Attached files
file | filename |
---|---|
EX-31.2 - EX-31.2 - STONE ENERGY CORP | h75025exv31w2.htm |
EX-32.1 - EX-32.1 - STONE ENERGY CORP | h75025exv32w1.htm |
EX-31.1 - EX-31.1 - STONE ENERGY CORP | h75025exv31w1.htm |
EX-15.1 - EX-15.1 - STONE ENERGY CORP | h75025exv15w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-12074
STONE ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 72-1235413 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
625 E. Kaliste Saloom Road | 70508 | |
Lafayette, Louisiana | (Zip Code) | |
(Address of Principal Executive Offices) |
Registrants Telephone Number, Including Area Code: (337) 237-0410
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of August 4, 2010, there were 48,559,830 shares of the registrants Common Stock, par value $.01
per share, outstanding.
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 77,265 | $ | 69,293 | ||||
Accounts receivable |
112,236 | 118,129 | ||||||
Fair value of hedging contracts |
24,977 | 16,223 | ||||||
Deferred tax asset |
1,245 | 14,571 | ||||||
Inventory |
7,781 | 8,717 | ||||||
Other current assets |
962 | 814 | ||||||
Total current assets |
224,466 | 227,747 | ||||||
Oil and gas properties United States full cost method of accounting: |
||||||||
Proved, net of accumulated depreciation, depletion and amortization of $4,658,493 and $4,536,599, respectively |
820,130 | 856,467 | ||||||
Unevaluated |
378,314 | 329,242 | ||||||
Building and land, net |
5,713 | 5,723 | ||||||
Fair value of hedging contracts |
10,117 | 1,771 | ||||||
Fixed assets, net |
4,117 | 4,084 | ||||||
Other assets, net |
21,453 | 29,208 | ||||||
Total assets |
$ | 1,464,310 | $ | 1,454,242 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable to vendors |
$ | 66,644 | $ | 66,863 | ||||
Undistributed oil and gas proceeds |
20,413 | 15,280 | ||||||
Fair value of hedging contracts |
12,609 | 34,859 | ||||||
Asset retirement obligations |
30,995 | 30,515 | ||||||
Current income tax payable |
2,297 | 11,110 | ||||||
Other current liabilities |
16,381 | 42,983 | ||||||
Total current liabilities |
149,339 | 201,610 | ||||||
Long-term debt |
525,000 | 575,000 | ||||||
Deferred taxes |
82,032 | 44,528 | ||||||
Asset retirement obligations |
257,897 | 265,021 | ||||||
Fair value of hedging contracts |
2,006 | 7,721 | ||||||
Other long-term liabilities |
19,291 | 18,412 | ||||||
Total liabilities |
1,035,565 | 1,112,292 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock, $.01 par value; authorized 100,000,000 shares; issued 47,703,799 and 47,509,144 shares, respectively |
477 | 475 | ||||||
Treasury stock (16,582 shares, respectively, at cost) |
(860 | ) | (860 | ) | ||||
Additional paid-in capital |
1,327,390 | 1,324,410 | ||||||
Accumulated deficit |
(910,992 | ) | (966,695 | ) | ||||
Accumulated other comprehensive income (loss) |
12,730 | (15,380 | ) | |||||
Total stockholders equity |
428,745 | 341,950 | ||||||
Total liabilities and stockholders equity |
$ | 1,464,310 | $ | 1,454,242 | ||||
The accompanying notes are an integral part of this balance sheet.
1
Table of Contents
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Operating revenue: |
||||||||||||||||
Oil production |
$ | 103,159 | $ | 107,972 | $ | 203,724 | $ | 178,826 | ||||||||
Gas production |
60,823 | 62,340 | 124,049 | 130,490 | ||||||||||||
Derivative income, net |
2,225 | | 3,413 | 3,196 | ||||||||||||
Total operating revenue |
166,207 | 170,312 | 331,186 | 312,512 | ||||||||||||
Operating expenses: |
||||||||||||||||
Lease operating expenses |
36,883 | 41,122 | 75,547 | 99,276 | ||||||||||||
Other operational expense |
2,447 | 2,400 | 2,447 | 2,400 | ||||||||||||
Production taxes |
1,590 | 2,565 | 3,244 | 3,840 | ||||||||||||
Depreciation, depletion and amortization |
63,765 | 57,052 | 124,418 | 117,670 | ||||||||||||
Write-down of oil and gas properties |
| | | 340,083 | ||||||||||||
Accretion expense |
6,606 | 8,376 | 13,212 | 16,753 | ||||||||||||
Salaries, general and administrative expenses |
9,963 | 9,922 | 20,448 | 21,583 | ||||||||||||
Incentive compensation expense |
421 | 1,197 | 1,346 | 1,417 | ||||||||||||
Impairment of inventory |
| 1,256 | | 7,179 | ||||||||||||
Derivative expenses, net |
| 743 | | | ||||||||||||
Total operating expenses |
121,675 | 124,633 | 240,662 | 610,201 | ||||||||||||
Income (loss) from operations |
44,532 | 45,679 | 90,524 | (297,689 | ) | |||||||||||
Other (income) expenses: |
||||||||||||||||
Interest expense |
2,540 | 4,788 | 6,606 | 9,954 | ||||||||||||
Interest income |
(1,002 | ) | (146 | ) | (1,059 | ) | (282 | ) | ||||||||
Other income |
(1,419 | ) | (851 | ) | (3,451 | ) | (2,253 | ) | ||||||||
Early extinguishment of debt |
| | 1,820 | | ||||||||||||
Other expense |
197 | | 477 | 428 | ||||||||||||
Total other (income) expenses |
316 | 3,791 | 4,393 | 7,847 | ||||||||||||
Net income (loss) before income taxes |
44,216 | 41,888 | 86,131 | (305,536 | ) | |||||||||||
Provision (benefit) for income taxes: |
||||||||||||||||
Current |
(1,392 | ) | | (5,264 | ) | 23 | ||||||||||
Deferred |
16,529 | 14,720 | 35,692 | (106,888 | ) | |||||||||||
Total income taxes |
15,137 | 14,720 | 30,428 | (106,865 | ) | |||||||||||
Net income (loss) |
29,079 | 27,168 | 55,703 | (198,671 | ) | |||||||||||
Less: Net income attributable to non-controlling interest |
| | | 27 | ||||||||||||
Net income (loss) attributable to Stone Energy Corporation |
$ | 29,079 | $ | 27,168 | $ | 55,703 | $ | (198,698 | ) | |||||||
Basic income (loss) per share attributable to Stone Energy Corporation stockholders |
$ | 0.60 | $ | 0.65 | $ | 1.15 | $ | (4.92 | ) | |||||||
Diluted income (loss) per share attributable to Stone Energy Corporation stockholders |
$ | 0.60 | $ | 0.65 | $ | 1.15 | $ | (4.92 | ) | |||||||
Average shares outstanding |
47,654 | 41,270 | 47,631 | 40,365 | ||||||||||||
Average shares outstanding assuming dilution |
47,678 | 41,270 | 47,657 | 40,365 |
The accompanying notes are an integral part of this statement.
2
Table of Contents
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 55,703 | $ | (198,671 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation, depletion and amortization |
124,418 | 117,670 | ||||||
Write-down of oil and gas properties |
| 340,083 | ||||||
Impairment of inventory |
| 7,179 | ||||||
Accretion expense |
13,212 | 16,753 | ||||||
Deferred income tax provision (benefit) |
35,692 | (106,888 | ) | |||||
Settlement of asset retirement obligations |
(19,798 | ) | (28,249 | ) | ||||
Non-cash stock compensation expense |
2,741 | 3,159 | ||||||
Excess tax benefits |
(294 | ) | | |||||
Non-cash derivative (income) expense |
(1,818 | ) | 1,902 | |||||
Early extinguishment of debt |
1,820 | | ||||||
Other non-cash expenses |
519 | 923 | ||||||
Unrecognized proceeds from unwound derivative contracts |
| 71,662 | ||||||
Change in current income taxes |
(8,813 | ) | 30,435 | |||||
Decrease in accounts receivable |
27,500 | 17,638 | ||||||
(Increase) decrease in other current assets |
(153 | ) | 271 | |||||
Decrease in inventory |
936 | 15,950 | ||||||
Increase (decrease) in accounts payable |
(15 | ) | 11,397 | |||||
Decrease in other current liabilities |
(21,469 | ) | (27,765 | ) | ||||
Other |
153 | 94 | ||||||
Net cash provided by operating activities |
210,334 | 273,543 | ||||||
Cash flows from investing activities: |
||||||||
Investment in oil and gas properties |
(169,983 | ) | (197,001 | ) | ||||
Proceeds from sale of oil and gas properties, net of expenses |
29,727 | 5,496 | ||||||
Sale of fixed assets |
| 35 | ||||||
Investment in fixed and other assets |
(1,125 | ) | (376 | ) | ||||
Acquisition of non-controlling interest in subsidiary |
| (40 | ) | |||||
Net cash used in investing activities |
(141,381 | ) | (191,886 | ) | ||||
Cash flows from financing activities: |
||||||||
Net proceeds from issuance of common stock |
| 60,456 | ||||||
Repayments of bank borrowings |
(125,000 | ) | (100,000 | ) | ||||
Redemption of senior subordinated notes |
(200,503 | ) | | |||||
Proceeds from issuance of senior notes |
275,000 | | ||||||
Deferred financing costs |
(9,701 | ) | (175 | ) | ||||
Excess tax benefits |
294 | | ||||||
Purchase of treasury stock |
| (347 | ) | |||||
Net payments for share based compensation |
(1,071 | ) | (389 | ) | ||||
Net cash used in financing activities |
(60,981 | ) | (40,455 | ) | ||||
Net increase in cash and cash equivalents |
7,972 | 41,202 | ||||||
Cash and cash equivalents, beginning of period |
69,293 | 68,137 | ||||||
Cash and cash equivalents, end of period |
$ | 77,265 | $ | 109,339 | ||||
The accompanying notes are an integral part of this statement.
3
Table of Contents
STONE ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Interim Financial Statements
The condensed consolidated financial statements of Stone Energy Corporation (Stone) and its
subsidiaries as of June 30, 2010 and for the three and six-month periods ended June 30, 2010 and
2009 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments),
which are, in the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed consolidated balance sheet
at December 31, 2009 has been derived from the audited financial statements at that date. The
consolidated financial statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with managements discussion and analysis of financial
condition and results of operations, contained in our Annual Report on Form 10-K for the year ended
December 31, 2009. The results of operations for the three and six-month periods ended June 30,
2010 are not necessarily indicative of future financial results.
Note 2 Earnings Per Share
Under U.S. Generally Accepted Accounting Principles (GAAP), instruments granted in
share-based payment transactions are participating securities prior to vesting and are therefore
required to be included in the earnings allocation in calculating earnings per share under the
two-class method. Companies are required to treat unvested share-based payment awards with a right
to receive non-forfeitable dividends as a separate class of securities in calculating earnings per
share. This rule became effective for us on January 1, 2009 and the net effect of its
implementation on our financial statements was immaterial.
The following table sets forth the calculation of basic and diluted weighted average shares
outstanding and earnings per share for the indicated periods.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Income (numerator): |
||||||||||||||||
Net income (loss) |
$ | 29,079 | $ | 27,168 | $ | 55,703 | $ | (198,698 | ) | |||||||
Net income
attributable to participating securities |
(506 | ) | (369 | ) | (969 | ) | | |||||||||
Net income (loss) attributable to common stock basic and
diluted |
$ | 28,573 | $ | 26,799 | $ | 54,734 | $ | (198,698 | ) | |||||||
Weighted average shares (denominator): |
||||||||||||||||
Weighted average shares basic |
47,654 | 41,270 | 47,631 | 40,365 | ||||||||||||
Diluted effect of stock options and unvested restricted stock |
24 | | 26 | | ||||||||||||
Weighted average shares diluted |
47,678 | 41,270 | 47,657 | 40,365 | ||||||||||||
Basic income (loss) per common share |
$ | 0.60 | $ | 0.65 | $ | 1.15 | $ | (4.92 | ) | |||||||
Diluted income (loss) per common share |
$ | 0.60 | $ | 0.65 | $ | 1.15 | $ | (4.92 | ) | |||||||
Stock options that were considered antidilutive because the exercise price of the option
exceeded the average price of our common stock for the applicable period totaled approximately
422,000 and 501,000 shares in the three months ended June 30, 2010 and 2009, respectively. Stock
options that were considered antidilutive totaled 423,000 and 501,000 shares during the six months
ended June 30, 2010 and 2009, respectively.
During the three months ended June 30, 2010 and 2009, respectively, approximately 55,000 and
20,000 shares of common stock were issued upon the vesting of restricted stock by employees and
nonemployee directors. On June 10, 2009, 8,050,000 shares of common stock were issued in a public
offering.
4
Table of Contents
During the six months ended June 30, 2010 and 2009, respectively, approximately 195,000 and
105,000 shares of common stock were issued upon the vesting of restricted stock by employees and
nonemployee directors. During the six months ended June 30, 2009, 100,000 shares of common stock
were repurchased under our stock repurchase program.
Note 3 Derivative Instruments and Hedging Activities
Our hedging strategy is designed to protect our near and intermediate term cash flow from
future declines in oil and natural gas prices. This protection is essential to capital budget
planning which is sensitive to expenditures that must be committed to in advance such as rig
contracts and the purchase of tubular goods. We enter into hedging transactions to secure a
commodity price for a portion of future production that is acceptable at the time of the
transaction. These hedges are designated as cash flow hedges upon entering into the contract. We
do not enter into hedging transactions for trading purposes. We have no fair value hedges.
The nature of a derivative instrument must be evaluated to determine if it qualifies for hedge
accounting treatment. If the instrument qualifies for hedge accounting treatment, it is recorded
as either an asset or liability measured at fair value and subsequent changes in the derivatives
fair value are recognized in equity through other comprehensive income (loss), net of related
taxes, to the extent the hedge is considered effective. Additionally, monthly settlements of
effective hedges are reflected in revenue from oil and gas production and cash flows from
operations. Instruments not qualifying for hedge accounting are recorded in the balance sheet at
fair value and changes in fair value are recognized in earnings through derivative expense
(income). Typically, a small portion of our derivative contracts are determined to be ineffective.
This is because oil and natural gas price changes in the markets in which we sell our products are
not 100% correlative to changes in the underlying price basis indicative in the derivative
contract. Monthly settlements of ineffective hedges are recognized in earnings through derivative
expense (income) and cash flows from operations.
