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EX-31.1 - EXHIBIT 31.1 - STONE ENERGY CORPsgy093016ex311.htm


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 September 30, 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. (Check one):
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 November 7, 2016, there were 5,688,410 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)
 
September 30,
2016
 
December 31,
2015
 
(Unaudited)
 
(Note 1)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
182,399

 
$
10,759

Accounts receivable
44,063

 
48,031

Fair value of derivative contracts
6,261

 
38,576

Current income tax receivable
19,863

 
46,174

Other current assets
11,176

 
6,881

Total current assets
263,762

 
150,421

Oil and gas properties, full cost method of accounting:
 
 
 
Proved
9,564,561

 
9,375,898

Less: accumulated depreciation, depletion and amortization
(9,054,069
)
 
(8,603,955
)
Net proved oil and gas properties
510,492

 
771,943

Unevaluated
404,226

 
440,043

Other property and equipment, net
27,227

 
29,289

Other assets, net
29,800

 
18,473

Total assets
$
1,235,507

 
$
1,410,169

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable to vendors
$
29,259

 
$
82,207

Undistributed oil and gas proceeds
7,439

 
5,992

Accrued interest
22,917

 
9,022

Asset retirement obligations
60,223

 
21,291

Current portion of long-term debt
292,795

 

Other current liabilities
10,903

 
40,712

Total current liabilities
423,536

 
159,224

Long-term debt
1,122,945

 
1,060,955

Asset retirement obligations
182,816

 
204,575

Other long-term liabilities
25,871

 
25,204

Total liabilities
1,755,168

 
1,449,958

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Common stock, $.01 par value; authorized 30,000,000 shares; issued 5,605,525 and 5,530,232 shares, respectively
56

 
55

Treasury stock (1,658 shares, at cost)
(860
)
 
(860
)
Additional paid-in capital
1,657,028

 
1,648,687

Accumulated deficit
(2,179,803
)
 
(1,705,623
)
Accumulated other comprehensive income
3,918

 
17,952

Total stockholders’ equity
(519,661
)
 
(39,789
)
Total liabilities and stockholders’ equity
$
1,235,507

 
$
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
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Operating revenue:
 
 
 
 
 
 
 
Oil production
$
71,116

 
$
105,013

 
$
204,102

 
$
324,105

Natural gas production
15,601

 
17,367

 
43,327

 
72,611

Natural gas liquids production
6,666

 
5,980

 
15,119

 
29,379

Other operational income
1,044

 
1,392

 
1,737

 
3,184

Derivative income, net

 
2,444

 

 
4,871

Total operating revenue
94,427

 
132,196

 
264,285

 
434,150

Operating expenses:
 
 
 
 
 
 
 
Lease operating expenses
16,976

 
24,244

 
55,349

 
79,250

Transportation, processing and gathering expenses
10,633

 
18,208

 
18,657

 
55,851

Production taxes
835

 
2,052

 
1,894

 
6,394

Depreciation, depletion and amortization
58,918

 
61,936

 
166,707

 
226,309

Write-down of oil and gas properties
36,484

 
295,679

 
284,337

 
1,011,385

Accretion expense
10,082

 
6,498

 
30,147

 
19,315

Salaries, general and administrative expenses
15,425

 
19,552

 
48,193

 
52,977

Incentive compensation expense
2,160

 
794

 
11,809

 
3,621

Restructuring fees
5,784

 

 
16,173

 

Other operational expenses
9,059

 
442

 
49,266

 
1,612

Derivative expense, net
199

 

 
687

 

Total operating expenses
166,555

 
429,405

 
683,219

 
1,456,714

Loss from operations
(72,128
)
 
(297,209
)
 
(418,934
)
 
(1,022,564
)
Other (income) expenses:
 
 
 
 
 
 
 
Interest expense
16,924

 
10,872

 
49,764

 
31,709

Interest income
(58
)
 
(47
)
 
(474
)
 
(235
)
Other income
(272
)
 
(411
)
 
(840
)
 
(1,167
)
Other expense
16

 
148

 
27

 
148

Total other expenses
16,610

 
10,562

 
48,477

 
30,455

Loss before income taxes
(88,738
)
 
(307,771
)
 
(467,411
)
 
(1,053,019
)
Provision (benefit) for income taxes:
 
 
 
 
 
 
 
Current
(991
)
 

 
(4,178
)
 

Deferred
1,888

 
(15,806
)
 
10,947

 
(280,760
)
Total income taxes
897

 
(15,806
)
 
6,769

 
(280,760
)
Net loss
$
(89,635
)
 
$
(291,965
)
 
$
(474,180
)
 
$
(772,259
)
Basic loss per share
$
(16.01
)
 
$
(52.82
)
 
$
(84.90
)
 
$
(139.83
)
Diluted loss per share
$
(16.01
)
 
$
(52.82
)
 
$
(84.90
)
 
$
(139.83
)
Average shares outstanding
5,600

 
5,528

 
5,585

 
5,523

Average shares outstanding assuming dilution
5,600

 
5,528

 
5,585

 
5,523

 
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
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net loss
$
(89,635
)
 
$
(291,965
)
 
$
(474,180
)
 
$
(772,259
)
Other comprehensive income (loss), net of tax effect:
 
 
 
 
 
 
 
Derivatives
(3,467
)
 
(5,353
)
 
(20,107
)
 
(45,691
)
Foreign currency translation

 
(246
)
 
6,073

 
(2,567
)
Comprehensive loss
$
(93,102
)
 
$
(297,564
)
 
$
(488,214
)
 
$
(820,517
)
 
The accompanying notes are an integral part of this statement.

