STONE ENERGY CORP - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - STONE ENERGY CORP	h81700exv31w1.htm
EX-15.1 - EX-15.1 - STONE ENERGY CORP	h81700exv15w1.htm
EX-32.1 - EX-32.1 - STONE ENERGY CORP	h81700exv32w1.htm
EX-31.2 - EX-31.2 - STONE ENERGY CORP	h81700exv31w2.htm
EX-10.1 - EX-10.1 - STONE ENERGY CORP	h81700exv10w1.htm

UNITED STATES
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 March 31, 2011


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
Lafayette, Louisiana		70508
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s 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 May 3, 2011, there were 49,003,734 shares of the registrant’s common stock, par value $.01 per share, outstanding.

TABLE OF CONTENTS


	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed Consolidated Balance Sheet as of March 31, 2011 and December 31, 2010		1

Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2011 and 2010		2

Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2011 and 2010		3

Notes to Condensed Consolidated Financial Statements		4

Report of Independent Registered Public Accounting Firm		15

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3. Quantitative and Qualitative Disclosures About Market Risk		21

Item 4. Controls and Procedures		22

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		22

Item 1A. Risk Factors		23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		23

Item 3. Defaults Upon Senior Securities	Not Applicable

Item 4. (Removed and Reserved)	Not Applicable

Item 5. Other Information	Not Applicable

Item 6. Exhibits		24

Signature		25
EX-10.1
EX-15.1
EX-31.1
EX-31.2
EX-32.1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

STONE ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands of dollars)


	March 31,			December 31,
	2011			2010
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	45,906		$	106,956
Restricted cash		—			5,500
Accounts receivable		112,734			88,529
Fair value of hedging contracts		9,632			12,955
Current income tax receivable		3,517			—
Deferred taxes		42,660			27,274
Inventory		6,100			6,465
Other current assets		727			768

Total current assets		221,276			248,447

Oil and gas properties — United States — full cost method of accounting:
Proved, net of accumulated depreciation, depletion and amortization of $4,873,527 and $4,804,949, respectively		1,021,078			984,629
Unevaluated		457,676			413,180
Building and land, net		6,227			6,273
Fixed assets, net		4,327			4,449
Other assets, net		21,693			22,112

Total assets	$	1,732,277		$	1,679,090


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	100,670		$	103,208
Undistributed oil and gas proceeds		9,880			10,037
Fair value of hedging contracts		62,451			32,144
Asset retirement obligations		53,347			42,300
Current income tax payable		—			239
Other current liabilities		20,236			30,137

Total current liabilities		246,584			218,065

Long-term debt		575,000			575,000
Deferred taxes		118,729			99,227
Asset retirement obligations		309,256			331,620
Fair value of hedging contracts		22,521			3,606
Other long-term liabilities		21,734			21,215

Total liabilities		1,293,824			1,248,733


Commitments and contingencies

Stockholders’ equity:
Common stock, $.01 par value; authorized 100,000,000 shares; issued 47,945,000 and 47,764,505 shares, respectively		479			478
Treasury stock (16,582 shares, respectively, at cost)		(860	)		(860	)
Additional paid-in capital		1,332,277			1,331,500
Accumulated deficit		(846,765	)		(886,557	)
Accumulated other comprehensive loss		(46,678	)		(14,204	)

Total stockholders’ equity		438,453			430,357

Total liabilities and stockholders’ equity	$	1,732,277		$	1,679,090

The accompanying notes are an integral part of this balance sheet.

STONE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended
	March 31,
	2011			2010
Operating revenue:
Oil production	$	151,995		$	100,565
Gas production		45,858			63,226
Derivative income, net		—			1,188

Total operating revenue		197,853			164,979


Operating expenses:
Lease operating expenses		38,806			38,664
Other operational expense		662			—
Production taxes		2,535			1,654
Depreciation, depletion and amortization		67,669			60,653
Accretion expense		7,717			8,462
Salaries, general and administrative expenses		11,733			10,485
Incentive compensation expense		2,684			925
Derivative expense, net		2,180			—

Total operating expenses		133,986			120,843


Income from operations		63,867			44,136


Other (income) expenses:
Interest expense		3,111			4,066
Interest income		(94	)		(57	)
Other income		(1,449	)		(2,032	)
Loss on early extinguishment of debt		—			1,820
Other expense		124			280

Total other expenses		1,692			4,077


Net income before income taxes		62,175			40,059


Provision (benefit) for income taxes:
Current		—			(3,872	)
Deferred		22,383			18,513

Total income taxes		22,383			14,641


Net income	$	39,792		$	25,418


Basic earnings per share	$	0.81		$	0.52
Diluted earnings per share	$	0.81		$	0.52

Average shares outstanding		47,898			47,609
Average shares outstanding assuming dilution		47,939			47,637

The accompanying notes are an integral part of this statement.

STONE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands of dollars)

(Unaudited)


	Three Months Ended
	March 31,
	2011			2010
Cash flows from operating activities:
Net income	$	39,792		$	25,418
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		67,669			60,653
Accretion expense		7,717			8,462
Deferred income tax provision		22,383			18,513
Settlement of asset retirement obligations		(19,034	)		(10,378	)
Non-cash stock compensation expense		1,680			1,427
Excess tax benefits		(649	)		(194	)
Non-cash derivative expense (income)		1,804			(855	)
Loss on early extinguishment of debt		—			1,820
Other non-cash (income) expense		(104	)		335
Change in current income taxes		(3,681	)		(13,500	)
Increase in accounts receivable		(21,555	)		(7,131	)
(Increase) decrease in other current assets		25			(53	)
Decrease in inventory		365			123
Increase (decrease) in accounts payable		2,690			(864	)
Decrease in other current liabilities		(10,059	)		(6,169	)
Other		272			27