We have entered into fixed-price swaps with various counterparties for a portion of our
expected 2010, 2011 and 2012 oil and natural gas production from the Gulf Coast Basin. The
fixed-price oil swap settlements are based upon an average of the New York Mercantile Exchange
(NYMEX) closing price for West Texas Intermediate (WTI) during the entire calendar month. Some
of our fixed-price gas swap settlements are based on an average of NYMEX prices for the last three
days of a respective month and some are based on the NYMEX price for the last day of a respective
month. Swaps typically provide for monthly payments by us if prices rise above the swap price or
to us if prices fall below the swap price. Our outstanding fixed-price swap contracts are with
J.P. Morgan Chase Bank, N.A., The Toronto-Dominion Bank, Barclays Bank PLC, BNP Paribas, The Bank
of Nova Scotia and Bank of America.
During 2009, a portion of our oil and natural gas production was hedged with zero-premium
collars. The oil collar settlements are based on an average of the NYMEX closing price for WTI
during the entire calendar month. The natural gas collar settlements are based on an average of
NYMEX prices for the last three days of a respective month. The collar contracts require payments
to the counterparties if the average price is above the ceiling price or payment from the
counterparties if the average price is below the floor price.
During the six-month periods ended June 30, 2010 and 2009, certain of our derivative contracts
were determined to be partially ineffective because of differences in the relationship between the
fixed price in the derivative contract and actual prices realized.
5
Table of Contents
All of our derivative instruments at June 30, 2010 and December 31, 2009 were designated
as effective cash flow hedges. The following tables disclose the location and fair value amounts
of derivative instruments reported in our balance sheet at June 30, 2010 and December 31, 2009.
Fair Value of Derivative Instruments at June 30, 2010 | ||||||||||||
(in millions) | ||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||
Description | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Commodity contracts |
Current assets: Fair | Current liabilities: | ||||||||||
value of hedging | Fair value of hedging | |||||||||||
contracts | $ | 25.0 | contracts | $ | (12.6 | ) | ||||||
Long-term assets: | Long-term liabilities: Fair | |||||||||||
Fair value of hedging | value of hedging | |||||||||||
contracts | 10.1 | contracts | (2.0 | ) | ||||||||
$ | 35.1 | $ | (14.6 | ) | ||||||||
Fair Value of Derivative Instruments at December 31, 2009 | ||||||||||||
(in millions) | ||||||||||||
Asset Derivatives | Liability Derivatives | |||||||||||
Description | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Commodity contracts |
Current assets: Fair | Current liabilities: | ||||||||||
value of hedging | Fair value of hedging | |||||||||||
contracts | $ | 16.2 | contracts | $ | (34.9 | ) | ||||||
Long-term assets: | Long-term liabilities: Fair | |||||||||||
Fair value of hedging | value of hedging | |||||||||||
contracts | 1.8 | contracts | (7.7 | ) | ||||||||
$ | 18.0 | $ | (42.6 | ) | ||||||||
The
following tables disclose the effect of derivative instruments in the statement of
operations for the three and six-month periods ended June 30, 2010 and 2009.
The Effect of Derivative Instruments on the Statement of Operations for the Three Months Ended June 30, 2010 and 2009 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Derivatives in | Amount of Gain (Loss) Recognized | Gain (Loss) Reclassified from | ||||||||||||||||||||||||||
Cash Flow Hedging | in OCI on Derivative | Accumulated OCI into Income | Gain (Loss) Recognized in Income on | |||||||||||||||||||||||||
Relationships | (Effective Portion) | (Effective Portion) (a) | Derivative (Ineffective Portion) | |||||||||||||||||||||||||
2010 | 2009 | Location | 2010 | 2009 | Location | 2010 | 2009 | |||||||||||||||||||||
Commodity contracts |
$ | 15.0 | $ | (45.6 | ) | Operating revenue - oil/gas production | $ | 4.8 | $ | 44.9 | Derivative income, net | $ | 2.2 | $ | (0.7 | ) | ||||||||||||
Total |
$ | 15.0 | $ | (45.6 | ) | $ | 4.8 | $ | 44.9 | $ | 2.2 | $ | (0.7 | ) | ||||||||||||||
(a) | For the three months ended June 30, 2010, effective hedging contracts reduced oil revenue by $5.8 million and increased gas revenue by $10.6 million. For the three months ended June 30, 2009, effective hedging contracts increased oil revenue by $19.4 million and increased gas revenue by $25.5 million. |
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended June 30, 2010 and 2009 | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Derivatives in | Amount of Gain (Loss) | Gain (Loss) Reclassified from | ||||||||||||||||||||||||||
Cash Flow Hedging | Recognized in OCI on Derivative | Accumulated OCI into Income | Gain (Loss) Recognized in Income on | |||||||||||||||||||||||||
Relationships | (Effective Portion) | (Effective Portion) (a) | Derivative (Ineffective Portion) | |||||||||||||||||||||||||
2010 | 2009 | Location | 2010 | 2009 | Location | 2010 | 2009 | |||||||||||||||||||||
Commodity contracts |
$ | 28.1 | $ | (40.4 | ) | Operating revenue - oil/gas production | $ | 2.2 | $ | 85.7 | Derivative income, net | $ | 3.4 | $ | 3.2 | |||||||||||||
Total |
$ | 28.1 | $ | (40.4 | ) | $ | 2.2 | $ | 85.7 | $ | 3.4 | $ | 3.2 | |||||||||||||||
(a) | For the six months ended June 30, 2010, effective hedging contracts reduced oil revenue by $14.1 million and increased gas revenue by $16.3 million. For the six months ended June 30, 2009, effective hedging contracts increased oil revenue by $37.7 million and increased gas revenue by $48.0 million. |
On March 3, 2009, we unwound all of our existing crude oil hedges for the period from
April 2009 through December 2009, resulting in proceeds of approximately $59 million. On March 6,
2009, we unwound two of our natural gas hedges for the period from April 2009 through December
2009, resulting in proceeds of approximately $54 million. These amounts (net of the ineffective
portion and related deferred income tax effect) were recorded in accumulated other comprehensive
income in 2009.
As the original time periods for these contracts expired, applicable amounts were reclassified
into earnings.
6
Table of Contents
At June 30, 2010, we had accumulated other comprehensive income of $12.7 million, net of tax,
which related to the fair value of our 2010, 2011 and 2012 swap contracts. We believe that
approximately $7.5 million of accumulated other comprehensive income will be reclassified into
earnings in the next twelve months.
The following table illustrates our hedging positions for calendar years 2010, 2011 and 2012
as of August 4, 2010:
Fixed-Price Swaps | ||||||||
Natural Gas | Oil | |||||||
Swap | Daily Volume | Swap | ||||||
Daily Volume (MMBtus/d) | Price | (Bbls/d) | Price | |||||
2010 |
20,000 | $6.97 | 2,000 | $63.00 | ||||
2010 |
30,000 | 6.50 | 1,000 | 64.05 | ||||
2010 |
1,000 | 60.20 | ||||||
2010 |
1,000 | 75.00 | ||||||
2010 |
1,000 | 75.25 | ||||||
2010 |
2,000 (a) | 80.10 | ||||||
2010 |
1,000 (b) | 84.35 | ||||||
2011 |
10,000 | 6.83 | 1,000 | 70.05 | ||||
2011 |
10,000 | 5.20 | 1,000 | 78.20 | ||||
2011 |
1,000 | 83.00 | ||||||
2011 |
1,000 | 83.05 | ||||||
2011 |
1,000 (c) | 85.20 | ||||||
2011 |
1,000 | 85.25 | ||||||
2012 |
1,000 | 90.45 | ||||||
2012 |
1,000 | 90.30 |
(a) | April December | |
(b) | July December | |
(c) | January June |
Note 4 Long-Term Debt
Long-term debt consisted of the following at:
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(in millions) | ||||||||
81/4% Senior Subordinated Notes due 2011 |
$ | | $ | 200.0 | ||||
63/4% Senior Subordinated Notes due 2014 |
200.0 | 200.0 | ||||||
85/8% Senior Notes due 2017 |
275.0 | | ||||||
Bank debt |
50.0 | 175.0 | ||||||
Total long-term debt |
$ | 525.0 | $ | 575.0 | ||||
On August 28, 2008, we entered into an amended and restated revolving credit facility totaling
$700 million, maturing on July 1, 2011, with a syndicated bank group. Our borrowing base under our
bank credit facility is currently set at $395 million. At June 30, 2010, we had $50 million in
borrowings under our bank credit facility, letters of credit totaling $63.1 million had been issued
pursuant to our bank credit facility, and the weighted average interest rate under our bank credit
facility was approximately 2.6%. As of August 4, 2010, we had $50 million of outstanding
borrowings under our bank credit facility and letters of credit totaling $63.1 million had been
issued pursuant to our bank credit facility, leaving $281.9 million of availability under our bank
credit facility. Our bank credit facility is guaranteed by all of our material direct and indirect
subsidiaries, including Stone Energy Offshore, L.L.C. (Stone Offshore), a wholly owned subsidiary
of Stone.
The borrowing base under our bank credit facility is redetermined semi-annually, typically in
May and November, by the lenders taking into consideration the estimated value of our oil and gas
properties and those of our direct and indirect material subsidiaries in accordance with the
lenders customary practices for oil and gas loans. In addition, we and the lenders each have
discretion at any time, but not more than two additional times in any calendar year, to have the
borrowing base redetermined. Our bank credit facility is collateralized by substantially all of
Stones and Stone Offshores assets. Stone and Stone Offshore are required to mortgage, and grant
a security interest in, their oil and gas reserves representing at least 80% of the discounted
present value of the future net cash flows from their oil and gas reserves reviewed in determining
the borrowing base. At Stones option, loans under our bank credit facility will bear interest at
a rate based on the adjusted Libor Rate plus an applicable margin, or a rate based on the prime
rate or Federal funds rate plus an applicable margin. Our bank credit facility provides for
optional and mandatory prepayments, affirmative and negative covenants, and interest coverage ratio and
leverage ratio maintenance covenants.
7
Table of Contents
On January 26, 2010, we
completed a public offering of $275 million aggregate principal amount
of 85/8%
Senior Notes due 2017 (the 2017 Notes) which are fully and unconditionally guaranteed on a
senior unsecured basis by Stone Offshore and by certain future restricted subsidiaries of Stone.
The net proceeds from the offering after deducting underwriting discounts, commissions, fees and
expenses totaled $265 million. The 2017 Notes rank equally in right of payment with all of our
existing and future senior debt, and rank senior in right of payment to all of our existing and
future subordinated debt, including our outstanding senior subordinated notes. The 2017 Notes
mature on February 1, 2017, and interest is payable on each February 1 and August 1, commencing on
August 1, 2010. We may, at our option, redeem all or part of the 2017 Notes at any time prior to
February 1, 2014 at a make-whole redemption price, and at any time on or after February 1, 2014 at
fixed redemption prices. In addition, prior to February 1, 2013, we may, at our option, redeem up
to 35% of the 2017 Notes with the cash proceeds of certain equity offerings. The 2017 Notes
provide for certain covenants, which include, without limitation, restrictions on liens,
indebtedness, asset sales, dividend payments and other restricted payments. The violation of any
of these covenants could give rise to a default, which if not cured could give the holder of the
2017 Notes a right to accelerate payment. At June 30, 2010, $10.2 million had been accrued in
connection with the August 1, 2010 interest payment.
In the first quarter of 2010, we used the proceeds from the
85/8% Senior Notes offering to
purchase and redeem our 81/4% Senior Subordinated Notes due 2011. The total cost of the transaction
was $202.4 million which included $200.5 million to purchase and redeem the notes plus accrued and
unpaid interest of $1.9 million. The transaction resulted in a charge to earnings of approximately
$1.8 million in the first quarter of 2010.
Note 5 Comprehensive Income
The following table illustrates the components of comprehensive income for the three and
six-month periods ended June 30, 2010 and 2009:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(in millions) | ||||||||||||||||
Net income (loss) |
$ | 29.1 | $ | 27.2 | $ | 55.7 | $ | (198.7 | ) | |||||||
Other comprehensive loss, net of tax effect: |
||||||||||||||||
Adjustment for fair value accounting of derivatives |
15.0 | (45.6 | ) | 28.1 | (40.4 | ) | ||||||||||
Comprehensive income (loss) attributable to Stone
Energy Corporation |
$ | 44.1 | $ | (18.4 | ) | $ | 83.8 | $ | (239.1 | ) | ||||||
Note 6 Asset Retirement Obligations
The change in our asset retirement obligations during the six months ended June 30, 2010 is
set forth below:
Six Months Ended | ||||
June 30, 2010 | ||||
(in millions) | ||||
Asset retirement obligations as of the beginning of the period, including current portion |
$ | 295.5 | ||
Liabilities settled |
(19.8 | ) | ||
Accretion expense |
13.2 | |||
Asset retirement obligations as of the end of the period, including current portion |
$ | 288.9 | ||
Note 7 Impairments
Under the full cost method of accounting, we compare, at the end of each financial reporting
period, the present value of estimated future net cash flows from proved reserves, to the net
capitalized costs of proved oil and gas properties net of related deferred taxes. We refer to this
comparison as a ceiling test. If the net capitalized costs of proved oil and gas properties
exceed the estimated discounted future net cash flows from proved reserves, we are required to
write-down the value of our oil and gas properties to the value of the discounted cash flows. At
March 31, 2009, our ceiling test computation resulted in a write-down of our oil and gas properties
of $340.1 million based on a March 31, 2009 Henry Hub gas price of $3.63 per MMBtu and a West Texas
Intermediate oil price of $44.92 per barrel. The benefit of hedges in place at March 31, 2009
reduced the write-down by $85.0 million.
For the six months ended June 30, 2009, we recorded a write-down of our tubular inventory in
the amount of $7.2 million. This charge was the result of the market value of these tubulars
falling below historical cost.
8
Table of Contents
Note 8 Fair Value Measurements
U.S. GAAP establishes a fair value hierarchy which has three levels based on the reliability
of the inputs used to determine the fair value. These levels include: Level 1, defined as inputs
such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2,
defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs for use when little or no market data
exists, therefore requiring an entity to develop its own assumptions.
The Financial Accounting Standards Board (FASB) issued updated guidance in January 2010 to
improve disclosures about fair value measurements by requiring a greater level of disaggregated
information, more robust disclosures about valuation techniques and inputs to fair value
measurements, information about significant transfers between the three levels in the fair value
hierarchy, and separate presentation of information about purchases, sales, issuances, and
settlements on a gross basis rather than as one net number. This guidance became effective for us
on January 1, 2010, except for the disclosures about purchases, sales, issuances, and settlements
in the roll forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim periods within those
fiscal years.
