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Stone Energy Corporation Announces First Quarter 2016 Results

LAFAYETTE, La., May 4, 2016 /PRNewswire/ -- Stone Energy Corporation (SGY) today announced financial and operational results for the first quarter of 2016. Some of the highlights include:

  • Production volumes exceeded the upper end of first quarter of 2016 guidance
  • The four Cardona wells are currently producing gross volumes of approximately 20,000 Boe per day (65% working interest)
  • Amethyst production averaged approximately 24 MMcfe per day (100% working interest) for the first quarter of 2016
  • A short term farm out agreement for the ENSCO 8503 deep water rig was executed
  • The Mary field in Appalachia remained shut-in for the first quarter of 2016
  • Lease operating expenses decreased to $19.5 million in the first quarter of 2016
  • Cash balance at the end of the first quarter of 2016 was $367 million

Chairman, President and Chief Executive Officer David Welch stated, "Late in the first quarter of 2016, we drew down on our credit facility to provide near term financial flexibility to continue to execute operationally as we explore various options to strengthen our balance sheet. During the first quarter, the Cardona #7 well came online at a gross initial production rate of approximately 5,000 Boe per day, which brought the Cardona four well total gross production rate to approximately 20,000 Boe per day. We brought the Amethyst well online in late December of 2015, and it averaged approximately 24 MMcfe per day for the quarter, although the well was shut-in in late April to address suspected blockage around the perforated section. Intervention actions are being reviewed, including an acid operation. We farmed out the ENSCO 8503 in early February through mid-April, which reduced our capital spending for the quarter. We are working towards an agreement on a second farm out arrangement that is expected to commence prior to May 15, and continue discussions with other potential farm out and farm in partners. Importantly, our deep water volumes have increased, yet we have managed to decrease our operating expenses and reduce our overhead costs. Finally, we continue to work with our advisors who are assisting us in reviewing various financial, transactional and strategic alternatives."

Stone had a first quarter of 2016 adjusted net loss of $44.1 million, or $0.79 per share, before impairment charges of $129.2 million. After impairment charges, the reported net loss was $188.8 million, or $3.39 per share, on oil and gas revenue of $80.2 million, compared to a net loss of $327.4 million, or $5.93 per share, on oil and gas revenue of $148.2 million in the first quarter of 2015. Discretionary cash flow totaled $28.1 million during the first quarter of 2016, as compared to $85.4 million during the first quarter of 2015. 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 2016 averaged 34.5 thousand barrels of oil equivalent (MBoe) per day (207 million cubic feet of gas equivalent (MMcfe) per day), compared with net daily production of 46.3 MBoe (278 MMcfe) per day in the first quarter of 2015. First quarter of 2016 production mix was 52% oil, 12% natural gas liquids (NGLs) and 36% natural gas. Production guidance for the second quarter of 2016 is estimated at 28-30 Mboe per day, or 168-180 MMcfe per day. The expected production decline from the first quarter of 2016 is primarily due to reduced volumes from Amethyst and natural declines. This guidance assumes a continued shut in of the Mary field. Additionally, our full year production guidance has been reduced to account for the Amethyst volume reduction and the suspension of the remaining Pompano platform rig program due to capital constraints. Our updated production guidance for 2016 is 26 - 28 MBoe (156-168 MMcfe) per day.

Prices realized during the first quarter of 2016 averaged $36.87 per barrel of oil, $13.01 per barrel of NGLs and $2.22 per Mcf of natural gas. Average realized prices for the first quarter of 2015 were $66.28 per barrel of oil, $18.11 per barrel of NGLs and $2.54 per Mcf of natural gas. Effective hedging transactions increased the average realized price of natural gas by $0.52 per Mcf and increased the average realized price of oil by $5.65 per barrel in the first quarter of 2016. 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.

Lease operating expenses during the first quarter of 2016 totaled $19.5 million ($6.23 per Boe or $1.04 per Mcfe), compared to $27.6 million ($6.62 per Boe or $1.10 per Mcfe) in the first quarter of 2015. The decrease in first quarter of 2016 lease operating expenses is primarily attributable to cost reduction efforts and lower major maintenance expense. Lease operating expenses are expected to increase in subsequent quarters due to maintenance operations to be performed throughout the remainder of the year that are typically scheduled during more favorable weather conditions.

