Stone Energy Corporation Announces Second Quarter 2008 Results

LAFAYETTE, La., Aug. 5 /PRNewswire-FirstCall/ -- Stone Energy Corporation
(NYSE: SGY) today announced record net income of $82.8 million, or $2.91 per
share, on operating revenue of $263.0 million for the second quarter of 2008
compared to net income of $72.0 million, or $2.60 per share, on operating
revenue of $200.3 million in the second quarter of 2007. The second quarter
2007 results included an after-tax gain of $36.3 million associated with the
sale of substantially all of Stone's Rocky Mountain properties, which was
completed on June 29, 2007. For the six months ended June 30, 2008, net
income totaled $145.1 million, or $5.13 per share, on operating revenue of
$466.2 million compared to net income of $82.5 million, or $2.98 per share, on
operating revenue of $373.2 million during the comparable 2007 period. All
per share amounts are on a diluted basis.
Discretionary cash flow was a record $180.5 million during the second
quarter of 2008 compared to $123.8 million generated during the second quarter
of 2007 and $150.3 million during the first quarter of 2008. For the first
six months of 2008, discretionary cash flow totaled $330.8 million compared to
$225.9 million for the comparable 2007 period. 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 second quarter of 2008 averaged
196 million cubic feet of gas equivalent (MMcfe) per day, representing a 6%
increase over average daily production of 185 MMcfe per day for the first
quarter of 2008. After adjusting for divested properties, comparable
production for the second quarter of 2007 was 204 MMcfe per day. For the six
months ended June 30, 2008, net average daily production volumes were
190 MMcfe compared to an adjusted 197 MMcfe per day for the six months ended
June 30, 2007. The adjusted 2007 production figures exclude volumes from the
divested Rocky Mountain properties which averaged 32 MMcfe per day and
37 MMcfe per day respectively for the second quarter and first six months of
2007. Similarly, the adjusted 2007 production numbers also exclude volumes
from the divested non-core Gulf of Mexico properties which averaged 8 MMcfe
per day for the second quarter of 2007 and 7 MMcfe for the first six months of
2007.
CEO David Welch stated, "We are pleased with our results for the second
quarter, particularly delivering increased production over first quarter 2008
and reporting record quarterly discretionary cash flow of $180.5 million.
Obviously the biggest new item of the quarter was the announced merger
agreement with Bois d'Arc Energy. We remain very excited about the
opportunities created by the Bois d'Arc merger, and look forward to having our
exploitation and exploration teams follow up on the initial Bois d'Arc
efforts. We now expect a closing in late August and we are very appreciative
of the hard work and cooperation exhibited by both groups."
"Although the proposed Bois d'Arc merger was the quarter's most
significant news, we made progress on other fronts during the period as well.
Our exploitation program at Ewing Bank 305 proved to be successful and
provided us with incremental volumes. The active workover program at South
Pelto 23 also helped with production during the period. Our activity in
Appalachia accelerated with the drilling of three wells and the acquisition of
additional acreage. We expect an increase in activity in this prospective
area during the remainder of 2008. Although our Main Pass 72 Caprock project
was deemed currently uneconomic, we have a strong inventory of exploitation
projects for 2009, including a multi-well program at Amberjack on Mississippi
Canyon Block 109. We continue to advance our exploration prospects and expect
to spud several more exploratory wells by year end, followed by additional