As of June 30, 2010, we held certain financial assets and liabilities that are required to be
measured at fair value on a recurring basis, including our commodity derivative instruments and our
investments in money market funds. We utilize the services of an independent third party to
assist us in valuing our derivative instruments. We used the income approach in determining the
fair value of our derivative instruments utilizing a proprietary pricing model. The model accounts
for the credit risk of Stone and its counterparties in the discount rate applied to estimated
future cash inflows and outflows. Our swap contracts are included within the Level 2 fair value
hierarchy and collar contracts are included within the Level 3 fair value hierarchy. Significant
unobservable inputs used in establishing fair value for the collars were the volatility impacts in
the pricing model as it relates to the call and put portions of the collar. For a more detailed
description of our derivative instruments, see Note 3 Derivative Instruments and Hedging
Activities. We used the market approach in determining the fair value of our investments in money
market funds, which are included within the Level 1 fair value hierarchy.
The following tables present our assets and liabilities that are measured at fair value on a
recurring basis:
Fair Value Measurements at June 30, 2010 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active Markets | ||||||||||||||||
for Identical | Significant Other | Significant | ||||||||||||||
Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(in millions) | ||||||||||||||||
Assets | ||||||||||||||||
Money market funds |
$ | 6.1 | $ | 6.1 | $ | | $ | | ||||||||
Hedging contracts |
35.1 | | 35.1 | | ||||||||||||
Total |
$ | 41.2 | $ | 6.1 | $ | 35.1 | $ | | ||||||||
Fair Value Measurements at June 30, 2010 | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active Markets | ||||||||||||||||
for Identical | Significant Other | Significant | ||||||||||||||
Liabilities | Observable Inputs | Unobservable Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(in millions) | ||||||||||||||||
Liabilities | ||||||||||||||||
Hedging contracts |
$ | (14.6 | ) | $ | | $ | (14.6 | ) | $ | | ||||||
Total |
$ | (14.6 | ) | $ | | $ | (14.6 | ) | $ | | ||||||
The fair value of cash and cash equivalents, accounts receivable, accounts payable to vendors
and our variable-rate bank debt approximated book value at June 30, 2010 and December 31, 2009. As
of June 30, 2010, the fair value of our $275 million 85/8% Senior Notes due 2017 was approximately
$248 million. As of December 31, 2009, the fair value of our $200 million 81/4% Senior Subordinated
Notes due 2011 was approximately $200 million. In the first quarter of 2010, we used the proceeds
from the 85/8% Senior Notes offering to purchase and redeem our 81/4% Senior Subordinated Notes due
2011. As of June 30, 2010 and December 31, 2009, the fair value of our $200 million 63/4% Senior
Subordinated Notes due 2014 was approximately $171 million and $178 million, respectively. The
fair values of our outstanding notes were determined based upon quotes obtained from brokers.
9
Table of Contents
Note 9 Divestitures
In April 2010, we divested our leasehold interest in approximately 7,000 acres in the
Marcellus Shale for approximately $29 million.
Note 10 Commitments and Contingencies
Franchise Tax Action. We have been served with several petitions filed by the Louisiana
Department of Revenue (LDR) in Louisiana state court claiming additional franchise taxes due. In
addition, we have received preliminary assessments from the LDR for additional franchise taxes
resulting from audits of a subsidiary. These assessments all relate to the LDRs assertion that
sales of crude oil and natural gas from properties located on the Outer Continental Shelf, which
are transported through the state of Louisiana, should be sourced to the state of Louisiana for
purposes of computing the Louisiana franchise tax apportionment ratio. Total asserted claims to
date amount to approximately $20.2 million in additional franchise taxes and estimated accrued
interest. The franchise tax years 2007 through 2009 for Stone remain subject to examination, which
potentially exposes us to additional estimated assessments of $6.1 million including accrued
interest.
Ad Valorem Tax Suit. In August 2009, Gene P. Bonvillain, in his capacity as Assessor for the
Parish of Terrebonne, State of Louisiana, filed civil action No. 90-03540 and other consolidated
cases in the United States District Court for the Eastern District of Louisiana against
approximately thirty oil and gas companies, including Stone, and their respective chief executive
officers for allegedly unpaid ad valorem taxes. The amount originally alleged to be due by Stone
for the years 1998 through 2008 was $11.3 million. The defendants were subsequently served and
filed motions to dismiss this litigation pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure. On March 29, 2010, the trial court judge dismissed plaintiffs claims without
prejudice, with the dismissal to become effective within ten days unless plaintiff filed an amended
complaint correcting its deficiencies. On April 8, 2010, plaintiff filed a first amended complaint
without naming any of the chief executive officers as defendants and with an amount allegedly due
by Stone of not less than $3.5 million. Subsequently, defendants filed motions to dismiss this
litigation, and the trial court judge granted these motions to dismiss on July 26, 2010.
Stones Certificate of Incorporation and/or its Restated Bylaws provide, to the extent
permissible under the law of the State of Delaware (Stones state of incorporation), for
indemnification of and advancement of defense costs to Stones current and former directors and
officers for potential liabilities related to their service to Stone. Stone has purchased directors
and officers insurance policies that, under certain circumstances, may provide coverage to Stone
and/or its officers and directors for certain losses resulting from securities-related civil
liabilities and/or the satisfaction of indemnification and advancement obligations owed to
directors and officers. These insurance policies may not cover all costs and liabilities incurred
by Stone and its current and former officers and directors in these regulatory and civil
proceedings.
Note 11 Income Taxes
The following is a reconciliation of unrecognized tax benefits for the six months ended June
30, 2010:
(in millions) | ||||
Total unrecognized tax benefits as of December 31, 2009 |
$ | 25.7 | ||
Increases (decreases) in unrecognized tax benefits as a result of: |
||||
Tax positions taken during a prior period |
0.8 | |||
Tax positions taken during the current period |
| |||
Settlements with taxing authorities |
(24.5 | ) | ||
Lapse of applicable statute of limitations |
(1.2 | ) | ||
Total unrecognized tax benefits as of June 30, 2010 |
$ | 0.8 | ||
We had a net benefit of $0.4 million in the current period as a result of net amounts
recognized that impacted our effective rate. In addition, we recognized a $1.2 million net credit
to interest expense associated with additions and reductions to unrecognized tax benefits. The
entire balance of unrecognized tax benefits at June 30, 2010 would impact our tax rate if
recognized.
10
Table of Contents
Note 12 Guarantor Financial Statements
Stone Offshore is an unconditional guarantor (the Guarantor Subsidiary) of our 63/4% Senior
Subordinated Notes due 2014 and our 85/8% Senior Notes due 2017. Our remaining subsidiaries (the
Non-Guarantor Subsidiaries) have not provided guarantees. The following presents condensed
consolidating financial information as of June 30, 2010 and December 31, 2009 and for the three and
six-month periods ended June 30, 2010 and 2009 on an issuer (parent company), guarantor subsidiary,
non-guarantor subsidiaries, and consolidated basis. Prior periods have been adjusted to reflect a
change in the allocation of amounts to individual entities. Elimination entries presented are
necessary to combine the entities.
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
JUNE 30, 2010
(In thousands of dollars)
JUNE 30, 2010
(In thousands of dollars)
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Subsidiary | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 75,946 | $ | 1,203 | $ | 116 | $ | | $ | 77,265 | ||||||||||
Accounts receivable |
54,526 | 303,865 | 474 | (246,629 | ) | 112,236 | ||||||||||||||
Fair value of hedging contracts |
24,977 | | | | 24,977 | |||||||||||||||
Deferred tax asset |
1,245 | | | | 1,245 | |||||||||||||||
Inventory |
7,331 | 450 | | | 7,781 | |||||||||||||||
Other current assets |
919 | 43 | | | 962 | |||||||||||||||
Total current assets |
164,944 | 305,561 | 590 | (246,629 | ) | 224,466 | ||||||||||||||
Oil and gas properties United States |
||||||||||||||||||||
Proved, net |
83,532 | 731,702 | 4,896 | | 820,130 | |||||||||||||||
Unevaluated |
272,603 | 105,711 | | | 378,314 | |||||||||||||||
Building and land, net |
5,713 | | | | 5,713 | |||||||||||||||
Fair value of hedging contracts |
10,117 | | | | 10,117 | |||||||||||||||
Fixed assets, net |
4,117 | | | | 4,117 | |||||||||||||||
Other assets, net |
21,453 | | | | 21,453 | |||||||||||||||
Investment in subsidiary |
805,698 | 641 | | (806,339 | ) | | ||||||||||||||
Total assets |
$ | 1,368,177 | $ | 1,143,615 | $ | 5,486 | $ | (1,052,968 | ) | $ | 1,464,310 | |||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable to vendors |
$ | 278,489 | $ | 34,773 | $ | 11 | $ | (246,629 | ) | $ | 66,644 | |||||||||
Undistributed oil and gas proceeds |
19,840 | 573 | | | 20,413 | |||||||||||||||
Fair value of hedging contracts |
12,609 | | | | 12,609 | |||||||||||||||
Asset retirement obligations |
9,608 | 21,387 | | | 30,995 | |||||||||||||||
Current income tax payable |
2,297 | | | | 2,297 | |||||||||||||||
Other current liabilities |
16,003 | 378 | | | 16,381 | |||||||||||||||
Total current liabilities |
338,846 | 57,111 | 11 | (246,629 | ) | 149,339 | ||||||||||||||
Long-term debt |
525,000 | | | | 525,000 | |||||||||||||||
Deferred taxes * |
(15,374 | ) | 97,406 | | | 82,032 | ||||||||||||||
Asset retirement obligations |
76,375 | 176,688 | 4,834 | | 257,897 | |||||||||||||||
Fair value of hedging contracts |
2,006 | | | | 2,006 | |||||||||||||||
Other long-term liabilities |
12,579 | 6,712 | | | 19,291 | |||||||||||||||
Total liabilities |
939,432 | 337,917 | 4,845 | (246,629 | ) | 1,035,565 | ||||||||||||||
Commitments and contingencies
|
||||||||||||||||||||
Stockholders equity: |
||||||||||||||||||||
Common stock |
477 | | | | 477 | |||||||||||||||
Treasury stock |
(860 | ) | | | | (860 | ) | |||||||||||||
Additional paid-in capital |
1,327,390 | 2,125,517 | 1,639 | (2,127,156 | ) | 1,327,390 | ||||||||||||||
Retained earnings (deficit) |
(910,992 | ) | (1,319,819 | ) | (998 | ) | 1,320,817 | (910,992 | ) | |||||||||||
Accumulated other comprehensive income |
12,730 | | | | 12,730 | |||||||||||||||
Total stockholders equity |
428,745 | 805,698 | 641 | (806,339 | ) | 428,745 | ||||||||||||||
Total liabilities and stockholders
equity |
$ | 1,368,177 | $ | 1,143,615 | $ | 5,486 | $ | (1,052,968 | ) | $ | 1,464,310 | |||||||||
* | Deferred income taxes have been allocated to guarantor subsidiary where related oil and gas properties reside. |
11
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2009
(In thousands of dollars)
DECEMBER 31, 2009
(In thousands of dollars)
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Subsidiary | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 64,830 | $ | 3,963 | $ | 500 | $ | | $ | 69,293 | ||||||||||
Accounts receivable |
53,396 | 169,053 | 144 | (104,464 | ) | 118,129 | ||||||||||||||
Fair value of hedging contracts |
16,223 | | | | 16,223 | |||||||||||||||
Deferred tax asset |
14,571 | | | | 14,571 | |||||||||||||||
Inventory |
8,145 | 572 | | | 8,717 | |||||||||||||||
Other current assets |
771 | 43 | | | 814 | |||||||||||||||
Total current assets |
157,936 | 173,631 | 644 | (104,464 | ) | 227,747 | ||||||||||||||
Oil and gas properties United States |
||||||||||||||||||||
Proved, net |
76,066 | 774,980 | 5,421 | | 856,467 | |||||||||||||||
Unevaluated |
226,289 | 102,953 | | | 329,242 | |||||||||||||||
Building and land, net |
5,723 | | | | 5,723 | |||||||||||||||
Fair value of hedging contracts |
1,771 | 1,771 | ||||||||||||||||||
Fixed assets, net |
4,084 | | | | 4,084 | |||||||||||||||
Other assets, net |
29,208 | | | | 29,208 | |||||||||||||||
Investment in subsidiary |
739,834 | 890 | | (740,724 | ) | | ||||||||||||||
Total assets |
$ | 1,240,911 | $ | 1,052,454 | $ | 6,065 | ($845,188 | ) | $ | 1,454,242 | ||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable to vendors |
$ | 135,518 | $ | 35,247 | $ | 562 | ($104,464 | ) | $ | 66,863 | ||||||||||
Undistributed oil and gas proceeds |
14,828 | 452 | | | 15,280 | |||||||||||||||
Fair value of hedging contracts |
34,859 | | | | 34,859 | |||||||||||||||
Asset retirement obligations |
9,597 | 20,918 | | | 30,515 | |||||||||||||||
Current income tax payable |
11,110 | | | | 11,110 | |||||||||||||||
Other current liabilities |
42,223 | 760 | | | 42,983 | |||||||||||||||
Total current liabilities |
248,135 | 57,377 | 562 | (104,464 | ) | 201,610 | ||||||||||||||
Long-term debt |
575,000 | | | | 575,000 | |||||||||||||||
Deferred taxes * |
(17,459 | ) | 61,987 | | | 44,528 | ||||||||||||||
Asset retirement obligations |
73,864 | 186,545 | 4,612 | | 265,021 | |||||||||||||||
Fair value of hedging contracts |
7,721 | | | | 7,721 | |||||||||||||||
Other long-term liabilities |
11,700 | 6,712 | | | 18,412 | |||||||||||||||
Total liabilities |
898,961 | 312,621 | 5,174 | (104,464 | ) | 1,112,292 | ||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Stockholders equity: |
||||||||||||||||||||
Common stock |
475 | | | | 475 | |||||||||||||||
Treasury stock |
(860 | ) | | | | (860 | ) | |||||||||||||
Additional paid-in capital |
1,324,410 | 2,125,517 | 1,639 | (2,127,156 | ) | 1,324,410 | ||||||||||||||
Retained earnings (deficit) |
(966,695 | ) | (1,385,684 | ) | (748 | ) | 1,386,432 | (966,695 | ) | |||||||||||
Accumulated other comprehensive loss |
(15,380 | ) | | | | (15,380 | ) | |||||||||||||
Total stockholders equity |
341,950 | 739,833 | 891 | (740,724 | ) | 341,950 | ||||||||||||||
Total liabilities and stockholders equity |
$ | 1,240,911 | $ | 1,052,454 | $ | 6,065 | ($845,188 | ) | $ | 1,454,242 | ||||||||||
* | Deferred income taxes have been allocated to guarantor subsidiary where related oil and gas properties reside. |
12
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2010