3



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended
September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(474,180
)
 
$
(772,259
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
166,707

 
226,309

Write-down of oil and gas properties
284,337

 
1,011,385

Accretion expense
30,147

 
19,315

Deferred income tax provision (benefit)
10,947

 
(280,760
)
Settlement of asset retirement obligations
(15,106
)
 
(59,826
)
Non-cash stock compensation expense
6,407

 
9,163

Non-cash derivative expense
1,261

 
10,854

Non-cash interest expense
14,278

 
13,210

Other non-cash expense
6,081

 

Change in current income taxes
21,584

 
7,211

Decrease in accounts receivable
3,968

 
33,895

Increase in other current assets
(4,426
)
 
(1,090
)
Increase (decrease) in accounts payable
3,217

 
(11,592
)
Decrease in other current liabilities
(14,222
)
 
(6,753
)
Other
(8,107
)
 
(82
)
Net cash provided by operating activities
32,893

 
198,980

Cash flows from investing activities:
 
 
 
Investment in oil and gas properties
(200,622
)
 
(385,528
)
Proceeds from sale of oil and gas properties, net of expenses

 
11,643

Investment in fixed and other assets
(1,231
)
 
(1,455
)
Change in restricted funds
1,046

 
179,475

Net cash used in investing activities
(200,807
)
 
(195,865
)
Cash flows from financing activities:
 
 
 
Proceeds from bank borrowings
477,000

 
5,000

Repayments of bank borrowings
(135,500
)
 
(5,000
)
Repayments of building loan
(285
)
 

Deferred financing costs
(900
)
 

Net payments for share-based compensation
(752
)
 
(3,127
)
Net cash provided by (used in) financing activities
339,563

 
(3,127
)
Effect of exchange rate changes on cash
(9
)
 
(2
)
Net change in cash and cash equivalents
171,640

 
(14
)
Cash and cash equivalents, beginning of period
10,759

 
74,488

Cash and cash equivalents, end of period
$
182,399

 
$
74,474

 
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” or the "Company") and its subsidiaries as of September 30, 2016 and for the three and nine month periods ended September 30, 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 and nine month periods ended September 30, 2016 are not necessarily indicative of future financial results. Certain prior period amounts have been reclassified to conform to current period presentation.

On May 27, 2016, the board of directors of the Company approved a 1-for-10 reverse stock split of the Company's issued and outstanding shares of common stock. The reverse stock split was effective upon the filing and effectiveness of a certificate of amendment to the Company's certificate of incorporation after the market closed on June 10, 2016, and the common stock began trading on a split-adjusted basis when the market opened on June 13, 2016. The effect of the reverse stock split was to combine each 10 shares of outstanding common stock prior to the reverse split into one new share subsequent to the reverse split. The Company's authorized shares of common stock were proportionately decreased in connection with the reverse stock split. Additionally, the overall and per share limitations in the Company’s 2009 Amended and Restated Stock Incentive Plan, as amended from time to time, and outstanding awards thereunder were also proportionately adjusted. The Company retained the current par value of $.01 per share for all shares of common stock.

All references in the financial statements and notes thereto to number of shares, per share data, restricted stock and stock option data have been retroactively adjusted to give effect to the 1-for-10 reverse stock split. Stockholders' equity reflects the reverse stock split by reclassifying from common stock to additional paid-in capital an amount equal to the par value of the reduction in the number of shares as a result of the reverse split.
 
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 $1,428 million as of September 30, 2016 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, particularly the maximum Consolidated Funded Debt to consolidated EBITDA (“Consolidated Funded Leverage”) financial covenant set forth in our bank credit agreement. If we exceed the maximum Consolidated Funded Leverage financial covenant, we would be required 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.

On June 14, 2016, we entered into an amendment to the bank credit facility (see Note 5 – Debt) which, among other things, requires that we maintain minimum liquidity of $125.0 million through January 15, 2017 and revised the maximum Consolidated Funded Leverage financial covenant from 3.75 to 1 to 5.25 to 1 for the fiscal quarter ended June 30, 2016, 6.50 to 1 for the fiscal quarter ended September 30, 2016, 9.50 to 1 for the fiscal quarter ending December 31, 2016 and 3.75 to 1 thereafter. We were in compliance with all covenants under the bank credit facility as of September 30, 2016, however, the minimum liquidity requirement and other restrictions under the credit facility may prevent us from being able to meet our interest payment obligation on the 7½% Senior Notes due in 2022 (the “2022 Notes”) in the fourth quarter of 2016 as well as the subsequent maturity of our 1¾% Senior Convertible Notes due in March 2017 (the “2017 Convertible Notes”). Additionally, we anticipate that we could exceed the Consolidated Funded Leverage financial covenant of 3.75 to 1 at the end of the first quarter of 2017 unless a material portion of our debt is repaid, reduced or exchanged into equity.


5



As a result of the impact to our financial position from the drastic decline in commodity prices and in consideration of the current level of our indebtedness, we engaged advisors to assist with the evaluation of various strategic alternatives to address our liquidity and capital structure (see Note 12 – Restructuring Fees). On October 20, 2016, we entered into a restructuring support agreement (the “RSA”) with certain holders of our 2017 Convertible Notes and our 2022 Notes (the "Noteholders") to support a restructuring on the terms of a pre-packaged plan of reorganization (the “Plan”). The RSA contemplates that we will file for voluntary relief under chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in a United States Bankruptcy Court (the "Bankruptcy Court") on or before December 9, 2016 to implement the Plan. Pursuant to the terms of the RSA, the Noteholders will receive (a) 95% of the common stock in reorganized Stone, (b) $225 million of new 7.5% second lien notes due 2022 and (c) $150 million of the net cash proceeds from the sale of Stone’s approximately 86,000 net acres in the Appalachia regions of Pennsylvania and West Virginia (the “Properties”) plus 85% of the net cash proceeds from the sale of the Properties in excess of $350 million, if any. Additionally, on October 20, 2016, we entered into a purchase and sale agreement (the “PSA”) with TH Exploration III, LLC, an affiliate of Tug Hill, Inc. (“Tug Hill”). Pursuant to the terms of the PSA, we agreed to sell the Properties to Tug Hill for $360 million in cash, subject to customary purchase price adjustments. The consummation of the Plan will be subject to customary conditions and other requirements, as well as the sale by Stone of the Properties for a cash purchase price of at least $350 million and approval of the Bankruptcy Court. On November 4, 2016, we entered into an amendment to the RSA (the “RSA Amendment”) with the Noteholders pursuant to which (a) Stone will be obligated to, at any time upon the written request of the Noteholders or their counsel, provide in writing to counsel to the Noteholders the good faith estimate of Stone – together with documentation requested by the Noteholders or their counsel – of any cure amounts or other payment obligations of Stone arising or resulting from the assumption of executory contracts or unexpired leases on both a “per contract” basis and in the aggregate, (b) the Noteholders will have the option to terminate the RSA at any time that the Noteholders determine, in their sole discretion, that the total amount of all such payments exceeds an amount acceptable to the Noteholders, (c) the Noteholders will have the unilateral right to extend the automatic termination of the RSA if the restructuring transactions contemplated by the RSA are not consummated by the one-hundredth (100th) calendar day after the Company files for chapter 11 bankruptcy, and (d) solicitation will commence by November 10, 2016. For additional details on the RSA, RSA Amendment and PSA, see Note 16 – Subsequent Events.