prospects in 2009. Finally, we continue to evaluate acquisition opportunities
afforded by a strong balance sheet and cash flow."
Prices realized during the second quarter of 2008 averaged $110.10 per
barrel (Bbl) of oil and $11.46 per thousand cubic feet (Mcf) of natural gas,
which represents a 64% increase, on an Mcfe basis, over second quarter 2007
average realized prices of $64.41 per Bbl of oil and $7.50 per Mcf of natural
gas. Average realized prices during the first six months of 2008 were
$103.28 per Bbl of oil and $10.15 per Mcf of natural gas representing a 57%
increase on a Mcfe basis compared to $60.63 per Bbl of oil and $7.23 per Mcf
of natural gas realized during the first six months of 2007. All unit pricing
amounts include the cash settlement of effective hedging contracts. Hedging
transactions in the second quarter of 2008 decreased the average realized
price of natural gas by $0.03 per Mcf, compared to an increase in average
realized prices of $0.01 per Mcf of natural gas during the second quarter of
2007. Hedging transactions in the second quarter of 2008 decreased the
realized oil prices by $14.63 per Bbl, compared to no impact during the
comparable quarter of 2007.
Lease operating expenses (LOE) incurred during the second quarter of 2008
totaled $34.9 million compared to $40.5 million for the comparable quarter in
2007, and $30.3 million in the first quarter 2008. On a per unit basis, LOE
was $1.96 per Mcfe in the second quarter of 2008 versus $1.83 per Mcfe in the
second quarter of 2007 and $1.80 per Mcfe in the first quarter of 2008. For
the six months ended June 30, 2008 and 2007, lease operating expenses were
$65.2 million and $91.6 million, respectively. The decrease is a result of
the sale of substantially all of the Rocky Mountain properties, decreased
major maintenance activity, and operational efficiencies.
Depreciation, depletion and amortization (DD&A) on oil and gas properties
for the second quarter of 2008 totaled $70.2 million compared to $80.4 million
for the second quarter of 2007. DD&A expense on oil and gas properties for
the six months ended June 30, 2008 totaled $132.9 compared to $158.2 million
during the comparable period of 2007. Additionally, our investment in our
Bohai Bay, China exploratory venture was impaired in the second quarter of
2008 by $10.1 million and recorded under "Write-down of oil and gas
properties".
Salaries, general and administrative (SG&A) expenses for the second
quarter of 2008 were $11.3 million compared to $9.4 million in the second
quarter of 2007. For the six months ended June 30, 2008 and 2007, SG&A
totaled $21.5 million and $17.6 million, respectively. The increase is
primarily due to additional stock based compensation and higher legal fees.
There were no borrowings outstanding at June 30, 2008 under our bank
credit facility. Stone had letters of credit totaling $46.1 million,
resulting in $128.9 million of available borrowings, at June 30, 2008. 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. On
April 29, 2008, Stone and Bank of America, N.A. executed a commitment letter
which provides for up to $700 million in financing under a three-year amended
and restated revolving credit facility to partially fund the proposed Bois
d'Arc acquisition.
Capital expenditures before capitalized SG&A and interest during the
second quarter of 2008 totaled $125.3 million, including $18.0 million of
lease and acquisition costs. Additionally, $4.8 million of SG&A expenses and
$4.7 million of interest were capitalized during the quarter.
Operational Update
Ewing Bank 305. Stone successfully drilled and completed two wells in the
Ewing Bank 305 drilling program and is in the process of completing a third
drill well. In addition, two wells have been successfully worked over. Net
incremental production from the drilling and remedial work was approximately
