Stone Energy Corporation announces fourth quarter and year-end 2012 results

Tuesday, February 26, 2013      
 
  • Stone reported fourth quarter 2012 net income of $44.2 million and full year 2012 net income of $149.4 million.

Stone Energy Corporation (NYSE: SGY) announced financial and operational results for the fourth quarter and year-end of 2012. Some of the highlights include:

  • Net income was $149.4 million, or $3.03 per share for the year ended December 31, 2012;
  • Net daily production for 2012 was 42 MBoe (252 MMcfe) per day, a 15% annual increase compared to 2011; and
  • Estimated proved reserves as of December 31, 2012 increased to 129 MMboe or 773 Bcfe from year-end 2011, representing an annual increase of 28% and a production replacement of 285%.

Financial Results

Stone reported fourth quarter 2012 net income of $44.2 million and full year 2012 net income of $149.4 million. The full year 2012 net income of $149.4 million, or $3.03 per share, on revenue of $951.5 million compared with 2011 net income of $194.3 million, or $3.97 per share, on revenue of $869.9 million. The fourth quarter 2012 net income of $44.2 million, or $0.89 per share, on revenue of $254.9 million compared with net income of $45.5 million, or $0.93 per share, on revenue of $223.6 million for the fourth quarter of 2011.

Discretionary cash flow for 2012 totaled $619.0 million, compared to $637.7 million during 2011. Discretionary cash flow for the fourth quarter of 2012 of $153.9 million compared to $163.8 million during the fourth quarter of 2011. 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.

Chief Executive Officer David Welch stated, "We are excited to show both production and reserves increasing for the third consecutive year. This achievement was driven by production and reserve growth in our Marcellus Shale, Deep Water and Deep Gas areas, highlighting the success of our diversification strategy as our proved reserves mix on a volume equivalent basis is now 44% Appalachia, 34% Deep Water, and 22% Conventional Shelf/Deep Gas with an estimated reserve life of over 8 years. Production and revenues from our lower risk, condensate rich Marcellus shale program and our successful Deep Gas program, combined with our legacy conventional shelf assets provide a base from which to launch our exploration efforts in theDeep Water area. In 2013, we expect to participate in several deep water exploration wells with working interests ranging from 20 to 40 percent, signifying a significant acceleration of our deep water exploration activity".Net daily production volumes for 2012 averaged 42 thousand barrels of oil equivalent (MBoe) per day (252 million cubic feet of gas equivalent (MMcfe) per day), compared with net daily production of 37 MBoe (219 MMcfe) per day in 2011. Net daily production volumes for the fourth quarter of 2012 averaged 45 MBoe (270 MMcfe) per day, compared with net daily production of 36 MBoe (214 MMcfe) per day in the fourth quarter of 2011. The production mix for 2012 was 47% oil, 7% natural gas liquids (NGLs) and 46% natural gas.

Average daily production for the first quarter of 2013 is expected to be 38-40 MBoe (230-240 MMcfe) per day. Production for the first quarter of 2013 has been negatively impacted by unplanned third party pipeline downtime in Appalachia, affecting approximately 60 MMcfe per day of projected volumes for January and most of February. The third party pipeline, which was damaged by land slips due to heavy precipitation in late December 2012, has been repaired and volumes from the Mary field are being restored. Please see "Operational Update - Appalachian Basin (Marcellus Shale)." Updated production guidance for the full year 2013 is now 40-43 MBoe (240-255 MMcfe) per day with just over 50% projected as natural gas. Please see "2013 Guidance."

Prices realized during the year ended December 31, 2012 averaged $106.70 per barrel (Bbl) of oil, $41.70 per Bbl of NGLs and$3.17 per thousand cubic feet (Mcf) of natural gas as compared to $103.31 per Bbl of oil, $59.28 per Bbl of NGLs and $4.44 per Mcf of natural gas realized during the year ended December 31, 2011. Prices realized during the fourth quarter of 2012 averaged $106.48 per Bbl of oil, $35.96 per Bbl of NGLs and $3.79 per Mcf of natural gas, as compared with the fourth quarter 2011 average realized prices of $110.39 per Bbl of oil, $61.12 per Bbl of NGLs and $4.11 per Mcf of natural gas. All unit pricing amounts include the cash settlement of effective hedging contracts.

