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Stone Energy Corporation Announces First Quarter 2015 Results

May 4, 2015 4:11 PM EDT

LAFAYETTE, La., May 4, 2015 /PRNewswire/ -- Stone Energy Corporation (NYSE: SGY) today announced financial and operational results for the first quarter of 2015. Some of the highlights include:

  • Production volumes exceeded the upper end of first quarter 2015 guidance
  • Cardona wells #4 and #5 continue to produce gross volumes of approximately 10,000 Boe per day
  • Appalachian production volumes averaged over 130 MMcfe per day during the first quarter
  • Lease operating expenses decreased by approximately $19 million, or 41%, from the first quarter of 2014

Chairman, President and Chief Executive Officer David Welch stated, "We delivered increased production in the first quarter, driven by our successful Cardona project and incremental Appalachian volumes, and will have additional deep water development projects in progress during the year. Given the current commodity price environment, we have made significant reductions across our capital budget and in our lease operating expenses.  The suspension of our Appalachian drilling has allowed our team to focus on the most efficient and effective ways to develop our acreage position for both the Marcellus and Utica shales.  Additionally, we have an exciting portfolio of exploration prospects that provides us with significant resource potential. We remain committed to maintaining a liquid and flexible balance sheet with an undrawn bank facility and over $160 million in cash." 

Financial Results

Stone Energy had a first quarter 2015 adjusted net loss of $12.9 million, or $0.23 per share, before pre-tax impairment charges of $491.4 million ($314.5 million net of taxes).  After impairment charges, the reported net loss was $327.4 million, or $5.93 per share, on oil and gas revenue of $148.2 million, compared to net income of $25.9 million, or $0.52 per share, on oil and gas revenue of $222.6 million in the first quarter of 2014.  Discretionary cash flow totaled $85.4 million during the first quarter of 2015, as compared to $138.0 million during the first quarter of 2014. Please see "Non-GAAP Financial Measures" and the accompanying financial statements for reconciliations of discretionary cash flow, a non-GAAP financial measure, to net cash flow provided by operating activities and adjusted net loss, a non-GAAP financial measure, to net loss.

Net daily production during the first quarter of 2015 averaged 46 thousand barrels of oil equivalent (MBoe) per day (278 million cubic feet of gas equivalent (MMcfe) per day), compared with net daily production of 42 MBoe (255 MMcfe) per day in the fourth quarter of 2014, and net daily production of 45 MBoe (269 MMcfe) per day in the first quarter of 2014.  First quarter of 2015 production mix was 39% oil, 16% natural gas liquids (NGLs) and 45% natural gas.  Production guidance for the second quarter of 2015 is estimated at 41-43 Mboe per day, or 246-258 MMcfe per day.  This includes planned downtime on a third party pipeline which will affect the Pompano platform for an estimated 3-4 weeks, impacting volumes by approximately 10,000 boe per day during this period.

Prices realized during the first quarter of 2015 averaged $66.28 per barrel of oil, $18.11 per barrel of NGLs and $2.54 per Mcf of natural gas.  Average realized prices for the first quarter of 2014 were $97.52 per barrel of oil, $54.84 per barrel of NGLs and $4.46 per Mcf of natural gas. Effective hedging transactions increased the average realized price of natural gas by $0.25 per Mcf and increased the average realized price of oil by $20.97 per barrel in the first quarter of 2015.  Effective hedging transactions decreased the average realized price of natural gas by $0.36 per Mcf and decreased the average realized price of oil by $1.75 per barrel in the first quarter of 2014.

Lease operating expenses during the first quarter of 2015 totaled $27.6 million ($6.62 per Boe or $1.10 per Mcfe), compared to $46.9 million ($11.62 per Boe or $1.94 per Mcfe), in the first quarter of 2014.  The decrease is primarily attributable to the sale of the non-core conventional shelf assets in July of 2014 as well as recent service cost reductions.  Additionally, the lease operating expenses in the first quarter of 2015 compared favorably to the $36.6 million (9.37 per Boe or $1.56 per Mcfe) in the fourth quarter of 2014.