21 MMcfe per day for the second quarter.
South Pelto Block 23. Stone has successfully worked over two wells and
recompleted each in new pay sands. Well C-4 ST1 BP1 was recompleted in the
CP-29 sand for an initial gross rate of 5 MMcfe per day. Well D-1 was
recompleted in the W sand for an initial gross rate of 2 MMcfe per day. Stone
has a 96.4% working interest (WI) and a 78% revenue interest (NRI) in these
wells.
Main Pass 72 (Caprock). The Main Pass 72 Caprock prospect was drilled and
evaluated as an uneconomic well in the 2nd quarter. Test data is being
further analyzed to see if there is any additional potential for this
prospect.
Appalachia. Through the second quarter, Stone has drilled or participated
in three wells in the Appalachia area and expects to spud a fourth well this
month. Stone continues to review the results of these wells, and expects to
increase activity in the area during the second half of 2008 and into 2009.
Bois d'Arc Merger Agreement
On April 30, 2008, Stone and its wholly owned subsidiary, Stone Energy
Offshore, L.L.C., entered into an Agreement and Plan of Merger with Bois d'Arc
Energy, Inc. ("Bois d'Arc"), pursuant to which Stone agreed to acquire all of
the outstanding shares of Bois d'Arc common stock. Pursuant to the merger,
each outstanding share of Bois d'Arc common stock will be converted into the
right to receive (i) 0.165 shares of Stone common stock and (ii) $13.65 in
cash. Stone expects to use existing cash on its balance sheet, borrowings
from a proposed amended and restated $700 million credit facility and the
issuance of approximately 11.3 million shares of Stone common stock to fund
the merger. The transaction is subject to stockholder approval of both
companies and other customary conditions.
Stone has scheduled a special meeting of its stockholders for August 27,
2008 at 10:00 a.m. CDT to consider and vote on the proposal of the proposed
merger with Bois d'Arc.
2008 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.
Stone's 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 2008 guidance DOES NOT account for any adjustments from the
pending merger with Bois d'Arc. Stone intends to adjust its 2008 guidance
following the closing of the merger.
Capital Expenditure Budget. The current 2008 capital expenditure budget
is approximately $395 million, which excludes acquisitions, capitalized
interest and G&A, and abandonment expenditures. Stone expects to spend
approximately 60% of the 2008 capital budget on its Gulf of Mexico (GOM)
exploitation program and facilities, and an estimated 40% on exploration and
business development activities including deep water, shelf and onshore
exploration drilling, GOM lease sale expenditures, onshore drilling and lease
acquisition including Appalachia, seismic and reprocessing expenditures, and
drilling activity in Bohai Bay, China. In addition, Stone expects to spend
approximately $25 million on normal abandonment projects.
Production. For the third quarter of 2008, Stone expects net daily
production to average between 180-200 MMcfe. Stone expects full year 2008
average daily production to be in the range of 175-200 MMcfe per day.
Lease Operating Expenses. Stone expects lease operating costs, excluding
production taxes, to range between $140-$155 million for 2008 based upon
current operating conditions and budgeted maintenance activities.
Depreciation, Depletion & Amortization. Stone expects its DD&A rate to
range between $3.70-$3.95 per Mcfe during 2008.
Salaries, General & Administrative Expenses. Stone expects its SG&A
expenses (excluding incentive compensation expense) to range between $38-$42
million during 2008.
Corporate Tax Rate. For 2008, Stone expects its corporate tax rate to be
approximately 34%.
Hedge Position
The following tables illustrate Stone's derivative positions for calendar
years 2008 and 2009:

