e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2005
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-12074
STONE ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
(State or Other Jurisdiction of Incorporation or Organization)
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72-1235413
(I.R.S. Employer Identification No.) |
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625 E. Kaliste Saloom Road
Lafayette, Louisiana
(Address of Principal Executive Offices)
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70508
(Zip Code) |
Registrants Telephone Number, Including Area Code: (337) 237-0410
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of March 1, 2006, there were 27,161,626 shares of the registrants Common Stock, par value
$.01 per share, outstanding.
EXPLANATORY NOTE
Reserves Restatement On October 6, 2005, as a result of reservoir level reviews conducted during
August 2005 through early October 2005, we announced a downward revision of 171 billion cubic feet
of natural gas equivalent (Bcfe) of proved reserves. After additional analysis and consultation
with outside engineering firms, the revision was increased to 237 Bcfe. Subsequently, after an
internal review of the causes of this revision, we decided to restate the unaudited oil and gas
reserve disclosures previously included in the footnotes accompanying our financial statements
contained in the original Form 10-K filed for the years ended December 31, 2004, 2003, 2002 and
2001 to give effect to the removal of 157 Bcfe of those volumes to the periods in which they did
not represent proved reserves within the applicable rules of the Securities and Exchange Commission
(SEC).
Please refer to pages 4 to 7 for additional information regarding the reserves restatement.
Financial Restatement In view of the overstatement of proved reserves, it was determined to
restate the financial statements of the Company for the years ended December 31, 2004, 2003, 2002
and 2001 and the quarters ended March 31, 2005 and June 30, 2005. We did not amend our Annual
Report on Form 10-K for the years ended December 31, 2004, 2003 and 2002 or our Quarterly Reports
on Form 10-Q for any periods prior to June 30, 2005, and the financial statements and related
financial information contained in those reports should no longer be relied upon. A summary of the
effects of the restatement on reported amounts for those periods is presented in the notes to the
condensed consolidated financial statements in this quarterly report on Form 10-Q (See Note 1
Restatement of Historical Financial Statements.) The overstatement of proved reserves had the
effect of understating the write-down of oil and gas properties for 2001 and depreciation,
depletion and amortization expense (DD&A) for all the periods to be restated which in turn caused
the overstatement of various reported amounts.
Additionally, in the process of the preparation of the Companys Form 10-Q for September 30, 2005,
it was determined that approximately $9.8 million of unevaluated oil and gas property costs were
inappropriately classified and should have been reclassified to proved oil and gas property costs
in 2002. The Financial Restatement includes the effect of this revision for the years ended
December 31, 2004, 2003 and 2002. The total cumulative impact of the restatements on stockholders
equity as of June 30, 2005 was a reduction of approximately $89.8 million, which includes a
reduction in beginning stockholders equity as of January 1, 2002 of approximately $45.3 million.
Please refer to pages 4 to 7 for additional information regarding the financial restatement.
The information herein reflects the restatements described above unless the context provides
otherwise.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
(Unaudited)
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September 30, |
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December 31, |
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2005 |
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2004 |
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Restated |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
62,405 |
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$ |
24,257 |
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Accounts receivable |
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179,984 |
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111,398 |
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Other current assets |
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20,225 |
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9,368 |
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Total current assets |
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262,614 |
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145,023 |
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Oil and gas properties full cost method of accounting: |
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Proved, net of accumulated depreciation, depletion and
amortization of $1,831,419 and $1,640,362 respectively |
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1,485,286 |
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1,376,151 |
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Unevaluated |
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209,425 |
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141,157 |
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Building and land, net |
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5,554 |
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5,416 |
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Fixed assets, net |
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7,298 |
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4,761 |
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Other assets, net |
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14,924 |
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23,156 |
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Total assets |
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$ |
1,985,101 |
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$ |
1,695,664 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Accounts payable to vendors |
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$ |
94,972 |
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$ |
110,845 |
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Undistributed oil and gas proceeds |
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52,201 |
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36,457 |
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Asset retirement obligations |
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47,667 |
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2,912 |
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Fair value of hedging contracts |
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40,436 |
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14,346 |
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Other current liabilities |
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17,575 |
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9,061 |
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Total current liabilities |
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252,851 |
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173,621 |
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Long-term debt |
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513,000 |
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482,000 |
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Deferred taxes |
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217,348 |
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161,500 |
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Asset retirement obligations |
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112,145 |
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103,179 |
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Fair value of hedging contracts |
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176 |
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Other long-term liabilities |
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2,744 |
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2,430 |
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Total liabilities |
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1,098,264 |
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922,730 |
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Commitments and contingencies |
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Common stock |
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272 |
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267 |
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Treasury stock |
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(1,348 |
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(1,462 |
) |
Additional paid-in capital |
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500,348 |
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466,478 |
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Unearned compensation |
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(16,968 |
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(1,486 |
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Retained earnings |
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428,789 |
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318,425 |
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Accumulated other comprehensive loss |
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(24,256 |
) |
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(9,288 |
) |
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Total stockholders equity |
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886,837 |
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772,934 |
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Total liabilities and stockholders equity |
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$ |
1,985,101 |
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$ |
1,695,664 |
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The accompanying notes are an integral part of this balance sheet.
