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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________ 
FORM 10-Q
__________________________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
or
¨
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)
(337) 237-0410
(Registrant’s telephone number, including area code) 
__________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
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
ý
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
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  ¨    No  ý
As of May 4, 2016, there were 56,864,607 shares of the registrant’s common stock, par value $.01 per share, outstanding.
 



TABLE OF CONTENTS
 
 
 
Page
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 



PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
 
March 31,
2016
 
December 31,
2015
 
(Unaudited)
 
(Note 1)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
367,134

 
$
10,759

Accounts receivable
42,185

 
48,031

Fair value of derivative contracts
30,222

 
38,576

Current income tax receivable
46,174

 
46,174

Inventory
535

 
535

Other current assets
6,531

 
6,346

Total current assets
492,781

 
150,421

Oil and gas properties, full cost method of accounting:
 
 
 
Proved
9,481,859

 
9,375,898

Less: accumulated depreciation, depletion and amortization
(8,796,412
)
 
(8,603,955
)
Net proved oil and gas properties
685,447

 
771,943

Unevaluated
421,429

 
440,043

Other property and equipment, net
28,667

 
29,289

Other assets, net
18,257

 
18,473

Total assets
$
1,646,581

 
$
1,410,169

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable to vendors
$
38,200

 
$
82,207

Undistributed oil and gas proceeds
3,875

 
5,992

Accrued interest
22,901

 
9,022

Asset retirement obligations
23,465

 
21,291

Current portion of long-term debt
459,201

 

Other current liabilities
32,671

 
40,712

Total current liabilities
580,313

 
159,224

Long-term debt
1,063,090

 
1,060,955

Asset retirement obligations
209,848

 
204,575

Other long-term liabilities
18,329

 
25,204

Total liabilities
1,871,580

 
1,449,958

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Common stock, $.01 par value; authorized 150,000,000 shares; issued 55,806,817 and 55,302,325 shares, respectively
558

 
553

Treasury stock (16,582 shares, at cost)
(860
)
 
(860
)
Additional paid-in capital
1,650,969

 
1,648,189

Accumulated deficit
(1,894,407
)
 
(1,705,623
)
Accumulated other comprehensive income
18,741

 
17,952

Total stockholders’ equity
(224,999
)
 
(39,789
)
Total liabilities and stockholders’ equity
$
1,646,581

 
$
1,410,169


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


1



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended
March 31,
 
 
2016
 
2015
 
Operating revenue:
 
 
 
 
Oil production
$
60,275

 
$
107,507

 
Natural gas production
15,173

 
28,337

 
Natural gas liquids production
4,735

 
12,366

 
Other operational income
356

 
2,160

 
Derivative income, net
138

 
3,128

 
Total operating revenue
80,677

 
153,498

 
Operating expenses:
 
 
 
 
Lease operating expenses
19,547

 
27,577

 
Transportation, processing and gathering expenses
841

 
17,703

 
Production taxes
481

 
2,515

 
Depreciation, depletion and amortization
61,558

 
86,422

 
Write-down of oil and gas properties
129,204

 
491,412

 
Accretion expense
9,983

 
6,409

 
Salaries, general and administrative expenses
13,707

 
17,007

 
Incentive compensation expense
4,979

 
1,563

 
Other operational expenses
12,527

 
84

 
Total operating expenses
252,827

 
650,692

 
Loss from operations
(172,150
)
 
(497,194
)
 
Other (income) expenses:
 
 
 
 
Interest expense
15,241

 
10,365

 
Interest income
(114
)
 
(122
)
 
Other income
(298
)
 
(143
)
 
Other expense
2

 

 
Total other expenses
14,831

 
10,100

 
Loss before income taxes
(186,981
)
 
(507,294
)
 
Provision (benefit) for income taxes:
 
 
 
 
Current
(1,074
)
 

 
Deferred
2,877

 
(179,906
)
 
Total income taxes
1,803

 
(179,906
)
 
Net loss
$
(188,784
)
 
$
(327,388
)
 
Basic loss per share
$
(3.39
)
 
$
(5.93
)
 
Diluted loss per share
$
(3.39
)
 
$
(5.93
)
 
Average shares outstanding
55,713

 
55,181

 
Average shares outstanding assuming dilution
55,713

 
55,181

 
 
The accompanying notes are an integral part of this statement.


2



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
 
2016
 
2015
 
Net loss
$
(188,784
)
 
$
(327,388
)
 
Other comprehensive loss, net of tax effect:
 
 
 
 
Derivatives
(5,285
)
 
(8,858
)
 
Foreign currency translation
6,074

 
(3,645
)
 
Comprehensive loss
$
(187,995
)
 
$
(339,891
)
 
 
The accompanying notes are an integral part of this statement.

3



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(188,784
)
 
$
(327,388
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
61,558

 
86,422

Write-down of oil and gas properties
129,204

 
491,412

Accretion expense
9,983

 
6,409

Deferred income tax provision (benefit)
2,877

 
(179,906
)
Settlement of asset retirement obligations
(4,667
)
 
(17,145
)
Non-cash stock compensation expense
2,312

 
2,640

Non-cash derivative expense
192

 
1,511

Non-cash interest expense
4,635

 
4,318

Other non-cash expense
6,081

 

Change in current income taxes
(1,074
)
 
7,188

Decrease in accounts receivable
5,845

 
8,206

(Increase) decrease in other current assets
(185
)
 
1,883

Decrease in accounts payable
(2,138
)
 
(8,657
)
Increase in other current liabilities
3,898

 
6,889

Other
(298
)
 
(260
)
Net cash provided by operating activities
29,439

 
83,522

Cash flows from investing activities:
 
 
 
Investment in oil and gas properties
(129,859
)
 
(169,895
)
Investment in fixed and other assets
(496
)
 
(662
)
Change in restricted funds
1,045

 
177,642

Net cash (used in) provided by investing activities
(129,310
)
 
7,085

Cash flows from financing activities:
 
 
 
Proceeds from bank borrowings
477,000

 
5,000

Repayments of bank borrowings
(20,000
)
 
(5,000
)
Repayments of building loan
(95
)
 

Net payments for share-based compensation
(650
)
 
(2,991
)
Net cash provided by (used in) financing activities
456,255

 
(2,991
)
Effect of exchange rate changes on cash
(9
)
 
24

Net change in cash and cash equivalents
356,375

 
87,640

Cash and cash equivalents, beginning of period
10,759

 
74,488

Cash and cash equivalents, end of period
$
367,134

 
$
162,128

 
The accompanying notes are an integral part of this statement.