(In thousands of dollars)
THREE MONTHS ENDED JUNE 30, 2010
(In thousands of dollars)
Non- | |||||||||||||||||||||
Guarantor | Guarantor | ||||||||||||||||||||
Parent | Subsidiary | Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Operating revenue: |
|||||||||||||||||||||
Oil production |
$ | 13,533 | $ | 89,626 | $ | | $ | | $ | 103,159 | |||||||||||
Gas production |
16,406 | 44,417 | | | 60,823 | ||||||||||||||||
Derivative income, net |
2,225 | | | | 2,225 | ||||||||||||||||
Total operating revenue |
32,164 | 134,043 | | | 166,207 | ||||||||||||||||
Operating expenses: |
|||||||||||||||||||||
Lease operating expenses |
6,285 | 30,598 | | | 36,883 | ||||||||||||||||
Other operational expense |
1,275 | 1,172 | | | 2,447 | ||||||||||||||||
Production taxes |
1,256 | 334 | | | 1,590 | ||||||||||||||||
Depreciation, depletion, amortization |
10,318 | 53,170 | 277 | | 63,765 | ||||||||||||||||
Accretion expense |
1,771 | 4,724 | 111 | | 6,606 | ||||||||||||||||
Salaries, general and administrative |
9,960 | 3 | | | 9,963 | ||||||||||||||||
Incentive compensation expense |
421 | | | | 421 | ||||||||||||||||
Total operating expenses |
31,286 | 90,001 | 388 | | 121,675 | ||||||||||||||||
Income (loss) from operations |
878 | 44,042 | (388 | ) | | 44,532 | |||||||||||||||
Other (income) expenses: |
|||||||||||||||||||||
Interest expense |
2,563 | (23 | ) | | | 2,540 | |||||||||||||||
Interest income |
(1,002 | ) | | | | (1,002 | ) | ||||||||||||||
Other (income) expense, net |
(1,009 | ) | 17 | (230 | ) | | (1,222 | ) | |||||||||||||
(Income) loss from investment in subsidiary |
(28,617 | ) | 158 | | 28,459 | | |||||||||||||||
Total other (income) expenses |
(28,065 | ) | 152 | (230 | ) | 28,459 | 316 | ||||||||||||||
Income (loss) before taxes |
28,943 | 43,890 | (158 | ) | (28,459 | ) | 44,216 | ||||||||||||||
Provision (benefit) for income taxes: |
|||||||||||||||||||||
Current |
(1,304 | ) | (88 | ) | | | (1,392 | ) | |||||||||||||
Deferred |
1,168 | 15,361 | | | 16,529 | ||||||||||||||||
Total income taxes |
(136 | ) | 15,273 | | | 15,137 | |||||||||||||||
Net income (loss) |
$ | 29,079 | $ | 28,617 | ($158 | ) | ($28,459 | ) | $ | 29,079 | |||||||||||
13
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2009
(In thousands of dollars)
THREE MONTHS ENDED JUNE 30, 2009
(In thousands of dollars)
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Subsidiary | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Operating revenue: |
||||||||||||||||||||
Oil production |
$ | 36,540 | $ | 71,432 | $ | | $ | | $ | 107,972 | ||||||||||
Gas production |
30,512 | 31,828 | | | 62,340 | |||||||||||||||
Total operating revenue |
67,052 | 103,260 | | | 170,312 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Lease operating expenses |
7,958 | 33,164 | | | 41,122 | |||||||||||||||
Other operational expense |
2,400 | | | | 2,400 | |||||||||||||||
Production taxes |
2,334 | 231 | | | 2,565 | |||||||||||||||
Depreciation, depletion, amortization |
10,495 | 46,494 | 63 | | 57,052 | |||||||||||||||
Accretion expense |
2,564 | 5,800 | 12 | | 8,376 | |||||||||||||||
Salaries, general and administrative |
9,929 | (7 | ) | | | 9,922 | ||||||||||||||
Incentive compensation expense |
1,197 | | | | 1,197 | |||||||||||||||
Impairment of inventory |
845 | 411 | | | 1,256 | |||||||||||||||
Derivative expense, net |
743 | | | | 743 | |||||||||||||||
Total operating expenses |
38,465 | 86,093 | 75 | | 124,633 | |||||||||||||||
Income (loss) from operations |
28,587 | 17,167 | (75 | ) | | 45,679 | ||||||||||||||
Other (income) expenses: |
||||||||||||||||||||
Interest expense |
4,770 | 18 | | | 4,788 | |||||||||||||||
Interest income |
(146 | ) | | | | (146 | ) | |||||||||||||
Other (income) expense, net |
(701 | ) | (183 | ) | 33 | | (851 | ) | ||||||||||||
(Income) loss from investment in subsidiary |
(11,187 | ) | 109 | | 11,078 | | ||||||||||||||
Total other (income) expenses |
(7,264 | ) | (56 | ) | 33 | 11,078 | 3,791 | |||||||||||||
Income (loss) before taxes |
35,851 | 17,223 | (108 | ) | (11,078 | ) | 41,888 | |||||||||||||
Provision for income taxes: |
||||||||||||||||||||
Current |
| | | | | |||||||||||||||
Deferred |
8,681 | 6,039 | | | 14,720 | |||||||||||||||
Total income taxes |
8,681 | 6,039 | | | 14,720 | |||||||||||||||
Net income (loss) |
$ | 27,170 | $ | 11,184 | ($108 | ) | ($11,078 | ) | $ | 27,168 | ||||||||||
14
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2010
(In thousands of dollars)
SIX MONTHS ENDED JUNE 30, 2010
(In thousands of dollars)
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Subsidiary | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Operating revenue: |
||||||||||||||||||||
Oil production |
$ | 24,609 | $ | 179,115 | $ | | $ | | $ | 203,724 | ||||||||||
Gas production |
29,424 | 94,625 | | | 124,049 | |||||||||||||||
Derivative income, net |
3,413 | | | | 3,413 | |||||||||||||||
Total operating revenue |
57,446 | 273,740 | | | 331,186 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Lease operating expenses |
17,196 | 58,351 | | | 75,547 | |||||||||||||||
Other operational expense |
1,275 | 1,172 | | | 2,447 | |||||||||||||||
Production taxes |
2,309 | 935 | | | 3,244 | |||||||||||||||
Depreciation, depletion, amortization |
20,826 | 103,049 | 543 | | 124,418 | |||||||||||||||
Accretion expense |
3,542 | 9,449 | 221 | | 13,212 | |||||||||||||||
Salaries, general and administrative |
20,442 | 6 | | | 20,448 | |||||||||||||||
Incentive compensation expense |
1,346 | | | | 1,346 | |||||||||||||||
Total operating expenses |
66,936 | 172,962 | 764 | | 240,662 | |||||||||||||||
Income (loss) from operations |
(9,490 | ) | 100,778 | (764 | ) | | 90,524 | |||||||||||||
Other (income) expenses: |
||||||||||||||||||||
Interest expense |
6,629 | (23 | ) | | | 6,606 | ||||||||||||||
Interest income |
(1,057 | ) | (2 | ) | | | (1,059 | ) | ||||||||||||
Other (income) expense, net |
(1,818 | ) | (642 | ) | (514 | ) | | (2,974 | ) | |||||||||||
Early extinguishment of debt |
1,820 | | | | 1,820 | |||||||||||||||
(Income) loss from investment in
subsidiary |
(65,865 | ) | 250 | | 65,615 | | ||||||||||||||
Total other (income) expenses |
(60,291 | ) | (417 | ) | (514 | ) | 65,615 | 4,393 | ||||||||||||
Income (loss) before taxes |
50,801 | 101,195 | (250 | ) | (65,615 | ) | 86,131 | |||||||||||||
Provision (benefit) for income taxes: |
||||||||||||||||||||
Current |
(5,176 | ) | (88 | ) | | | (5,264 | ) | ||||||||||||
Deferred |
274 | 35,418 | | | 35,692 | |||||||||||||||
Total income taxes |
(4,902 | ) | 35,330 | | | 30,428 | ||||||||||||||
Net income (loss) |
$ | 55,703 | $ | 65,865 | ($250 | ) | ($65,615 | ) | $ | 55,703 | ||||||||||
15
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2009
(In thousands of dollars)
SIX MONTHS ENDED JUNE 30, 2009
(In thousands of dollars)
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Subsidiary | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Operating revenue: |
||||||||||||||||||||
Oil production |
$ | 66,450 | $ | 112,376 | $ | | $ | | $ | 178,826 | ||||||||||
Gas production |
57,967 | 72,523 | | | 130,490 | |||||||||||||||
Derivative income, net |
3,196 | | | | 3,196 | |||||||||||||||
Total operating revenue |
127,613 | 184,899 | | | 312,512 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Lease operating expenses |
19,186 | 80,090 | | | 99,276 | |||||||||||||||
Other operational expense |
2,400 | | | | 2,400 | |||||||||||||||
Production taxes |
3,296 | 544 | | | 3,840 | |||||||||||||||
Depreciation, depletion, amortization |
21,669 | 95,879 | 122 | | 117,670 | |||||||||||||||
Write-down of oil and gas properties |
| 340,083 | | | 340,083 | |||||||||||||||
Accretion expense |
5,129 | 11,601 | 23 | | 16,753 | |||||||||||||||
Salaries, general and administrative |
21,411 | 172 | | | 21,583 | |||||||||||||||
Incentive compensation expense |
1,417 | | | | 1,417 | |||||||||||||||
Impairment of inventory |
6,359 | 820 | | | 7,179 | |||||||||||||||
Total operating expenses |
80,867 | 529,189 | 145 | | 610,201 | |||||||||||||||
Income (loss) from operations |
46,746 | (344,290 | ) | (145 | ) | | (297,689 | ) | ||||||||||||
Other (income) expenses: |
||||||||||||||||||||
Interest expense |
9,913 | 41 | | | 9,954 | |||||||||||||||
Interest income |
(281 | ) | (1 | ) | | | (282 | ) | ||||||||||||
Other (income) expense, net |
(1,555 | ) | 40 | (310 | ) | | (1,825 | ) | ||||||||||||
(Income) loss from investment in subsidiary |
223,760 | (137 | ) | | (223,623 | ) | | |||||||||||||
Total other (income) expenses |
231,837 | (57 | ) | (310 | ) | (223,623 | ) | 7,847 | ||||||||||||
Income (loss) before taxes |
(185,091 | ) | (344,233 | ) | 165 | 223,623 | (305,536 | ) | ||||||||||||
Provision (benefit) for income taxes: |
||||||||||||||||||||
Current |
23 | | | | 23 | |||||||||||||||
Deferred |
13,583 | (120,471 | ) | | | (106,888 | ) | |||||||||||||
Total income taxes |
13,606 | (120,471 | ) | | | (106,865 | ) | |||||||||||||
(198,697 | ) | (223,762 | ) | 165 | 223,623 | (198,671 | ) | |||||||||||||
Less: Net income attributable to non-controlling interest |
| | | 27 | 27 | |||||||||||||||
Net income (loss) |
($198,697 | ) | ($223,762 | ) | $ | 165 | $ | 223,596 | ($198,698 | ) | ||||||||||
16
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2010
(In thousands of dollars)
SIX MONTHS ENDED JUNE 30, 2010
(In thousands of dollars)
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Subsidiary | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
$ | 55,703 | $ | 65,865 | ($250 | ) | ($65,615 | ) | $ | 55,703 | ||||||||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||||||||||||||
Depreciation, depletion and amortization |
20,826 | 103,049 | 543 | | 124,418 | |||||||||||||||
Accretion expense |
3,542 | 9,449 | 221 | | 13,212 | |||||||||||||||
Deferred income tax provision (benefit) |
274 | 35,418 | | | 35,692 | |||||||||||||||
Settlement of asset retirement obligations |
(960 | ) | (18,838 | ) | | | (19,798 | ) | ||||||||||||
Non-cash stock compensation expense |
2,741 | | | | 2,741 | |||||||||||||||
Excess tax benefits |
(294 | ) | | | | (294 | ) | |||||||||||||
Non-cash derivative income |
(1,818 | ) | | | | (1,818 | ) | |||||||||||||
Early extinguishment of debt |
1,820 | | | | 1,820 | |||||||||||||||
Non-cash (income) loss from investment in subsidiary |
(65,865 | ) | 250 | | 65,615 | | ||||||||||||||
Other non-cash expenses |
519 | | | | 519 | |||||||||||||||
Change in current income taxes |
(8,725 | ) | (88 | ) | | | (8,813 | ) | ||||||||||||
(Increase) decrease in accounts receivable |
149,721 | (121,407 | ) | (814 | ) | | 27,500 | |||||||||||||
(Increase) decrease in other current assets |
(181 | ) | 28 | | | (153 | ) | |||||||||||||
Decrease in inventory |
813 | 123 | | | 936 | |||||||||||||||
Increase (decrease) in accounts payable |
47 | (62 | ) | | | (15 | ) | |||||||||||||
Decrease in other current liabilities |
(21,209 | ) | (260 | ) | | | (21,469 | ) | ||||||||||||
Other expenses |
181 | (28 | ) | | | 153 | ||||||||||||||
Net cash provided by (used in) operating activities |
137,135 | 73,499 | (300 | ) | | 210,334 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Investment in oil and gas properties |
(92,960 | ) | (76,939 | ) | (84 | ) | | (169,983 | ) | |||||||||||
Proceeds from sale of oil and gas properties, net of expenses |
29,047 | 680 | | | 29,727 | |||||||||||||||
Investment in fixed and other assets |
(1,125 | ) | | | | (1,125 | ) | |||||||||||||
Net cash used in investing activities |
(65,038 | ) | (76,259 | ) | (84 | ) | | (141,381 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Repayment of bank borrowings |
(125,000 | ) | | | | (125,000 | ) | |||||||||||||
Redemption of senior subordinated notes |
(200,503 | ) | | | | (200,503 | ) | |||||||||||||
Proceeds from issuance of senior notes |
275,000 | | | | 275,000 | |||||||||||||||
Deferred financing costs |
(9,701 | ) | | | | (9,701 | ) | |||||||||||||
Excess tax benefits |
294 | | | | 294 | |||||||||||||||
Net payments for share based compensation |
(1,071 | ) | | | | (1,071 | ) | |||||||||||||
Net cash used in financing activities |
(60,981 | ) | | | | (60,981 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents |
11,116 | (2,760 | ) | (384 | ) | | 7,972 | |||||||||||||
Cash and cash equivalents, beginning of period |
64,830 | 3,963 | 500 | | 69,293 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 75,946 | $ | 1,203 | $ | 116 | $ | | $ | 77,265 | ||||||||||
17
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2009
(In thousands of dollars)
SIX MONTHS ENDED JUNE 30, 2009
(In thousands of dollars)
Non- | ||||||||||||||||||||
Guarantor | Guarantor | |||||||||||||||||||
Parent | Subsidiary | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net income (loss) |
($198,697 | ) | ($223,762 | ) | $ | 165 | $ | 223,623 | ($198,671 | ) | ||||||||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||||||||||||||
Depreciation, depletion and amortization |
21,669 | 95,879 | 122 | | 117,670 | |||||||||||||||
Write-down of oil and gas properties |
| 340,083 | | | 340,083 | |||||||||||||||
Impairment of inventory |
6,359 | 820 | | | 7,179 | |||||||||||||||
Accretion expense |
5,129 | 11,601 | 23 | | 16,753 | |||||||||||||||
Deferred income tax provision (benefit) |
13,583 | (120,471 | ) | | | (106,888 | ) | |||||||||||||
Settlement of asset retirement obligations |
(3,773 | ) | (24,476 | ) | | | (28,249 | ) | ||||||||||||
Non-cash stock compensation expense |
3,159 | | | | 3,159 | |||||||||||||||
Non-cash derivative expense |
1,902 | | | | 1,902 | |||||||||||||||
Non-cash (income) loss from investment in subsidiary |
223,760 | (137 | ) | | (223,623 | ) | | |||||||||||||
Other non-cash expenses |
923 | | | | 923 | |||||||||||||||
Unrecognized proceeds from unwound derivative contracts |
71,662 | | | | 71,662 | |||||||||||||||
Change in current income taxes |
28,760 | 1,675 | | | 30,435 | |||||||||||||||
(Increase) decrease in accounts receivable |
36,362 | (19,066 | ) | 797 | (455 | ) | 17,638 | |||||||||||||
Decrease in other current assets |
237 | 34 | | | 271 | |||||||||||||||
Decrease in inventory |
15,422 | 528 | | | 15,950 | |||||||||||||||
Increase (decrease) in accounts payable |
(4,899 | ) | 16,977 | (681 | ) | | 11,397 | |||||||||||||
Decrease in other current liabilities |
(27,332 | ) | (433 | ) | | | (27,765 | ) | ||||||||||||
Other expenses |
66 | 28 | | | 94 | |||||||||||||||
Net cash provided by (used in) operating activities |
194,292 | 79,280 | 426 | (455 | ) | 273,543 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Investment in oil and gas properties |
(120,964 | ) | (76,492 | ) | | 455 | (197,001 | ) | ||||||||||||
Proceeds from sale of oil and gas properties, net of expenses |