Zero-Premium Collars
-------------------------------------------------------------
Natural Gas Oil
------------------------------ ----------------------------
Daily Daily
Volume Floor Ceiling Volume Floor Ceiling
(MMBtus/d) Price Price (Bbls/d) Price Price
----------- ------- -------- -------- ------- --------
2008 30,000* $8.00 $14.05 3,000 $60.00 $90.20
2008 20,000** 7.50 11.35 2,000 65.00 81.00
2008 20,000*** 9.00 17.90 3,000 70.00 110.25
2008 20,000*** 9.00 18.45
2009 20,000 8.00 14.30 3,000 80.00 135.00
2009 20,000 9.00 14.63

* January - March
** April - December
*** July - December

Fixed-Price Swaps
------------------------------------------------
Natural Gas Oil
--------------------- -----------------------
Daily Daily
Volume Swap Volume Swap
(MMBtus/d) Price (Bbls/d) Price
---------- -------- ----------- ---------
2009 20,000 $10.15 2,000 $107.90

Put Contracts
---------------------------------------
Natural Gas
---------------------------------------
Daily
Volume Unamortized
(MMBtus/d) Floor Cost
----------- -------- -------------
2008 20,000* $10.00 $0.52/MMBtu

*July - December

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. Please see the "Reconciliation of Non-GAAP
Financial Measure" for a reconciliation of discretionary cash flow to cash
flow provided by operating activities.
Other Information
Stone Energy has planned a conference call for 10:00 a.m. Central Time on
Wednesday, August 6, 2008 to discuss the operational and financial results for
the second quarter of 2008. 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 digital recording accessed by
dialing 1-800-642-1687 (ID #55670500) will be available at approximately
12:00 p.m. Central Time for 48 hours. A web replay will be available
approximately 24 hours following the completion of the call on Stone Energy's
website at http://www.StoneEnergy.com. The web replay will be available for
approximately one week.
Stone Energy is an independent oil and natural gas company headquartered
in Lafayette, Louisiana, and is engaged in the acquisition, exploration,
exploitation, development and operation of oil and gas properties located
primarily in the Gulf of Mexico. For additional information, contact Kenneth
H. Beer, Chief Financial Officer, at 337-237-0410-phone, 337-237-0426-fax or
via e-mail at CFO@StoneEnergy.com.
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 and Quarterly Reports on Form 10-Q as filed
with the Securities and Exchange Commission ("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.

STONE ENERGY CORPORATION
SUMMARY STATISTICS
(In thousands, except per share/unit amounts)
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
2008 2007 2008 2007
FINANCIAL RESULTS --------- --------- --------- ---------
Net income $82,811 $71,983 $145,053 $82,459
Net income per share $2.91 $2.60 $5.13 $2.98

PRODUCTION QUANTITIES
Oil (MBbls) 1,422 1,726 2,704 3,377
Gas (MMcf) 9,284 11,834 18,417 23,308
Oil and gas (MMcfe) 17,816 22,190 34,641 43,570

AVERAGE DAILY PRODUCTION
Oil (MBbls) 16 19 15 19
Gas (MMcf) 102 130 101 129
Oil and gas (MMcfe) 196 244 190 241

REVENUE DATA (1)
Oil revenue $156,569 $111,173 $279,276 $204,757
Gas revenue 106,393 88,718 186,919 168,467
--------- --------- --------- ---------
Total oil and gas revenue $262,962 $199,891 $466,195 $373,224

AVERAGE PRICES (1)
Oil (per Bbl) $110.10 $64.41 $103.28 $60.63
Gas (per Mcf) 11.46 7.50 10.15 7.23
Per Mcfe 14.76 9.01 13.46 8.57

COST DATA
Lease operating expenses $34,900 $40,510 $65,153 $91,596
Salaries, general and
administrative expenses 11,278 9,402 21,534 17,635
DD&A expense on oil and
gas properties 70,172 80,357 132,879 158,192

AVERAGE COSTS (per Mcfe)
Lease operating expenses $1.96 $1.83 $1.88 $2.10
Salaries, general and
administrative expenses 0.63 0.42 0.62 0.40
DD&A expense on oil and
gas properties 3.94 3.62 3.84 3.63

AVERAGE SHARES OUTSTANDING
- Diluted 28,459 27,706 28,260 27,642

(1) Includes the cash settlement of effective hedging contracts.

STONE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2008 2007 2008 2007
STATEMENT OF OPERATIONS ---------- --------- --------- ---------
Operating revenue:
Oil production $156,569 $111,173 $279,276 $204,757
Gas production 106,393 88,718 186,919 168,467
Derivative income, net - 409 - -
---------- --------- --------- ---------
Total operating revenue 262,962 200,300 466,195 373,224
---------- --------- --------- ---------
Operating expenses:
Lease operating expenses 34,900 40,510 65,153 91,596
Production taxes 3,503 2,808 4,903 6,672
Depreciation, depletion
and amortization 70,831 81,340 134,218 160,179
Write-down of oil and gas
properties 10,100 - 10,100 -
Accretion expense 3,853 4,416 8,221 8,832
Salaries, general and
administrative expenses 11,278 9,402 21,534 17,635
Incentive compensation
expense 882 515 1,900 1,361
Derivative expenses, net 3,353 - 3,612 91
---------- --------- --------- ---------
Total operating expenses 138,700 138,991 249,641 286,366
---------- --------- --------- ---------
Gain on Rockies divestiture - 55,816 - 55,816
---------- --------- --------- ---------
Income from operations 124,262 117,125 216,554 142,674
---------- --------- --------- ---------
Other (income) expenses:
Interest expense 3,633 10,284 7,492 21,475
Interest income (3,432) (1,036) (8,346) (1,609)
Other income, net (1,313) (1,933) (2,354) (3,235)
Total other (income) ---------- --------- --------- ---------
expenses (1,112) 7,315 (3,208) 16,631
---------- --------- --------- ---------
Income before taxes 125,374 109,810 219,762 126,043
---------- --------- --------- ---------
Provision for income taxes:
Current 33,028 17,500 46,978 17,500
Deferred 9,535 20,327 27,731 26,084
---------- --------- --------- ---------
Total income taxes 42,563 37,827 74,709 43,584
---------- --------- --------- ---------
Net income $82,811 $71,983 $145,053 $82,459
========== ========= ========= =========