We cannot provide any assurances that we will be able to complete a restructuring or asset sales on satisfactory terms to provide the liquidity to restructure or pay down our senior indebtedness. We have been engaged in discussions and have exchanged proposals with the lenders under our bank credit facility with respect to the treatment of the bank credit facility in a chapter 11 proceeding and a related amendment to the bank credit facility; however, no agreement has been reached. While we expect to continue discussions and related negotiations with our bank credit facility lenders, there can be no assurance that an agreement will be reached. The conditions noted above and the uncertainties surrounding the restructuring, asset sales, renegotiation of our bank credit facility and chapter 11 bankruptcy proceedings raise substantial doubt about our ability to continue as a going concern.

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
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per share data)
Income (numerator):
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net loss
$
(89,635
)
 
$
(291,965
)
 
$
(474,180
)
 
$
(772,259
)
Net income attributable to participating securities

 

 

 

Net loss attributable to common stock - basic
$
(89,635
)
 
$
(291,965
)
 
$
(474,180
)
 
$
(772,259
)
Diluted:
 
 
 
 
 
 
 
Net loss
$
(89,635
)
 
$
(291,965
)
 
$
(474,180
)
 
$
(772,259
)
Net income attributable to participating securities

 

 

 

Net loss attributable to common stock - diluted
$
(89,635
)
 
$
(291,965
)
 
$
(474,180
)
 
$
(772,259
)
Weighted average shares (denominator):
 
 
 
 
 
 
 
Weighted average shares - basic
5,600

 
5,528

 
5,585

 
5,523

Dilutive effect of stock options

 

 

 

Dilutive effect of convertible notes

 

 

 

Weighted average shares - diluted
5,600

 
5,528

 
5,585

 
5,523

Basic loss per share
$
(16.01
)
 
$
(52.82
)
 
$
(84.90
)
 
$
(139.83
)
Diluted loss per share
$
(16.01
)
 
$
(52.82
)
 
$
(84.90
)
 
$
(139.83
)
 

6



All outstanding stock options were considered antidilutive during the three and nine months ended September 30, 2016 (approximately 12,900 shares) and during the three and nine months ended September 30, 2015 (approximately 14,400 shares) because we had net losses for such periods.
 
During the three months ended September 30, 2016 and 2015, approximately 12,900 shares and 1,832 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. During the nine months ended September 30, 2016 and 2015, approximately 75,100 shares and 41,375 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 and nine months ended September 30, 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 and nine months ended September 30, 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.
 
We have entered into fixed-price swaps and 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 November 7, 2016, two counterparties accounted for approximately 86% of our contracted volumes. All of our derivative instruments are with lenders under our bank credit facility. 

7



The following tables illustrate our derivative positions for calendar year 2016 as of November 7, 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

 
 
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, subsequent to the sale of our non-core Gulf of Mexico ("GOM") conventional shelf properties, that our 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 September 30, 2016, we had accumulated other comprehensive income of $3.9 million, net of tax, related to the fair value of our effective cash flow hedges that were outstanding as of September 30, 2016. The $3.9 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 September 30, 2016 and December 31, 2015.
Fair Value of Derivatives Qualifying as Hedging Instruments at
September 30, 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
 
$
6.3

 
Current liabilities: Fair value
of derivative contracts
 
$

 
Long-term assets: Fair value
of derivative contracts
 

 
Long-term liabilities: Fair
value of derivative contracts
 

 
 
 
$
6.3

 
 
 
$

 
 
 
 
 
 
 
 
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 tables disclose the before tax effect of derivatives qualifying as hedging instruments, as reported in the statement of operations, for the three and nine month periods ended September 30, 2016 and 2015.

8



Effect of Derivatives Qualifying as Hedging Instruments on the Statement of Operations
for the Three Months Ended September 30, 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
 
$
2.3

 
$
31.6

 
Operating revenue -
oil/natural gas production
 
$
7.7

 
$
39.9

 
Derivative income
(expense), net
 
$
(0.2
)
 
$
1.2

Total
 
$
2.3

 
$
31.6

 
 
 
$
7.7

 
$
39.9

 
 
 
$
(0.2
)
 
$
1.2


(a)
For the three months ended September 30, 2016, effective hedging contracts increased oil revenue by $5.3 million and increased natural gas revenue by $2.4 million. For the three months ended September 30, 2015, effective hedging contracts increased oil revenue by $36.3 million and increased natural gas revenue by $3.6 million.
Effect of Derivatives Qualifying as Hedging Instruments on the Statement of Operations
for the Nine Months Ended September 30, 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
 
$
(1.7
)
 
$
35.7

 
Operating revenue -
oil/natural gas production
 
$
29.4

 
$
107.1

 
Derivative income
(expense), net
 
$
(0.7
)
 
$
1.7

Total
 
$
(1.7
)
 
$
35.7

 
 
 
$
29.4

 
$
107.1

 
 
 
$
(0.7
)
 
$
1.7


(a)
For the nine months ended September 30, 2016, effective hedging contracts increased oil revenue by $19.7 million and increased natural gas revenue by $9.7 million. For the nine months ended September 30, 2015, effective hedging contracts increased oil revenue by $96.8 million and increased natural gas revenue by $10.3 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 and nine month periods ended September 30, 2016 and 2015.
Gain (Loss) Recognized in Derivative Income (Expense)
(In millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Description
2016
 
2015
 
2016
 
2015
Commodity contracts:
 
 
 
 
 
 
 
Cash settlements
$

 
$
3.8

 
$

 
$
11.0

Change in fair value

 
(2.6
)
 

 
(7.9
)
Total gains (losses) on non-qualifying hedges
$

 
$
1.2

 
$

 
$
3.1

 
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 September 30, 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.