4



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, 2016 and for the three month periods ended March 31, 2016 and 2015 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 as of December 31, 2015 has been derived from the audited financial statements as of that date contained in our Annual Report on Form 10-K for the year ended December 31, 2015 (our “2015 Annual Report on Form 10-K”). The condensed 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 2015 Annual Report on Form 10-K. The results of operations for the three month period ended March 31, 2016 are not necessarily indicative of future financial results.
 
Note 2 – Going Concern
 
The accompanying condensed consolidated financial statements have been prepared assuming the company will continue as a going concern, which contemplates continuity of operations, realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period following the date of these condensed consolidated financial statements. As such, the accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amount and classification of liabilities that may result should the company be unable to continue as a going concern.

The level of our indebtedness of $1,544 million and the current commodity price environment have presented challenges as they relate to our ability to comply with the covenants in the agreements governing our indebtedness. At March 31, 2016, we were in compliance with all of our financial covenants under our bank credit facility and the indentures governing our outstanding notes. However, given the lower commodity prices and our reduced hedged position in 2016, we anticipate that we will exceed the Consolidated Funded Debt to consolidated EBITDA financial covenant of 3.75 to 1 set forth in our bank credit agreement at the end of the second quarter of 2016, which would require us to seek a waiver or amendment from our bank lenders. If we are unable to reach an agreement with our banks or find acceptable alternative financing, it may lead to an event of default under our bank credit facility. If following an event of default, the banks were to accelerate repayment under the bank credit facility, it would result in an event of default and may result in the acceleration of our other debt instruments. These conditions raise substantial doubt about our ability to continue as a going concern.

Additionally, on April 13, 2016, our borrowing base under our bank credit facility was reduced from $500 million to $300 million. On that date, we had $457 million of outstanding borrowings and $18.3 million of outstanding letters of credit, or $175.3 million in excess of the redetermined borrowing base (referred to as a borrowing base deficiency). Our agreement with the banks provides that within 30 days after notification of a borrowing base deficiency, we must elect to cure the borrowing base deficiency through any combination of the following actions: (1) repay amounts outstanding sufficient to cure the deficiency within 10 days after our written election to do so; (2) add additional oil and gas properties acceptable to the banks to the borrowing base and take such actions necessary to grant the banks a mortgage in the properties within 30 days after our written election to do so; and/or (3) arrange to pay the deficiency in six equal monthly installments. We have not taken any action or made an election of actions to be taken to cure the borrowing base deficiency.

We are in discussions with our banks regarding an amendment to our bank credit facility to address the potential covenant issue. We cannot provide any assurances that we will reach an agreement with the lenders under our bank credit facility on a waiver or amendment on a timely basis, or on satisfactory terms, to alleviate any non-compliance with our debt covenants. In addition to our borrowings under our bank credit facility, we have $1,075 million of senior indebtedness, including our 1¾% Senior Convertible Notes due in March 2017 (the "2017 Convertible Notes"). We are in the process of analyzing various strategic alternatives to address our liquidity and capital structure, including strategic and refinancing alternatives through a private restructuring, asset sales and a prepackaged or prearranged bankruptcy filing. We cannot provide any assurances that we will be able to complete a private restructuring or asset sales on satisfactory terms to provide the liquidity to restructure or pay down our senior indebtedness.



5



Note 3 – 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,
 
 
2016
 
2015
 
 
(In thousands, except per share data)
 
Income (numerator):
 
 
 
 
Basic:
 
 
 
 
Net loss
$
(188,784
)
 
$
(327,388
)
 
Net income attributable to participating securities

 

 
Net loss attributable to common stock - basic
$
(188,784
)
 
$
(327,388
)
 
Diluted:
 
 
 
 
Net loss
$
(188,784
)
 
$
(327,388
)
 
Net income attributable to participating securities

 

 
Net loss attributable to common stock - diluted
$
(188,784
)
 
$
(327,388
)
 
Weighted average shares (denominator):
 
 
 
 
Weighted average shares - basic
55,713

 
55,181

 
Dilutive effect of stock options

 

 
Dilutive effect of convertible notes

 

 
Weighted average shares - diluted
55,713

 
55,181

 
Basic loss per share
$
(3.39
)
 
$
(5.93
)
 
Diluted loss per share
$
(3.39
)
 
$
(5.93
)
 
 
All outstanding stock options were considered antidilutive during the three months ended March 31, 2016 (approximately 129,000 shares) and during the three months ended March 31, 2015 (approximately 204,000 shares) because we had net losses for such periods.
 
During the three months ended March 31, 2016 and 2015, approximately 504,000 shares and 370,000 shares of our common stock, respectively, were issued from authorized shares upon the lapsing of forfeiture restrictions of restricted stock for employees and nonemployee directors.
 
For the three months ended March 31, 2016 and 2015, the 2017 Convertible Notes had no dilutive effect on the diluted earnings per share computation as we had net losses for such periods. For the three months ended March 31, 2016 and 2015, the average price of our common stock was less than the strike price of the Sold Warrants (as defined in Note 5 – Debt) and therefore, such warrants were not dilutive for such periods. Based on the terms of the Purchased Call Options (as defined in Note 5 – Debt), such call options are antidilutive and therefore were not included in the calculation of diluted earnings per share.
 