5,496 | | | | 5,496 | |||||||||||||||
Sale of fixed assets |
| 35 | | | 35 | |||||||||||||||
Investment in fixed and other assets |
(376 | ) | | | | (376 | ) | |||||||||||||
Acquisition of non-controlling interest in subsidiary |
| (40 | ) | | | (40 | ) | |||||||||||||
Net cash provided by (used in) investing activities |
(115,844 | ) | (76,497 | ) | | 455 | (191,886 | ) | ||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Net proceeds from issuance of common stock |
60,456 | | | | 60,456 | |||||||||||||||
Repayment of bank borrowings |
(100,000 | ) | | | | (100,000 | ) | |||||||||||||
Deferred financing costs |
(175 | ) | | | | (175 | ) | |||||||||||||
Purchase of treasury stock |
(347 | ) | | | | (347 | ) | |||||||||||||
Net payments for share based compensation |
(389 | ) | | | | (389 | ) | |||||||||||||
Net cash used in financing activities |
(40,455 | ) | | | | (40,455 | ) | |||||||||||||
Net increase in cash and cash equivalents |
37,993 | 2,783 | 426 | | 41,202 | |||||||||||||||
Cash and cash equivalents, beginning of period |
67,122 | 818 | 197 | | 68,137 | |||||||||||||||
Cash and cash equivalents, end of period |
$ | 105,115 | $ | 3,601 | $ | 623 | $ | | $ | 109,339 | ||||||||||
18
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE STOCKHOLDERS OF
STONE ENERGY CORPORATION:
STONE ENERGY CORPORATION:
We have reviewed the condensed consolidated balance sheet of Stone Energy Corporation as of June
30, 2010, and the related condensed consolidated statement of operations for the three and
six-month periods ended June 30, 2010 and 2009, and the condensed consolidated statement of cash
flows for the six-month periods ended June 30, 2010 and 2009. These financial statements are the
responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with standards of
the Public Company Accounting Oversight Board, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
condensed consolidated financial statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Stone Energy Corporation as of
December 31, 2009, and the related consolidated statements of operations, cash flows, changes in
stockholders equity and comprehensive income for the year then ended (not presented herein) and in
our report dated February 25, 2010, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP | ||||
New Orleans, Louisiana
August 5, 2010
August 5, 2010
19
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
The information in this Quarterly Report on Form 10-Q includes 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 or current
facts, that address activities, events, outcomes and other matters that we plan, expect, intend,
assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar
expressions) will, should or may occur in the future are forward-looking statements. These
forward-looking statements are based on managements current belief, based on currently available
information, as to the outcome and timing of future events. When considering forward-looking
statements, you should keep in mind the risk factors and other cautionary statements as described
in our Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q.
Forward-looking statements appear in a number of places and include statements with respect
to, among other things:
| any expected results or benefits associated with our acquisitions; | ||
| estimates of our future oil and natural gas production, including estimates of any increases in oil and gas production; | ||
| planned capital expenditures and the availability of capital resources to fund capital expenditures; | ||
| our outlook on oil and gas prices; | ||
| estimates of our oil and gas reserves; | ||
| any estimates of future earnings growth; | ||
| the impact of political and regulatory developments; | ||
| our outlook on the resolution of pending litigation and government inquiry; | ||
| estimates of the impact of new accounting pronouncements on earnings in future periods; | ||
| our future financial condition or results of operations and our future revenues and expenses; | ||
| estimates of future income taxes; and | ||
| our business strategy and other plans and objectives for future operations. |
We caution you that these forward-looking statements are subject to risks and uncertainties,
many of which are beyond our control, incident to the exploration for and development, production
and marketing of oil and natural gas. These risks include, among other things:
| commodity price volatility; | ||
| domestic and worldwide economic conditions; | ||
| the availability of capital on economic terms to fund our capital expenditures and acquisitions; | ||
| our level of indebtedness; | ||
| declines in the value of our oil and gas properties resulting in a decrease in our borrowing base under our credit facility and ceiling test write-downs and impairments; | ||
| our ability to replace and sustain production; | ||
| the impact of a financial crisis on our business operations, financial condition and ability to raise capital; | ||
| the ability of financial counterparties to perform or fulfill their obligations under existing agreements; | ||
| third party interruption of sales to market; | ||
| inflation; | ||
| lack of availability of goods and services; | ||
| regulatory and environmental risks associated with drilling and production activities; | ||
| drilling and other operating risks; | ||
| unsuccessful exploration and development drilling activities; | ||
| hurricanes and other weather conditions; | ||
| the adverse effects of changes in applicable tax, environmental, derivatives and other regulatory legislation, including changes affecting our offshore operations; | ||
| the uncertainty inherent in estimating proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures; and | ||
| the other risks described in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q. |
Should one or more of the risks or uncertainties described above, in our Annual Report on Form
10-K for the year ended December 31, 2009, or elsewhere in this Quarterly Report on Form 10-Q
occur, or should underlying assumptions prove incorrect, our actual results and plans could differ
materially from those expressed in any forward-looking statements. We specifically disclaim all
responsibility to publicly update any information contained in a forward-looking statement or any
forward-looking statement in its entirety and therefore disclaim any resulting liability for
potentially related damages. All forward-looking statements attributable to us are expressly
qualified in their entirety by this cautionary statement.
20
Table of Contents
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
contained in this Form 10-Q should be read in conjunction with the MD&A contained in our Annual
Report on Form 10-K for the year ended December 31, 2009.
Overview
Stone Energy Corporation is an independent oil and gas company engaged in the acquisition,
exploration, exploitation, development and operation of oil and gas properties located primarily in
the Gulf of Mexico (GOM). We have been operating in the Gulf Coast Basin since our incorporation
in 1993 and have established a technical and operational expertise in this area. More recently, we
have made strategic investments in the deep water and deep shelf GOM, which we have targeted as
important exploration areas. We are also active in the Appalachia region, where we have
established a significant acreage position in the Marcellus Shale. Throughout this document,
reference to our Gulf Coast Basin properties includes our Gulf Coast onshore, shelf, deep shelf
and deep water properties.
On April 20, 2010, a fire and explosion occurred onboard the semisubmersible drilling rig
Deepwater Horizon and it sank, leading to the oil spill currently affecting the GOM. In response to
this incident, the Minerals Management Service (now known as the Bureau of Ocean Energy Management,
Regulation and Enforcement, or BOEMRE) of the U.S. Department of the Interior issued a notice on
May 30, 2010 implementing a six-month moratorium on certain drilling activities in the U.S. Gulf of
Mexico. Implementation of the moratorium was blocked by a U.S. district court, which was
subsequently affirmed on appeal, but on July 12, 2010, the BOEMRE issued a new moratorium that
applies to certain deep water drilling operations. The new moratorium will last until November 30,
2010, or until such earlier time that the BOEMRE determines that affected drilling operations can
proceed safely. The BOEMRE has imposed numerous new safety requirements on the drilling of new
wells in offshore waters and these new requirements have slowed the issuance of permits for new
wells in shallow waters not subject to the moratorium. The BOEMRE is also expected to issue new
safety and environmental guidelines or regulations for drilling in the Gulf of Mexico and may take
other steps that could increase the costs of exploration and production, reduce the area of
operations and result in permitting delays. Our drilling operations at Amberjack were halted by
the moratorium in May 2010 and the second well in our Amberjack drilling program was temporarily
abandoned. For the three months ended June 30, 2010, we recorded $1.1 million of charges related
to the delay in the drilling of the second well in our Amberjack drilling program. In July 2010,
we received approval to resume operations at Amberjack, and we expect to commence drilling the
second well in our Amberjack program in August 2010.
In May 2010, we renewed our insurance policies, which include coverage for general liability,
physical damage to our oil and gas properties, operational control of wells, oil pollution, third
party liability, workers compensation and employers liability and other coverage. Our insurance
coverage includes deductibles that must be met prior to recovery, as well as sub-limits and/or
self-insurance. Additionally, our insurance is subject to exclusions and limitations, and there is
no assurance that such coverage will adequately protect us against liability from all potential
consequences and damages and losses.
For more information, please read the discussion in this report under Part II, Item 1A. Risk
Factors.
Critical Accounting Policies
Our Annual Report on Form 10-K describes the accounting policies that we believe are critical
to the reporting of our financial position and operating results and that require managements most
difficult, subjective or complex judgments. Our most significant estimates are:
| remaining proved oil and gas reserves volumes and the timing of their production; | ||
| estimated costs to develop and produce proved oil and gas reserves; | ||
| accruals of exploration costs, development costs, operating costs and production revenue; | ||
| timing and future costs to abandon our oil and gas properties; | ||
| the effectiveness and estimated fair value of derivative positions; | ||
| classification of unevaluated property costs; | ||
| capitalized general and administrative costs and interest; | ||
| insurance recoveries related to hurricanes; | ||
| estimates of fair value in business combinations; | ||
| current income taxes; and | ||
| contingencies. |
This Quarterly Report on Form 10-Q should be read together with the discussion contained in
our Annual Report on Form 10-K regarding these critical accounting policies.
21
Table of Contents
Other Factors Affecting Our Business and Financial Results
In addition to the matters discussed above, our business, financial condition and results of
operations are affected by a number of other factors. This Quarterly Report on Form 10-Q should be
read in conjunction with the discussion in Part I, Item 1A of our Annual Report on Form 10-K
regarding these other risk factors and in this report under Part II, Item 1A, Risk Factors.
Known Trends and Uncertainties
BP/Deepwater Horizon Oil Spill - The recent explosion and sinking of the Deepwater Horizon
drilling rig and resulting oil spill has created uncertainties about the impact on our future
operations in the GOM (see Item 1A. Risk Factors). Increased regulation in a number of areas
could disrupt, delay or prohibit future drilling programs and ultimately impact the fair value of
our unevaluated properties, a substantial portion of which is in the deep water of the GOM. As of
June 30, 2010, we have approximately $285 million of investments in unevaluated oil and gas
properties that relate to offshore leases, the majority of which are in the deep water GOM. If the
fair value of these investments were to fall below the recorded amounts, the excess would be
transferred to evaluated oil and gas properties thereby affecting the computation of amounts for
depreciation, depletion and amortization and potentially our ceiling test computation. As of June
30, 2010, the computation of our ceiling test indicated a cushion of approximately $244 million.
Hurricanes Since the majority of our production originates in the GOM, we are particularly
vulnerable to the effects of hurricanes on production. Additionally, affordable insurance coverage
for property damage to our facilities for hurricanes is becoming more difficult to obtain. We have
narrowed our insurance coverage to selected properties, increased our deductibles and are
shouldering more hurricane related risk in the environment of rising insurance rates. Significant
hurricane impacts could include reductions and/or deferrals of future oil and natural gas
production and revenues, increased lease operating expenses for evacuations and repairs and
possible acceleration of plugging and abandonment costs.
Reserve Replacement We have faced challenges in replacing reserves at a reasonable unit
cost. Our diversification into the deep water/deep shelf GOM and Appalachia are strategies we are
employing to mitigate this trend. Failure to replace reserves at an acceptable unit cost can
result in higher unit rates of depreciation, depletion and amortization and ceiling test
write-downs.
Louisiana Franchise Taxes We have been involved in litigation with the state of Louisiana
over the proper computation of franchise taxes allocable to the state. This litigation relates to
the states position that sales of crude oil and natural gas from properties located on the Outer
Continental Shelf, which are transported through the state of Louisiana, should be sourced to
Louisiana for purposes of computing franchise taxes. We disagree with the states position.
However, if the states position were to be upheld, we could incur additional expense for alleged
underpaid franchise taxes in prior years and higher franchise tax expense in future years. See
Item 1. Legal Proceedings.