9



Note 5 – Debt
 
Our debt balances (net of related unamortized discounts and debt issuance costs) as of September 30, 2016 and December 31, 2015 were as follows:
 
September 30,
2016
 
December 31,
2015
 
(In millions)
1 34% Senior Convertible Notes due 2017
$
292.4

 
$
279.3

7 12% Senior Notes due 2022
770.4

 
770.0

Revolving credit facility
341.5

 

4.20% Building Loan
11.4

 
11.7

Total debt
1,415.7

 
1,061.0

Less: current portion of long-term debt
(292.8
)
 

Long-term debt
$
1,122.9

 
$
1,061.0

 
Current Portion of Long-Term Debt. As of September 30, 2016, the current portion of long-term debt of $292.8 million consisted of $292.4 million of 2017 Convertible Notes 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 a revolving credit facility (the Fourth Amended and Restated Credit Agreement dated as of June 24, 2014) with commitments totaling $900 million (subject to borrowing base limitations) through a syndicated bank group, with an initial borrowing base of $500 million. The bank credit facility matures on July 1, 2019. On April 13, 2016, 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 installments. We elected to pay the deficiency in six equal monthly installments, making the first payment of $29.2 million on May 13, 2016 and the second payment of $29.2 million on June 13, 2016.

On June 14, 2016, we entered into Amendment No. 3 (the "Amendment") to the bank credit facility to (i) increase the borrowing base to $360 million from $300 million, (ii) provide for no redetermination of the borrowing base by the lenders until January 15, 2017, other than an automatic reduction upon the sale of certain of our properties, (iii) permit second lien indebtedness to refinance the existing 2017 Convertible Notes and 2022 Notes, (iv) revise the maximum Consolidated Funded Leverage financial covenant to be 5.25 to 1 for the fiscal quarter ended June 30, 2016, 6.50 to 1 for the fiscal quarter ended September 30, 2016, 9.50 to 1 for the fiscal quarter ending December 31, 2016 and 3.75 to 1 thereafter, (v) require minimum liquidity (as defined in the Amendment) of at least $125.0 million until January 15, 2017, (vi) impose limitations on capital expenditures of $60 million for the period of June 1, 2016 through December 31, 2016, but allowing for an additional $25 million to be expended for Appalachian drilled but uncompleted wells, (vii) grant the lenders a perfected security interest in all deposit accounts and (viii) provide for anti-hoarding cash provisions for amounts in excess of $50.0 million to apply after December 10, 2016. Upon execution of the Amendment, we repaid $56.8 million in borrowings under the credit facility, which eliminated the borrowing base deficiency and brought the total borrowings and letters of credit outstanding under the bank credit facility in conformity with the borrowing base limitation.

On October 20, 2016, we entered into the RSA with the Noteholders to support a restructuring on the terms of the Plan. The RSA contemplates that we will file for voluntary relief under chapter 11 of the Bankruptcy Code on or before December 9, 2016 to implement the Plan (see Note 16 – Subsequent Events). We have been engaged in discussions and have exchanged proposals with the lenders under our bank credit facility with respect to the treatment of the bank credit facility in a chapter 11 proceeding and a related amendment to the bank credit facility; however, no agreement has been reached.  While we expect to continue discussions and related negotiations with the lenders under our bank credit facility, there can be no assurance that an agreement will be reached.

On September 30 and November 7, 2016, we had $341.5 million of outstanding borrowings and $12.5 million of outstanding letters of credit, leaving $6.0 million of availability under the bank credit facility. The weighted average interest rate under the bank credit facility was approximately 3.1% at September 30, 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 September 30, 2016, the bank credit facility was guaranteed by our only material subsidiary, Stone Energy Offshore, L.L.C. (“Stone Offshore”). On August 29, 2016, our subsidiaries SEO A LLC and SEO B LLC were merged into Stone Offshore.

10



 
The borrowing base under the bank credit facility is redetermined semi-annually, typically in 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. However, the Amendment provides for no redetermination of the borrowing base by the lenders until January 15, 2017, other than an automatic reduction upon the sale of certain of our properties. 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 86% 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%.

In addition to the covenants discussed above, the bank credit facility provides that we must 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. The bank credit facility also 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 September 30, 2016.

Senior Notes. Our senior notes consist of $300 million of 2017 Convertible Notes and $775 million of 2022 Notes. On October 20, 2016, we entered into the RSA with the Noteholders to support a restructuring on the terms of the Plan. The RSA contemplates that we will file for voluntary relief under chapter 11 of the Bankruptcy Code on or before December 9, 2016 to implement the Plan (see Note 16 – Subsequent Events).

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 corresponded to an initial conversion price of approximately $42.65 per share of our common stock at the time of the issuance of the 2017 Convertible Notes. 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. On June 10, 2016, we completed a 1-for-10 reverse stock split with respect to our common stock (see Note 1 – Interim Financial Statements). Proportional adjustments were made to the conversion price and shares as they relate to the 2017 Convertible Notes, resulting in a conversion rate of 2.34449 shares of our common stock with a corresponding conversion price of $426.50 per share. On September 30, 2016, our closing share price was $11.88 per share.

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 703,347 shares of our common stock at a strike price that corresponds to the initial conversion price of the 2017 Convertible Notes (after the effectiveness of the reverse stock split of 1-for-10), 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 703,347 shares of our common stock (the “Sold Warrants”) at a strike price of $559.10 per share of our common stock (after the effectiveness of the reverse stock split of 1-for-10). 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.
 

11



As of September 30, 2016, the carrying amount of the liability component of the 2017 Convertible Notes of $292.4 million was classified as a current liability. During the three and nine months ended September 30, 2016, we recognized $4.1 million and $12.0 million, respectively, of interest expense for the amortization of the discount and $0.4 million and $1.1 million, respectively, of interest expense for the amortization of deferred financing costs related to the 2017 Convertible Notes. During the three and nine months ended September 30, 2015, we recognized $3.8 million and $11.1 million, respectively, of interest expense for the amortization of the discount and $0.4 million and $1.1 million, respectively, of interest expense for the amortization of deferred financing costs related to the 2017 Convertible Notes. During the three and nine month periods ended September 30, 2016, we recognized $1.3 million and $3.9 million, respectively, of interest expense related to the contractual interest coupon on the 2017 Convertible Notes. During the three and nine month periods ended September 30, 2015, we recognized $1.3 million and $3.9 million, respectively, of interest expense related to the contractual interest coupon on the 2017 Convertible Notes.