Note 4 – Derivative Instruments and Hedging Activities
 
Our hedging strategy is designed to protect our near and intermediate term cash flows 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 derivative transactions to secure a commodity price for a portion of our expected future production that is acceptable at the time of the transaction. These derivatives are generally designated as cash flow hedges upon entering into the contracts. We do not enter into derivative transactions for trading purposes. We have no fair value hedges.
 
The nature of a derivative instrument must be evaluated to determine if it qualifies as a hedging instrument. If the instrument qualifies as a hedging instrument, 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 stockholders’ equity through other comprehensive income (loss), net of related taxes, to the extent the hedge is considered effective. Monthly settlements of effective hedges are reflected in revenue from oil and natural gas production and cash flows from operating activities. Instruments not qualifying as hedging instruments are recorded in our balance sheet at fair value and subsequent changes in fair value are recognized in earnings through derivative expense (income). Monthly settlements of ineffective hedges and derivative instruments not qualifying as hedging instruments are recognized in earnings through derivative expense (income) and cash flows from operating activities.

6



 
We have entered into fixed-price swaps and costless collars with various counterparties for a portion of our expected 2016 oil and natural gas production from the Gulf Coast Basin. Our fixed-price oil swap settlements and oil collar settlements are based on an average of the New York Mercantile Exchange (“NYMEX”) closing price for West Texas Intermediate crude oil during the entire calendar month. Our fixed-price gas swap settlements are based on the NYMEX price for the last day of a respective contract month. Swaps typically provide for monthly payments by us if prices rise above the swap price or monthly payments to us if prices fall below the swap price. Collar contracts typically require payments by us if the NYMEX average closing price is above the ceiling price or payments to us if the NYMEX average closing price is below the floor price. Our fixed-price swap contracts are with The Toronto-Dominion Bank, The Bank of Nova Scotia and Natixis. Our oil collar contract is with The Bank of Nova Scotia.

All of our derivative transactions have been carried out in the over-the-counter market and are not typically subject to margin-deposit requirements. The use of derivative instruments involves the risk that the counterparties will be unable to meet the financial terms of such transactions. The counterparties to all of our derivative instruments have an "investment grade" credit rating. We monitor the credit ratings of our derivative counterparties on an ongoing basis. Although we have entered into derivative contracts with multiple counterparties to mitigate our exposure to any individual counterparty, if any of our counterparties were to default on its obligations to us under the derivative contracts or seek bankruptcy protection, we may not realize the benefit of some of our derivative instruments and incur a loss. At May 4, 2016, two counterparties accounted for approximately 86% of our contracted volumes. All of our derivative instruments are with lenders under our bank credit facility. 
The following tables illustrate our derivative positions for calendar year 2016 as of May 4, 2016:
 
Fixed-Price Swaps (NYMEX)
 
Natural Gas
 
Oil
 
Daily Volume
(MMBtus/d)
 
Swap Price
($)
 
Daily Volume
(Bbls/d)
 
Swap Price
($)
2016
10,000

 
4.110

 
1,000

 
49.75

2016
10,000

 
4.120

 
1,000

 
52.78

2016


 


 
1,000

 
90.00

 
 
Costless Collar (NYMEX)
 
Oil
 
Daily Volume
(Bbls/d)
 
Floor Price ($)
 
Ceiling Price ($)
2016
1,000

 
45.00

 
54.75


We previously discontinued hedge accounting for certain 2015 natural gas contracts, as it became no longer probable that our Gulf of Mexico ("GOM") natural gas production would be sufficient to cover the GOM volumes hedged. Additionally, a small portion of our cash flow hedges are typically determined to be ineffective 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. At March 31, 2016, we had accumulated other comprehensive income of $18.7 million, net of tax, related to the fair value of our effective cash flow hedges that were outstanding as of March 31, 2016. The $18.7 million of accumulated other comprehensive income will be reclassified into earnings in the next 12 months.
 
Derivatives qualifying as hedging instruments:
 
The following tables disclose the location and fair value amounts of derivatives qualifying as hedging instruments, as reported in our balance sheet, at March 31, 2016 and December 31, 2015:

7



Fair Value of Derivatives Qualifying as Hedging Instruments at
March 31, 2016
(In millions)
 
Asset Derivatives
 
Liability Derivatives
Description
Balance Sheet Location
 
Fair
Value
 
Balance Sheet Location
 
Fair
Value
Commodity contracts
Current assets: Fair value of
derivative contracts
 
$
30.2

 
Current liabilities: Fair value
of derivative contracts
 
$

 
Long-term assets: Fair value
of derivative contracts
 

 
Long-term liabilities: Fair
value of derivative contracts
 

 
 
 
$
30.2

 
 
 
$

 
 
 
 
 
 
 
 
Fair Value of Derivatives Qualifying as Hedging Instruments at
December 31, 2015
(In millions)
 
Asset Derivatives
 
Liability Derivatives
Description
Balance Sheet Location
 
Fair
Value
 
Balance Sheet Location
 
Fair
Value
Commodity contracts
Current assets: Fair value of
derivative contracts
 
$
38.6

 
Current liabilities: Fair value
of derivative contracts
 
$

 
Long-term assets: Fair value
of derivative contracts
 

 
Long-term liabilities: Fair
value of derivative contracts
 

 
 
 
$
38.6

 
 
 
$

 
The following table discloses the before tax effect of derivatives qualifying as hedging instruments, as reported in the statement of operations, for the three month periods ended March 31, 2016 and 2015:
Effect of Derivatives Qualifying as Hedging Instruments on the Statement of Operations
for the Three Months Ended March 31, 2016 and 2015
(In millions)
Derivatives in
Cash Flow Hedging
Relationships
 
Amount of Gain
(Loss) Recognized
in Other
Comprehensive
Income on
Derivatives
 
Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income into Income
(Effective Portion) (a)
 
Gain (Loss) Recognized in Income
on Derivatives
(Ineffective Portion)
 
 
2016
 
2015
 
Location
 
2016
 
2015
 
Location
 
2016
 
2015
Commodity contracts
 
$
4.6

 
$
22.9

 
Operating revenue -
oil/natural gas production
 
$
12.8

 
$
36.8

 
Derivative income
(expense), net
 
$
0.1

 
$
0.9

Total
 
$
4.6

 
$
22.9

 
 
 
$
12.8

 
$
36.8

 
 
 
$
0.1

 
$
0.9


(a)
For the three months ended March 31, 2016, effective hedging contracts increased oil revenue by $9.3 million and increased natural gas revenue by $3.5 million. For the three months ended March 31, 2015, effective hedging contracts increased oil revenue by $34.0 million and increased natural gas revenue by $2.8 million.