Liquidity and Capital Resources
At August 4, 2010, we had $281.9 million of availability under our bank credit facility and
cash on hand of approximately $64.0 million. Our capital expenditure budget for 2010 has been set
at $400 million, which we intend to finance primarily with cash flow from operations. If we do not
have sufficient cash flow from operations or availability under our bank credit facility, we may be
forced to reduce our capital expenditures. To the extent that 2010 cash flow from operations
exceeds our estimated 2010 capital expenditures, we may pay down a portion of our existing debt,
expand our capital budget, or invest in money markets.
There is a significant amount of uncertainty regarding our industry resulting from the
explosion and sinking of the Deepwater Horizon oil rig in the Gulf of Mexico and resulting oil
spill. Several bills have been introduced in Congress which would require us to demonstrate our
capabilities for greater financial responsibility in the event of spills. In addition, we are
subject to an annual evaluation for exemption from supplemental bonding on plugging and abandoning
obligations. It is possible that the resolution of these uncertainties could cause severe impacts
on our liquidity in the event we are required to post additional bonds or letters of credit.
Cash Flow and Working Capital. Net cash flow provided by operating activities totaled $210.3
million during the six months ended June 30, 2010 compared to $273.5 million in the comparable
period in 2009. Net cash flow provided by operating activities during the six months ended June
30, 2009 included $71.7 million of proceeds from the unwinding of derivative contracts. Based on
our outlook of commodity prices and our estimated production, we expect to fund our 2010 capital
expenditures with cash flow provided by operating activities.
Net cash flow used in investing activities totaled $141.4 million during the six months ended
June 30, 2010, which primarily represents our investment in oil and natural gas properties offset
by proceeds from the sale of oil and natural gas properties. Net cash flow used in investing
activities totaled $191.9 million during the six months ended June 30, 2009, which
22
Table of Contents
primarily represents our investment in oil and natural gas properties offset by proceeds from
the sale of oil and natural gas properties.
Net cash flow used in financing activities totaled $61.0 million for the six months ended June
30, 2010, which primarily represents repayments of borrowings under our bank credit facility of
$125.0 million, the redemption of our 81/4% Senior Subordinated Notes due 2011 of $200.5 million, net
of proceeds from the public offering of our
85/8% Senior Notes due 2017 of approximately $275 million
less $9.7 million of deferred financing costs. Net cash flow used in financing activities totaled
$40.5 million for the six months ended June 30, 2009, which primarily represents repayments of
borrowings under our bank credit facility of approximately $100 million net of proceeds from the
sale of common stock of approximately $60.5 million.
We had working capital at June 30, 2010 of $75.1 million.
Capital Expenditures. During the three months ended June 30, 2010, additions to oil and gas
property costs of $70.8 million included $24.8 million of lease and property acquisition costs,
$4.1 million of capitalized salaries, general and administrative expenses (inclusive of incentive
compensation) and $7.2 million of capitalized interest. During the six months ended June 30, 2010,
additions to oil and gas property costs of $134.6 million included $50.8 million of lease and
property acquisition costs, $9.0 million of capitalized salaries, general and administrative
expenses (inclusive of incentive compensation) and $13.6 million of capitalized interest. These
investments were financed by cash flow from operations.
Bank Credit Facility. On August 28, 2008, we entered into an amended and restated revolving
credit facility totaling $700 million, maturing on July 1, 2011, with a syndicated bank group. In
May 2010, our borrowing base was reaffirmed at $395 million. At June 30, 2010, we had $50 million
in borrowings under our bank credit facility, letters of credit totaling $63.1 million had been
issued pursuant to our bank credit facility, and the weighted average interest rate under our bank
credit facility was approximately 2.6%. As of August 4, 2010, we had $50 million of outstanding
borrowings under our bank credit facility and letters of credit totaling $63.1 million had been
issued pursuant to our bank credit facility, leaving $281.9 million of availability under our bank
credit facility. Our bank credit facility is guaranteed by all of our material direct and indirect
subsidiaries, including Stone Offshore.
The borrowing base under our bank credit facility is redetermined semi-annually, in May and
November, by the lenders taking into consideration the estimated value of our oil and gas
properties and those of our direct and indirect material subsidiaries in accordance with the
lenders customary practices for oil and gas loans. In addition, we and the lenders each have
discretion at any time, but not more than two additional times in any calendar year, to have the
borrowing base redetermined. Our bank credit facility is collateralized by substantially all of
Stones and Stone Offshores assets. Stone and Stone Offshore are required to mortgage, and grant
a security interest in, their oil and gas reserves representing at least 80% of the discounted
present value of the future net cash flows from their oil and gas reserves reviewed in determining
the borrowing base. At Stones option, loans under the credit facility will bear interest at a
rate based on the adjusted London Interbank Offering Rate plus an applicable margin, or a rate
based on the prime rate or Federal funds rate plus an applicable margin. Our bank credit facility
provides for optional and mandatory prepayments, affirmative and negative covenants, and interest
coverage ratio and leverage ratio maintenance covenants. Stone has been and remains in
compliance with all of the financial covenants under our bank credit facility.
Senior Notes Offering and Redemption of Senior Subordinated Notes. On January 26, 2010, we
completed a public offering of $275 million aggregate principal amount of 85/8% Senior Notes due
2017. The net proceeds from the offering after deducting underwriting discounts, commissions, fees
and expenses totaled $265 million. Approximately $202 million of the net proceeds from the
offering were used to fund the tender offer and consent solicitation and redemption of our
outstanding 81/4% Senior Subordinated Notes due 2011. The remaining proceeds were used for general
corporate purposes, including the repayment of borrowings under our bank credit facility.
Share Repurchase Program. On September 24, 2007, our Board of Directors authorized a share
repurchase program for an aggregate amount of up to $100 million. The shares may be repurchased
from time to time in the open market or through privately negotiated transactions. The repurchase
program is subject to business and market conditions, and may be suspended or discontinued at any
time. Through June 30, 2010, 300,000 shares had been repurchased under this program at a total
cost of approximately $7.1 million, or an average price of $23.57 per share. No shares were
repurchased during the six months ended June 30, 2010.
23
Table of Contents
Results of Operations
The following tables set forth certain information with respect to our oil and gas operations.
Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Variance | % Change | |||||||||||||
Production: |
||||||||||||||||
Oil (MBbls) |
1,430 | 1,544 | (114 | ) | (7 | )% | ||||||||||
Natural gas (MMcf) |
11,146 | 9,723 | 1,423 | 15 | % | |||||||||||
Oil and natural gas (MMcfe) |
19,726 | 18,987 | 739 | 4 | % | |||||||||||
Revenue data (in thousands) (a): |
||||||||||||||||
Oil revenue |
$ | 103,159 | $ | 107,972 | $ | (4,813 | ) | (4 | )% | |||||||
Natural gas revenue |
60,823 | 62,340 | (1,517 | ) | (2 | )% | ||||||||||
Total oil and natural gas revenue |
$ | 163,982 | $ | 170,312 | $ | (6,330 | ) | (4 | )% | |||||||
Average prices (a): |
||||||||||||||||
Oil (per Bbl) |
$ | 72.14 | $ | 69.93 | $ | 2.21 | 3 | % | ||||||||
Natural gas (per Mcf) |
5.46 | 6.41 | (0.95 | ) | (15 | )% | ||||||||||
Oil and natural gas (per Mcfe) |
8.31 | 8.97 | (0.66 | ) | (7 | )% | ||||||||||
Expenses (per Mcfe): |
||||||||||||||||
Lease operating expenses |
$ | 1.87 | $ | 2.17 | $ | (0.30 | ) | (14 | )% | |||||||
Salaries, general and administrative expenses (b) |
0.51 | 0.52 | (0.01 | ) | (2 | )% | ||||||||||
DD&A expense on oil and gas properties |
3.16 | 2.93 | 0.23 | 8 | % |
(a) | Includes the cash settlement of effective hedging contracts. | |
(b) | Exclusive of incentive compensation expense. |
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2010 | 2009 | Variance | % Change | |||||||||||||
Production: |
||||||||||||||||
Oil (MBbls) |
2,852 | 2,838 | 14 | 0.5 | % | |||||||||||
Natural gas (MMcf) |
21,744 | 19,382 | 2,362 | 12 | % | |||||||||||
Oil and natural gas (MMcfe) |
38,856 | 36,410 | 2,446 | 7 | % | |||||||||||
Revenue data (in thousands) (a): |
||||||||||||||||
Oil revenue |
$ | 203,724 | $ | 178,826 | $ | 24,898 | 14 | % | ||||||||
Natural gas revenue |
124,049 | 130,490 | (6,441 | ) | (5 | )% | ||||||||||
Total oil and natural gas revenue |
$ | 327,773 | $ | 309,316 | $ | 18,457 | 6 | % | ||||||||
Average prices (a): |
||||||||||||||||
Oil (per Bbl) |
$ | 71.43 | $ | 63.01 | $ | 8.42 | 13 | % | ||||||||
Natural gas (per Mcf) |
5.71 | 6.73 | (1.02 | ) | (15 | )% | ||||||||||
Oil and natural gas (per Mcfe) |
8.44 | 8.50 | (0.06 | ) | (0.7 | )% | ||||||||||
Expenses (per Mcfe): |
||||||||||||||||
Lease operating expenses |
$ | 1.94 | $ | 2.73 | $ | (0.79 | ) | (29 | )% | |||||||
Salaries, general and administrative expenses (b) |
0.53 | 0.59 | (0.06 | ) | (10 | )% | ||||||||||
DD&A expense on oil and gas properties |
3.13 | 3.15 | (0.02 | ) | (0.6 | )% |
(a) | Includes the cash settlement of effective hedging contracts. | |
(b) | Exclusive of incentive compensation expense. |
During the three months ended June 30, 2010, we reported net income totaling $29.1
million, or $0.60 per share, compared to net income for the three months ended June 30, 2009 of
$27.2 million, or $0.65 per share. For the six months ended June 30, 2010, we reported net income
of $55.7 million, or $1.15 per share. For the six months ended June 30, 2009, we reported a net
loss totaling $198.7 million, or $4.92 per share. All per share amounts are on a diluted basis.
We follow the full cost method of accounting for oil and gas properties. At the end of the
first quarter of 2009, we recognized a ceiling test write-down of our oil and gas properties
totaling $340.1 million ($221.1 million after taxes). The write-down did not impact our cash flow
from operations but did reduce net income and stockholders equity.
The variance in the three and six-month periods results was also due to the following
components:
Production. During the second quarter of 2010, total production volumes increased 4% to 19.7
Bcfe compared to 19.0 Bcfe produced during the second quarter of 2009. Oil production during the
second quarter of 2010 totaled approximately
1,430,000 barrels compared to 1,544,000 barrels produced during the second quarter of 2009,
while natural gas production totaled
24
Table of Contents
11.1 Bcf during the second quarter of 2010 compared to 9.7 Bcf
produced during the second quarter of 2009. Production deferrals due to hurricanes totaled
approximately 4.4 Bcfe for the second quarter of 2009. Without the effects of hurricane production
deferrals, production volumes decreased approximately 3.7 Bcfe for the second quarter of 2010
compared to the comparable 2009 quarter as a result of natural production declines.
Year-to-date 2010 production totaled 2,852,000 barrels of oil and 21.7 Bcf of natural gas
compared to 2,838,000 barrels of oil and 19.4 Bcf of natural gas produced during the comparable
2009 period. Production deferrals due to hurricanes for the six months ended June 30, 2009
amounted to 10.7 Bcfe. Without the effects of hurricane production deferrals, year-to-date 2010
production volumes decreased approximately 8.3 Bcfe from year-to-date 2009 production volumes as a
result of natural production declines.
Prices. Prices realized during the second quarter of 2010 averaged $72.14 per Bbl of oil and
$5.46 per Mcf of natural gas, or 7% lower, on an Mcfe basis, than second quarter 2009 average
realized prices of $69.93 per Bbl of oil and $6.41 per Mcf of natural gas. During the six months
ended June 30, 2010, average realized prices were $71.43 per Bbl of oil and $5.71 per Mcf of
natural gas, compared to $63.01 per Bbl of oil and $6.73 per Mcf of natural gas for the comparable
2009 period. All unit pricing amounts include the cash settlement of effective hedging contracts.
We enter into various hedging contracts in order to reduce our exposure to the possibility of
declining oil and gas prices. Our effective hedging transactions increased our average realized
natural gas price by $0.95 per Mcf and decreased our average realized oil price by $4.02 per Bbl in
the second quarter of 2010. During the second quarter of 2009, our effective hedging transactions
increased our average realized natural gas price by $2.62 per Mcf and increased our average
realized oil price by $12.57 per Bbl. Effective hedging transactions for the six months ended June
30, 2010 increased our average realized natural gas price by $0.75 per Mcf and decreased our
average realized oil price by $4.95 per Bbl. During the six months ended June 30, 2009, effective
hedging transactions increased our average realized natural gas price by $2.48 per Mcf and
increased our average realized oil price by $13.28 per Bbl.
Income. Oil and natural gas revenue decreased 4% to $164.0 million in the second quarter of
2010 from $170.3 million during the second quarter of 2009. The decrease is attributable to a 7%
decrease in average realized prices on a gas equivalent basis partially offset by a 4% increase in
oil and natural gas production volumes. Oil and natural gas revenue for the six months ended June
30, 2010 totaled $327.8 million compared to $309.3 million during the comparable 2009 period. The
increase was primarily due to a 7% increase in oil and natural gas production volumes.
Derivative Income/Expense. During the year-to-date periods ended June 30, 2010 and 2009,
certain of our derivative contracts were determined to be partially ineffective because of
differences in the relationship between the fixed price in the derivative contract and actual
prices realized. Net derivative income for the quarter ended June 30, 2010, totaled $2.2 million,
consisting of $1.2 million of cash settlements on the ineffective portion of derivative contracts,
plus $1.0 million of changes in the fair market value of the ineffective portion of derivative
contracts. Net derivative expense for the quarter ended June 30, 2009, totaled $0.7 million,
consisting of $1.5 million of cash settlements on the ineffective derivative contracts, less $2.2
million of changes in the fair market value of the ineffective portion of derivative contracts.
Net derivative income for the six months ended June 30, 2010 totaled $3.4 million, consisting of
$1.6 million of cash settlements on the ineffective portion of the derivative contracts, plus $1.8
million of changes in the fair market value of the ineffective portion of derivative contracts.
Net derivative income for the six months ended June 30, 2009 totaled $3.2 million, consisting of
$7.6 million of cash settlements on the ineffective portion of the derivative contracts, less $4.4
million of changes in the fair market value of the ineffective portion of derivative contracts.