Other operational expenses during the first quarter of 2016 totaled $12.5 million, compared to $0.1 million, in the first quarter of 2015. The increase is primarily due to two items. First, Stone recognized a one-time, non-cash charge of approximately $6.0 million related to foreign currency losses accumulated by its Canadian subsidiary, Stone Energy Canada ULC, which was substantially dissolved during the quarter. Second, there was approximately $6.1 million of rig subsidy and stacking charges associated with the ENSCO 8503 deep water rig farm out and the Saxon Appalachian rig. We expect other operational expenses to remain significantly higher in 2016 compared to 2015 due to these farm out subsidies and rig stacking charges.

Transportation, processing and gathering (TP&G) expenses during the first quarter of 2016 totaled $0.8 million ($0.27 per Boe or $0.04 per Mcfe), compared to $17.7 million ($4.25 per Boe or $0.71 per Mcfe) during the first quarter of 2015. In addition to the shut-in at the Mary field in Appalachia, the significant decrease was attributable to the recoupment of previously paid transportation costs allocable to the federal government's portion of certain of our deep water production, which amounted to approximately $4 million. Stone had incurred these costs on a monthly basis over several years but all were recognized in the first quarter of 2016. This reduction is considered a one-time occurrence as the Company expects it will recognize these cost reductions on a monthly basis going forward, and TP&G expense guidance has been updated as appropriate. Also, if production were to resume in our Mary field, TP&G expenses would be expected to increase materially.

Depreciation, depletion and amortization (DD&A) on oil and gas properties for the first quarter of 2016 totaled $60.4 million ($19.25 per Boe or $3.21 per Mcfe), compared to $85.2 million ($20.47 per Boe or $3.41 per Mcfe), in the first quarter of 2015. The decrease is attributable to ceiling test write-downs incurred in 2015.

Salaries, general and administrative (SG&A) expenses for the first quarter of 2016 were $13.7 million ($4.37 per Boe or $0.73 per Mcfe), compared to $17.0 million ($4.08 per Boe or $0.68 per Mcfe), in the first quarter of 2015. The decrease is due to staff and other cost reductions. The SG&A expenses in the first quarter of 2016 included approximately $1 million in professional fees associated with our restructuring efforts as well as a lower capitalized portion of SG&A. Although base SG&A is expected to be lower in 2016 compared to 2015, there will be a significant increase in professional fees associated with the financial and legal advisors hired to assist in analyzing and reviewing Stone's financial, transactional and strategic alternatives, particularly in the second quarter of 2016.

Accretion expense for the first quarter of 2016 was $10.0 million, compared to $6.4 million in the first quarter of 2015. The increase is due to a higher applicable discount rate used to calculate the present value of the asset retirement obligations compared to prior years. Stone expects accretion expense to remain relatively flat at this level for each subsequent quarter in 2016.

Interest expense for the first quarter of 2016 was $15.2 million, compared to $10.4 million in the first quarter of 2015. The increase in interest expense was due to a lower interest capitalization on our unevaluated properties as well as an increase in borrowed funds. Stone expects interest expense to be higher in the second quarter of 2016 with the bank credit facility significantly drawn.

Capital expenditures for the first quarter of 2016 were approximately $80.7 million, which includes $3.1 million of plugging and abandonment expenditures. This includes the drilling and completion operations at the Cardona #7 well (65% working interest) and the beginning of the Pompano platform drilling program, which included workover operations on the A-30 well and the drilling of the Silverthrone well, the first well of the program. Additionally, $5.8 million of SG&A expenses and $7.4 million of interest were capitalized during the first quarter of 2016. This compared to first quarter of 2015 capital expenditures of approximately $113.8 million, which included $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.

Stone's Board of Directors authorized an initial 2016 capital expenditure budget of $200 million, which did not include rig subsidies or rig stacking expenses, projected to be approximately $40-$50 million and is included as part of "Other operational expenses" in our statement of operations. The budget was primarily focused on the Pompano platform rig development program and the utilization of the ENSCO 8503 deep water rig for a development well and one or two exploration wells.

However, to further reduce capital expenditures for 2016, Stone has elected to suspend the Pompano drilling program after the completion of the Silverthrone well, which is expected to be completed in early May of 2016. The suspension of the Pompano program is expected to reduce the capital expenditure budget estimate by approximately $20 million to $30 million. Additionally, if Stone has not secured partners for the Lamprey, Derbio or Rampart exploration wells, operations of the ENSCO 8503 deep water drilling rig are expected to be suspended in the third quarter of 2016...


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