Derivatives not qualifying as hedging instruments:
  
Gains or losses related to changes in fair value and cash settlements for derivatives not qualifying as hedging instruments are recorded as derivative income (expense) in the statement of operations. The following table discloses the before tax effect of our derivatives not qualifying as hedging instruments on the statement of operations, for the three month periods ended March 31, 2016 and 2015.

8



Gain (Loss) Recognized in Derivative Income (Expense)
(In millions)
 
 
Three Months Ended
March 31,
 
Description
2016
 
2015
 
Commodity contracts:
 
 
 
 
Cash settlements
$

 
$
3.1

 
Change in fair value

 
(0.9
)
 
Total gain on non-qualifying hedges
$

 
$
2.2

 
 
Offsetting of derivative assets and liabilities:
 
Our derivative contracts are subject to netting arrangements. It is our policy to not offset our derivative contracts in presenting the fair value of these contracts as assets and liabilities in our balance sheet. As of March 31, 2016 and December 31, 2015, all of our derivative contracts were in an asset position and therefore, there was no potential impact of the rights of offset.

Note 5 – Debt
 
Our debt balances (net of related unamortized discounts and debt issuance costs) as of March 31, 2016 and December 31, 2015 were as follows:
 
March 31,
2016
 
December 31,
2015
 
(In millions)
1 34% Senior Convertible Notes due 2017
$
283.5

 
$
279.3

7 12% Senior Notes due 2022
770.2

 
770.0

Revolving credit facility
457.0

 

4.20% Building Loan
11.6

 
11.7

Total debt
1,522.3

 
1,061.0

Less: current portion of long-term debt
(459.2
)
 

Long-term debt
$
1,063.1

 
$
1,061.0

 
Current Portion of Long-Term Debt. As of March 31, 2016, the current portion of long-term debt of $459.2 million consisted of $283.5 million of 2017 Convertible Notes, $175.3 million of outstanding borrowings under the bank credit facility (our borrowing base deficiency) and $0.4 million of principal payments due within one year on the Building Loan.

Revolving Credit Facility. On June 24, 2014, we entered into an amended and restated revolving credit facility with commitments totaling $900 million (subject to borrowing base limitations) through a syndicated bank group, replacing our previous facility. The bank credit facility matures on July 1, 2019. On March 31, 2016, we had a $500 million borrowing base under the credit facility, with $457 million of outstanding borrowings and $19.2 million of outstanding letters of credit, leaving $23.8 million of availability under the bank credit facility. The weighted average interest rate under the bank credit facility was approximately 3.5% at March 31, 2016. Subject to certain exceptions, the bank credit facility is required to be guaranteed by all of our material domestic direct and indirect subsidiaries. As of March 31, 2016, the bank credit facility was guaranteed by Stone Energy Offshore, L.L.C. (“Stone Offshore”), SEO A LLC and SEO B LLC (collectively, the “Guarantor Subsidiaries”).
 
The borrowing base under the bank credit facility is redetermined semi-annually, typically by May and November, by the lenders, taking into consideration the estimated loan value of our oil and gas properties and those of our subsidiaries that guarantee the bank credit facility 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. On April 13, 2016, we received notice that our borrowing base under the bank credit facility was reduced from $500 million to $300 million. On that date, we had $457 million of outstanding borrowings and $18.3 million of outstanding letters of credit, or $175.3 million in excess of the redetermined borrowing base (referred to as a borrowing base deficiency). Our agreement with the banks provides that within 30 days after notification of a borrowing base deficiency, we must elect to cure the borrowing base deficiency through any combination of the following actions: (1) repay amounts outstanding sufficient to cure the deficiency within 10 days after our written election to do so; (2) add additional oil and gas properties acceptable to the banks to the borrowing base and take such actions necessary to grant the banks a mortgage in the properties within 30 days after our written election to do so; and/or (3) arrange to pay the deficiency in six equal monthly

9



installments. We have not taken any action or made an election of actions to be taken to cure the borrowing base deficiency. The $175.3 million borrowing base deficiency is classified as a current liability at March 31, 2016.
 
The bank credit facility is collateralized by substantially all of our assets and the assets of our material subsidiaries. We are required to mortgage, and grant a security interest in, our oil and natural gas reserves representing at least 80% of the discounted present value of the future net cash flows from our proved oil and natural gas reserves reviewed in determining the borrowing base. Interest on loans under the bank credit facility is calculated using the London Interbank Offering (“LIBOR”) rate or the base rate, at our election. The margin for loans at the LIBOR rate is determined based on borrowing base utilization and ranges from 1.500% to 2.500%.

Under the financial covenants of the bank credit facility, we must (1) maintain a ratio of Consolidated Funded Debt to consolidated EBITDA, as defined in the credit agreement, for the preceding four quarterly periods of not greater than 3.75 to 1 and (2) maintain a ratio of consolidated EBITDA to consolidated Net Interest Expense, as defined in the credit agreement, for the preceding four quarterly periods of not less than 2.5 to 1. In addition, our bank credit facility includes certain customary restrictions or requirements with respect to disposition of properties, incurrence of additional debt, change of control and reporting responsibilities. These covenants may limit or prohibit us from paying cash dividends but do allow for limited stock repurchases. These covenants also restrict our ability to prepay other indebtedness under certain circumstances. We were in compliance with all covenants as of March 31, 2016.