1
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands of dollars, except per share amounts)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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Restated |
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Restated |
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Operating revenue: |
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Oil production |
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$ |
59,872 |
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$ |
56,752 |
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$ |
203,979 |
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$ |
167,548 |
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Gas production |
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99,403 |
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71,554 |
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296,687 |
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236,562 |
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Total operating revenue |
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159,275 |
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128,306 |
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500,666 |
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404,110 |
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Operating expenses: |
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Lease operating expenses |
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30,895 |
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30,756 |
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88,503 |
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73,506 |
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Production taxes |
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3,273 |
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2,169 |
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9,698 |
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5,892 |
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Depreciation, depletion and amortization |
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57,345 |
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51,534 |
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191,764 |
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161,051 |
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Accretion expense |
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1,790 |
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1,463 |
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5,369 |
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4,389 |
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Salaries, general and administrative expenses |
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5,205 |
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3,378 |
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14,698 |
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10,668 |
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Incentive compensation expense |
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246 |
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588 |
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1,259 |
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1,705 |
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Derivative expenses |
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4,831 |
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1,069 |
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4,831 |
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3,029 |
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Total operating expenses |
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103,585 |
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90,957 |
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316,122 |
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260,240 |
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Income from operations |
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55,690 |
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37,349 |
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184,544 |
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143,870 |
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Other (income) expenses: |
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Interest |
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5,781 |
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4,225 |
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17,546 |
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|
12,483 |
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Other income |
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|
(827 |
) |
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|
(637 |
) |
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(2,659 |
) |
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(1,997 |
) |
Other expense |
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2,386 |
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Total other expenses |
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4,954 |
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3,588 |
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14,887 |
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|
12,872 |
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Income before taxes |
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50,736 |
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33,761 |
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169,657 |
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130,998 |
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Provision for income taxes: |
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Current |
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|
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Deferred |
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17,758 |
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|
11,816 |
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59,285 |
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45,849 |
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Total income taxes |
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17,758 |
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11,816 |
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59,285 |
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|
45,849 |
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Net income |
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$ |
32,978 |
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$ |
21,945 |
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$ |
110,372 |
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$ |
85,149 |
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Basic earnings per share |
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$ |
1.22 |
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$ |
0.82 |
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$ |
4.11 |
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$ |
3.21 |
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Diluted earnings per share |
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$ |
1.20 |
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$ |
0.82 |
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$ |
4.06 |
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$ |
3.17 |
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Average shares outstanding |
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27,025 |
|
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|
26,640 |
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|
|
26,882 |
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|
26,561 |
|
Average shares outstanding assuming dilution |
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|
27,389 |
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|
26,918 |
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|
27,194 |
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|
26,890 |
|
The accompanying notes are an integral part of this statement.
2
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
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Nine Months Ended |
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September 30, |
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2005 |
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2004 |
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Restated |
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Cash flows from operating activities: |
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Net income |
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$ |
110,372 |
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$ |
85,149 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
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Depreciation, depletion and amortization |
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|
191,764 |
|
|
|
161,051 |
|
Accretion expense |
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|
5,369 |
|
|
|
4,389 |
|
Provision for deferred income taxes |
|
|
59,285 |
|
|
|
45,849 |
|
Derivative expenses |
|
|
3,295 |
|
|
|
3,029 |
|
Other non-cash items |
|
|
2,250 |
|
|
|
1,156 |
|
(Increase) decrease in accounts receivable |
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|
7,095 |
|
|
|
(10,251 |
) |
Increase in other current assets |
|
|
(2,739 |
) |
|
|
(2,195 |
) |
Increase in accounts payable |
|
|
1,700 |
|
|
|
|
|
Increase in other current liabilities |
|
|
24,269 |
|
|
|
12,946 |
|
Investment in derivative contracts |
|
|
|
|
|
|
(1,683 |
) |
Settlement of asset retirement obligations |
|
|
(788 |
) |
|
|
|
|
Other |
|
|
120 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
401,992 |
|
|
|
299,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Investment in oil and gas properties |
|
|
(404,742 |
) |
|
|
(280,438 |
) |
Proceeds from sale of oil and gas properties |
|
|
1,549 |
|
|
|
11,948 |
|
Investment in fixed and other assets |
|
|
(4,564 |
) |
|
|
(1,458 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(407,757 |
) |
|
|
(269,948 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from bank borrowings |
|
|
76,000 |
|
|
|
22,000 |
|
Repayment of bank borrowings |
|
|
(45,000 |
) |
|
|
(22,000 |
) |
Deferred financing costs |
|
|
(187 |
) |
|
|
(2,357 |
) |
Proceeds from the exercise of stock options |
|
|
13,100 |
|
|
|
6,657 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
43,913 |
|
|
|
4,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
38,148 |
|
|
|
33,771 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
24,257 |
|
|
|
17,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
62,405 |
|
|
$ |
50,871 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this statement.