Net cash provided by operating activities		89,315			77,634


Cash flows from investing activities:
Investment in oil and gas properties		(156,535	)		(78,788	)
Proceeds from sale of oil and gas properties, net of expenses		7,692			—
Investment in fixed and other assets		(262	)		(343	)

Net cash used in investing activities		(149,105	)		(79,131	)


Cash flows from financing activities:
Repayments of bank borrowings		—			(75,000	)
Redemption of senior subordinated notes		—			(200,503	)
Proceeds from issuance of senior notes		—			275,000
Deferred financing costs		(66	)		(9,701	)
Excess tax benefits		649			194
Net payments for share based compensation		(1,843	)		(1,056	)

Net cash used in financing activities		(1,260	)		(11,066	)


Net decrease in cash and cash equivalents		(61,050	)		(12,563	)
Cash and cash equivalents, beginning of period		106,956			69,293

Cash and cash equivalents, end of period	$	45,906		$	56,730

The accompanying notes are an integral part of this statement.

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 March 31, 2011 and for the three-month periods ended March 31, 2011 and 2010 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, 2010 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 management’s 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, 2010. The results of operations for the three-month period ended March 31, 2011 are not necessarily indicative of future financial results. Certain first quarter 2010 amounts have been changed from amounts originally presented to correct a prior period immaterial error.

Note 2 — Earnings Per Share

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
	March 31,
	2011			2010
	(in thousands, except per share data)
Income (numerator):
Net income	$	39,792		$	25,418
Net income attributable to participating securities		(874	)		(436	)

Net income attributable to common stock — basic and diluted	$	38,918		$	24,982


Weighted average shares (denominator):
Weighted average shares — basic		47,898			47,609
Diluted effect of stock options		41			28

Weighted average shares — diluted		47,939			47,637


Basic income per common share	$	0.81		$	.0.52

Diluted income per common share	$	0.81		$	0.52

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 398,000 and 431,000 shares in the three months ended March 31, 2011 and 2010, respectively. During the three months ended March 31, 2011 and 2010, respectively, approximately 180,000 and 140,000 shares of common stock were issued upon the vesting of restricted stock by employees and nonemployee directors.

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 derivative’s 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 contracts. 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 2011, 2012 and 2013 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, Bank of America and Natixis.

During the three-month periods ended March 31, 2011 and 2010, 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. All of our derivative instruments at March 31, 2011 and December 31, 2010 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 March 31, 2011 and December 31, 2010.


Fair Value of Derivative Instruments at March 31, 2011
(in millions)
	Asset Derivatives			Liability Derivatives
Description	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Current assets: Fair value of hedging contracts	$	9.6	Current liabilities: Fair value of hedging contracts		($62.5	)
	Long-term assets: Fair value of hedging contracts		—	Long-term liabilities: Fair value of hedging contracts		(22.5	)

		$	9.6			($85.0	)


Fair Value of Derivative Instruments at December 31, 2010
(in millions)
	Asset Derivatives			Liability Derivatives
Description	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Current assets: Fair value of hedging contracts	$	13.0	Current liabilities: Fair value of hedging contracts		($32.1	)
	Long-term assets: Fair value of hedging contracts		—	Long-term liabilities: Fair value of hedging contracts		(3.6	)

		$	13.0			($35.7	)

The following table discloses the effect of derivative instruments in the statement of operations for the three-month periods ended March 31, 2011 and 2010.


The Effect of Derivative Instruments on the Statement of Operations for the Three Months Ended March 31, 2011 and 2010
(in millions)
Derivatives in	Amount of Gain					Gain (Loss) Reclassified from							Gain (Loss) Recognized in Income
Cash Flow Hedging	(Loss) Recognized					Accumulated OCI into Income							on Derivative
Relationships	in OCI on Derivative (a)					(Effective Portion) (b)							(Ineffective Portion)
	2011			2010		Location	2011			2010			Location	2011			2010
Commodity contracts		($32.5	)	$	13.1	Operating revenue - oil/gas production		($3.9	)		($2.6	)	Derivative income (expense), net		($2.2	)	$	1.2

Total		($32.5	)	$	13.1			($3.9	)		($2.6	)			($2.2	)	$	1.2


(a)		Net of related tax effect.

(b)		For the three months ended March 31, 2011, effective hedging contracts decreased oil revenue by $8.4 million and increased gas revenue by $4.5 million. For the three months ended March 31, 2010, effective hedging contracts decreased oil revenue by $8.3 million and increased gas revenue by $5.7 million.

At March 31, 2011, we had an accumulated other comprehensive loss of $46.7 million, net of tax, which related to the fair value of our 2011, 2012 and 2013 swap contracts that were outstanding as of March 31, 2011. We believe that approximately $32.7 million of the accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.

The following table illustrates our hedging positions for calendar years 2011, 2012 and 2013 as of May 3, 2011:


	Fixed-Price Swaps
	Natural Gas					Oil
	Daily Volume			Swap		Daily Volume			Swap
	(MMBtus/d)			Price		(Bbls/d)			Price
2011		10,000	(a)	$	4.565		1,000		$	70.05
2011		20,000			5.200		1,000			78.20
2011		10,000			6.830		1,000			80.20
2011							1,000			83.00
2011							1,000			83.05
2011							1,000	(b)		85.20
2011							1,000			85.25
2011							1,000			89.00
2011							1,000	(c)		97.75
2011							1,000	(c)		104.30

2012		10,000			5.035		1,000			90.30
2012		10,000			5.040		1,000			90.41
2012		10,000			5.050		1,000			90.45
2012							1,000			95.50
2012							1,000			97.60
2012							1,000			100.00
2012							1,000			101.55
2012							1,000			104.25

2013		10,000			5.270		1,000			97.15
2013		10,000			5.320		1,000			101.53
2013							1,000			104.50


(a)		February — December

(b)		January — June

(c)		July — December

Note 4 — Long-Term Debt

Long-term debt consisted of the following at:


	March 31, 2011		December 31, 2010
	(in millions)
6³/4% Senior Subordinated Notes due 2014	$	200.0	$	200.0
8⅝% Senior Notes due 2017		375.0		375.0
Bank debt		—		—

Total long-term debt	$	575.0	$	575.0

On March 31, 2011, we had no outstanding borrowings under our bank credit facility and letters of credit totaling $63.1 million had been issued pursuant to the facility. On April 26, 2011, we entered into an amended and restated revolving credit facility totaling $700 million through a syndicated bank group, replacing our previous $700 million facility. The new credit facility matures on September 15, 2014 or, if the notes issued under our 2004 indenture are retired on or before April 15, 2014, on April 26, 2015. Our initial borrowing base under the new credit facility has been set at $400 million. The new credit facility decreases our borrowing base grid by 25 basis points in respect of London Interbank Offering Rate (“Libor Rate”) advances and base rate advances. As of May 3, 2011, we had no outstanding borrowings under our bank credit facility and letters of credit totaling $61.1 million had been issued pursuant to the facility, leaving $338.9 million of availability under the facility. Our bank credit facility is guaranteed by our only material subsidiary, Stone Energy Offshore, L.L.C. (“Stone Offshore”).

The borrowing base under our bank credit facility is redetermined semi-annually, typically on May 1 and November 1, 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 Stone’s and Stone Offshore’s 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 Stone’s 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. We were in compliance with all such covenants as of March 31, 2011.

Note 5 — Comprehensive Income

The following table illustrates the components of comprehensive income for the three-month periods ended March 31, 2011 and 2010:


	Three Months Ended
	March 31,
	2011			2010
	(in millions)
Net income	$	39.8		$	25.4
Other comprehensive income (loss), net of tax effect:
Adjustment for fair value accounting of derivatives		(32.5	)		13.1

Comprehensive income	$	7.3		$	38.5

Note 6 — Asset Retirement Obligations

The change in our asset retirement obligations during the three months ended March 31, 2011 is set forth below:


	Three Months
	Ended
	March 31, 2011
	(in millions)
Asset retirement obligations as of the beginning of the period, including current portion	$	373.9
Liabilities settled		(19.0	)
Accretion expense		7.7

Asset retirement obligations as of the end of the period, including current portion	$	362.6

In October 2010, we received notification from the Bureau of Ocean Energy Management, Regulation and Enforcement (“BOEMRE”) indicating that certain identified wells and facilities operated by us will need to be retired on a timing schedule, which was accelerated from the timing estimated in calculating liabilities for asset retirement obligations at December 31, 2009. In February 2011, we submitted an abandonment plan addressing the identified wells and facilities. The BOEMRE has indicated they will issue a final order upon review of the plan. During 2010, we increased our asset retirement obligations in the amount of $54.4 million for the estimated impact of the accelerated timing of the retirement of these assets and other factors. The final order will ultimately determine the impact on our asset retirement obligations and could result in an additional upward or downward revision.

Note 7 — 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.

As of March 31, 2011, 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. 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 March 31, 2011
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
Assets	Total		(Level 1)		(Level 2)		(Level 3)
			(in millions)
Money market funds	$	7.6	$	7.6	$	—	$	—
Hedging contracts.		9.6		—		9.6		—

Total	$	17.2	$	7.6	$	9.6	$	—


	Fair Value Measurements at March 31, 2011
				Quoted Prices
				in Active Markets
				for Identical		Significant Other			Significant
				Liabilities		Observable Inputs			Unobservable Inputs
Liabilities	Total			(Level 1)		(Level 2)			(Level 3)
				(in millions)
Hedging contracts		($85.0	)	$	—		($85.0	)	$	—

Total		($85.0	)	$	—		($85.0	)	$	—

The fair value of cash and cash equivalents and our variable-rate bank debt approximated book value at March 31, 2011 and December 31, 2010. As of March 31, 2011 and December 31, 2010, the fair value of our $375 million 8⅝% Senior Notes due 2017 was approximately $393.8 million and $380.6 million, respectively. As of March 31, 2011 and December 31, 2010, the fair value of our $200 million 6³/4% Senior Subordinated Notes due 2014 was approximately $199.3 million and $197.0 million, respectively. The fair values of our outstanding notes were determined based upon quotes obtained from brokers.

Note 8 — Commitments and Contingencies

We are named as a defendant in certain lawsuits and are a party to certain regulatory proceedings arising in the ordinary course of business. We do not expect these matters, individually or in the aggregate, will have a material adverse effect on our financial condition.

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 LDR’s 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 plus estimated accrued interest amount to approximately $21.8 million. The franchise tax years 2007 through 2010 for Stone remain subject to examination, which potentially exposes us to additional estimated assessments of $7.1 million including accrued interest.

Note 9 — Guarantor Financial Statements

Stone Offshore is an unconditional guarantor (the “Guarantor Subsidiary”) of our 6³/4% Senior Subordinated Notes due 2014 and our 8⅝% Senior Notes due 2017. Our remaining subsidiaries (the “Non-Guarantor Subsidiaries”) have not provided guarantees. The following presents condensed consolidating financial information as of March 31, 2011 and December 31, 2010 and for the three-month periods ended March 31, 2011 and 2010 on an issuer (parent company), guarantor subsidiary, non-guarantor subsidiaries, and consolidated basis. Elimination entries presented are necessary to combine the entities.