2017 Convertible Notes. On March 6, 2012, we issued in a private offering $300 million in aggregate principal amount of the 2017 Convertible Notes to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2017 Convertible Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, based on an initial conversion rate of 23.4449 shares of our common stock per $1,000 principal amount of 2017 Convertible Notes, which corresponds to an initial conversion price of approximately $42.65 per share of our common stock. On March 31, 2016, our closing share price was $0.79 per share. The conversion rate, and thus the conversion price, may be adjusted under certain circumstances as described in the indenture related to the 2017 Convertible Notes. Upon conversion, we will be obligated to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock. Prior to December 1, 2016, the 2017 Convertible Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date.

The 2017 Convertible Notes will be due on March 1, 2017, unless earlier converted or repurchased by us at the option of the holder(s), and interest is payable on the 2017 Convertible Notes each March 1and September 1. On the maturity date, each holder will be entitled to receive $1,000 in cash for each $1,000 in principal amount of 2017 Convertible Notes, together with any accrued and unpaid interest to, but excluding, the maturity date.
 
In connection with the offering, we entered into convertible note hedge transactions with respect to our common stock (the “Purchased Call Options”) with Barclays Capital Inc., acting as agent for Barclays Bank PLC and Bank of America, N.A. (the “Dealers”). We paid an aggregate amount of approximately $70.8 million to the Dealers for the Purchased Call Options. The Purchased Call Options cover, subject to customary antidilution adjustments, approximately 7,033,470 shares of our common stock at a strike price that corresponds to the initial conversion price of the 2017 Convertible Notes, also subject to adjustment, and are exercisable upon conversion of the 2017 Convertible Notes.
 
We also entered into separate warrant transactions whereby, in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, we sold to the Dealers warrants to acquire, subject to customary antidilution adjustments, approximately 7,033,470 shares of our common stock (the “Sold Warrants”) at a strike price of $55.91 per share of our common stock. We received aggregate proceeds of approximately $40.1 million from the sale of the Sold Warrants to the Dealers. If, upon expiration of the Sold Warrants, the price per share of our common stock, as measured under the Sold Warrants, is greater than the strike price of the Sold Warrants, we will be required to issue, without further consideration, under each Sold Warrant a number of shares of our common stock with a value equal to the amount of such difference.
 
As of March 31, 2016, the carrying amount of the liability component of the 2017 Convertible Notes of $283.5 million was classified as a current liability. During the three months ended March 31, 2016, we recognized $3.9 million of interest expense for the amortization of the discount and $0.4 million of interest expense for the amortization of deferred financing costs related to the 2017 Convertible Notes. During the three months ended March 31, 2015, we recognized $3.6 million of interest expense for the amortization of the discount and $0.3 million of interest expense for the amortization of deferred financing costs related to the 2017 Convertible Notes. During each of the three month periods ended March 31, 2016 and 2015, we recognized $1.3 million of interest expense related to the contractual interest coupon on the 2017 Convertible Notes.
 

10



Note 6 – Asset Retirement Obligations
 
The change in our asset retirement obligations during the three months ended March 31, 2016 is set forth below:
 
Three Months Ended
March 31, 2016
 
(In millions)
Asset retirement obligations as of the beginning of the period, including current portion
$
225.9

Liabilities incurred
2.1

Liabilities settled
(4.7
)
Accretion expense
10.0

Asset retirement obligations as of the end of the period, including current portion
$
233.3

 
Note 7 – Income Taxes
 
As a result of the significant declines in commodity prices and the resulting ceiling test write-downs and net losses incurred, we determined during 2015 that it was more likely than not that a portion of our deferred tax assets will not be realized in the future. Accordingly, we established a valuation allowance against a portion of our deferred tax assets. As of March 31, 2016, our valuation allowance totaled $245.5 million. Our effective tax rate for the three months ended March 31, 2016 was 1.0%. This percentage differed from the federal statutory rate of 35.0% primarily due to the establishment of valuation allowances against deferred tax assets. Our assessment of the realizability of our deferred tax assets is based on the weight of all available evidence, both positive and negative, including future reversals of deferred tax liabilities. We had a current income tax receivable of $46.2 million at March 31, 2016, which relates to expected tax refunds from the carryback of net operating losses to previous tax years.

Note 8 – Fair Value Measurements
 
U.S. Generally Accepted Accounting Principles establish a fair value hierarchy that 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, 2016 and December 31, 2015, we held certain financial assets that are required to be measured at fair value on a recurring basis, including our commodity derivative instruments and our investments in marketable securities. 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 our credit risk and the credit risk of our 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 our 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 portion of the collar. For a more detailed description of our derivative instruments, see Note 4 – Derivative Instruments and Hedging Activities. We used the market approach in determining the fair value of our investments in marketable securities, which are included within the Level 1 fair value hierarchy.
 
We had no liabilities measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015. The following tables present our assets that are measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015:
 
Fair Value Measurements at
 
March 31, 2016
Assets
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(In millions)
Marketable securities (Other assets)
$
8.5

 
$
8.5

 
$

 
$

Derivative contracts
30.2

 

 
28.8

 
1.4

Total
$
38.7

 
$
8.5

 
$
28.8

 
$
1.4

 

11



 
 
Fair Value Measurements at
 
December 31, 2015
Assets
Total
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(In millions)
Marketable securities (Other assets)
$
8.5

 
$
8.5

 
$

 
$

Derivative contracts
38.6

 

 
36.6

 
2.0

Total
$
47.1

 
$
8.5

 
$
36.6

 
$
2.0

  
The table below presents a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2016.
 
 
Hedging Contracts, net
 
 
(In millions)
Balance as of January 1, 2016
 
$
2.0

Total gains/(losses) (realized or unrealized):
 
 
Included in earnings
 
1.0

Included in other comprehensive income
 
(0.5
)
Purchases, sales, issuances and settlements
 
(1.1
)
Transfers in and out of Level 3
 

Balance as of March 31, 2016
 
$
1.4

The amount of total gains/(losses) for the period included in earnings (derivative income) attributable to the change in unrealized gain/(losses) relating to derivatives still held at March 31, 2016
 
$

The fair value of cash and cash equivalents approximated book value at March 31, 2016 and December 31, 2015. As of March 31, 2016 and December 31, 2015, the fair value of the liability component of the 2017 Convertible Notes was approximately $225.3 million and $217.1 million, respectively. As of March 31, 2016 and December 31, 2015, the fair value of the 7 12% Senior Notes due 2022 (the “2022 Notes”) was approximately $209.3 million and $271.3 million, respectively.
 