3
STONE ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 Restatement of Historical Financial Statements:
On October 6, 2005, as a result of reservoir level reviews conducted during August 2005
through early October 2005, we announced a downward revision of 171 billion cubic feet of natural
gas equivalent (Bcfe) of estimated proved reserves. After additional analysis and additional
consultation with outside engineering firms, the revision was increased to 237 Bcfe.
Based on internal assessments and consultation with outside engineering firms, we concluded
that 157 Bcfe of the negative reserve revisions should have been reflected in 2004 and prior
periods and would require a revision of the historical reserve estimates included in our
supplemental natural gas and oil operating data. Quantities of estimated proved reserves are used
in determining financial statement amounts, including ceiling test charges and depletion,
depreciation and amortization (DD&A). The revision of our historical reserve estimates required
the restatement of the financial statement information derived from these estimates for the periods
from 2001 to 2004 and the first two quarters of 2005.
Additionally, in the process of the preparation of our Form 10-Q for September 30, 2005, it
was determined that approximately $9.8 million of unevaluated oil and gas property costs were
inappropriately classified and should have been reclassified to proved oil and gas property costs
in 2002. The Financial Restatement includes the effect of this revision for the years ended
December 31, 2004, 2003 and 2002.
Reserves Restatement
Our reserves restatement resulted in the following revisions to our estimated proved reserves
as of:
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
December 31, |
|
|
2004 |
|
2003 |
|
2002 |
|
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
Estimated Proved
Reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls) |
|
|
56,560 |
|
|
|
42,385 |
|
|
|
59,162 |
|
|
|
44,508 |
|
|
|
52,019 |
|
|
|
40,735 |
|
Gas (MMcf) |
|
|
485,590 |
|
|
|
413,902 |
|
|
|
461,323 |
|
|
|
380,280 |
|
|
|
438,652 |
|
|
|
376,236 |
|
Oil and gas (MMcfe) |
|
|
824,950 |
|
|
|
668,210 |
|
|
|
816,295 |
|
|
|
647,326 |
|
|
|
750,766 |
|
|
|
620,644 |
|
4
Financial Restatement
The total cumulative impact of the restatement on our stockholders equity as of December 31,
2004 was a reduction of approximately $81.4 million, which includes a reduction in beginning
stockholders equity as of January 1, 2002 of approximately $45.3 million.