Expenses. Lease operating expenses during the second quarter of 2010 totaled $36.9 million
compared to $41.1 million for the second quarter of 2009. For the six months ended June 30, 2010
and 2009, lease operating expenses totaled $75.5 million and $99.3 million, respectively. Lease
operating expenses during the first half of 2009 included approximately $16.6 million of repairs in
excess of estimated insurance recoveries related to damage from Hurricanes Gustav and Ike. On a
unit of production basis, lease operating expenses were $1.94 per Mcfe and $2.73 per Mcfe for the
six months ended June 30, 2010 and 2009, respectively.
The other operational expense charge of $2.4 million for the three and six-month periods ended
June 30, 2010 related to a $1.3 million loss on the sale of non-dedicated tubular inventory and
$1.1 million of charges related to a delay in the drilling of the second well in our Amberjack
drilling program as a result of the deep water drilling moratorium. The other operational expense
charge of $2.4 million for the three and six-month periods ended June 30, 2009 related to the
cancellation of a drilling contract based on declining commodity prices and the economic
environment at that time.
Depreciation, depletion and amortization (DD&A) on oil and gas properties for the second
quarter of 2010 totaled $62.3 million, or $3.16 per Mcfe, compared to $55.6 million, or $2.93 per
Mcfe, during the second quarter of 2009. For the six months ended June 30, 2010 and 2009, DD&A
expense totaled $121.4 million and $114.7 million, respectively.
Accretion expense for the second quarter of 2010 was $6.6 million compared to $8.4 million for
the comparable period of 2009. For the six months ended June 30, 2010 and 2009, accretion expense
totaled $13.2 million and $16.8 million,
respectively. The decrease is primarily due to a decrease in our credit adjusted risk free rate at
December 31, 2009.
25
Table of Contents
Salaries, general and administrative (SG&A) expenses (exclusive of incentive compensation)
for the second quarter of 2010 were $10.0 million compared to $9.9 million in the second quarter of
2009. For the six months ended June 30, 2010 and 2009, SG&A totaled $20.4 million and $21.6
million, respectively.
The impairment of inventory for the second quarter of 2009 totaling $1.3 million related to
the write-down of our tubular inventory. For the six months ended June 30, 2009, the impairment
charge totaled $7.2 million. This charge was the result of the market value of these tubular goods
falling below historical cost. We consider only tubular goods not committed to capital projects to
be inventory items.
Interest expense for the second quarter of 2010 totaled $2.5 million, net of $7.2 million of
capitalized interest, compared to interest expense of $4.8 million, net of $6.5 million of
capitalized interest, during the second quarter of 2009. For the six months ended June 30, 2010,
interest expense totaled $6.6 million, net of capitalized interest of $13.6 million, compared to
interest expense of $10.0 million, net of capitalized interest of $12.8 million for the comparable
2009 period. The decrease is primarily the result of a decrease in outstanding borrowings under
our bank credit facility and the redemption of our 81/4% Senior Subordinated Notes due 2011,
partially offset by interest associated with our 85/8% Senior Notes due 2017 which were issued in
January 2010.
We estimate that we have an approximate $5.3 million current federal income tax benefit for
the six months ended June 30, 2010, primarily due to a reclassification between current and
deferred income tax expense related to a reduction to our previous estimates of liabilities
associated with uncertain tax positions. We have a $2.3 million current income tax payable at June
30, 2010.
Recent Accounting Developments
Fair Value Measurements and Disclosures. Accounting Standards Update (ASU) 2010-06 was
issued in January 2010 to improve disclosures about fair value measurements by requiring a greater
level of disaggregated information, more robust disclosures about valuation techniques and inputs
to fair value measurements, information about significant transfers between the three levels in the
fair value hierarchy, and separate presentation of information about purchases, sales, issuances,
and settlements on a gross basis rather than as one net number. The guidance provided in ASU
2010-06 became effective for us on January 1, 2010, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years.
Defined Terms
Oil and condensate are stated in barrels (Bbls) or thousand barrels (MBbls). Natural gas
is stated herein in billion cubic feet (Bcf), million cubic feet (MMcf) or thousand cubic feet
(Mcf). Oil and condensate are converted to natural gas at a ratio of one barrel of liquids per
six Mcf of gas. Bcfe, MMcfe, and Mcfe represent one billion cubic feet, one million cubic feet and
one thousand cubic feet of gas equivalent, respectively. MMBtu represents one million British
Thermal Units and BBtu represents one billion British Thermal Units. An active property is an oil
and gas property with existing production. A primary term lease is an oil and gas property with no
existing production, in which we have a specific time frame to establish production without losing
the rights to explore the property. Liquidity is defined as the ability to obtain cash quickly
either through the conversion of assets or incurrence of liabilities.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Commodity Price Risk
Our major market risk exposure continues to be the pricing applicable to our oil and natural
gas production. Our revenues, profitability and future rate of growth depend substantially upon
the market prices of oil and natural gas, which fluctuate widely. Oil and natural gas price
declines and volatility could adversely affect our revenues, cash flows and profitability. Price
volatility is expected to continue. In order to manage our exposure to oil and natural gas price
declines, we occasionally enter into oil and natural gas price hedging arrangements to secure a
price for a portion of our expected future production.
Our hedging policy provides that not more than 50% of our estimated production quantities can
be hedged without the consent of the board of directors. We believe our current hedging positions
have hedged approximately 46% of our estimated 2010 production from estimated proved reserves, 25%
of our estimated 2011 production from estimated proved reserves, and 7% of our estimated 2012
production from estimated proved reserves. See Item 1. Financial Statements Note 3 -
Derivative Instruments and Hedging Activities for a detailed discussion of hedges in place to
manage our exposure to oil and natural gas price declines.
26
Table of Contents
Since the filing of our Annual Report on Form 10-K for the year ended December 31, 2009, there
have been no material changes in reported market risk as it relates to commodity prices.
Interest Rate Risk
We had long-term debt outstanding of $525 million at June 30, 2010, of which $475 million, or
approximately 91%, bears interest at fixed rates. The $475 million of fixed-rate debt is comprised
of $275 million of 8
5/8
% Senior Notes due 2017 and $200 million of 63/4% Senior Subordinated Notes due
2014. At June 30, 2010, the remaining $50 million of our outstanding long-term debt bears interest
at a floating rate and consists of borrowings outstanding under our bank credit facility. At June
30, 2010, the weighted average interest rate under our bank credit facility was approximately 2.6%
per annum. We currently have no interest rate hedge positions in place to reduce our exposure to
changes in interest rates.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that material information
relating to Stone Energy Corporation and its consolidated subsidiaries (collectively Stone) is
made known to the officers who certify Stones financial reports and the Board of Directors.
Disclosure controls and procedures, as defined in the rules and regulations of the Securities
Exchange Act of 1934, means controls and other procedures of an issuer that are designed to ensure
that information required to be disclosed by the issuer in the reports that it files or submits
under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the
time periods specified in the Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated
and communicated to the issuers management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. There are inherent limitations to the effectiveness of
any system of disclosure controls and procedures, including the possibility of human error and the
circumvention or overriding of controls and procedures. Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurance of achieving their control
objectives.
Our principal executive officer and our principal financial officer, with the participation of
other members of our senior management, reviewed and evaluated the effectiveness of Stones
disclosure controls and procedures as of the end of the quarterly period ended June 30, 2010.
Based on this evaluation, our principal executive officer and principal financial officer believe:
| Stones disclosure controls and procedures were effective to ensure that information required to be disclosed by Stone in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms; and | ||
| Stones disclosure controls and procedures were effective to ensure that information required to be disclosed by Stone in the reports that it files or submits under the Securities Exchange Act of 1934 was accumulated and communicated to Stones management, including Stones principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. |
Changes in Internal Controls Over Financial Reporting
There has not been any change in our internal control over financial reporting that occurred
during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
27
Table of Contents
PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
Franchise Tax Action. On December 30, 2004, Stone was served with two petitions (civil
action numbers 2004-6227 and 2004-6228) filed by the Louisiana Department of Revenue (LDR) in the
15th Judicial District Court (Parish of Lafayette, Louisiana) claiming additional franchise taxes
due. In one case, the LDR is seeking additional franchise taxes from Stone in the amount of
$640,000, plus accrued interest of $352,000 (calculated through December 15, 2004), for the
franchise tax year 2001. In the other case, the LDR is seeking additional franchise taxes from
Stone (as successor to Basin Exploration, Inc.) in the amount of $274,000, plus accrued interest of
$159,000 (calculated through December 15, 2004), for the franchise tax years 1999, 2000 and 2001.
On December 29, 2005, the LDR filed another petition in the 15th Judicial District Court
claiming additional franchise taxes due for the taxable years ended December 31, 2002 and 2003 in
the amount of $2.6 million plus accrued interest calculated through December 15, 2005 in the amount
of $1.2 million. Also, on January 2, 2008, Stone was served with a petition (civil action number
2007-6754) claiming $1.5 million of additional franchise taxes due for the 2004 franchise tax year,
plus accrued interest of $800,000 calculated through November 30, 2007. Further, on January 7,
2009, Stone was served with a petition (civil action number 2008-7193) claiming additional
franchise taxes due for the taxable years ended December 31, 2005 and 2006 in the amount of $4.0
million plus accrued interest calculated through October 21, 2008 in the amount of $1.7 million.
In addition, we have received assessments from the LDR for additional franchise taxes in the amount
of $2.9 million resulting from audits of a subsidiary. These assessments all relate to the LDRs
assertion that sales of crude oil and natural gas from properties located on the Outer Continental
Shelf, which are transported through the State of Louisiana, should be sourced to the State of
Louisiana for purposes of computing the Louisiana franchise tax apportionment ratio. The Company
disagrees with these contentions and intends to vigorously defend itself against these claims. The
franchise tax years 2007 through 2009 for Stone remain subject to examination.
Litigation is subject to substantial uncertainties concerning the outcome of material factual
and legal issues relating to the litigation. Accordingly, we cannot currently predict the manner
and timing of the resolution of these matters and are unable to estimate a range of possible losses
or any minimum loss from such matters.
Stones Certificate of Incorporation and/or its Restated Bylaws provide, to the extent
permissible under the law of the State of Delaware (Stones state of incorporation), for
indemnification of and advancement of defense costs to Stones current and former directors and
officers for potential liabilities related to their service to Stone. Stone has purchased directors
and officers insurance policies that, under certain circumstances, may provide coverage to Stone
and/or its officers and directors for certain losses resulting from securities-related civil
liabilities and/or the satisfaction of indemnification and advancement obligations owed to
directors and officers. These insurance policies may not cover all costs and liabilities incurred
by Stone and its current and former officers and directors in these regulatory and civil
proceedings.
Ad Valorem Tax Suit. In August 2009, Gene P. Bonvillain, in his capacity as Assessor for the
Parish of Terrebonne, State of Louisiana, filed civil action No. 90-03540 and other consolidated
cases in the United States District Court for the Eastern District of Louisiana against
approximately thirty oil and gas companies, including Stone, and their respective chief executive
officers for allegedly unpaid ad valorem taxes. The amount originally alleged to be due by Stone
for the years 1998 through 2008 was $11.3 million. The defendants were subsequently served and
filed motions to dismiss this litigation pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure. On March 29, 2010, the trial court judge dismissed plaintiffs claims without
prejudice, with the dismissal to become effective within ten days unless plaintiff filed an amended
complaint correcting its deficiencies. On April 8, 2010, plaintiff filed a first amended complaint
without naming any of the chief executive officers as defendants and with an amount allegedly due
by Stone of not less than $3.5 million. Subsequently, defendants filed motions to dismiss this
litigation, and the trial court judge granted these motions to dismiss on July 26, 2010.
Federal Securities Action and Derivatives Actions. Stone has previously disclosed that on or
around November 30, 2005, George Porch filed a putative class action in the United States District
Court for the Western District of Louisiana (the Federal Court) against Stone, David Welch,
Kenneth Beer, D. Peter Canty and James Prince purporting to allege violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934. Three similar complaints were filed soon thereafter.
On March 17, 2006, these purported class actions were consolidated, with El Paso Fireman &
Policemans Pension Fund designated as lead plaintiff (Securities Action). El Paso Fireman &
Policemans Pension Fund filed a consolidated class action complaint on or about June 14, 2006.
Stone has also previously disclosed that on or about December 16, 2005, Robert Farer and
Priscilla Fisk filed respective complaints in the Federal Court purportedly alleging claims
derivatively on behalf of Stone. Similar complaints were filed thereafter in the Federal Court by
Joint Pension Fund, Local No. 164, I.B.E.W., and in the 15th Judicial District Court,
Parish of Lafayette, Louisiana (the State Court) by Gregory Sakhno. Stone was named as a nominal
defendant and David Welch, Kenneth Beer, D. Peter Canty, James Prince, James Stone, John Laborde,
Peter Barker, George Christmas, Richard Pattarozzi, David Voelker, Raymond Gary, B.J. Duplantis and
Robert Bernhard were named as defendants in these actions. (These actions are collectively referred
to as the Derivative Actions.)
28
Table of Contents
Stone also previously disclosed that the parties in the Securities Action and the parties in
the Derivative Actions had reached agreements to settle the respective proceedings and that the
parties settlement agreements were subject to Federal Court approval. On March 23, 2010, the
Federal Court held a settlement fairness hearing to consider the proposed settlements in both the
Securities Action and the Derivative Action. During the settlement fairness hearing, the Federal
Court approved both proposed settlements. The Federal Court thereafter entered a Final Judgment
and Order of Dismissal with Prejudice dismissing the federal Derivative Action, and an Order and
Final Judgment dismissing the Securities Action. On or about April 12, 2010, the State Court
Derivative Action was dismissed with prejudice by order of the State Court.
Item 1A. | Risk Factors |
The following risk factors update the Risk Factors included in our Annual Report on Form
10-K for the year ended December 31, 2009. Except as set forth below, there have been no material
changes to the risks described in Part I, Item 1A, of our Annual Report on Form 10-K for the year
ended December 31, 2009.
The explosion and sinking of the Deepwater Horizon oil rig in the Gulf of Mexico and the
resulting oil spill has increased certain of the risks that we face and could have a material
adverse effect on our business.
On April 20, 2010, a fire and explosion occurred onboard the semisubmersible drilling rig
Deepwater Horizon and it sank, leading to the oil spill currently affecting the Gulf of Mexico.
