net

(443)

(372)

(1,229)

(1,499)

         Loss on early extinguishment of debt

-

-

-

607

         Other expense, net

-

308

-

501

                     Total other expenses

7,132

1,292

19,651

5,909

        Net income before taxes

37,353

79,402

165,917

231,692

        Provision (benefit) for income taxes:

         Current

595

(12,681)

1,164

(15,043)

         Deferred

13,099

40,262

59,573

97,926

                     Total income taxes

13,694

27,581

60,737

82,883

       Net income

$23,659

$51,821

$105,180

$148,809

         

STONE ENERGY CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURE

(In thousands)

(Unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2012

2011

2012

2011

Net income as reported

$23,659

$51,821

$105,180

$148,809

Reconciling items:

Depreciation, depletion and amortization

89,274

64,462

260,982

204,777

Deferred income tax provision.

13,099

40,262

59,573

97,926

Accretion expense

8,405

7,700

24,926

23,134

Stock compensation expense

2,529

1,354

6,800

4,492

Early extinguishment of debt

-

-

-

607

Non-cash interest expense

3,790

453

9,068

1,412

Other

2,087

(6,011)

(1,450)

(7,189)

Discretionary cash flow

142,843

160,041

465,079

473,968

Changes in income taxes payable

681

(15,465)

(3,240)

(21,710)

Settlement of asset retirement obligations

(25,293)

(18,975)

(47,211)

(52,543)

Other working capital changes

6,246

16,280

(40,715)

(11,302)

Net cash provided by operating activities

$124,477

$141,881

$373,913

$388,413

         

STONE ENERGY CORPORATION

CONSOLIDATED BALANCE SHEET

(In thousands)

(Unaudited)

September 30,

December 31,

2012

2011

Assets

Current assets:

         Cash and cash equivalents

$176,186

$38,451

         Accounts receivable

127,250

118,139

         Fair value of hedging contracts

34,010

25,177

         Current income tax receivable

24,066

19,946

         Deferred taxes

12,280

26,072

         Inventory

4,506

4,643

         Other current assets.

3,246

791

               Total current assets

381,544

233,219

Oil and gas properties, full cost method of accounting:

         Proved

7,039,450

6,648,168

         Less: accumulated depreciation, depletion and amortization

(5,427,668)

(5,174,729)

         Net proved oil and gas properties .

1,611,782

1,473,439

         Unevaluated

454,639

401,609

Other property and equipment, net

13,399

11,172

Fair value of hedging contracts

18,155

22,543

Other assets, net..

35,158

23,769

         Total assets

$2,514,677

$2,165,751

Liabilities and Stockholders' Equity

Current liabilities:

         Accounts payable to vendors

$99,362

$102,946

         Undistributed oil and gas proceeds

24,277

27,328

         Accrued interest

9,774

14,059

         Fair value of hedging contracts

1,077

11,122

         Asset retirement obligations

59,366

62,676

         Other current liabilities

11,405

28,370

               Total current liabilities

205,261

246,501

Bank debt.

-

45,000

6¾% Senior Subordinated Notes due 2014.

200,000

200,000

8⅝% Senior Notes due 2017

375,000

375,000

1¾% Senior Convertible Notes due 2017*

236,024

-

Deferred taxes

298,100

247,835

Asset retirement obligations

351,023

363,103

Fair value of hedging contracts

2,266

815

Other long-term liabilities

20,844

19,668

         Total liabilities

1,688,518

1,497,922

Common stock

484

481

Treasury stock

(860)

(860)

Additional paid-in capital

1,383,741

1,338,565

Accumulated deficit

(587,045)

(692,225)

Accumulated other comprehensive income

29,839

21,868

         Total stockholders' equity

826,159

667,829

         Total liabilities and stockholders' equity

$2,514,677

$2,165,751

*Face value of $300 million

 

SOURCE Stone Energy Corporation



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