2022 Notes. On November 8, 2012 and November 27, 2013, respectively, we completed the public offering of $300 million and $475 million aggregate principal amount of our 2022 Notes. The 2022 Notes mature on November 15, 2022. We have an interest payment obligation under our 2022 Notes of approximately $29.2 million, due on November 15, 2016. The indenture governing the 2022 Notes provides a 30-day grace period that extends the latest date for making this cash interest payment to December 15, 2016 before an Event of Default occurs under the indenture, which would give the trustee or the holders of at least 25% in principal amount of the 2022 Notes the option to accelerate payment of the principal plus accrued and unpaid interest on the 2022 Notes.

Note 6 – Asset Retirement Obligations
 
The change in our asset retirement obligations during the nine months ended September 30, 2016 is set forth below:
 
Nine Months Ended
September 30, 2016
 
(In millions)
Asset retirement obligations as of the beginning of the period, including current portion
$
225.9

Liabilities incurred
2.1

Liabilities settled
(15.1
)
Accretion expense
30.1

Asset retirement obligations as of the end of the period, including current portion
$
243.0

 
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 September 30, 2016, our valuation allowance totaled $343.1 million. Our effective tax rate for the nine months ended September 30, 2016 was 1.4%. This percentage differed from the federal statutory rate of 35.0% primarily due to the establishment of the valuation allowance 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 $19.9 million at September 30, 2016, which relates to expected tax refunds from the carryback of net operating losses to previous tax years. Additionally, we had $4.7 million of non-current income tax receivables at September 30, 2016 reflected in Other Assets, as the refunds are not expected to be received within twelve months.

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 September 30, 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

12



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 September 30, 2016 and December 31, 2015. The following tables present our assets that are measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015.
 
Fair Value Measurements at
 
September 30, 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)
$
8.8

 
$
8.8

 
$

 
$

Derivative contracts
6.3

 

 
6.3

 

Total
$
15.1

 
$
8.8

 
$
6.3

 
$

 
 
 
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 nine months ended September 30, 2016.
 
 
Hedging Contracts, net
 
 
(In millions)
Balance as of January 1, 2016
 
$
2.0

Total gains/(losses) (realized or unrealized):
 
 
Included in earnings
 
1.1

Included in other comprehensive income
 
(1.9
)
Purchases, sales, issuances and settlements
 
(1.2
)
Transfers in and out of Level 3
 

Balance as of September 30, 2016
 
$

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 September 30, 2016
 
$

The fair value of cash and cash equivalents approximated book value at September 30, 2016 and December 31, 2015. As of September 30, 2016 and December 31, 2015, the fair value of the liability component of the 2017 Convertible Notes was approximately $278.6 million and $217.1 million, respectively. As of September 30, 2016 and December 31, 2015, the fair value of the 2022 Notes was approximately $441.8 million and $271.3 million, respectively.

13



 
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, September 30, 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.
 
Note 9 – Accumulated Other Comprehensive Income (Loss)
 
For the three months ended September 30, 2016, the only component of accumulated other comprehensive income (loss) related to our cash flow hedges. Changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2016, were as follows (in millions):
 
Cash Flow
Hedges
 
 
Three Months Ended September 30, 2016
 
 
 
Beginning balance, net of tax
$
7.4

 
 
Other comprehensive income (loss) before reclassifications:
 
 
 
Change in fair value of derivatives
2.3

 
 
Income tax effect
(0.8
)
 
 
Net of tax
1.5

 
 
Amounts reclassified from accumulated other comprehensive income:
 
 
 
Operating revenue: oil/natural gas production
7.7

 
 
Income tax effect
(2.7
)
 
 
Net of tax
5.0

 
 
Other comprehensive loss, net of tax
(3.5
)
 
 
Ending balance, net of tax
$
3.9

 
 

 
Cash Flow
Hedges
 
Foreign
Currency
Items
 
Total
Nine Months Ended September 30, 2016
 
 
 
 
 
Beginning balance, net of tax
$
24.0

 
$
(6.0
)
 
$
18.0

Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
Change in fair value of derivatives
(1.7
)
 

 
(1.7
)
Income tax effect
0.6

 

 
0.6

Net of tax
(1.1
)
 

 
(1.1
)
Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
Operating revenue: oil/natural gas production
29.4

 

 
29.4

Other operational expenses

 
(6.0
)
 
(6.0
)
Income tax effect
(10.4
)
 

 
(10.4
)
Net of tax
19.0

 
(6.0
)
 
13.0

Other comprehensive income (loss), net of tax
(20.1
)
 
6.0

 
(14.1
)
Ending balance, net of tax
$
3.9

 
$

 
$
3.9



14



Changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2015, were as follows (in millions):
 
Cash Flow
Hedges
 
Foreign
Currency
Items
 
Total
Three Months Ended September 30, 2015
 
 
 
 
 
Beginning balance, net of tax
$
46.5

 
$
(5.8
)
 
$
40.7

Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
Change in fair value of derivatives
31.6

 

 
31.6

Foreign currency translations

 
(0.2
)
 
(0.2
)
Income tax effect
(11.5
)
 

 
(11.5
)
Net of tax
20.1

 
(0.2
)
 
19.9

Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
Operating revenue: oil/natural gas production
39.9

 

 
39.9

Income tax effect
(14.4
)
 

 
(14.4
)
Net of tax
25.5

 

 
25.5

Other comprehensive loss, net of tax
(5.4
)
 
(0.2
)
 
(5.6
)
Ending balance, net of tax
$
41.1

 
$
(6.0
)
 
$
35.1

 
 
Cash Flow
Hedges
 
Foreign
Currency
Items
 
Total
Nine Months Ended September 30, 2015
 
 
 
 
 
Beginning balance, net of tax
$
86.8

 
$
(3.5
)
 
$
83.3

Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
Change in fair value of derivatives
35.7

 

 
35.7

Foreign currency translations

 
(2.5
)
 
(2.5
)
Income tax effect
(12.8
)
 

 
(12.8
)
Net of tax
22.9

 
(2.5
)
 
20.4

Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
Operating revenue: oil/natural gas production
107.1