The fair value of the 2022 Notes was determined based on quotes obtained from brokers, which represent Level 1 inputs. We applied fair value concepts in determining the liability component of the 2017 Convertible Notes (see Note 5 – Debt) at inception, March 31, 2016 and December 31, 2015. The fair value of the liability was estimated using an income approach. The significant inputs in these determinations were market interest rates based on quotes obtained from brokers and represent Level 2 inputs.
 

12



Note 9 – Accumulated Other Comprehensive Income (Loss)
 
Changes in accumulated other comprehensive income (loss) by component for the three months ended March 31, 2016 and 2015 were as follows (in millions):
 
Cash Flow
Hedges
 
Foreign
Currency
Items
 
Total
Three Months Ended March 31, 2016
 
 
 
 
 
Beginning balance, net of tax
$
24.0

 
$
(6.0
)
 
$
18.0

Other comprehensive income (loss) before reclassifications:
 
 
 
 

Change in fair value of derivatives
4.6

 

 
4.6

Income tax effect
(1.6
)
 

 
(1.6
)
Net of tax
3.0

 

 
3.0

Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
Operating revenue: oil/natural gas production
12.8

 

 
12.8

Other operational expenses

 
(6.0
)
 
(6.0
)
Income tax effect
(4.5
)
 

 
(4.5
)
Net of tax
8.3

 
(6.0
)
 
2.3

Other comprehensive income (loss), net of tax
(5.3
)
 
6.0

 
0.7

Ending balance, net of tax
$
18.7

 
$

 
$
18.7

 
 
Cash Flow
Hedges
 
Foreign
Currency
Items
 
Total
Three Months Ended March 31, 2015
 
 
 
 
 
Beginning balance, net of tax
$
86.8

 
$
(3.5
)
 
$
83.3

Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
Change in fair value of derivatives
22.9

 

 
22.9

Foreign currency translations

 
(3.6
)
 
(3.6
)
Income tax effect
(8.2
)
 

 
(8.2
)
Net of tax
14.7

 
(3.6
)
 
11.1

Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
Operating revenue: oil/natural gas production
36.8

 

 
36.8

Income tax effect
(13.2
)
 

 
(13.2
)
Net of tax
23.6

 

 
23.6

Other comprehensive loss, net of tax
(8.9
)
 
(3.6
)
 
(12.5
)
Ending balance, net of tax
$
77.9

 
$
(7.1
)
 
$
70.8

 
During the three months ended March 31, 2016, we reclassified approximately $6.0 million of losses related to cumulative foreign currency translation adjustments, from accumulated other comprehensive income into other operational expenses, upon the substantial liquidation of our foreign subsidiary, Stone Energy Canada ULC.
Note 10 – Investment in Oil and Gas Properties
 
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 (adjusted for hedges and excluding cash flows related to estimated abandonment costs) 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, 2016, our ceiling test computation resulted in a write-down of our U.S. oil and gas properties of $128.9 million based on twelve-month average prices, net of applicable differentials, of $46.72 per Bbl of oil, $2.01 per Mcf of natural gas and $13.65 per Bbl of natural gas liquids ("NGLs"), as compared to December 31, 2015 twelve-month average prices, net of applicable differentials, of $51.16 per Bbl of oil, $2.19 per Mcf of natural gas and $16.40 per Bbl of NGLs. At March 31, 2016, the write-down of oil and gas properties also included $0.3 million related

13



to our Canadian oil and gas properties, which were deemed to be fully impaired at the end of 2015. The write-down at March 31, 2016 was decreased by $23 million as a result of hedges.

Note 11 – Other Operational Expenses

Included in other operational expenses for the three months ended March 31, 2016 is a $6.0 million loss on the substantial liquidation of our foreign subsidiary, Stone Energy Canada ULC, representing cumulative foreign currency translation adjustments, which were reclassified from accumulated other comprehensive income. See Note 9 - Accumulated Other Comprehensive Income (Loss). Also included in other operational expenses for the three months ended March 31, 2016 are approximately $6.1 million of rig subsidy charges related to the farm out of the ENSCO 8503 deep water drilling rig and stacking charges related to the Saxon Appalachian rig.
Note 12 – Commitments and Contingencies
 
On March 21, 2016, we received notice letters from the Bureau of Ocean Energy Management ("BOEM") stating that BOEM had determined that we no longer qualified for a supplemental bonding waiver under the financial criteria specified in BOEM’s current guidance to lessees. BOEM's notice letters indicate the amount of Stone's supplemental bonding needs could be as much as $565 million. We are in discussions with BOEM to reduce the amount of the supplemental bonding or other forms of financial assurance that the agency may require and the timing of when such bonds or financial assurances may need to be provided. In late March 2016, we proposed a tailored plan to BOEM for financial assurances relating to our abandonment obligations. We currently have approximately $223 million posted in surety bonds in favor of BOEM, third party bonds and letters of credit, all relating to our offshore abandonment obligations. Our proposed tailored plan provides for posting some incremental financial assurances in favor of BOEM and discussions on the approval and implementation of this plan are ongoing.