Transportation, processing and gathering expenses during the first quarter of 2015 totaled $17.7 million ($4.25 per Boe or $0.71 per Mcfe), compared to $14.6 million ($3.62 per Boe or $0.60) during the first quarter of 2014.  The increase is attributable to higher Appalachian gas and NGL volumes and higher fees.  However, transportation, processing and gathering expenses in the first quarter of 2015 decreased from $19.5 million ($5.00 per Boe or $0.83 per Mcfe) in the fourth quarter of 2014 due to efficiencies and reduced costs.

Depreciation, depletion and amortization (DD&A) on oil and gas properties for the first quarter of 2015 totaled $85.2 million ($20.47 per Boe or $3.41 per Mcfe), compared to $81.8 million ($20.27 per Boe or $3.38 per Mcfe), in the first quarter of 2014.

Salaries, general and administrative (SG&A) expenses for the first quarter of 2015 were $17.0 million ($4.08 per Boe or $0.68 per Mcfe), compared to $16.3 million ($4.05 per Boe or $0.67 per Mcfe), in the first quarter of 2014. However, SG&A expenses in the first quarter of 2015 decreased from $17.2 million ($4.41 per Boe or $.73 per Mcfe) in the fourth quarter of 2014.

Capital expenditures for the first quarter of 2015 were approximately $113.8 million, which includes $17.1 million of plugging and abandonment expenditures.  Additionally, $8.5 million of SG&A expenses and $10.8 million of interest were capitalized during the first quarter of 2015.  This compared to first quarter 2014 capital expenditures of approximately $254.1 million, which included $9.8 million of plugging and abandonment expenditures.  Additionally, $7.7 million of SG&A expenses and $12.8 million of interest were capitalized during the first quarter of 2014.  The 2015 capital expenditure budget of $450 million assumes planned sales of minority working interests in certain targeted assets.

As of March 31, 2015 and May 4, 2015, we had no outstanding borrowings under our bank credit facility. Stone had letters of credit totaling $19.2 million, resulting in $480.8 million available for borrowing under our bank credit facility, based on a borrowing base of $500 million.  The $500 million borrowing base was re-affirmed on May 1, 2015.

Operational Update   

Mississippi Canyon 29 – Cardona #6 (Deep Water).  The Cardona #6 development well is expected to spud in June of 2015.  If successful, the Cardona #6 well's first production is expected early in the fourth quarter of 2015 and will be tied into the subsea infrastructure already in place for Cardona wells #4 and #5.  The subsea, looped flowline system is currently flowing production from the #4 and #5 wells to the Stone owned and operated Pompano platform.  Stone holds a 65% working interest in the project and is the operator.

Mississippi Canyon 26 – Amethyst (Deep Water).  The Amethyst discovery (100% working interest) encountered approximately 90 feet of net hydrocarbon pay in early 2014 and will be completed as a single well tie-back to the Stone owned and operated Pompano platform, located less than five miles from the discovery.  The ENSCO 8503 drilling rig will be outfitted with mooring capabilities prior to being mobilized to finish completion operations at the well in the second half of 2015.  Production is expected to begin early in 2016. 

Mississippi Canyon 35 - Vernaccia (Deep Water).  The Vernaccia exploration well targets the Miocene interval and is projected to spud early in the third quarter of 2015.  Stone currently controls an approximate 32% working interest in the prospect, which is operated by Eni.  The well is estimated to take three months to drill.

Mississippi Canyon 118 - Harrier (Deep Water).  The Harrier exploration well reached target depth in April of 2015 and did not encounter commercial hydrocarbons.  The well has been plugged and abandoned.  Stone was a non-operating partner in the prospect with a net dry hole cost of approximately $28 million. 

Pompano Development Drilling Program.  Stone expects to secure a platform rig for its Pompano (Viosca Knoll 989) drill program in the fourth quarter of 2015. The program is expected to consist of three to four development wells.  The rig may also be used for workovers or to drill other potential prospects located near the facility.