 

 
107.1

Income tax effect
(38.5
)
 

 
(38.5
)
Net of tax
68.6

 

 
68.6

Other comprehensive loss, net of tax
(45.7
)
 
(2.5
)
 
(48.2
)
Ending balance, net of tax
$
41.1

 
$
(6.0
)
 
$
35.1


During the nine months ended September 30, 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 September 30, 2016, our ceiling test computation resulted in a write-down of our U.S. oil and gas properties of $36.5 million based on twelve-month average prices, net of applicable differentials, of $40.51 per Bbl of oil, $1.99 per Mcf of natural gas and $13.88 per Bbl of natural gas liquids ("NGLs"). The write-down at September 30, 2016 was decreased by $9.6 million as a result of hedges. At June 30, 2016, our ceiling test computation resulted in a write-down of our U.S. oil and gas properties of $118.6 million based on twelve-month average prices, net of applicable differentials, of $43.49 per Bbl of oil, $1.93 per Mcf of natural gas and $9.33 per Bbl of NGLs. The write-down at June 30, 2016 was decreased by $18.1 million as a result of hedges. 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 NGLs. At March 31, 2016, the write-down of oil and gas properties also included

15



$0.3 million related 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 nine months ended September 30, 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 nine months ended September 30, 2016 are approximately $15.3 million of rig subsidy and stacking charges related to the ENSCO 8503 deep water drilling rig, an Appalachian drilling rig and the platform rig at Pompano, a $20 million charge related to the termination of our deep water drilling rig contract with Ensco and $7.5 million in charges related to the terminations of the Appalachian drilling rig contract and a contract with an offshore vessel provider.
Note 12 – Restructuring Fees
In March 2016, we retained financial and legal advisors to assist the Company in analyzing and considering financial, transactional and strategic alternatives. We have been engaged in negotiations with financial advisors for certain holders of the 2017 Convertible Notes and 2022 Notes regarding the restructuring of the notes and in June 2016, we secured an amendment to our existing credit facility with our bank group. On October 20, 2016, we entered into the RSA with the Noteholders to support a restructuring on the terms of the Plan. We have also been engaged in discussions and have exchanged proposals with the lenders under our bank credit facility with respect to the treatment of the bank credit facility in a chapter 11 proceeding and a related amendment to the bank credit facility. The legal and financial advisory costs associated with these restructuring efforts are included in the statement of operations as restructuring fees and totaled $5.8 million and $16.2 million for the three and nine months ended September 30, 2016, respectively.
Note 13 – 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 guidance to lessees at such time. BOEM's notice letters indicated the amount of Stone's supplemental bonding needs could be as much as $565 million. In late March 2016, we proposed a tailored plan to BOEM for financial assurances relating to our abandonment obligations, which provides for posting some incremental financial assurances in favor of BOEM. On May 13, 2016, we received notice letters from BOEM rescinding its demand for supplemental bonding with the understanding that we will continue to make progress with BOEM in finalizing and implementing our long-term tailored plan. Currently, we have posted an aggregate of approximately $139 million in surety bonds in favor of BOEM, third party bonds and letters of credit, all relating to our offshore abandonment obligations. We have submitted our tailored plan to BOEM and are awaiting its review and approval.

Additionally, on July 14, 2016, BOEM issued a Notice to Lessees (“NTL”) that augments requirements for the posting of additional financial assurances by offshore lessees, among others, to assure that sufficient funds are available to perform decommissioning obligations with respect to offshore wells, platforms, pipelines and other facilities. The NTL, effective September 12, 2016, does away with the agency's past practice of waiving supplemental bonding obligations where a company could demonstrate a certain level of financial strength. Instead, BOEM will allow companies to “self-insure”, but only up to 10% of a company’s “tangible net worth”, which is defined as the difference between a company’s total assets and the value of all liabilities and intangible assets. The NTL provides new procedures for how BOEM determines a lessee’s decommissioning obligations and, consistent with those procedures, BOEM has tentatively proposed an implementation timeline that offshore lessees will follow in providing additional financial assurance, including BOEM’s issuance of (i) “Self-Insurance” letters beginning September 12, 2016 (regarding a lessee’s ability to self-insure a portion of the additional financial assurance), (ii) “Proposal” letters beginning October 12, 2016 (outlining what amount of additional security a lessee will be required to provide), and (iii) “Order” letters beginning November 14, 2016 (triggering a lessee’s obligations (A) within 10 days of such letter to notify BOEM that it intends to pursue a “tailored plan” for posting additional security over a phased-in period of time, (B) within 60 days of such letter, provide additional security for “sole liability” properties (leases or grants for which there is no other current or prior owner who is liable for decommissioning obligations), and (C) within 120 days of such letter, provide additional security for any other properties and/or submit a tailored financial plan). BOEM tentatively expects to approve or deny tailored plans submitted by lessees on or around September 11, 2017, although extensions may be granted to companies actively working with BOEM to finalize tailored plans. We received a Self-Insurance letter from BOEM dated September 30, 2016 stating that we are not eligible to self-insure any of our additional security obligations. We received a Proposal letter from BOEM dated October 20, 2016 indicating that additional security will be required, and we intend to work with BOEM to adjust our previously submitted tailored plan for the provision of new financial assurances required to be posted as a result of the new NTL. Our revised proposed plan would require approximately $35 million to $40 million of incremental financial assurance or bonding for 2016 through 2017, a portion of which may require cash collateral. Under the revised plan, additional financial assurance would be required for subsequent years. There is no assurance this tailored plan will be approved by BOEM.


16



Note 14 – 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.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments" to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for public entities for fiscal years beginning after December 15, 2017, and 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 2016-15 in the same period, and any adjustments should be reflected as of the beginning of the fiscal year that includes that interim 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 15 – New York Stock Exchange Compliance

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 Section 802.01C of the NYSE Listed Company Manual. On May 17, 2016, we were notified by the NYSE that our average global market capitalization had been less than $50 million over a consecutive 30 trading-day period at the same time that our stockholders' equity was less than $50 million, which is non-compliant with Section 802.01B of the NYSE Listed Company Manual.