As to the individual consolidated statement of income line items, our historical financial
statements for the years ended December 31, 2004, 2003 and 2002 and for each of the quarters in
those years and the first two quarters of 2005 reflect the effects of the restatement on (1) the
calculation of our historical depletion, depreciation and amortization expense, (2) the effects, if
any, on interest expense resulting from changes in unevaluated oil and gas properties, (3) the
impact on the cumulative effect of accounting changes and (4) the impact on income taxes. We did
not amend our Annual Report on Form 10-K for the year ended December 31, 2004 or our Quarterly
Reports on Form 10-Q for any periods prior to June 30, 2005, and the financial statements and
related financial information contained in those reports should no longer be relied upon. A
summary of the effects of the restatement on reported amounts for the years ended December 31,
2004, 2003 and 2002 and quarters ended March 31, 2005 and June 30, 2005 is presented below. Also,
the information in the data below represents only those income statement, balance sheet, cash flow
statement and statement of comprehensive income line items affected by the restatement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2004 |
|
2003 |
|
2002 |
|
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
|
(In thousands, except per share amounts) |
Income Statement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and
amortization |
|
$ |
188,153 |
|
|
$ |
210,861 |
|
|
$ |
170,845 |
|
|
$ |
188,813 |
|
|
$ |
160,762 |
|
|
$ |
175,496 |
|
Total operating expenses |
|
|
322,186 |
|
|
|
344,894 |
|
|
|
282,115 |
|
|
|
300,083 |
|
|
|
272,483 |
|
|
|
287,217 |
|
Income from operations |
|
|
222,015 |
|
|
|
199,307 |
|
|
|
226,190 |
|
|
|
208,222 |
|
|
|
105,012 |
|
|
|
90,278 |
|
Interest expense |
|
|
16,104 |
|
|
|
16,835 |
|
|
|
19,132 |
|
|
|
19,860 |
|
|
|
23,111 |
|
|
|
23,141 |
|
Total other expenses, net |
|
|
14,472 |
|
|
|
15,203 |
|
|
|
21,198 |
|
|
|
21,926 |
|
|
|
19,783 |
|
|
|
19,813 |
|
Net income before income taxes |
|
|
207,543 |
|
|
|
184,104 |
|
|
|
204,992 |
|
|
|
186,296 |
|
|
|
85,229 |
|
|
|
70,465 |
|
Income tax provision |
|
|
72,640 |
|
|
|
64,436 |
|
|
|
71,747 |
|
|
|
65,203 |
|
|
|
29,830 |
|
|
|
24,662 |
|
Income before cumulative effects
of accounting changes, net
of tax |
|
|
134,903 |
|
|
|
119,668 |
|
|
|
133,245 |
|
|
|
121,093 |
|
|
|
55,399 |
|
|
|
45,803 |
|
Cumulative effect of accounting
changes, net of tax |
|
|
|
|
|
|
|
|
|
|
1,225 |
|
|
|
2,099 |
|
|
|
|
|
|
|
|
|
Net income |
|
|
134,903 |
|
|
|
119,668 |
|
|
|
134,470 |
|
|
|
123,192 |
|
|
|
55,399 |
|
|
|
45,803 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effects
of accounting changes |
|
$ |
5.07 |
|
|
$ |
4.50 |
|
|
$ |
5.05 |
|
|
$ |
4.60 |
|
|
$ |
2.10 |
|
|
$ |
1.74 |
|
Cumulative effects of accounting
changes |
|
|
|
|
|
|
|
|
|
|
0.05 |
|
|
|
0.07 |
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
$ |
5.07 |
|
|
$ |
4.50 |
|
|
$ |
5.10 |
|
|
$ |
4.67 |
|
|
$ |
2.10 |
|
|
$ |
1.74 |
|
Earnings per common share
assuming dilution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative
effects of
accounting changes |
|
$ |
5.01 |
|
|
$ |
4.45 |
|
|
$ |
5.02 |
|
|
$ |
4.56 |
|
|
$ |
2.09 |
|
|
$ |
1.73 |
|
Cumulative effects of accounting
changes |
|
|
|
|
|
|
|
|
|
|
0.05 |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
Earnings per common share
assuming dilution |
|
$ |
5.01 |
|
|
$ |
4.45 |
|
|
$ |
5.07 |
|
|
$ |
4.64 |
|
|
$ |
2.09 |
|
|
$ |
1.73 |
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2004 |
|
2003 |
|
2002 |
|
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
|
(In thousands) |
Cash Flow Statement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
134,903 |
|
|
$ |
119,668 |
|
|
$ |
134,470 |
|
|
$ |
123,192 |
|
|
$ |
55,399 |
|
|
$ |
45,803 |
|