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
MARCH 31, 2011
(In thousands of dollars)


				Guarantor			Non-Guarantor
Assets	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	45,746		$	108		$	52		$	—		$	45,906
Accounts receivable		244,482			92,719			1,207			(225,674	)		112,734
Fair value of hedging contracts		—			9,632			—			—			9,632
Current income tax receivable		3,517			—			—			—			3,517
Deferred taxes *		4,060			38,600			—			—			42,660
Inventory		5,803			297			—			—			6,100
Other current assets		712			15			—			—			727

Total current assets		304,320			141,371			1,259			(225,674	)		221,276
Oil and gas properties — United States Proved, net		100,969			916,437			3,672			—			1,021,078
Unevaluated		283,163			174,513			—			—			457,676
Building and land, net		6,227			—			—			—			6,227
Fixed assets, net		4,327			—			—			—			4,327
Other assets, net		21,693			—			—			—			21,693
Investment in subsidiary		480,029			1,998			—			(482,027	)		—

Total assets	$	1,200,728		$	1,234,319		$	4,931			($707,701	)	$	1,732,277


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	50,136		$	276,208		$	—			($225,674	)	$	100,670
Undistributed oil and gas proceeds		8,695			1,185			—			—			9,880
Fair value of hedging contracts		—			62,451			—			—			62,451
Asset retirement obligations		—			53,347			—			—			53,347
Other current liabilities		20,005			231			—			—			20,236

Total current liabilities		78,836			393,422			—			(225,674	)		246,584
Long-term debt		575,000			—			—			—			575,000
Deferred taxes *		46,552			72,177			—			—			118,729
Asset retirement obligations		187			304,563			4,506			—			309,256
Fair value of hedging contracts		—			22,521			—			—			22,521
Other long-term liabilities		15,022			6,712			—			—			21,734

Total liabilities		715,597			799,395			4,506			(225,674	)		1,293,824


Commitments and contingencies

Stockholders’ equity:
Common stock		479			—			—			—			479
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,332,277			1,673,597			1,639			(1,675,236	)		1,332,277
Accumulated earnings (deficit)		(846,765	)		(1,191,995	)		(1,214	)		1,193,209			(846,765	)
Accumulated other comprehensive loss		—			(46,678	)		—			—			(46,678	)

Total stockholders’ equity		485,131			434,924			425			(482,027	)		438,453

Total liabilities and stockholders’ equity	$	1,200,728		$	1,234,319		$	4,931			($707,701	)	$	1,732,277


*		Deferred income taxes have been allocated to guarantor subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2010
(In thousands of dollars)


				Guarantor			Non-Guarantor
Assets	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	105,115		$	1,659		$	182		$	—		$	106,956
Restricted cash		5,500			—			—			—			5,500
Accounts receivable		26,760			61,560			902			(693	)		88,529
Fair value of hedging contracts		12,955			—			—			—			12,955
Deferred taxes *		27,274			—			—			—			27,274
Inventory		6,168			297			—			—			6,465
Other current assets		753			15			—			—			768

Total current assets		184,525			63,531			1,084			(693	)		248,447
Oil and gas properties — United States Proved, net		260,434			720,309			3,886			—			984,629
Unevaluated		337,725			75,455			—			—			413,180
Building and land, net		6,273			—			—			—			6,273
Fixed assets, net		4,449			—			—			—			4,449
Other assets, net		22,112			—			—			—			22,112
Investment in subsidiary		427,273			1,561			—			(428,834	)		—

Total assets	$	1,242,791		$	860,856		$	4,970			($429,527	)	$	1,679,090


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	60,019		$	43,881		$	—			($692	)	$	103,208
Undistributed oil and gas proceeds		9,491			546			—			—			10,037
Fair value of hedging contracts		32,144			—			—			—			32,144
Asset retirement obligations		—			42,300			—			—			42,300
Current income taxes payable		239			—			—			—			239
Other current liabilities		30,137			—			—			—			30,137

Total current liabilities		132,030			86,727			—			(692	)		218,065
Long-term debt		575,000			—			—			—			575,000
Deferred taxes *		(41,804	)		141,031			—			—			99,227
Asset retirement obligations		129,100			198,105			4,415			—			331,620
Fair value of hedging contracts		3,606			—			—			—			3,606
Other long-term liabilities		14,502			6,713			—			—			21,215

Total liabilities		812,434			432,576			4,415			(692	)		1,248,733


Commitments and contingencies

Stockholders’ equity:
Common stock		478			—			—			—			478
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,331,500			1,673,598			1,640			(1,675,238	)		1,331,500
Accumulated earnings (deficit)		(886,557	)		(1,245,318	)		(1,085	)		1,246,403			(886,557	)
Accumulated other comprehensive loss		(14,204	)		—			—			—			(14,204	)

Total stockholders’ equity		430,357			428,280			555			(428,835	)		430,357

Total liabilities and stockholders’ equity	$	1,242,791		$	860,856		$	4,970			($429,527	)	$	1,679,090


*		Deferred income taxes have been allocated to guarantor subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2011
(In thousands of dollars)


							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	786		$	151,209		$	—		$	—		$	151,995
Gas production		1,280			44,578			—			—			45,858

Total operating revenue		2,066			195,787			—			—			197,853


Operating expenses:
Lease operating expenses		356			38,450			—			—			38,806
Other operational expense		—			662			—			—			662
Production taxes		147			2,388			—			—			2,535
Depreciation, depletion, amortization		5,942			61,510			217			—			67,669
Accretion expense		4			7,622			91			—			7,717
Salaries, general and administrative		11,731			2			—			—			11,733
Incentive compensation expense		2,684			—			—			—			2,684
Derivative expense, net		—			2,180			—			—			2,180

Total operating expenses		20,864			112,814			308			—			133,986


Income (loss) from operations		(18,798	)		82,973			(308	)		—			63,867


Other (income) expenses:
Interest expense		3,031			80			—			—			3,111
Interest income		(88	)		(6	)		—			—			(94	)
Other (income) expense, net		(1,166	)		20			(179	)		—			(1,325	)
(Income) loss from investment in subsidiary		(52,756	)		(438	)		—			53,194			—

Total other (income) expenses		(50,979	)		(344	)		(179	)		53,194			1,692


Income (loss) before taxes		32,181			83,317			(129	)		(53,194	)		62,175


Provision (benefit) for income taxes:
Current		—			—			—			—			—
Deferred		(7,611	)		29,994			—			—			22,383