The explosion and sinking of the Deepwater Horizon oil rig in the Gulf of Mexico and the resulting
oil spill has increased certain of the risks we face, including, without limitation, the following:
| imposition of a drilling moratorium or increased governmental regulation of our and our industrys operations in a number of areas, including financial responsibility, health and safety, environmental, permitting, taxation and equipment specifications; | ||
| increased difficulty in obtaining licenses to drill offshore wells; | ||
| higher royalty rates; | ||
| higher insurance costs or the unavailability of insurance at any cost; | ||
| decreased access to appropriate equipment, personnel and infrastructure in a timely manner; and | ||
| less favorable investor perception of the risk-adjusted benefits of deep water offshore drilling. |
These factors could have a material adverse effect on our business, financial position or
future results of operations, including our ability to timely execute our drilling and development
plans.
A drilling moratorium in the Gulf of Mexico, or other regulatory initiatives in response to
the current oil spill in the Gulf of Mexico, could have a material adverse effect our business.
On April 20, 2010, a fire and explosion occurred onboard the semisubmersible drilling rig
Deepwater Horizon and it sank, leading to the oil spill currently affecting the Gulf of Mexico. In
response to this incident, the Minerals Management Service (now known as the Bureau of Ocean Energy
Management, Regulation and Enforcement, or BOEMRE) of the U.S. Department of the Interior issued
a notice on May 30, 2010 implementing a six-month moratorium on certain drilling activities in the
U.S. Gulf of Mexico. Implementation of the moratorium was blocked by a U.S. district court, which
was subsequently affirmed on appeal, but on July 12, 2010, the BOEMRE issued a new moratorium that
applies to deep water drilling operations that use subsea blowout preventers or surface blowout
preventers on floating facilities. Certain exceptions to the moratorium, include, among others,
operations necessary to sustain reservoir pressure from producing wells and workover operations.
The new moratorium will last until November 30, 2010, or until such earlier time that the BOEMRE
determines that affected drilling operations can proceed safely. The BOEMRE has imposed numerous
new safety requirements on the drilling of new wells in offshore waters and these new requirements
have slowed the issuance of permits for new wells in shallow waters not subject to the moratorium.
The BOEMRE is also expected to issue new safety and environmental guidelines or regulations for
drilling in the Gulf of Mexico, and potentially in other geographic regions, and may take other
steps that could increase the costs of exploration and production, reduce the area of operations
and result in permitting delays. This incident could also result in drilling suspensions or other
regulatory initiatives in other areas of the United States and abroad. Although it is difficult to
predict the ultimate impact of the moratorium or any new guidelines, regulations or legislation, a
prolonged suspension of drilling activity in the Gulf of Mexico and other areas, new regulations
and increased liability for companies operating in this sector could reduce drilling and production
activity, or increase the costs of our services, or could have a material adverse effect on our
business, financial position or future results of operations, including our ability to timely
execute our drilling and development plans.
The Oil Pollution Act of 1990 (the OPA) and regulations adopted pursuant to the OPA impose a
variety of requirements related to the prevention of and response to oil spills into waters of the
United States. The OPA subjects operators of offshore leases and owners and operators of oil
handling facilities to strict, joint and several liability for all containment and cleanup costs
and certain other damages arising from a spill, including, but not limited to, the costs of
responding to a release of oil, natural resource damages, and economic damages suffered by persons
adversely affected by an oil spill. The OPA also
requires owners and operators of offshore oil production facilities to establish and maintain
evidence of financial responsibility to
29
Table of Contents
cover costs that could be incurred in responding to an oil
spill. The OPA currently requires a minimum financial responsibility demonstration of $35 million
for companies operating on the Outer Continental Shelf, although the Secretary of Interior may
increase this amount up to $150 million in certain situations. The OPA also currently limits the
liability of a responsible party for economic damages, excluding all oil spill response costs, to
$75 million, although this limit does not apply if a federal safety, construction or operating
regulation was violated. The states in which we operate have also adopted similar laws and
regulations relating to offshore operations in their waters. The United States Congress is
currently considering a variety of amendments to the OPA in response to the recent Deepwater
Horizon incident in the Gulf of Mexico, including an increase in the minimum level of financial
responsibility, an elimination of all liability limitations on damages, and enhancements to safety
and spill-response requirements. Additional state regulation in these areas is also possible. Any
new requirements would likely increase the cost of operations for our offshore activities,
including insurance costs, and expose us to increased liability, which could have an adverse effect
on our results of operations. In addition, we are subject to an annual evaluation for exemption
from supplemental bonding on plugging and abandoning obligations. Any new requirement to post
additional bonds or letters of credit could have an adverse effect on our liquidity. If we are
unable to satisfy new legislative and regulatory requirements, we may be required to curtail
operations, sell our offshore properties or operations, or enter into partnerships with other
companies that can meet the new requirements, which may have an adverse effect on the value of our
offshore assets and the results of our operations. We cannot predict at this time whether the OPA
will be amended or new state regulations adopted, what the substance of any such amendment or
regulations will be or what impact any such amendments might have on our operations. In addition,
our costs could also increase for our onshore operations due to changes in standard industry
practices in anticipation of, or in reaction to, any new offshore regulation.
We may not be insured against all of the operating risks to which our business in exposed.
In accordance with industry practice, we maintain insurance coverage against some, but not
all, of the operating risks to which our business is exposed. We insure some, but not all, of our
properties from operational and hurricane related events. We currently have insurance policies
that include coverage for general liability, physical damage to our oil and gas properties,
operational control of wells, oil pollution, third party liability, workers compensation and
employers liability and other coverage. Our insurance coverage includes deductibles that must be
met prior to recovery, as well as sub-limits and/or self-insurance. Additionally, our insurance is
subject to exclusions and limitations, and there is no assurance that such coverage will adequately
protect us against liability from all potential consequences and damages and losses.
Currently, we have general liability insurance coverage with an annual aggregate limit of up
to $75 million applicable to our working interest. We also have an offshore property physical
damage policy that contains a $75 million annual aggregate named windstorm limit. Our operational
control of well coverage provides limits that vary by well location and depth and range from a
combined single limit of $10 million to $150 million per occurrence. Exploratory deep water wells
have a coverage limit of $300 million per occurrence. Additionally, we maintain $35 million in oil
pollution liability coverage. Our control of well and oil pollution liability policy limits are
scaled proportionately to our working interests, and all of our policies described above are
subject to deductibles, sub-limits and/or self-insurance. Under our service agreements, including
drilling contracts, generally we are indemnified for injuries and death of the service providers
employees as well as contractors and subcontractors hired by the service provider.
An operational or hurricane related event may cause damage or liability in excess of our
coverage, which might severely impact our financial position. We may be liable for damages from an
event relating to a project in which we are a non-operator, but have a working interest in such
project. Such an event may also cause a significant interruption to our business, which might also
severely impact our financial position. For example, we experienced production interruptions in
2005, 2006 and 2007 from Hurricanes Katrina and Rita and in 2008 and 2009 from Hurricanes Gustav
and Ike for which we had no production interruption insurance.
We reevaluate the purchase of insurance, policy limits and terms annually each May. In light
of the recent catastrophic accident in the Gulf of Mexico, we may not be able to secure similar
coverage for the same costs. Future insurance coverage for our industry could increase in cost and
may include higher deductibles or retentions. In addition, some forms of insurance may become
unavailable in the future or unavailable on terms that we believe are economically acceptable. No
assurance can be given that we will be able to maintain insurance in the future at rates that we
consider reasonable and we may elect to maintain minimal or no insurance coverage. We may not be
able to secure additional insurance or bonding that might be required by new governmental
regulations. This may cause us to restrict our operations in the Gulf of Mexico, which might
severely impact our financial position. The occurrence of a significant event, not fully insured
against, could have a material adverse effect on our financial condition and results of operations.
30
Table of Contents
The recent adoption of derivatives legislation by the United States Congress could have an
adverse effect on our ability to use derivative instruments to reduce the effect of commodity
price, interest rate and other risks associated with our business.
The United States Congress recently adopted comprehensive financial reform legislation that
establishes federal oversight and regulation of the over-the-counter derivatives market and
entities that participate in that market. The new legislation was signed into law by the President
on July 21, 2010 and requires the Commodities Futures Trading Commission (the CFTC) and the
Securities and Exchange Commission (the SEC) to promulgate rules and regulations implementing the
new legislation within 360 days from the date of enactment. The CFTC has also proposed regulations
to set position limits for certain futures and option contracts in the major energy markets,
although it is not possible at this time to predict whether or when the CFTC will adopt those rules
or include comparable provisions in its rulemaking under the new legislation. The financial reform
legislation may also require us to comply with margin requirements and with certain clearing and
trade-execution requirements in connection with our derivative activities, although the application
of those provisions to us is uncertain at this time. The financial reform legislation may also
require the counterparties to our derivative instruments to spin off some of their derivatives
activities to a separate entity, which may not be as creditworthy as the current counterparty. The
new legislation and any new regulations could significantly increase the cost of derivative
contracts (including through requirements to post collateral which could adversely affect our
available liquidity), materially alter the terms of derivative contracts, reduce the availability
of derivatives to protect against risks that we encounter, reduce our ability to monetize or
restructure our existing derivative contracts, and increase our exposure to less creditworthy
counterparties. If we reduce our use of derivatives as a result of the legislation and
regulations, our results of operations may become more volatile and our cash flows may be less
predictable, which could adversely affect our ability to plan for and fund capital expenditures.
Finally, the legislation was intended, in part, to reduce the volatility of oil and natural gas
prices, which some legislators attributed to speculative trading in derivatives and commodity
instruments related to oil and natural gas. Our revenues could therefore be adversely affected if
a consequence of the legislation and regulations is to lower commodity prices. Any of these
consequences could have a material, adverse effect on us, our financial condition, and our results
of operations.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On September 24, 2007, our Board of Directors authorized a share repurchase program for
an aggregate amount of up to $100 million. The shares may be repurchased from time to time in the
open market or through privately negotiated transactions. The repurchase program is subject to
business and market conditions, and may be suspended or discontinued at any time. Additionally,
shares were withheld from certain employees to pay taxes associated with the employees vesting of
restricted stock. The following table sets forth information regarding our repurchases or
acquisitions of common stock during the second quarter of 2010:
Maximum Number (or | ||||||||||||||||
Total Number of | Approximate Dollar | |||||||||||||||
Shares (or Units) | Value) of Shares | |||||||||||||||
Purchased as Part | (or Units) that May | |||||||||||||||
Total Number of | of Publicly | Yet be Purchased | ||||||||||||||
Shares (or Units) | Average Price Paid | Announced Plans or | Under the Plans or | |||||||||||||
Period | Purchased | per Share (or Unit) | Programs | Programs | ||||||||||||
Share
Repurchase Program: |
||||||||||||||||
April 2010 |
| | | |||||||||||||
May 2010 |
| | | |||||||||||||
June 2010 |
| | | |||||||||||||
| | | $ | 92,928,632 | ||||||||||||
Other: |
||||||||||||||||
April 2010 |
458 | (a) | $ | 18.20 | | |||||||||||
May 2010 |
469 | (a) | 15.10 | | ||||||||||||
June 2010 |
| | | |||||||||||||
927 | 16.63 | | N/A | |||||||||||||
Total |
927 | $ | 16.63 | | ||||||||||||
(a) | Amounts include shares withheld from employees upon the vesting of restricted stock in order to satisfy the required tax withholding obligations. |
31
Table of Contents
Item 6. | Exhibits |
3.1
|
Certificate of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrants Registration Statement on Form S-1 (Registration No. 33-62362)). | |
3.2
|
Certificate of Amendment of the Certificate of Incorporation of Stone Energy Corporation, dated February 1, 2001 (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K, filed February 7, 2001). | |
3.3
|
Amended & Restated Bylaws of Stone Energy Corporation, dated May 15, 2008 (incorporated by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K dated May 15, 2008 (File No. 001-12074)). | |
4.1
|
Second Supplemental Indenture, dated January 26, 2010, among Stone Energy Corporation, Stone Energy Offshore, L.L.C., and The Bank of New York Mellon Trust Company, N.A., successor to JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K, filed January 29, 2010). | |
4.2
|
Indenture, dated January 26, 2010, among Stone Energy Corporation, Stone Energy Offshore, L.L.C., and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to the Registrants Form 8-K, filed January 29, 2010). | |
4.3
|
First Supplemental Indenture, dated January 26, 2010, among Stone Energy Corporation, Stone Energy Offshore, L.L.C., and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 to the Registrants Form 8-K, filed January 29, 2010). | |
*15.1
|
Letter from Ernst & Young LLP dated August 5, 2010, regarding unaudited interim financial information. | |
*31.1
|
Certification of Principal Executive Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. | |
*31.2
|
Certification of Principal Financial Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. | |
*#32.1
|
Certification of Chief Executive Officer and Chief Financial Officer of Stone Energy Corporation pursuant to 18 U.S.C. § 1350. |
* | Filed herewith. | |
# | Not considered to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. |
32
Table of Contents
SIGNATURE
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.
STONE ENERGY CORPORATION |
||||
Date: August 5, 2010 | By: | /s/ J. Kent Pierret | ||
J. Kent Pierret | ||||
Senior Vice President, Chief Accounting Officer and Treasurer (On behalf of the Registrant and as Chief Accounting Officer) |
33
Table of Contents
EXHIBIT INDEX
Exhibit Number | Description | |
3.1
|
Certificate of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrants Registration Statement on Form S-1 (Registration No. 33-62362)). | |
3.2
|
Certificate of Amendment of the Certificate of Incorporation of Stone Energy Corporation, dated February 1, 2001 (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K, filed February 7, 2001). | |
3.3
|
Amended & Restated Bylaws of Stone Energy Corporation, dated May 15, 2008 (incorporated by reference to Exhibit 3.1 to the Registrants Current Report on Form 8-K dated May 15, 2008 (File No. 001-12074)). | |
4.1
|
Second Supplemental Indenture, dated January 26, 2010, among Stone Energy Corporation, Stone Energy Offshore, L.L.C., and The Bank of New York Mellon Trust Company, N.A., successor to JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K, filed January 29, 2010). | |
4.2
|
Indenture, dated January 26, 2010, among Stone Energy Corporation, Stone Energy Offshore, L.L.C., and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.2 to the Registrants Form 8-K, filed January 29, 2010). | |
4.3
|
First Supplemental Indenture, dated January 26, 2010, among Stone Energy Corporation, Stone Energy Offshore, L.L.C., and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.3 to the Registrants Form 8-K, filed January 29, 2010). | |
*15.1
|
Letter from Ernst & Young LLP dated August 5, 2010, regarding unaudited interim financial information. | |
*31.1
|
Certification of Principal Executive Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. | |
*31.2
|
Certification of Principal Financial Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. | |
*#32.1
|
Certification of Chief Executive Officer and Chief Financial Officer of Stone Energy Corporation pursuant to 18 U.S.C. § 1350. |
* | Filed herewith. | |
# | Not considered to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section. |
34