LAFAYETTE, La., Oct. 31 /PRNewswire-FirstCall/ -- Stone Energy
Corporation (NYSE:SGY) today announced net income of $21.8 million,
or $0.79 per share, on operating revenue of $182.2 million for the
third quarter of 2006 compared to net income of $33.0 million, or
$1.20 per share, on operating revenue of $159.3 million in the
third quarter of 2005. For the nine months ended September 30,
2006, net income totaled $44.3 million, or $1.62 per share, on
operating revenue of $509.8 million compared to net income of
$110.4 million, or $4.06 per share, on operating revenue of $500.7
million during the comparable 2005 period. Net income for the
nine-month period ended September 30, 2006 includes a net charge of
$25.3 million pre-tax to earnings associated with the proposed
merger with Energy Partners, Ltd. (NYSE:EPL), which is expected to
be reversed in the fourth quarter of 2006. All per share amounts
are on a diluted basis. As previously announced, on October 11,
2006, Stone, EPL and EPL Acquisition Corp., LLC terminated their
Merger Agreement dated June 22, 2006. As part of the termination
agreement, EPL paid $8 million to Stone and released all claims
related to the payment of the $43.5 million termination fee that
was advanced by EPL to Plains Exploration and Production Company
("Plains") in connection with the termination of the Plains Merger
Agreement. The $43.5 million termination fee was recorded as a
merger expense in the second quarter income statement. Of this
amount, $25.3 million was potentially reimbursable to EPL under
certain circumstances described in the EPL Merger Agreement and
therefore was recorded as deferred revenue on the balance sheet as
of June 30, 2006 and September 30, 2006. As a result of the
termination of the EPL Merger Agreement and the release of all
claims relating to the repayment of the Plains termination fee, the
remaining $25.3 million of the Plains termination fee will be
recognized in earnings in the fourth quarter of 2006, as will the
$8 million fee paid by EPL to Stone. Discretionary cash flow
decreased 7% to $106.8 million during the three months ended
September 30, 2006 compared to $114.5 million generated during the
third quarter of 2005. Net cash flow provided by operating
activities, as defined by generally accepted accounting principles
(GAAP), totaled $121.9 million during the third quarter of 2006
compared to $151.8 million in the third quarter of 2005. For the
first nine months of 2006, discretionary cash flow totaled $329.9
million compared to $372.3 million for the comparable 2005 period.
Net cash flow provided by operating activities totaled $293.2
million and $402.0 million during the nine months ended September
30, 2006 and 2005, respectively. (Please see "Non-GAAP Financial
Measure" and the accompanying financial statements for a
reconciliation of discretionary cash flow, a non- GAAP financial
measure, to net cash flow provided by operating activities.) Net
daily production volumes during the third quarter of 2006 averaged
approximately 215 MMcfe, which represented a 4% increase over
average daily production for the second quarter of 2006 of 206
MMcfe and a 2% increase from average daily production for the
comparable quarter in 2005 of 211 MMcfe. For the nine months ended
September 30, 2006, net average daily production volumes were
approximately 205 MMcfe, or 23% lower than average daily production
for the nine months ended September 30, 2005. Production volumes in
2006 continued to trail volumes produced during 2005 due to the
combination of natural declines from producing wells and extended
Gulf Coast production shut- ins due to Hurricanes Katrina and Rita.
For the fourth quarter of 2006, Stone expects net daily production
to average between 235-245 MMcfe. Prices realized during the third
quarter of 2006 averaged $67.13 per barrel (Bbl) of oil and $7.59
per thousand cubic feet (Mcf) of natural gas, which represent a 12%
increase, on an Mcfe basis, over third quarter 2005 average
realized prices of $53.89 per Bbl of oil and $7.81 per Mcf of
natural gas. Average realized prices during the first nine months
of 2006 were $65.05 per Bbl of oil and $7.84 per Mcf of natural gas
representing a 24% increase on an Mcfe basis compared to $49.99 per
Bbl of oil and $6.70 per Mcf of natural gas realized during the
first nine months of 2005. All unit pricing amounts include the
cash settlement of effective hedging contracts. During the third
quarter of 2006, effective hedging transactions increased the
average price we received for natural gas by $1.05 per Mcf.