Total income taxes		(7,611	)		29,994			—			—			22,383

Net income (loss)	$	39,792		$	53,323			($129	)		($53,194	)	$	39,792

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2010
(In thousands of dollars)


							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	11,076		$	89,489		$	—		$	—		$	100,565
Gas production		13,018			50,208			—			—			63,226
Derivative income, net		1,188			—			—			—			1,188

Total operating revenue		25,282			139,697			—			—			164,979


Operating expenses:
Lease operating expenses		10,911			27,753			—			—			38,664
Production taxes		1,053			601			—			—			1,654
Depreciation, depletion, amortization		10,508			49,879			266			—			60,653
Accretion expense		3,627			4,725			110			—			8,462
Salaries, general and administrative		10,482			3			—			—			10,485
Incentive compensation expense		925			—			—			—			925

Total operating expenses		37,506			82,961			376			—			120,843


Income (loss) from operations		(12,224	)		56,736			(376	)		—			44,136


Other (income) expenses:
Interest expense		4,066			—			—			—			4,066
Interest income		(55	)		(2	)		—			—			(57	)
Other (income) expense, net		(809	)		(659	)		(284	)		—			(1,752	)
Loss on early extinguishment of debt		1,820			—			—			—			1,820
(Income) loss from investment in subsidiary		(37,248	)		92			—			37,156			—

Total other (income) expenses		(32,226	)		(569	)		(284	)		37,156			4,077


Income (loss) before taxes		20,002			57,305			(92	)		(37,156	)		40,059


Provision (benefit) for income taxes:
Current		(3,872	)		—			—			—			(3,872	)
Deferred		(1,544	)		20,057			—			—			18,513

Total income taxes		(5,416	)		20,057			—			—			14,641

Net income (loss)	$	25,418		$	37,248			($92	)		($37,156	)	$	25,418

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2011
(In thousands of dollars)


				Guarantor			Non-Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	39,792		$	53,323			($129	)		($53,194	)	$	39,792
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		5,942			61,510			217			—			67,669
Accretion expense		4			7,622			91			—			7,717
Deferred income tax provision (benefit)		(7,611	)		29,994			—			—			22,383
Settlement of asset retirement obligations		—			(19,034	)		—			—			(19,034	)
Non-cash stock compensation expense		1,680			—			—			—			1,680
Excess tax benefits		(649	)		—			—			—			(649	)
Non-cash derivative expense		—			1,804			—			—			1,804
Non-cash (income) loss from investment in subsidiary		(52,756	)		(438	)		—			53,194			—
Other non-cash income		(104	)		—			—			—			(104	)
Change in current income taxes		(3,681	)		—			—			—			(3,681	)
Change in intercompany receivables/payables		44,230			(43,804	)		(426	)		—			—
(Increase) decrease in accounts receivable		6,833			(28,509	)		121			—			(21,555	)
Decrease in other current assets		25			—			—			—			25
Decrease in inventory		365			—			—			—			365
Increase in accounts payable		2,609			81			—			—			2,690
Increase (decrease) in other current liabilities		(10,929	)		870			—			—			(10,059	)
Other		272			—			—			—			272

Net cash provided by (used in) operating activities		26,022			63,419			(126	)		—			89,315


Cash flows from investing activities:
Investment in oil and gas properties		(89,444	)		(67,087	)		(4	)		—			(156,535	)
Proceeds from sale of oil and gas properties, net of expenses		5,575			2,117			—			—			7,692
Investment in fixed and other assets		(262	)		—			—			—			(262	)

Net cash used in investing activities		(84,131	)		(64,970	)		(4	)		—			(149,105	)


Cash flows from financing activities:
Deferred financing costs		(66	)		—			—			—			(66	)
Excess tax benefits		649			—			—			—			649
Net payments for share based compensation		(1,843	)		—			—			—			(1,843	)

Net cash used in financing activities		(1,260	)		—			—			—			(1,260	)


Net decrease in cash and cash equivalents		(59,369	)		(1,551	)		(130	)		—			(61,050	)
Cash and cash equivalents, beginning of period		105,115			1,659			182			—			106,956

Cash and cash equivalents, end of period	$	45,746		$	108		$	52		$	—		$	45,906

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2010
(In thousands of dollars)


				Guarantor			Non-Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	25,418		$	37,248			($92	)		($37,156	)	$	25,418
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		10,508			49,879			266			—			60,653
Accretion expense		3,627			4,725			110			—			8,462
Deferred income tax provision (benefit)		(1,544	)		20,057			—			—			18,513
Settlement of asset retirement obligations		(1,216	)		(9,162	)		—			—			(10,378	)
Non-cash stock compensation expense		1,427			—			—			—			1,427
Excess tax benefits		(194	)		—			—			—			(194	)
Non-cash derivative income		(855	)		—			—			—			(855	)
Loss on early extinguishment of debt		1,820			—			—			—			1,820
Non-cash (income) loss from investment in subsidiary		(37,248	)		92			—			37,156			—
Other non-cash expenses		335			—			—			—			335
Change in current income taxes		(13,500	)		—			—			—			(13,500	)
(Increase) decrease in accounts receivable		63,699			(70,215	)		(615	)		—			(7,131	)
(Increase) decrease in other current assets		(80	)		27			—			—			(53	)
Decrease in inventory		—			123			—			—			123
Increase (decrease) in accounts payable		271			(1,143	)		8			—			(864	)
Increase (decrease) in other current liabilities		(6,174	)		5			—			—			(6,169	)
Other		54			(27	)		—			—			27

Net cash provided by (used in) operating activities		46,348			31,609			(323	)		—			77,634


Cash flows from investing activities:
Investment in oil and gas properties		(43,664	)		(35,048	)		(76	)		—			(78,788	)
Investment in fixed and other assets		(343	)		—			—			—			(343	)