During the fourth quarter and full year 2012, effective hedging transactions increased the average price received for natural gas by $0.39 and $0.52 per Mcf, respectively. Realized oil prices during the fourth quarter and full year 2012 were increased due to hedging by $4.04 and $1.20 per Bbl, respectively. Hedging transactions increased realized gas prices during the fourth quarter and full year 2011 by $0.68 and $0.51 per Mcf, respectively. Realized oil prices during the fourth quarter and full year 2011 were decreased due to hedging by $4.09 and $5.09 per Bbl, respectively.

Lease operating expenses incurred during 2012 totaled $215.0 million ($13.97 per Boe or $2.33 per Mcfe), compared to$175.9 million ($13.18 per Boe or $2.20 per Mcfe) during 2011. The increase in lease operating expenses for 2012 was primarily associated with the Pompano field, which was acquired in December 2011. Additionally, 2012 was impacted by Hurricane Isaac expenses. For the three months ended December 31, 2012 and 2011, lease operating expenses were $58.0 million ($14.01 per Boe or $2.33 per Mcfe) and $45.4 million ($13.87 per Boe or $2.31 per Mcfe), respectively.

Transportation, processing and gathering expenses during 2012 totaled $21.8 million, compared to $9.0 million during 2011. The increase resulted from the liquids rich Pompano and Appalachia gas streams coming on line in early 2012.

Depreciation, depletion and amortization (DD&A) expense on oil and gas properties totaled $341.1 million ($22.16 per Boe or$3.69 per Mcfe) during 2012, compared to $276.5 million ($20.72 per Boe or $3.45 per Mcfe) during 2011. DD&A expense on oil and gas properties for the three months ended December 31, 2012 totaled $82.5 million ($19.94 per Boe or $3.32 per Mcfe), compared to $74.5 million ($22.77 per Boe or $3.80 per Mcfe) during the comparable period of 2011.

Salaries, general and administrative (SG&A) expenses (excluding incentive compensation expense) totaled $54.6 million($3.55 per Boe or $0.59 per Mcfe) during 2012, compared to $40.2 million ($3.01 per Boe or $0.50 per Mcfe) during 2011. SG&A expenses (excluding incentive compensation expense) for the three months ended December 31, 2012 totaled $14.1 million($3.41 per Boe or $0.57 per Mcfe), compared to $10.7 million ($3.26 per Boe or $0.54 per Mcfe) during the comparable quarter of 2011. The increase in SG&A expenses in 2012 was primarily the result of increased staffing and compensation adjustments (including stock based compensation) and a management fee of $1.0 million for transition services related to our Pompano acquisition. In 2011, there was a $3.9 million credit to SG&A expenses, including previously unaccrued insurance proceeds.

Capital expenditures on oil and gas properties for 2012 were $582.8 million, which included $65.6 million in normal and hurricane abandonment expenditures, and excluded $34.5 million in one-time credit adjustments. This compared to capital expenditures on oil and gas properties during 2011 of $520.8 million, which included $63.4 million in normal and hurricane abandonment expenditures. Capitalized salaries, general and administrative (SG&A) expenses were $25.0 million and capitalized interest totaled $37.7 million for 2012. In 2011, capitalized SG&A was $24.1 million and capitalized interest was$42.0 million.

As of December 31, 2012, we had no outstanding borrowings under our bank credit facility. In addition, Stone had letters of credit totaling $21.0 million, resulting in $379.0 million available for borrowing based on a borrowing base of $400 million. The borrowing base is scheduled to be redetermined by May 2013.

Operational Update

La Cantera (Deep Gas). Recent optimization of the facilities increased the gross throughput from the two existing wells to 80 MMcfe per day from approximately 60 MMcfe per day. Stone's net production from the field is currently 20 MMcfe per day. A third well is currently being drilled, the Broussard #1 ST #1, to accelerate production from an upper hole zone. The well is setting casing at 15,890 feet with the estimated total depth for the well at 18,034 feet. Production from the third well is expected to begin in the third quarter of 2013. Stone holds a 34.6% non-operated working interest in the field.

Pompano Field (Deep Water). Successful coil tubing interventions on the A-10 and A-28 wells were performed in the fourth quarter of 2012, pushing the net field production back over 6,000 Boe per day on this Stone-operated platform. Stone has also reduced base lease operating expenses in the field by over 20% since taking over operatorship in March 2012. Discussions for a platform rig for the 2014/2015 timeframe are ongoing.