Realized oil prices were not impacted by hedging during the third
quarter and year-to-date 2006. Hedging transactions reduced
realized oil and gas prices during the third quarter of 2005 by
$5.47 per Bbl and $0.37 per Mcf. Hedging transactions for natural
gas increased the average price received for natural gas by $0.77
during the first nine months of 2006, compared to a decrease of
$0.25 per Mcf during the first nine months of 2005. Realized oil
prices for the first nine months of 2005 were reduced by $1.83 as a
result of effective hedges. Lease operating expenses incurred
during the third quarter of 2006 totaled $52.4 million compared to
$30.9 million for the comparable quarter in 2005. For the nine
months ended September 30, 2006 and 2005, lease operating expenses
were $119.8 million and $88.5 million, respectively. During the
third quarter of 2006, lease operating expenses included an
approximate $8 million increase in property and control-of-well
insurance premiums, $9.7 million of repairs in excess of estimated
insurance recoveries related to damage from Hurricanes Katrina,
Rita and Ivan and increased major maintenance repair activity. For
the nine months ended September 30, 2006, lease operating costs
included an approximate $13 million increase in property and
control-of-well insurance premiums and $20.0 million of repairs in
excess of estimated insurance recoveries related to damage from
Hurricanes Katrina, Rita and Ivan. Lease operating expenses for
2006 were also impacted by an increase in the number of active
wells. Depreciation, depletion and amortization (DD&A) on oil
and gas properties for the third quarter of 2006 totaled $82.0
million compared to $56.6 million for the third quarter of 2005.
DD&A expense on oil and gas properties for the nine months
ended September 30, 2006 totaled $221.3 compared to $189.5 million
during the same year-to-date period of 2005. Salaries, general and
administrative (SG&A) expenses (exclusive of incentive
compensation) for the third quarter of 2006 were $8.0 million
compared to $5.2 million in the third quarter of 2005. For the nine
months ended September 30, 2006 and 2005, SG&A (exclusive of
incentive compensation) totaled $25.1 million and $14.7 million,
respectively. The increase in SG&A expenses is due to
additional compensation expense associated with restricted stock
issuances, stock option expensing and higher legal and consulting
fees. Borrowings outstanding at September 30, 2006 under our bank
credit facility totaled $172.0 million with a weighted average
interest rate of approximately 6.8%, and letters of credit totaling
$56.9 million had been issued under the facility. In July 2006, the
borrowing base under the credit facility was increased to $325
million in connection with the preferential rights acquisition of
the additional working interests in Mississippi Canyon Blocks 108
and 109. Additionally, we executed a $34.0 million letter of credit
in connection with the acquisition. As of October 31, 2006, we have
$172.0 million of borrowings outstanding under the facility and
$52.8 million committed to letters of credit resulting in $100.2
million of available borrowings. The borrowing base under the
credit facility is re-determined periodically based on the bank
group's evaluation of our proved oil and gas reserves. As a result
of the issuance of our $225 million senior floating rate notes in
June 2006 and increased interest rates, interest expense increased
50% to $11.6 million in the third quarter of 2006 compared to $5.8
million, in the third quarter of 2005. Interest expense totaled
$24.4 million and $17.5 million during the nine months ended
September 30, 2006 and 2005, respectively. Capital expenditures
during the third quarter of 2006 totaled $299.4 million, including
$196.9 million of acquisition costs, $7.3 million of capitalized
salaries, general and administrative expenses (inclusive of
incentive compensation) and $4.9 million of capitalized interest.
Year-to- date 2006 additions to oil and gas property costs of
$591.7 million include $219.9 million of acquisition costs, $18.1
million of capitalized salaries, general and administrative
expenses (inclusive of incentive compensation) and $13.4 million of
capitalized interest. These investments were financed with cash
flow from operating activities, working capital, proceeds from the
senior floating rate notes issued in June 2006, and bank
borrowings. Increase in 2006 Capital Budget The board of directors
authorized an increase in the 2006 capital budget from $360 million
to $385 million primarily due to additional expenditures for the
exploration venture in Bohai Bay, China as well as general cost
increases. This figure excludes property acquisitions, lease
acquisitions, asset retirement costs and capitalized G&A and
interest. Operations Update Gulf Coast Basin Mississippi Canyon
109. On July 14, 2006, Stone completed the preferential rights
acquisition of the Amberjack platform and additional working
interests to depths of 20,000 feet in Mississippi Canyon Blocks 108
and 109. The platform was shut-in awaiting repairs and rerouting of
the oil pipeline damaged during Hurricane Katrina in August 2005.
