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Stone Energy: Announces Third Quarter 2015 Results

The following excerpt is from the company's SEC filing.

Stone Energy Corporation (NYSE: SGY) today announced financial and operational results for the third quarter of 2015. Some of the highlights include:

Production results above upper guidance despite Mary field curtailment

Cardona #6 well drilled and brought online

Amethyst completion in progress and tie-in expected by year end

Vernaccia

exploration well drilling

Sale of Crown and Anchor (Drago) working interest

Chairman, President and Chief Executive Officer David Welch stated, “We are pleased with our third quarter progress a s we brought the Cardona #6 well online and have increased production at the Cardona field to over 15,000 barrels a day. In late September, we began our completion operations at our Amethyst discovery and expect to have first production by the first quarter of 2016. We will next move the rig to our Cardona #7 development well and would expect to see production by the second quarter of 2016. Finally, we have secured the Pompano platform rig for development wells in 2016. Our Gulf of Mexico development projects are expected to give us year-over-year production growth as we continue navigating through this difficult pricing environment. We have taken steps to reduce our overhead and operating costs, and expect to curtail capital spending in 2016 to more closely align with our cash flow projection.”

Financial Results

Stone had a third quarter of 2015 adjusted net loss of $8.4 million, or $0.15 per share, on oil and natural gas revenues of $128.4 million, before a pre-tax non-cash impairment charge of $295.7 million related to the impairment of oil and gas properties. The non-cash impairment of oil and gas properties is primarily due to lower oil and gas prices, widening basis differentials and increased transportation, processing and gathering expenses in Appalachia, which reduced the future net cash flows from proved reserves. If the net capitalized costs of proved oil and gas properties exceed the estimated discounted future net cash flows from proved reserves, an impairment occurs. After the non-cash impairment charge, the reported net loss was $292.0 million for the third quarter of 2015. Please see “Non-GAAP Financial Measures” and the accompanying financial statements for a reconciliation of adjusted net income, a non-GAAP financial measure, to net loss.

The third quarter of 2015 reported net loss is compared to reported net loss of $152.9

million, or $2.77

per share, on oil and gas revenue of $149.5 million in the second quarter of 2015, and compared to a net loss of $29.4 million, or $0.54 per share, on oil and natural gas revenue of $175.0 million in the third quarter of 2014. Lower realized oil and natural gas prices and lower production due to the shut in of the Mary field in Appalachia were the primary causes of the reduced revenues in the third quarter of 2015 compared to the second quarter of 2015. Due to the low margins in Appalachia, the Mary field curtailment only minimal impacted cash flow for the quarter.

Discretionary cash flow totaled $66.9 million during the third quarter of 2015, as compared to $84.9 million during the second quarter of 2015, and as compared to $92.2 million during the third quarter of 2014. Please see “Non-GAAP Financial Measures” 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 during the third quarter of 2015 averaged 40 thousand barrels of oil equivalent (MBoe) per day (239

MMcfe per day), compared with net daily production of 49 MBoe (292 MMcfe) per day in the second quarter of 2015, and net daily production of 40 MBoe (237 MMcfe) per day in the third quarter of 2014. Production volumes in the third quarter of 2015 were negatively impacted by the shut in of the Mary field in Appalachia. However, minimal downtime in the Gulf of Mexico and higher Appalachian volumes before the Mary field shut in, provided for volumes higher than the adjusted guidance. The production mix for the third quarter of 2015 was 41% oil, 21% natural gas liquids and 38% natural gas.

Prices realized during the third quarter of 2015 averaged $69.59 per barrel of oil, $7.82 per barrel of NGLs and $2.09 per Mcf of natural gas. Average realized prices for the third quarter of 2014 were $93.15 per barrel of oil, $42.45 per barrel of NGLs and $2.77 per Mcf of natural gas. Effective hedging transactions increased the average realized price of natural gas by $0.44 per Mcf and increased the average realized price of oil by $24.08 per barrel in the third quarter of 2015. Effective hedging transactions did not increase or decrease the average realized price of natural gas and decreased the average realized price of oil by $1.02 per barrel in the third quarter of 2014.

Lease operating expenses during the third quarter of 2015 totaled $24.2 million ($6.62 per Boe or $1.10 per Mcfe), compared to $43.6 million ($11.97 per Boe or $2.00 per Mcfe), in the third quarter of 2014 and $27.4 million in the second quarter of 2015. We expect lease operating expenses to continue to decline in the fourth quarter of 2015 due to the current shut in of the Mary field in Appalachia and continued cost savings efforts and efficiencies.

Transportation, processing and gathering expenses during the third quarter of 2015 totaled $18.2 million compared to $16.7 million in the third quarter of 2014, and lower than the $19.9 million realized in the second quarter of 2015. The third quarter of 2015 recorded $2.9 million in one-time charges in the Gulf of Mexico associated with a regulatory adjustment. Compared to the third quarter of 2014, the increase is attributable to higher gas and NGL volumes in Appalachia which had a higher associated charge per unit. In the fourth quarter of 2015, overall transportation, processing and gathering expenses are expected to decline due to the curtailment of the Mary Field in Appalachia.

Depreciation, depletion and amortization (DD&A) on oil and gas properties for the third quarter of 2015 totaled $60.8 million, compared to $79.2 million, in the third quarter of 2014. The decrease in DD&A is attributable to impairment charges and production curtailments associated with Appalachia.

Salaries, general and administrative (SG&A) expenses for the third quarter of 2015 were $19.6 million, compared to $16.3 million in the third quarter of 2014. The third quarter of 2015 had approximately $3.9 million in severance costs and other one-time charges. We expect SG&A to decrease in the fourth quarter due to staffing, compensation and spending reductions. For the full year of 2015, guidance has been revised to include costs attributed to adjustments in SG&A.

Capital expenditures before capitalized SG&A and interest during the third quarter of 2015 were approximately $124.6 million, which includes $23.9 million of plugging and abandonment expenditures. The current projection for 2015 capital expenditures is approximately $25 million above the budgeted $450 million. Approximately $6.0 million of SG&A and $10.3 million of interest were capitalized during...


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