Note 13 – Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard is effective for public entities for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years, with earlier application permitted. Upon adoption the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. We are currently evaluating the effect that this new standard may have on our financial statements.
In March 2016, the FASB issued ASU 2016-09, "Compensation – Stock Compensation (Topic 718)" to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and forfeitures, as well as classification in the statement of cash flows. The standard is effective for public entities for fiscal years beginning after December 15, 2016, and for interim periods within those fiscal years. Early adoption is permitted for any entity in any interim or annual period. An entity that elects early adoption must adopt all of the amendments in ASU 2016-09 in the same period. We are currently evaluating the effect that this new standard may have on our financial statements, but we do not anticipate the implementation of this new standard will have a material effect.
Note 14 - Subsequent Event

On April 29, 2016, we were notified by the New York Stock Exchange (“NYSE”) that we were not in compliance with the NYSE's continued listing requirements, as the average closing price of our shares of common stock had fallen below $1.00 per share over a period of 30 consecutive trading days, which is the minimum average share price for continued listing on the NYSE under Rule 802.01C of the NYSE Listed Company Manual. Under the NYSE’s rules, we have six months following receipt of the notification to regain compliance with the minimum share price requirement.

Note 15 – Guarantor Financial Statements
 
Our Guarantor Subsidiaries, including Stone Offshore, SEO A LLC and SEO B LLC, are unconditional guarantors of the 2017 Convertible Notes and the 2022 Notes. Our other subsidiaries (the “Non-Guarantor Subsidiaries”) have not provided guarantees. The following presents unaudited condensed consolidating financial information as of March 31, 2016 and December 31, 2015 and for the three month periods ended March 31, 2016 and 2015 on an issuer (parent company), Guarantor Subsidiaries, Non-Guarantor Subsidiaries and consolidated basis. Elimination entries presented are necessary to combine the entities.

14





CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2016
(In thousands)
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
367,133

 
$
1

 
$

 
$

 
$
367,134

Accounts receivable
57,106

 
38,476

 
885

 
(54,282
)
 
42,185

Fair value of derivative contracts

 
30,222

 

 

 
30,222

Current income tax receivable
46,174

 

 

 

 
46,174

Inventory
535

 

 

 

 
535

Other current assets
6,531

 

 

 

 
6,531

Total current assets
477,479

 
68,699

 
885

 
(54,282
)
 
492,781

Oil and gas properties, full cost method:
 
 
 
 
 
 
 
 
 
Proved
1,891,423

 
7,544,791

 
45,645

 

 
9,481,859

Less: accumulated DD&A
(1,891,423
)
 
(6,859,344
)
 
(45,645
)
 

 
(8,796,412
)
Net proved oil and gas properties

 
685,447

 

 

 
685,447

Unevaluated
261,724

 
159,705

 

 

 
421,429

Other property and equipment, net
28,667

 

 

 

 
28,667

Other assets, net
17,460

 
797

 

 

 
18,257

Investment in subsidiary
614,540

 

 

 
(614,540
)
 

Total assets
$
1,399,870

 
$
914,648

 
$
885

 
$
(668,822
)

$
1,646,581

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable to vendors
$
24,915

 
$
67,567

 
$

 
$
(54,282
)
 
$
38,200

Undistributed oil and gas proceeds
2,800

 
1,075

 

 

 
3,875

Accrued interest
22,901

 

 

 

 
22,901

Asset retirement obligations

 
23,465

 

 

 
23,465

Current portion of long-term debt
459,201

 

 

 

 
459,201

Other current liabilities
32,335

 
336

 

 

 
32,671

Total current liabilities
542,152

 
92,443

 

 
(54,282
)
 
580,313

Long-term debt
1,063,090

 

 

 

 
1,063,090

Asset retirement obligations
1,298

 
208,550

 

 

 
209,848

Other long-term liabilities
18,329

 

 

 

 
18,329

Total liabilities
1,624,869

 
300,993

 

 
(54,282
)
 
1,871,580

Commitments and contingencies

 

 

 

 

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock
558

 

 

 

 
558

Treasury stock
(860
)
 

 

 

 
(860
)
Additional paid-in capital
1,650,969

 
1,344,577

 
109,077

 
(1,453,654
)
 
1,650,969

Accumulated deficit
(1,894,407
)
 
(749,663
)
 
(108,192
)
 
857,855

 
(1,894,407
)
Accumulated other comprehensive income
18,741

 
18,741

 

 
(18,741
)
 
18,741

Total stockholders’ equity
(224,999
)
 
613,655

 
885

 
(614,540
)
 
(224,999
)
Total liabilities and stockholders’ equity
$
1,399,870

 
$
914,648

 
$
885

 
$
(668,822
)
 
$
1,646,581




15



CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2015
(In thousands)
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,681

 
$
2

 
$
1,076

 
$

 
$
10,759

Accounts receivable
10,597

 
39,190

 

 
(1,756
)
 
48,031

Fair value of derivative contracts

 
38,576

 

 

 
38,576

Current income tax receivable
46,174

 

 

 

 
46,174

Inventory
535

 

 

 

 
535

Other current assets
6,313

 

 
33

 

 
6,346

Total current assets
73,300

 
77,768

 
1,109

 
(1,756
)
 
150,421

Oil and gas properties, full cost method:
 
 
 
 
 
 
 
 
 
Proved
1,875,152

 
7,458,262

 
42,484

 

 
9,375,898

Less: accumulated DD&A
(1,874,622
)
 
(6,686,849
)
 
(42,484
)
 

 
(8,603,955
)
Net proved oil and gas properties
530

 
771,413

 

 

 
771,943

Unevaluated
253,308

 
186,735

 

 

 
440,043

Other property and equipment, net
29,289

 

 

 

 
29,289

Other assets, net
16,612

 
826

 
1,035

 

 
18,473

Investment in subsidiary
745,033

 

 
1,088

 
(746,121
)
 

Total assets
$
1,118,072

 
$
1,036,742

 
$
3,232

 
$
(747,877
)
 
$
1,410,169

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable to vendors
$
16,063

 
$
67,901

 
$

 
$
(1,757
)
 
$
82,207

Undistributed oil and gas proceeds
5,216

 
776

 

 

 
5,992

Accrued interest
9,022

 

 

 

 
9,022

Asset retirement obligations

 
20,400

 
891

 

 
21,291

Other current liabilities
40,161

 
551

 

 

 
40,712

Total current liabilities
70,462

 
89,628

 
891

 
(1,757
)
 