Limited oil production from the Amberjack Platform was initially
restored in early September via barging, but the restoration of the
oil pipeline in late September has allowed Stone to produce from
the platform at a rate of approximately 50-55 MMcfe per day, net to
Stone. Stone has identified various exploitation and exploration
projects, and expects to be active on this field in 2007. Stone has
a 100% working interest (WI) in Block 109 and a 24.8% WI in Block
108 and is the operator of the field. East Cameron Block 121. The
No. 1 Well at East Cameron Block 121 was placed on production on
September 10, 2006 after the installation of surface facilities and
flowlines. The well was drilled in the fourth quarter of 2005 to
test the Lexus Prospect and logged 85 net feet of pay in three
sands. Production from the No. 1 Well is currently 5 MMcfe per day
and is expected to trend higher. Stone has a 100% WI and 80.3% net
revenue interest (NRI) in the well. Rocky Mountain Gas Pinedale
Anticline. Stone is currently drilling the Antelope 16-5D Well and
plans to drill one additional Pinedale location prior to year-end
with a single drilling rig in the field. Since project
commencement, 31 wells have been drilled or spud, of which 26 are
producing, three are waiting on completion, one is drilling and one
was a dry hole. Stone has a 50% WI and a 41% NRI in the Pinedale
project and is the operator of the drilling portion of the project.
Waltman Arch. During the third quarter, Stone participated in the
drilling of the Cooper Deep No. 1 Well in the Waltman Arch Field in
Wyoming. This exploratory well was designed to test multiple
sections and reached a total depth of 16,824 feet in August.
Initial analysis indicates potential pay in five sections.
Additional drilling and development will be contingent upon further
testing and analysis of the Cooper Deep No. 1 Well. Stone has a
17.5% WI and 14.4% NRI in 27,269 gross acres of the Waltman Arch
Field. Williston Basin Williston Basin. Stone is currently
operating a two-rig drilling program in the Williston Basin
horizontal Bakken play. During the third quarter of 2006, Stone
drilled three company operated wells; one is in the final drilling
phase, one is waiting on completion operations and one is
producing. In 2006, Stone has drilled or participated in 16 Bakken
development wells with a 100% success rate and expects to drill an
additional three company operated wells and up to four outside
operated wells during the remainder of 2006. Stone has a 62%
average WI and 52% average NRI in this program. International Bohai
Bay, China. As previously announced, Stone drilled its first well,
the CFD 22-2-1 Well, in Bohai Bay, China during the second quarter
of 2006 and encountered potential oil pay in two separate
intervals. The possible discovery is awaiting appraisal to
determine if it is commercial and whether development will proceed.
Drilling is in-progress on the second exploratory test well, the
CFD 7-3-1, on a separate offshore concession in Bohai Bay. Stone
entered into an agreement to participate in the drilling of two
exploratory wells on two offshore concessions in Bohai Bay, China.
After drilling these two wells, Stone will have the option to earn
interests in the two concessions, which collectively cover
approximately 750,000 acres. 2006 Updated Guidance 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. Our estimates are based on certain other assumptions, such
as well performance, which may vary significantly from those
assumed. 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 rate will be as estimated. The following is an
update of our 2006 guidance: Production. For the fourth quarter of
2006, Stone expects net daily production to average between 235-245
MMcfe and maintains its guidance for full year 2006 average daily
production to be in the range of 200-230 MMcfe per day. Lease
Operating Expenses. Stone expects lease operating costs, excluding
production taxes, to range between $155-$165 million for 2006 based
upon current operating conditions and budgeted maintenance
activities. This increase from the previous $125-$150 million
guidance is due to incremental production costs from the Amberjack
acquisition, higher hurricane related repairs, higher insurance
costs, and generally higher service costs. Depreciation, Depletion
& Amortization. Stone expects its DD&A rate to range
between $3.95-$4.15 per Mcfe during 2006, which represents an
increase from previous guidance of $3.60-$3.90 per Mcfe. Salaries,
General & Administrative Expenses. Stone expects its SG&A
expenses (excluding incentive compensation expense) to range
between $33-$36 million during 2006. Capital Expenditures. Stone's
capital spending budget for 2006 has been increased from $360
million to $385 million, excluding property and lease acquisitions,
asset retirement costs and capitalized interest and general and
administrative costs. Corporate Tax Rate. Stone previously
disclosed that its corporate tax rate was expected to be 35%-36%,
with substantially all of the taxes deferred. While significant
fluctuations in the rate have occurred in the second and third
quarters of 2006 due to merger activities, we continue to expect
the average tax rate to remain in the previously disclosed range.