At the close of business on June 10, 2016, we effected a 1-for-10 reverse stock split (see Note 1 – Interim Financial Statements) in order to increase the market price per share of our common stock in order to regain compliance with the NYSE's minimum share price requirement. We were notified on July 1, 2016 that we cured the minimum share price deficiency and that we were no longer considered non-compliant with the $1.00 per share average closing price requirement. We remain non-compliant with the $50 million market capitalization and stockholders' equity requirements. On June 30, 2016, we submitted our 18-month business plan for curing the average market capitalization and stockholders' equity deficiencies to the NYSE. The NYSE accepted the plan on August 4, 2016 and will continue to review the Company on a quarterly basis for compliance with the plan. Upon acceptance of the plan by the NYSE, and after two consecutive quarters of sustained market capitalization above $50 million, we would no longer be non-compliant with the market capitalization and stockholders' equity requirements. During the 18-month cure period, our shares of common stock will continue to be listed and traded on the NYSE, unless we experience other circumstances that subject us to delisting, including an abnormally low market capitalization. If we fail to meet the material aspects of the plan or any of the quarterly milestones, the NYSE will review the circumstances causing the variance and determine whether such variance warrants commencement of suspension and delisting procedures. Upon a delisting from the NYSE, we would commence trading on the OTC Pink. On September 20, 2016, we submitted our quarterly update to the business plan for the second quarter of 2016, and the NYSE notified us that it accepted the quarterly update on September 22, 2016. We expect to submit our third quarter 2016 plan update to the NYSE by mid-December.

Note 16 – Subsequent Events

Restructuring Support Agreement

On October 20, 2016, the Company entered into the RSA with the Noteholders to support a restructuring on the terms of the Plan. The RSA contemplates that the Company will file for voluntary relief under chapter 11 of the Bankruptcy Code in a Bankruptcy Court on or before December 9, 2016 to implement the Plan in accordance with the term sheet annexed to the RSA (the “Term Sheet”).

The RSA would become effective upon (i) execution by the Company and Noteholders holding, in the aggregate, at least two-thirds of the outstanding aggregate principal amount of the Notes, and (ii) Stone having entered into a PSA for the sale of Properties for a cash

17



purchase price of at least $350 million. Both conditions were satisfied, with Noteholders holding approximately 85.4% of the aggregate principal amount of the Notes executing the RSA and Stone signing the PSA, as indicated below. Pursuant to the terms of the RSA and the Term Sheet, Noteholders and other interest holders will receive treatment under the Plan summarized as follows:
The Noteholders will receive their pro rata share of (a) $150 million of the net cash proceeds from the sale of the Properties plus 85% of the net cash proceeds from the sale of the Properties in excess of $350 million, if any, (b) 95% of the common stock in reorganized Stone and (c) $225 million of new 7.5% second lien notes due 2022.

Existing common stockholders of Stone will receive their pro rata share of 5% of the common stock in reorganized Stone and warrants for up to 15% of the post-petition equity exercisable upon the Company reaching certain benchmarks pursuant to the terms of the proposed new warrants.

All claims of creditors with unsecured claims other than claims by the Noteholders, including vendors, shall be unaltered and will be paid in full in the ordinary course of business to the extent such claims are undisputed. Stone estimates that such unsecured claims are in the range of approximately $17 million to $27 million in the aggregate.

Holders of claims arising on account of Stone’s existing revolving credit facility will receive (a)(i) if such holders vote, as a class, to accept the Plan, commitments on terms set forth on Exhibit 1(a) to the Term Sheet, on a pro rata basis, under an amended revolving credit facility, or (ii) if such holders, as a class, do not vote to accept the Plan (or are deemed to reject the Plan), a term loan on terms set forth on Exhibit 1(b) to the Term Sheet, or (b) such other treatment as is acceptable to the Company and the Noteholders and consistent with the Bankruptcy Code, including, but not limited to, section 1129(b) of the Bankruptcy Code.

Each of the foregoing common equity percentages in reorganized Stone is subject to dilution from the exercise of the new warrants described above and a management incentive plan.

The Company has been engaged in discussions and has exchanged proposals with the lenders under its bank credit facility with respect to the treatment of the bank credit facility in a chapter 11 proceeding and a related amendment to the bank credit facility; however, no agreement has been reached.  While the Company expects to continue discussions and related negotiations with the lenders under its bank credit facility, there can be no assurance that an agreement will be reached.
The RSA contains certain covenants on the part of the Company and the Noteholders who are signatories to the RSA, including that such Noteholders will vote in favor of the Plan, support the sale of the Properties and otherwise facilitate the restructuring transaction, in each case subject to certain terms and conditions in the RSA. The consummation of the Plan will be subject to customary conditions and other requirements, as well as the sale by Stone of the Properties for a cash purchase price of at least $350 million and approval of the Bankruptcy Court. The RSA also provides for termination by each party, or by either party, upon the occurrence of certain events, including without limitation, termination by the Noteholders upon the failure of the Company to achieve certain milestones set forth in Schedule 1 to the RSA.
 
Assuming implementation of the Plan, Stone expects that it will eliminate approximately $850 million in principal of outstanding debt and reduce its annual interest payment burden by approximately $46 million.

On November 4, 2016 the Company and the Noteholders entered into the RSA Amendment pursuant to which:

Stone will be obligated to, at any time upon the written request of the Noteholders or their counsel, provide in writing to counsel to the Noteholders the good faith estimate of Stone – together with documentation requested by the Noteholders or their counsel – of any cure amounts or other payment obligations of Stone arising or resulting from the assumption of executory contracts or unexpired leases on both a “per contract” basis and in the aggregate;

The Noteholders will have the option to terminate the RSA at any time that the Noteholders determine, in their sole discretion, that the total amount of all such payments exceeds an amount acceptable to the Noteholders;

The Noteholders will have the unilateral right to extend the automatic termination of the RSA if the restructuring transactions contemplated by the RSA are not consummated by the one-hundredth (100th) calendar day after the Company files for chapter 11 bankruptcy; and

Solicitation of noteholders in support of the Plan will commence by November 10, 2016.

Although the Company intends to pursue the restructuring in accordance with the terms set forth in the RSA and the RSA Amendment, there can be no assurance that the Company will be successful in completing a restructuring or any other similar transaction on the terms set forth in the RSA and the RSA Amendment, on different terms or at all.