Pompano Area - Cardona (Deep Water). Drilling plans for the Stone-operated Cardona prospect (65% working interest) have progressed with long lead items being ordered for the subsea tie-backs in anticipation of open water drilling around the Pompano facility in late 2013/early 2014. The size of the Cardona prospect area may necessitate several wells to test different targets.

Mississippi Canyon 983 - San Marcos (Deep Water). The deep water San Marcos exploration well is currently scheduled to spud in the third quarter of 2013. Stone currently holds a 25% working interest in the prospect, which is operated by Apache. The well is estimated to take four months to drill.

Mississippi Canyon 555 – Guadalupe (Deep Water). The deep water Guadalupe exploration well (previously called Tower Bridge by Stone) is currently scheduled to spud in late 2013 or early 2014. Stone currently holds a 40% working interest in the prospect, which is operated by Apache. The well is estimated to take three months to drill.

Walker Ridge 719 – Phinisi (Deep Water). The deep water Phinisi exploration well is now projected to spud in the fourth quarter of 2013 as the previous rig schedule was adjusted. Stone currently holds a 20% working interest in the prospect, which is operated by ENI. The well is estimated to take four months to drill.

Appalachian Basin (Marcellus Shale). Stone drilled a total of 23 horizontal Marcellus Shale wells and fractured 24 wells in 2012. During the fourth quarter of 2012, Stone tied nine horizontal wells into the Williams midstream pipeline from its Mary Field in West Virginia. Net production from the Mary field increased to over 45 MMcf per day and 4,500 Bbl of liquids per day (over 70 MMcfe per day) in December prior to production being shut-in due to land slips resulting from heavy precipitation. The land slips have been stabilized, the pipeline has been repaired and the field is currently coming back on line. Stone expects net Appalachian production to return to over 65 MMcfe per day during March 2013. Stone has drilled five horizontal wells and fractured four wells to date in 2013.

Conventional Shelf - A rig has been secured for a two-to-four well conventional shelf drilling program. The rig, expected to arrive in the second quarter of 2013, will target oil prospects. Separately, Stone has committed to an onshore rig to drill the Hyena prospect in the Clovelly field in Lafourche Parish, Louisiana. Stone has also budgeted roughly $35 million for recompletion and workover projects to access behind pipe reserves in existing fields.

2013 Guidance

Guidance for the first quarter and full year 2013 is shown in the table below (updated guidance numbers are italicized and bolded). The guidance is subject to all the cautionary statements and limitations described below and under the caption "Forward Looking Statements."

First Quarter
Full Year
Production - MBoe per day

(MMcfe per day)
38 – 40

(230 – 240)
40 – 43

(240 – 255)
Lease operating expenses (in millions)

(excluding transportation/processing expenses)
-
$205 - $225
Transportation, processing and gathering (in millions)
$26 - $32
Salaries, General & Administrative expenses (in millions)
-
$55 - $60
(excluding incentive compensation)
Depreciation, Depletion & Amortization (per MBoe)
-
$19.50 - $21.00
(per Mcfe)
$3.25 - $3.50
Corporate Tax Rate (%)
-
35% - 37%
Capital Expenditure Budget (in millions)
-
$650
(excluding acquisitions)

Hedge Position

The following table illustrates our derivative positions for 2013, 2014 and 2015 as of February 25, 2013:

Fixed-Price Swaps
NYMEX (except where noted)
Natural Gas
Oil
Daily

Volume

(MMBtus/d)
Swap

Price
Daily

Volume

(Bbls/d)
Swap

Price
2013
10,000
$4.000
1,000
$92.80
2013
10,000
5.270
2,000*
94.05
2013
10,000
5.320
1,000
94.45
2013
1,000
94.60
2013
1,000
97.15
2013
1,000
101.53
2013
1,000
103.00
2013
1,000
103.15
2013
1,000
104.25
2013
1,000
104.47
2013
1,000
104.50
2013
1,000**
107.30
2014
10,000
4.000
1,000
90.06
2014
10,000
4.040
1,000
93.55
2014
10,000
4.105
1,000
94.00
2014
10,000
4.250
1,000
98.00
2014
1,000
98.30
2014
1,000
99.65
2014
1,000**
103.30
2015
10,000
4.005
1,000
90.00
2015
10,000
4.220
2015
10,000
4.255

* January - June
** Brent oil contract


 

Article Tags

Stone Energy United States Worldwide Finance Operations Update Production Update Deepwater


This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More


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