Hedge Position The following table illustrates Stone's current
hedge positions for 2006, 2007 and 2008. All contracts are 12-month
contracts that settle monthly. Zero-Premium Collars
------------------------------------------------------ Natural Gas
Oil --------------------------- ------------------------- Daily
Daily Volume Floor Ceiling Volume Floor Ceiling (MMBtus/d) Price
Price (Bbls/d) Price Price ---------- ----- ------- -------- -----
------- 2006 10,000 $8.00 $14.28 3,000 $55.00 $76.40 2006 20,000
9.00 16.55 2,000 60.00 78.20 2006 20,000 10.00 16.40
======================================================================
2007 3,000 60.00 78.35 2007 3,000 60.00 93.05
======================================================================
2008 3,000 60.00 90.20 Non-GAAP Financial Measure In this press
release, we refer to a non-GAAP financial measure we call
"discretionary cash flow." 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 within 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. (See reconciliation
of discretionary cash flow to cash flow provided by operating
activities in the Consolidated Statement of Operations and Net Cash
Flow Information.) Other Information Stone Energy has planned a
conference call for 11:00 a.m. Central Time on Wednesday, November
1, 2006 to discuss the operational and financial results for the
third quarter of 2006. Anyone wishing to participate should visit
our website at http://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 Web site. The replay will be available for one
week. Stone Energy is an independent oil and natural gas company
headquartered in Lafayette, Louisiana, and is engaged in the
acquisition and subsequent exploration, development, operation and
production of oil and gas properties located in the conventional
shelf of the Gulf of Mexico, the deep shelf of the Gulf of Mexico,
the deepwater of the Gulf of Mexico, the Rocky Mountain region and
the Williston Basin. Stone is also engaged in an exploratory joint
venture in Bohai Bay, China. For additional information, contact
Kenneth H. Beer, Chief Financial Officer, at 337-237-0410-phone,
337-237-0426-fax or via e-mail at . 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 and
other risk factors as described in Stone's Annual Report on Form
10-K as filed with the Securities and Exchange Commission. 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. STONE ENERGY CORPORATION SUMMARY
STATISTICS (In thousands, except per share/unit amounts)
(Unaudited) Three Months Ended Nine Months Ended September 30,
September 30, -------------------- -------------------- 2006 2005
2006 2005 FINANCIAL RESULTS ------- ------- ------- -------- Net
income $21,758 $32,978 $44,314 $110,372 Net income per share $0.79
$1.20 $1.62 $4.06 PRODUCTION QUANTITIES Oil (MBbls) 1,465 1,111
3,803 4,080 Gas (MMcf) 10,971 12,728 33,139 44,260 Oil and gas
(MMcfe) 19,761 19,394 55,957 68,740 AVERAGE DAILY PRODUCTION Oil
(MBbls) 16 12 14 15 Gas (MMcf) 119 138 121 162 Oil and gas (MMcfe)
215 211 205 252 REVENUE DATA (A) Oil revenue $98,340 $59,872
$247,375 $203,979 Gas revenue 83,216 99,403 259,726 296,687 Total
oil and gas -------- -------- -------- -------- revenue $181,556
$159,275 $507,101 $500,666 AVERAGE PRICES (A) Oil (per Bbl) $67.13
$53.89 $65.05 $49.99 Gas (per Mcf) 7.59 7.81 7.84 6.70 Per Mcfe
9.19 8.21 9.06 7.28 COST DATA Lease operating expenses $52,403
$30,895 $119,825 $88,503 Salaries, general and administrative
expenses (B) 8,027 5,205 25,092 14,698 DD&A expense on oil and
gas properties 82,016 56,552 221,310 189,508 AVERAGE COSTS (per
Mcfe) Lease operating expenses $2.65 $1.59 $2.14 $1.29 Salaries,
general and administrative expenses (B) 0.41 0.27 0.45 0.21
DD&A expense on oil and gas properties 4.15 2.92 3.96 2.76
AVERAGE SHARES OUTSTANDING - Diluted 27,619 27,389 27,429 27,194
(A) Includes the cash settlement of effective hedging contracts.