Net cash used in investing activities		(44,007	)		(35,048	)		(76	)		—			(79,131	)


Cash flows from financing activities:
Repayment of bank borrowings		(75,000	)		—			—			—			(75,000	)
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		194			—			—			—			194
Net payments for share based compensation		(1,056	)		—			—			—			(1,056	)

Net cash used in financing activities		(11,066	)		—			—			—			(11,066	)


Net decrease in cash and cash equivalents		(8,725	)		(3,439	)		(399	)		—			(12,563	)
Cash and cash equivalents, beginning of period		64,830			3,963			500			—			69,293

Cash and cash equivalents, end of period	$	56,105		$	524		$	101		$	—		$	56,730

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE STOCKHOLDERS OF
STONE ENERGY CORPORATION:

We have reviewed the condensed consolidated balance sheet of Stone Energy Corporation as of March 31, 2011, and the related condensed consolidated statements of operations and cash flows for the three-month periods ended March 31, 2011 and 2010. These financial statements are the responsibility of the Company’s 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, 2010, 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 March 3, 2011, 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, 2010, 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
May 5, 2011

Item 2. Management’s 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 management’s 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;

	•		our access to capital and our anticipated liquidity;

	•		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:

	•		consequences of the Deepwater Horizon oil spill and resulting stringent regulatory requirements;

	•		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;

	•		lack of availability and cost 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 and Appalachian 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 our Quarterly Reports 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, 2010, or in our Quarterly Reports 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.

Management’s 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, 2010. Certain first quarter 2010 amounts have been changed from amounts originally presented to correct a prior period immaterial error. All period to period comparisons are based upon corrected amounts.

Overview

We are 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 and have development operations in the Marcellus Shale. We have also targeted several exploratory oil projects in the Rocky Mountain region. Throughout this document, reference to our “Gulf Coast Basin” properties includes our Gulf Coast onshore, shelf, deep shelf and deep water properties.

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 management’s 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 and other events;

	•		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.

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

Deepwater Horizon Explosion and Oil Spill - The April 2010 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. 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 March 31, 2011, we have approximately $257 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 March 31, 2011, the computation of our ceiling test indicated a cushion of approximately $215 million.

Asset Retirement Obligations — In October 2010, we received notification from the BOEMRE indicating that certain identified wells and facilities operated by us will need to be retired on a timing schedule which was accelerated from the timing estimated in calculating liabilities for asset retirement obligations at December 31, 2009. In February 2011, we submitted an abandonment plan addressing the identified wells and facilities. The BOEMRE has indicated they will issue a final order upon review of the plan. During 2010, we increased our asset retirement obligations in the amount of $54.4 million for the estimated impact of the accelerated timing of the retirement of these assets and other factors. The final order will ultimately determine the impact on our asset retirement obligations and could result in an additional upward or downward revision.

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.

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 state’s position that sales of crude oil and natural gas from properties located on the Outer Continental Shelf (“OCS”), which are transported through the state of Louisiana, should be sourced to Louisiana for purposes of computing franchise taxes. We disagree with the state’s position. However, if the state’s 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 “Part II, Item 1. Legal Proceedings.”

Liquidity and Capital Resources

At May 3, 2011, we had $338.9 million of availability under our bank credit facility and cash on hand of approximately $69.8 million. Our capital expenditure budget for 2011 has been set at $425 million, which excludes material acquisitions and capitalized salaries, general and administrative expenses and interest. We intend to finance our capital expenditure budget primarily with cash flow from operations and borrowings under our bank credit facility if necessary. 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 2011 cash flow from operations exceeds our estimated 2011 capital expenditures, we may 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 $89.3 million during the three months ended March 31, 2011 compared to $77.6 million in the comparable period in 2010. Based on our outlook of commodity prices and our estimated production, we expect to fund our 2011 capital expenditures with cash flow provided by operating activities and borrowings under our bank credit facility.

Net cash flow used in investing activities totaled $149.1 million and $79.1 million during the three months ended March 31, 2011and 2010, respectively, which primarily represents our investment in oil and natural gas properties.

Net cash flow used in financing activities totaled $1.3 million for the three months ended March 31, 2011, which primarily represents tax payments for vesting on share based compensation. Net cash flow used in financing activities totaled $11.1 million for the three months ended March 31, 2010, which primarily represents repayments of borrowings under our bank credit facility of $75 million, the redemption of our 8 ¹/4% Senior Subordinated Notes due 2011 of $200.5 million, net of proceeds from the public offering of our 8⅝% Senior Notes due 2017 of approximately $275 million less $9.7 million of deferred financing costs.

Although we had a working capital deficit at March 31, 2011 of $25.3 million, we had $338.9 million of availability under our bank credit facility as of May 3, 2011.

Capital Expenditures. During the three months ended March 31, 2011, additions to oil and gas property costs of $149.5 million included $29.0 million of lease and property acquisition costs, $6.4 million of capitalized salaries, general and administrative expenses (inclusive of incentive compensation) and $9.7 million of capitalized interest. These investments were financed by cash flow from operations.

Bank Credit Facility. On March 31, 2011, we had no outstanding borrowings under our bank credit facility and letters of credit totaling $63.1 million had been issued pursuant to the facility. On April 26, 2011, we entered into an amended and restated revolving credit facility totaling $700 million through a syndicated bank group, replacing our previous $700 million facility. The new credit facility matures on September 15, 2014 or, if the notes issued under our 2004 indenture are retired on or before April 15, 2014, on April 26, 2015. Our initial borrowing base under the new credit facility has been set at $400 million. The new credit facility decreases our borrowing base grid by 25 basis points in respect of London Interbank Offering Rate (“Libor Rate”) advances and base rate advances. As of May 3, 2011, we had no outstanding borrowings under our bank credit facility and letters of credit totaling $61.1 million had been issued pursuant to the facility, leaving $338.9 million of availability under the facility. Our bank credit facility is guaranteed by our only material subsidiary, Stone Energy Offshore, L.L.C. (“Stone Offshore”).