Appalachian Basin (Production Update).   During the first quarter of 2015, Stone averaged approximately 131 MMcfe per day (94 MMcf per day of gas and 6300 barrels per day of liquids) from its Marcellus shale position.  Beginning in late January, we began bringing 8 wells online at the ZMBG pad in the Mary field.  Stone currently has a total of 25 drilled wells where completion operations have been suspended until pricing improvements can be realized.  Stone expects a natural decline in production from its Appalachian basin assets throughout the remainder of 2015 as a result of suspended drilling and completion operations, but expects an increase in annual Appalachian production from 2014 to 2015.

Appalachian Basin (Drilling Program Update).  Stone finished drilling the horizontal sections of 6 Marcellus shale wells in early 2015 before releasing the Marcellus shale drilling rig and will cease all further drilling operations until receiving a fit-for-purpose, hybrid rig in late 2015 or early 2016.  The new rig will be capable of drilling in both the Marcellus and Utica shale formations.  Stone will be evaluating optimal development plans of the Marcellus and Utica shales in the interim.

2015 Guidance

Guidance for the second quarter and full year 2015 is shown in the table below (updated guidance numbers are italicized and bolded).  The guidance for the second quarter of 2015 production includes expected downtime of approximately 3-4 weeks at Stone's Pompano platform (Viosca Knoll 989) which is attributable to third-party pipeline maintenance.  The guidance is also subject to all the cautionary statements and limitations described below and under the caption "Forward Looking Statements."

 

Second Quarter

Full Year

Production - MBoe per day

                   (MMcfe per day)

41 - 43

(246 - 258)

39 - 43

(234  - 258)

Lease operating expenses (in millions)

(excluding transportation/processing expenses)

-

$115 - $125

 

Transportation, processing and gathering (in millions)

$69 - $75

Salaries, General & Administrative expenses (in millions)

-

$59 - $63

(excluding incentive compensation)

 

Depreciation, Depletion & Amortization (per MBoe)

-

$18.00 - $19.80

                                                              (per Mcfe)

$3.00 - $3.30

Corporate Tax Rate (%)

-

36% - 37%

Capital Expenditure Budget (in millions)

-

$450

   (assumes planned sales of minority working interests in certain targeted assets)

Hedge Position

The following table illustrates our derivative positions for 2015 and 2016 as of May 4, 2015: 

 

Fixed-Price Swaps

NYMEX

Natural Gas

Oil

Daily

Volume

(MMBtus/d)

SwapPrice

Daily

Volume

(Bbls/d)

Swap

Price

2015

10,000

4.005

1,000

89.00

2015

10,000

4.120

1,000

90.00

2015

10,000

4.150

1,000

90.25

2015

10,000

4.165

1,000

90.40

2015

10,000

4.220

1,000

91.05

2015

10,000

4.255

1,000

93.28

2015

1,000

93.37

2015

1,000

94.85

2015

1,000

95.00

2016

10,000

4.110

1,000

90.00

2016

10,000

4.120

Other Information

Stone Energy has planned a conference call for 9:00 a.m. Central time on Tuesday, May 5, 2015 to discuss the operational and financial results for the first quarter of 2015. Anyone wishing to participate should visit our website at www.StoneEnergy.com for a live web cast or dial 1-877-228-3598 and request the "Stone Energy Call."  If you are unable to participate in the original conference call, a replay will be available immediately following the completion of the call on Stone Energy's website.  The replay will be available for one month.

Stone Energy will hold its 2015 Annual Meeting of Stockholders on Thursday, May 21, 2015, at 10:00 a.m. Central time at the Windsor Court Hotel, 300 Gravier Street, New Orleans, Louisiana.  The Company proposes to elect ten directors, to ratify the appointment of Ernst & Young LLP as the Company's independent public accounting firm for the fiscal year ending December 31, 2015, to have a non-binding advisory vote on the compensation of the named executive officers (say on pay), to approve an amendment to the Company's Certificate of Incorporation to increase the number of shares of authorized common stock from 100,000,000 shares to 150,000,000 shares, to approve the Second Amendment to the Company's 2009 Amended and Restated Stock Incentive Plan (as amended, the "Stock Incentive Plan") to increase the number of shares reserved for issuance under the Stock Incentive Plan by 1,600,000 shares, to approve the Third Amendment to the Stock Incentive Plan setting forth the eligible employees, business criteria and maximum annual per person compensation limits under the Stock Incentive Plan for purposes of complying with the requirements of Section 162(m) of the Internal Revenue Code, and to transact such other business as may properly come before the meeting.  The close of business on March 27, 2015 has been fixed as the record date for determination of stockholders entitled to receive notification of and to vote at the Annual Meeting.