(B) Exclusive of incentive compensation expense. STONE ENERGY
CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS AND NET CASH FLOW
INFORMATION (In thousands) (Unaudited) Three Months Ended Nine
Months Ended September 30, September 30, --------------------
-------------------- 2006 2005 2006 2005 -------- -------- --------
-------- STATEMENT OF OPERATIONS Operating revenue: Oil production
$98,340 $59,872 $247,375 $203,979 Gas production 83,216 99,403
259,726 296,687 Derivative income 602 --- 2,670 --- Total operating
-------- -------- -------- -------- revenue 182,158 159,275 509,771
500,666 -------- -------- -------- -------- Operating expenses:
Lease operating expenses 52,403 30,895 119,825 88,503 Production
taxes 3,413 3,273 11,515 9,698 Depreciation, depletion and
amortization 83,038 57,345 224,214 191,764 Accretion expense 3,153
1,790 9,238 5,369 Salaries, general and administrative expenses
8,027 5,205 25,092 14,698 Incentive compensation expense 3,025 246
3,630 1,259 Derivative expenses --- 4,831 --- 4,831 --------
-------- -------- -------- Total operating expenses 153,059 103,585
393,514 316,122 -------- -------- -------- -------- Income from
operations 29,099 55,690 116,257 184,544 -------- -------- --------
-------- Other (income) expenses: Interest 11,579 5,781 24,386
17,546 Other income, net (2,023) (827) (4,683) (2,659) Merger
expenses, net 490 --- 28,773 --- Total other -------- --------
-------- -------- expenses 10,046 4,954 48,476 14,887 --------
-------- -------- -------- Income before taxes 19,053 50,736 67,781
169,657 Provision (benefit) for income taxes: -------- --------
-------- -------- Current 170 --- 170 --- Deferred (2,875) 17,758
23,297 59,285 Total income -------- -------- -------- --------
taxes (benefit) (2,705) 17,758 23,467 59,285 -------- --------
-------- -------- Net income $21,758 $32,978 $44,314 $110,372
======== ======== ======== ======== NET CASH FLOW INFORMATION
Reconciliation of non-GAAP financial measure: Discretionary cash
flow $106,784 $114,489 $329,896 $372,335 Net working capital
changes and other 15,091 37,268 (36,669) 29,657 -------- --------
-------- -------- Net cash flow provided by operating activities
$121,875 $151,757 $293,227 $401,992 ======== ======== ========
======== STONE ENERGY CORPORATION CONSOLIDATED BALANCE SHEET (In
thousands) (Unaudited) September 30, December 31, 2006 2005 Assets
Current assets: Cash and cash equivalents $28,053 $79,708 Accounts
receivable 258,538 211,685 Other current assets 18,917 10,266
---------- ---------- Total current assets 305,508 301,659 Oil and
gas properties: Proved, net 1,934,302 1,564,312 Unevaluated 247,098
246,647 Building and land, net 5,838 5,521 Fixed assets, net 8,709
9,331 Other assets, net 18,355 12,847 ---------- ---------- Total
assets $2,519,810 $2,140,317 ========== ========== Liabilities and
Stockholders' Equity Current liabilities: Accounts payable to
vendors $160,716 $160,682 Undistributed oil and gas proceeds 52,078
59,187 Asset retirement obligations 68,600 53,894 Deferred merger
expense reimbursement 25,300 --- Other accrued liabilities 29,573
11,390 ---------- ---------- Total current liabilities 336,267
285,153 81/4% Senior Subordinated Notes due 2011 200,000 200,000
63/4% Senior Subordinated Notes due 2014 200,000 200,000 Senior
Floating Rate Notes due 2010 225,000 --- Bank debt 172,000 163,000
Deferred taxes 256,311 231,961 Asset retirement obligations 114,499
113,043 Other long-term liabilities 3,886 3,037 ----------
---------- Total liabilities 1,507,963 1,196,194 ----------
---------- Common stock 275 272 Treasury stock (1,161) (1,348)
Additional paid-in capital 500,098 500,228 Unearned compensation
--- (15,068) Retained earnings 499,465 455,183 Accumulated other
comprehensive income 13,170 4,856 ---------- ---------- Total
stockholders' equity 1,011,847 944,123 Total liabilities and
stockholders' ---------- ---------- equity $2,519,810 $2,140,317
========== ========== DATASOURCE: Stone Energy Corporation CONTACT:
Kenneth H. Beer, Chief Financial Officer of Stone Energy
Corporation, +1-337-237-0410, or fax, +1-337-237-0426, or Web site:
http://www.stoneenergy.com/
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