The borrowing base under our bank credit facility is redetermined semi-annually, on May 1 and November 1, 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 Stone’s and Stone Offshore’s 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 Stone’s 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. We were in compliance with all such covenants as of March 31, 2011.

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 March 31, 2011, 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 three months ended March 31, 2011.

Results of Operations

The following table sets forth certain information with respect to our oil and gas operations.


	Three Months Ended
	March 31,
	2011		2010		Variance			% Change
Production:
Oil (MBbls)		1,616		1,422		194			14	%
Natural gas (MMcf)		9,580		10,598		(1,018	)		(10	%)
Oil and natural gas (MMcfe)		19,276		19,130		146			1	%
Revenue data (in thousands) (a):
Oil revenue	$	151,995	$	100,565	$	51,430			51	%
Natural gas revenue		45,858		63,226		(17,368	)		(27	%)

Total oil and natural gas revenue	$	197,853	$	163,791	$	34,062			21	%
Average prices (a):
Oil (per Bbl)	$	94.06	$	70.72	$	23.34			33	%
Natural gas (per Mcf)		4.79		5.97		(1.18	)		(20	%)
Oil and natural gas (per Mcfe)		10.26		8.56		1.70			20	%
Expenses (per Mcfe):
Lease operating expenses	$	2.01	$	2.02		($0.01	)		(1	%)
Salaries, general and administrative expenses (b)		0.61		0.55		0.06			11	%
DD&A expense on oil and gas properties		3.44		3.09		0.35			11	%


(a)		Includes the cash settlement of effective hedging contracts.

(b)		Exclusive of incentive compensation expense.

During the three months ended March 31, 2011, we reported net income totaling $39.8 million, or $0.81 per share, compared to net income for the three months ended March 31, 2010 of $25.4 million, or $0.52 per share. All per share amounts are on a diluted basis.

The variance in the three-month periods’ results was also due to the following components:

Production. During the three months ended March 31, 2011, total production volumes increased to 19.3 Bcfe compared to 19.1 Bcfe produced during the comparable 2010 period. Oil production during the three months ended March 31, 2011 totaled approximately 1,616,000 barrels compared to 1,422,000 barrels produced during the three months ended March 31, 2010, while natural gas production totaled 9.6 Bcf during the three months ended March 31, 2011 compared to 10.6 Bcf produced during the comparable period of 2010. The increase in oil production volumes was primarily due to increases in production at our Amberjack field and Ship Shoal Block 113 where we have development programs ongoing. The decrease in gas production volumes was primarily due to natural production declines.

Prices. Prices realized during the three months ended March 31, 2011 averaged $94.06 per Bbl of oil and $4.79 per Mcf of natural gas, or 20% higher, on an Mcfe basis, than average realized prices of $70.72 per Bbl of oil and $5.97 per Mcf of natural gas during the comparable 2010 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 $0.48 per Mcf and decreased our average realized oil price by $5.23 per Bbl during the three months ended March 31, 2011. During the three months ended March 31, 2010, our effective hedging transactions increased our average realized natural gas price by $0.54 per Mcf and decreased our average realized oil price by $5.87 per Bbl.

Revenue. Oil and natural gas revenue was $197.9 million during the three months ended March 31, 2011, compared to $163.8 million during the comparable period of 2010. The increase is attributable to a 33% increase in average realized oil prices along with a 14% increase in oil production volumes, partially offset by a decline in average realized gas prices and gas production volumes.

Derivative Income/Expense. During the three months ended March 31, 2011 and 2010, 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 expense for the three months ended March 31, 2011, totaled $2.2 million, consisting of $0.4 million of cash settlements on the ineffective portion of 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 three months ended March 31, 2010, totaled $1.2 million, consisting of $0.3 million of cash settlements on the ineffective derivative contracts, plus $0.9 million of changes in the fair market value of the ineffective portion of derivative contracts.

Expenses. Lease operating expenses during the three months ended March 31, 2011 and 2010 totaled $38.8 million and $38.7 million, respectively. On a unit of production basis, lease operating expenses were $2.01 per Mcfe and $2.02 per Mcfe for the three months ended March 31, 2011 and 2010, respectively.

Other operational expense of $0.7 million during the three months ended March 31, 2011 relates to the settlement of litigation associated with an expensed operation.

Depreciation, depletion and amortization (“DD&A”) on oil and gas properties for the three months ended March 31, 2011 totaled $66.4 million, or $3.44 per Mcfe, compared to $59.2 million, or $3.09 per Mcfe, during the comparable period of 2010. DD&A expense for the three months ended March 31, 2010 was lower as a result of a reduction in the carrying value of our oil and gas properties after a 2009 ceiling test write-down.

Accretion expense for the three months ended March 31, 2011 was $7.7 million compared to $8.5 million for the comparable period of 2010. The decrease is primarily due to a change in the timing on certain of our asset retirement obligations.

Salaries, general and administrative (“SG&A”) expenses (exclusive of incentive compensation) for the three months ended March 31, 2011 were $11.7 million compared to $10.5 million for the three months ended March 31, 2010. The increase primarily relates to salary adjustments.

For the three months ended March 31, 2011 and 2010, incentive compensation expense totaled $2.7 million and $0.9 million, respectively. These amounts relate to the accrual of estimated incentive compensation bonuses calculated based on the projected achievement of certain strategic objectives for each fiscal year.

Interest expense for the three months ended March 31, 2011 totaled $3.1 million, net of $9.7 million of capitalized interest, compared to interest expense of $4.1 million, net of $6.4 million of capitalized interest, during the comparable 2010 period. The decrease in interest cost is primarily the result of a decrease in outstanding borrowings under our bank credit facility.

Total income taxes for the first quarter of 2011 were $22.4 million, all of which were deferred. The increased effective tax rate was due to an increase in the provision for state income taxes as our onshore operational activities increase.