Non-GAAP Financial Measures

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

Forward Looking Statements

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

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

Stone Energy is an independent oil and natural gas exploration and production company headquartered in Lafayette, Louisiana with additional offices in New Orleans, Houston and Morgantown, West Virginia. Stone is engaged in the acquisition, exploration, development and production of properties in the Gulf of Mexico and Appalachian basins. For additional information, contact Kenneth H. Beer, Chief Financial Officer, at 337-521-2210 phone, 337-521-9880 fax or via e-mail at [email protected]

 

STONE ENERGY CORPORATION

SUMMARY STATISTICS

(In thousands, except per share/unit amounts)

(Unaudited)

Three Months Ended

March 31,

2015

2014

FINANCIAL RESULTS

          Net income (loss)

($327,388)

$25,943

          Net income (loss) per share

($5.93)

$0.52

PRODUCTION QUANTITIES

          Oil (MBbls)

1,622

1,418

          Gas (MMcf)

11,157

12,641

          Natural gas liquids (MBbls)

683

510

          Oil, gas and NGLs (MBoe)

4,165

4,035

          Oil, gas and NGLs (MMcfe)

24,987

24,209

AVERAGE DAILY PRODUCTION

          Oil (MBbls)

18.0

15.8

          Gas (MMcf)

124.0

140.5

          Natural gas liquids (MBbls)

7.6

5.7

          Oil, gas and NGLs (MBoe)

46.3

44.8

          Oil, gas and NGLs (MMcfe)

277.6

269.0

REVENUE DATA

          Oil revenue

$107,507

$138,289

          Gas revenue

28,337

56,362

          Natural gas liquids revenue

12,366

27,970

          Total oil, gas and NGL revenue

$148,210

$222,621

AVERAGE PRICES

Prior to the cash settlement of effective hedging transactions:

          Oil (per Bbl)

$45.31

$99.27

          Gas (per Mcf)

2.29

4.82

          Natural gas liquids (per Bbl)

18.11

54.84

          Oil, gas and NGLs (per Boe)

26.76

56.93

          Oil, gas and NGLs (per Mcfe)

4.46

9.49

Including the cash settlement of effective hedging transactions:

          Oil (per Bbl)

$66.28

$97.52

          Gas (per Mcf)

2.54

4.46

          Natural gas liquids (per Bbl)

18.11

54.84

          Oil, gas and NGLs (per Boe)

35.58

55.17

          Oil, gas and NGLs (per Mcfe)

5.93

9.20

AVERAGE COSTS

          Lease operating expenses (per Boe)

$6.62

$11.62

          Lease operating expenses (per Mcfe)

1.10

1.94

          Transp, processing and gathering exp (per Boe)

4.25

3.62

          Transp, processing and gathering exp (per Mcfe)

0.71

0.60

          Salaries, general and administrative expenses (per Boe)

4.08

4.05

          Salaries, general and administrative expenses (per Mcfe)

0.68

0.67

          DD&A expense on oil and gas properties (per Boe)

20.47

20.27

          DD&A expense on oil and gas properties (per Mcfe)

3.41

3.38

AVERAGE SHARES OUTSTANDING – Diluted

55,181

49,062

 

 

 

STONE ENERGY CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(In thousands)

(Unaudited)

Three Months Ended

March 31,

2015

2014

      Operating revenue:

          Oil production

$107,507

$138,289

          Gas production

28,337

56,362

          Natural gas liquids production

12,366

27,970

          Other operational income

2,160

1,209

          Derivative income, net

3,128

-

                          Total operating revenue

153,498

223,830

      Operating expenses:

          Lease operating expenses

27,577

46,903

          Transportation, processing and gathering

17,703

14,626

          Other operational expense

84

424

          Production taxes

2,515

3,062

          Depreciation, depletion and amortization

86,422

82,646

          Write-down of oil and gas properties

491,412

-

          Accretion expense

6,409

7,555

          Salaries, general and administrative expenses

17,007

16,329

          Incentive compensation expense

1,563

3,134

          Derivative expenses, net

-

599

                          Total operating expenses

650,692

175,278

      Income (loss) from operations

(497,194)

48,552

      Other (income) expenses:

          Interest expense

10,365

8,357

          Interest income

(122)

(143)

          Other income

(143)

(707)

                          Total other expenses

10,100

7,507

      Income (loss) before taxes

(507,294)

41,045

      Provision (benefit) for income taxes:

          Current

-

-

          Deferred

(179,906)

15,102

                          Total income taxes

(179,906)

15,102

      Net income (loss)

($327,388)

$25,943

 

 

STONE ENERGY CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURE

(In thousands)

(Unaudited)

Three Months EndedMarch 31,

2015

2014

Net income (loss) as reported

($327,388)

$25,943

Reconciling items:

Depreciation, depletion and amortization

86,422

82,646

Write-down of oil and gas properties

491,412

Deferred income tax provision (benefit)

(179,906)

15,102

                   Accretion expense

6,409

7,555

Stock compensation expense

2,640

2,247

Non-cash interest expense

4,318

4,070

Other

1,511

448

Discretionary cash flow

85,418

138,011

Changes in income taxes payable

7,188

-

Settlement of asset retirement obligations

(17,145)

(9,842)

Other working capital changes

8,061

(12,697)

Net cash provided by operating activities

$83,522

$115,472

 

 

STONE ENERGY CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURE

ADJUSTED NET INCOME to NET INCOME

(In thousands)

(Unaudited)

Three Months Ended

 March 31, 2015

Net loss as reported

($327,388)

Reconciling items:

     Write-down of oil and gas properties

$491,412

     Tax effect

(176,908)

     Write-down of oil and gas properties, net of tax

314,504

Adjusted net loss

($12,884)

Net loss per share as reported

($5.93)

Per share effect of impairment charges

$5.70

Net loss per share before impairment charges

($0.23)

 

 

STONE ENERGY CORPORATION

CONSOLIDATED BALANCE SHEET

(In thousands)

(Unaudited)

March 31,

December 31,

2015

2014

Assets

Current assets:

            Cash and cash equivalents

$162,128

$74,488

            Restricted cash

-

177,647

            Accounts receivable

112,150

120,359

            Fair value of hedging contracts

124,192

139,179

            Current income tax receivable

24

7,212

            Inventory

3,709

3,709

            Other current assets

6,234

8,118

                    Total current assets

408,437

530,712

Oil and gas properties, full cost method of accounting:

Proved

8,887,832

8,817,268

Less: accumulated depreciation, depletion and amortization

(7,546,222)

(6,970,631)

Net proved oil and gas properties

1,341,610

1,846,637

Unevaluated

602,467

567,365

Other property and equipment, net

31,828

32,340

Fair value of hedging contracts

13,966

14,333

Other assets, net

24,672

27,224

            Total assets

$2,422,980

$3,018,611

Liabilities and Stockholders' Equity

Current liabilities:

            Accounts payable to vendors

$68,146

$132,629

            Undistributed oil and gas proceeds

26,202

23,232

            Accrued interest

22,243

9,022

            Deferred taxes

23,378

20,119

            Asset retirement obligations

60,837

69,400

            Other current liabilities

40,286

49,505

                    Total currentliabilities

241,092

303,097

7 1/2% Senior Notes due 2022

775,000

775,000

1 3/4% Senior Convertible Notes due 2017

269,675

266,035

Deferred taxes

98,194

286,343

Asset retirement obligations

244,835

247,009

Other long-term liabilities

31,604

38,714

            Total liabilities

1,660,400

1,917,008

Common stock

553

549

Treasury stock

(860)

(860)

Additional paid-in capital

1,634,171

1,633,307

Accumulated deficit

(942,096)

(614,708)

Accumulated other comprehensive income

70,812

83,315

            Total stockholders' equity

762,580

1,101,603

            Total liabilities and stockholders' equity

$2,422,980

$3,018,611

 

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SOURCE Stone Energy Corporation



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