159,224

Long-term debt
1,060,955

 

 

 

 
1,060,955

Asset retirement obligations
1,240

 
203,335

 

 

 
204,575

Other long-term liabilities
25,204

 

 

 

 
25,204

Total liabilities
1,157,861

 
292,963

 
891

 
(1,757
)
 
1,449,958

Commitments and contingencies

 

 

 

 

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock
553

 

 

 

 
553

Treasury stock
(860
)
 

 

 

 
(860
)
Additional paid-in capital
1,648,189

 
1,344,577

 
109,795

 
(1,454,372
)
 
1,648,189

Accumulated deficit
(1,705,623
)
 
(624,824
)
 
(95,306
)
 
720,130

 
(1,705,623
)
Accumulated other comprehensive income (loss)
17,952

 
24,026

 
(12,148
)
 
(11,878
)
 
17,952

Total stockholders’ equity
(39,789
)
 
743,779

 
2,341

 
(746,120
)
 
(39,789
)
Total liabilities and stockholders’ equity
$
1,118,072

 
$
1,036,742

 
$
3,232

 
$
(747,877
)
 
$
1,410,169





16



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2016
(In thousands)
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Operating revenue:
 
 
 
 
 
 
 
 
 
Oil production
$
61

 
$
60,214

 
$

 
$

 
$
60,275

Natural gas production
2,467

 
12,706

 

 

 
15,173

Natural gas liquids production
1,134

 
3,601

 

 

 
4,735

Other operational income
356

 

 

 

 
356

Derivative income, net

 
138

 

 

 
138

Total operating revenue
4,018

 
76,659

 

 

 
80,677

Operating expenses:
 
 
 
 
 
 
 
 
 
Lease operating expenses
2,728

 
16,806

 
13

 

 
19,547

Transportation, processing and gathering expenses
1,546

 
(705
)
 

 

 
841

Production taxes
259

 
222

 

 

 
481

Depreciation, depletion and amortization
8,594

 
52,964

 

 

 
61,558

Write-down of oil and gas properties
9,324

 
119,531

 
349

 

 
129,204

Accretion expense
58

 
9,925

 

 

 
9,983

Salaries, general and administrative expenses
13,907

 
(200
)
 

 

 
13,707

Incentive compensation expense
4,979

 

 

 

 
4,979

Other operational expenses
6,109

 
337

 
6,081

 

 
12,527

Total operating expenses
47,504

 
198,880

 
6,443

 

 
252,827

Loss from operations
(43,486
)
 
(122,221
)
 
(6,443
)
 

 
(172,150
)
Other (income) expenses:
 
 
 
 
 
 
 
 
 
Interest expense
15,241

 

 

 

 
15,241

Interest income
(114
)
 

 

 

 
(114
)
Other income
(39
)
 
(259
)
 

 

 
(298
)
Other expense
2

 

 

 

 
2

Loss from investment in subsidiaries
131,282

 

 
6,443

 
(137,725
)
 

Total other (income) expenses
146,372

 
(259
)
 
6,443

 
(137,725
)
 
14,831

Loss before taxes
(189,858
)
 
(121,962
)
 
(12,886
)
 
137,725

 
(186,981
)
Provision (benefit) for income taxes:
 
 
 
 
 
 
 
 
 
Current
(1,074
)
 

 

 

 
(1,074
)
Deferred

 
2,877

 

 

 
2,877

Total income taxes
(1,074
)
 
2,877

 

 

 
1,803

Net loss
$
(188,784
)
 
$
(124,839
)
 
$
(12,886
)
 
$
137,725

 
$
(188,784
)
Comprehensive loss
$
(187,995
)
 
$
(124,839
)
 
$
(12,886
)
 
$
137,725

 
$
(187,995
)


17



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2015
(In thousands)
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Operating revenue:
 
 
 
 
 
 
 
 
 
Oil production
$
4,350

 
$
103,157

 
$

 
$

 
$
107,507

Natural gas production
16,617

 
11,720

 

 

 
28,337

Natural gas liquids production
9,879

 
2,487

 

 

 
12,366

Other operational income
2,160

 

 

 

 
2,160

Derivative income, net

 
3,128

 

 

 
3,128

Total operating revenue
33,006

 
120,492

 

 

 
153,498

Operating expenses:
 
 
 
 
 
 
 
 
 
Lease operating expenses
4,976

 
22,601

 

 

 
27,577

Transportation, processing and gathering expenses
16,108

 
1,595

 

 

 
17,703

Production taxes
2,198

 
317

 

 

 
2,515

Depreciation, depletion and amortization
42,112

 
44,310

 

 

 
86,422

Write-down of oil and gas properties
491,412

 

 

 

 
491,412

Accretion expense
91

 
6,318

 

 

 
6,409

Salaries, general and administrative expenses
17,001

 
1

 
5

 

 
17,007

Incentive compensation expense
1,563

 

 

 

 
1,563

Other operational expenses
84

 

 

 

 
84

Total operating expenses
575,545

 
75,142

 
5

 

 
650,692

Income (loss) from operations
(542,539
)
 
45,350

 
(5
)
 

 
(497,194
)
Other (income) expenses:
 
 
 
 
 
 
 
 
 
Interest expense
10,344

 
21

 

 

 
10,365

Interest income
(101
)
 
(16
)
 
(5
)
 

 
(122
)
Other income
(133
)
 
(10
)
 

 

 
(143
)
Income from investment in subsidiaries
(29,027
)
 

 

 
29,027

 

Total other (income) expenses
(18,917
)
 
(5
)
 
(5
)
 
29,027

 
10,100

Income (loss) before taxes
(523,622
)
 
45,355

 

 
(29,027
)
 
(507,294
)
Provision (benefit) for income taxes:
 
 
 
 
 
 
 
 
 
Deferred
(196,234
)
 
16,328

 

 

 
(179,906
)
Total income taxes
(196,234
)
 
16,328

 

 

 
(179,906
)
Net income (loss)
$