Off Balance Sheet Arrangements

None.

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. The guidance provided in ASU 2010-06 became effective for interim and annual periods beginning after December 15, 2009, 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. We had no Level 3 fair value measurements during the quarter ended March 31, 2011.

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 43% of our estimated 2011 production from estimated proved reserves, 36% of our estimated 2012 production from estimated proved reserves, and 21% of our estimated 2013 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.

Since the filing of our Annual Report on Form 10-K for the year ended December 31, 2010, there have been no material changes in reported market risk as it relates to commodity prices.

Interest Rate Risk

We had total debt outstanding of $575 million at March 31, 2011, all of which bears interest at fixed rates. The $575 million of fixed-rate debt is comprised of $375 million of 8⅝% Senior Notes due 2017 and $200 million of 6³/4% Senior Subordinated Notes due 2014. We had no outstanding borrowings under our variable-rate bank credit facility during the three months ended March 31, 2011. 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 Stone’s 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 Commission’s 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 issuer’s 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 Stone’s disclosure controls and procedures as of the end of the quarterly period ended March 31, 2011. Based on this evaluation, our principal executive officer and principal financial officer believe that as of the end of the quarterly period ended March 31, 2011:

	•		Stone’s 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 SEC’s rules and forms; and

	•		Stone’s 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 Stone’s management, including Stone’s 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 March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 15^th 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 LDR’s 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 2010 for Stone remain subject to examination.

Lafourche Parish, Louisiana, Landowner Action. In December 2008, Stephen E. Coignet, et al., filed civil action No. 110741 in the 17^th Judicial District Court, Lafourche Parish, Louisiana, against Stone. Plaintiffs have since filed three supplemental petitions, including a third supplemental and restated petition on October 25, 2010. Plaintiffs are landowners of approximately sixty acres that are subject to mineral leases in favor of Stone. Plaintiffs allege that Stone conducted its mineral operations imprudently resulting in damages to plaintiffs in excess of $60 million. Plaintiffs’ expert witness provided his report, dated December 28, 2010, stating his opinion that one well did not produce as much production as it should have, resulting in a loss to plaintiffs “in excess of $4 million,” that imprudent operations destroyed hydrocarbon bearing zones resulting in a loss to plaintiffs “in excess of $20 million,” and that imprudent operation of a water injection secondary recovery project resulted in damages to plaintiffs of “approximately $4,755,000.” There are also allegations of failure to protect from drainage from a well on adjoining land, trespass, and various other breaches of the mineral leases. The Company disagrees with plaintiffs’ contentions and intends to vigorously defend itself against these claims.

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.

Item 1A. Risk Factors

There have been no material changes with respect to Stone’s risk factors previously reported in Stone’s Annual Report on Form 10-K for the year ended December 31, 2010.

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 first quarter of 2011:


								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:
January 2011		—			—		—
February 2011		—			—		—
March 2011		—			—		—

		—			—		—	$	92,928,632

Other:
January 2011		79,219	(a)	$	23.26		—
February 2011		—			—		—
March 2011		—			—		—

		79,219		$	23.26		—		N/A

Total		79,219		$	23.26		—


(a)		Amounts include shares withheld from employees upon the vesting of restricted stock in order to satisfy the required tax withholding obligations.

Item 6. Exhibits


	3.1			Certificate of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s 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 Registrant’s 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 Registrant’s Current Report on Form 8-K dated May 15, 2008 (File No. 001-12074)).

	4.1			Indenture between Stone Energy Corporation and JPMorgan Chase Bank, National Association, as trustee, dated December 15, 2004 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on December 15, 2004.)

	4.2			First Supplemental Indenture, dated August 28, 2008, to the Indenture between Stone Energy Corporation and JPMorgan Chase Bank, National Association, as trustee, dated December 15, 2004 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed August 29, 2008 (File No. 001-12074)).

	4.3			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 Registrant’s Current Report on Form 8-K filed January 29, 2010 (File No. 001-12074)).

	4.4			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 Registrant’s Current Report on Form 8-K filed January 29, 2010 (File No. 001-12074)).

	4.5			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 Registrant’s Current Report on Form 8-K filed January 29, 2010 (File No. 001-12074)).

	*10.1			$700,000,000 Third Amended and Restated Credit Agreement among Stone Energy Corporation as Borrower, Bank of America, N.A. as Administrative Agent and Issuing Bank, and the financial institutions named therein, dated April 26, 2011.

	*15.1			Letter from Ernst & Young LLP dated May 5, 2011, 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.

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: May 5, 2011	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)

EXHIBIT INDEX


Exhibit Number		Description
	3.1	Certificate of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s 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 Registrant’s 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 Registrant’s Current Report on Form 8-K dated May 15, 2008 (File No. 001-12074)).

	4.1	Indenture between Stone Energy Corporation and JPMorgan Chase Bank, National Association, as trustee, dated December 15, 2004 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on December 15, 2004.)

	4.2	First Supplemental Indenture, dated August 28, 2008, to the Indenture between Stone Energy Corporation and JPMorgan Chase Bank, National Association, as trustee, dated December 15, 2004 (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed August 29, 2008 (File No. 001-12074)).

	4.3	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 Registrant’s Current Report on Form 8-K filed January 29, 2010 (File No. 001-12074)).

	4.4	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 Registrant’s Current Report on Form 8-K filed January 29, 2010 (File No. 001-12074)).

	4.5	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 Registrant’s Current Report on Form 8-K filed January 29, 2010 (File No. 001-12074)).

	*10.1	$700,000,000 Third Amended and Restated Credit Agreement among Stone Energy Corporation as Borrower, Bank of America, N.A. as Administrative Agent and Issuing Bank, and the financial institutions named therein, dated April 26, 2011.

	*15.1	Letter from Ernst & Young LLP dated May 5, 2011, 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.

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