18




Purchase and Sale Agreement

On October 20, 2016 (the “Execution Date”), Stone entered into the PSA with Tug Hill. Pursuant to the terms of the PSA, Stone agreed to sell the Properties to Tug Hill (the “Disposition”) for $360 million in cash, subject to customary purchase price adjustments (the “Purchase Price”).

The Disposition has an effective date of June 1, 2016. In connection with the execution of the PSA, Tug Hill deposited $5.0 million in escrow, which amount may be supplemented by an additional $31 million at a later date on certain conditions being met. Upon a closing, the deposit will be credited against the Purchase Price. From the Execution Date through December 19, 2016 (the “Diligence Period”), Tug Hill intends to conduct customary due diligence to assess the aggregate dollar value of any title and environmental defects associated with the Properties. The parties expect to close the Disposition by February 25, 2017, subject to customary closing conditions and approval by the Bankruptcy Court.

The PSA contains customary representations, warranties and covenants. From and after the closing of the Disposition, Stone and Tug Hill, respectively, have agreed to indemnify each other and their respective affiliates against certain losses resulting from any breach of their representations, warranties or covenants contained in the PSA, subject to certain customary limitations and survival periods. Additionally, from and after closing of the Disposition, Stone has agreed to indemnify Tug Hill for certain identified retained liabilities related to the Properties, subject to certain survival periods, and Tug Hill has agreed to indemnify Stone for certain assumed obligations related to the Properties.

The PSA may be terminated, subject to certain exceptions, (i) upon mutual written consent, (ii) if the closing has not occurred by March 1, 2017, (iii) for certain material breaches of representations and warranties or covenants that remain uncured, (iv) if, on or prior to the end of the Diligence Period, title and environmental defect amounts (after application of customary thresholds and deductibles), casualty losses and the value of any assets excluded from the Properties due to the exercise of preferential purchase rights or consents equal or exceed $10 million in the aggregate, (v) if Stone fails to file for bankruptcy on or before December 9, 2016, (vi) if the Bankruptcy Court does not enter an order approving Stone’s assumption of the PSA and certain other matters within 30 days of Stone filing for bankruptcy, (vii) if the Bankruptcy Court does not enter a sale order for the Disposition by February 10, 2017, and (viii) upon the occurrence of certain other events specified in the PSA.

Note 17 – Guarantor Financial Statements
 
Stone Offshore is an unconditional guarantor (the "Guarantor Subsidiary") 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 September 30, 2016 and December 31, 2015 and for the three and nine month periods ended September 30, 2016 and 2015 on an issuer (parent company), Guarantor Subsidiary, Non-Guarantor Subsidiaries and consolidated basis. Elimination entries presented are necessary to combine the entities.

19




CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2016
(In thousands)
 
Parent
 
Guarantor
Subsidiary
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
152,384

 
$
30,015

 
$

 
$

 
$
182,399

Accounts receivable
17,336

 
40,736

 
883

 
(14,892
)
 
44,063

Fair value of derivative contracts

 
6,261

 

 

 
6,261

Current income tax receivable
19,863

 

 

 

 
19,863

Other current assets
11,176

 

 

 

 
11,176

Total current assets
200,759

 
77,012

 
883

 
(14,892
)
 
263,762

Oil and gas properties, full cost method:
 
 
 
 
 
 
 
 
 
Proved
1,932,435

 
7,586,930

 
45,196

 

 
9,564,561

Less: accumulated DD&A
(1,932,640
)
 
(7,076,233
)
 
(45,196
)
 

 
(9,054,069
)
Net proved oil and gas properties
(205
)
 
510,697

 

 

 
510,492

Unevaluated
261,101

 
143,125

 

 

 
404,226

Other property and equipment, net
27,227

 

 

 

 
27,227

Other assets, net
28,852

 
948

 

 

 
29,800

Investment in subsidiary
480,971

 

 

 
(480,971
)
 

Total assets
$
998,705

 
$
731,782

 
$
883

 
$
(495,863
)

$
1,235,507

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable to vendors
$
35,189

 
$
8,963

 
$

 
$
(14,893
)
 
$
29,259

Undistributed oil and gas proceeds
6,535

 
904

 

 

 
7,439

Accrued interest
22,917

 

 

 

 
22,917

Asset retirement obligations

 
60,223

 

 

 
60,223

Current portion of long-term debt
292,795

 

 

 

 
292,795

Other current liabilities
10,778

 
125

 

 

 
10,903

Total current liabilities
368,214

 
70,215

 

 
(14,893
)
 
423,536

Long-term debt
1,122,945

 

 

 

 
1,122,945

Asset retirement obligations
1,336

 
181,480

 

 

 
182,816

Other long-term liabilities
25,871

 

 

 

 
25,871

Total liabilities
1,518,366

 
251,695

 

 
(14,893
)
 
1,755,168

Commitments and contingencies

 

 

 

 

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock
56

 

 

 

 
56

Treasury stock
(860
)
 

 

 

 
(860
)
Additional paid-in capital
1,657,028

 
1,344,577

 
109,079

 
(1,453,656
)
 
1,657,028

Accumulated deficit
(2,179,803
)
 
(868,408
)
 
(108,196
)
 
976,604

 
(2,179,803
)
Accumulated other comprehensive income
3,918

 
3,918

 

 
(3,918
)
 
3,918

Total stockholders’ equity
(519,661
)
 
480,087

 
883

 
(480,970
)
 
(519,661
)
Total liabilities and stockholders’ equity
$
998,705

 
$
731,782

 
$
883

 
$
(495,863
)
 
$
1,235,507


20



CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2015
(In thousands)
 
Parent
 
Guarantor
Subsidiary
 
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

Other current assets
6,848

 

 
33

 

 
6,881

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
55

 

 

 

 
55

Treasury stock
(860
)
 

 

 

 
(860
)
Additional paid-in capital
1,648,687

 
1,344,577

 
109,795

 
(1,454,372
)
 
1,648,687

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



21



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2016
(In thousands)
 
Parent
 
Guarantor
Subsidiary
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Operating revenue:
 
 
 
 
 
 
 
 
 
Oil production
$
3,587

 
$
67,529

 
$

 
$

 
$
71,116

Natural gas production
7,216

 
8,385

 

 

 
15,601

Natural gas liquids production
5,737

 
929