STONE ENERGY CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
(In thousands)
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Net income as reported $82,811 $71,983 $145,053 $82,459

Reconciling items:
Depreciation, depletion and
amortization 70,831 81,340 134,218 160,179
Write-down of oil and gas
properties 10,100 - 10,100 -
Deferred income tax provision 9,535 20,327 27,731 26,084
Accretion expense 3,853 4,416 8,221 8,832
Gain on sale of oil and gas
properties - (55,816) - (55,816)
Stock compensation expense 2,185 1,162 4,322 2,530
Other 1,167 400 1,132 1,678
--------- --------- --------- ---------
Discretionary cash flow 180,482 123,812 330,777 225,946

Increase (decrease) in current
income taxes payable (3,581) 16,569 (47,131) 16,569
Settlement of asset retirement
obligations (15,004) (18,773) (33,651) (18,773)
Investment in put contracts (1,914) - (1,914) -
Working capital changes (32,908) (13,914) (8,692) (6,322)

Net cash provided by operating --------- --------- --------- ---------
activities $127,075 $107,694 $239,389 $217,420
========= ========= ========= =========

STONE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)

June 30, December 31,
2008 2007
Assets ------------ ------------

Current assets:
Cash and cash equivalents $568,117 $475,126
Accounts receivable 192,314 186,853
Deferred tax asset 52,188 9,039
Other current assets 1,316 2,684
Total current assets 813,935 673,702

Oil and gas properties, net - United States
Proved 1,001,271 1,001,179
Unevaluated 204,985 150,568
Oil and gas properties - China (unevaluated) 20,659 29,565
Building and land, net 5,620 5,667
Fixed assets, net 5,097 5,584
Other assets, net 24,530 23,338
------------ ------------
Total assets $2,076,097 $1,889,603
============ ============

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable to vendors $143,296 $88,801
Undistributed oil and gas proceeds 42,530 37,743
Investment in hedging contracts 118,922 18,968
Asset retirement obligations 31,349 44,180
Current income taxes payable 10,500 57,631
Other current liabilities 6,146 13,934
------------ ------------
Total current liabilities 352,743 261,257

8 1/4% Senior Subordinated Notes due 2011 200,000 200,000
6 3/4% Senior Subordinated Notes due 2014 200,000 200,000
Deferred taxes 110,461 89,665
Investment in hedging contracts 34,602 -
Asset retirement obligations 200,249 245,610
Other long-term liabilities 8,129 7,269
------------ ------------
Total liabilities 1,106,184 1,003,801
------------ ------------
Common stock 283 278
Treasury stock (860) (1,161)
Additional paid-in capital 541,515 515,055
Retained earnings 527,297 382,365
Accumulated other comprehensive loss (98,322) (10,735)
------------ ------------
Total stockholders' equity 969,913 885,802
------------ ------------
Total liabilities and stockholders' equity $2,076,097 $1,889,603
============ ============

SOURCE Stone Energy Corporation

Kenneth H. Beer, Chief Financial Officer of Stone Energy Corporation,
+1-337-237-0410, fax, +1-337-237-0426, CFO@StoneEnergy.com