Depreciation, depletion and amortization |
|
|
188,153 |
|
|
|
210,861 |
|
|
|
170,845 |
|
|
|
188,813 |
|
|
|
160,762 |
|
|
|
175,496 |
|
Deferred income tax provision |
|
|
72,640 |
|
|
|
64,436 |
|
|
|
71,747 |
|
|
|
65,203 |
|
|
|
29,830 |
|
|
|
24,662 |
|
Cumulative effect of accounting changes |
|
|
|
|
|
|
|
|
|
|
(1,225 |
) |
|
|
(2,099 |
) |
|
|
|
|
|
|
|
|
Increase in accounts payable |
|
|
|
|
|
|
900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flow provided
by operating activities |
|
|
369,499 |
|
|
|
369,668 |
|
|
|
391,539 |
|
|
|
390,811 |
|
|
|
222,921 |
|
|
|
222,891 |
|
Investment in oil and gas properties |
|
|
(484,767 |
) |
|
|
(484,936 |
) |
|
|
(340,516 |
) |
|
|
(339,788 |
) |
|
|
(213,566 |
) |
|
|
(213,536 |
) |
Net cash used in investing activities |
|
|
(474,990 |
) |
|
|
(475,159 |
) |
|
|
(341,908 |
) |
|
|
(341,180 |
) |
|
|
(216,600 |
) |
|
|
(216,570 |
) |
Supplemental disclosure for cash
paid during the year for interest
(net of amount capitalized) |
|
|
15,214 |
|
|
|
15,945 |
|
|
|
22,898 |
|
|
|
23,626 |
|
|
|
22,495 |
|
|
|
22,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2004 |
|
2003 |
|
2002 |
|
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
|
(In thousands) |
Statement of
Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
134,903 |
|
|
$ |
119,668 |
|
|
$ |
134,470 |
|
|
$ |
123,192 |
|
|
$ |
55,399 |
|
|
$ |
45,803 |
|
Comprehensive income |
|
|
134,378 |
|
|
|
119,143 |
|
|
|
130,475 |
|
|
|
119,197 |
|
|
|
43,135 |
|
|
|
33,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2004 |
|
2003 |
|
|
As |
|
As |
|
As |
|
As |
|
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
|
(In thousands) |
Balance sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved oil and gas properties |
|
$ |
1,489,498 |
|
|
$ |
1,376,151 |
|
|
$ |
1,210,333 |
|
|
$ |
1,119,164 |
|
Accumulated depreciation,
depletion and amortization |
|
|
1,516,620 |
|
|
|
1,640,362 |
|
|
|
1,319,337 |
|
|
|
1,420,371 |
|
Unevaluated oil and gas properties |
|
|
153,041 |
|
|
|
141,157 |
|
|
|
107,600 |
|
|
|
96,977 |
|
Total assets |
|
|
1,820,895 |
|
|
|
1,695,664 |
|
|
|
1,434,277 |
|
|
|
1,332,485 |
|
Deferred taxes |
|
|
205,331 |
|
|
|
161,500 |
|
|
|
130,935 |
|
|
|
95,309 |
|
Total liabilities |
|
|
966,561 |
|
|
|
922,730 |
|
|
|
724,000 |
|
|
|
688,374 |
|
Retained earnings |
|
|
399,825 |
|
|
|
318,425 |
|
|
|
264,935 |
|
|
|
198,769 |
|
Total stockholders equity |
|
|
854,334 |
|
|
|
772,934 |
|
|
|
710,277 |
|
|
|
644,111 |
|
Total liabilities and stockholders
equity |
|
|
1,820,895 |
|
|
|
1,695,664 |
|
|
|
1,434,277 |
|
|
|
1,332,485 |
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
Six Months Ended |
|
|
|
March 31, 2005 |
|
|
June 30, 2005 |
|
|
June 30, 2005 |
|
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
|
Reported |
|
|
Restated |
|
|
Reported |
|
|
Restated |
|
|
Reported |
|
|
Restated |
|
|
|
(In thousands, except per share amounts) |
|
Income Statement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and
amortization |
|
$ |
56,192 |
|
|
$ |
62,021 |
|
|
$ |
65,676 |
|
|
$ |
72,399 |
|
|
$ |
121,868 |
|
|
$ |
134,420 |
|
Total operating expenses |
|
|
93,805 |
|
|
|
99,634 |
|
|
|
106,181 |
|
|
|
112,904 |
|
|
|
199,986 |
|
|
|
212,538 |
|
Income from operations |
|
|
62,348 |
|
|
|
56,519 |
|
|
|
79,057 |
|
|
|
72,334 |
|
|
|
141,405 |
|
|
|
128,853 |
|
Interest expense |
|
|
5,624 |
|
|
|
5,831 |
|
|
|
5,721 |
|
|
|
5,934 |
|
|
|
11,345 |
|
|
|
11,765 |
|
Total other expenses, net. |
|
|
5,035 |
|
|
|
5,242 |
|
|
|
4,479 |
|
|
|
4,692 |
|
|
|
9,514 |
|
|
|
9,934 |
|
Net income before income
taxes |
|
|
57,313 |
|
|
|
51,277 |
|
|
|
74,578 |
|
|
|
67,642 |
|
|
|
131,891 |
|
|
|
118,919 |
|
Income tax provision |
|
|
19,965 |
|
|
|
17,853 |
|
|
|
26,102 |
|
|
|
23,675 |
|
|
|
46,067 |
|
|
|
41,528 |
|
Net income |
|
|
37,348 |
|
|
|
33,424 |
|
|
|
48,476 |
|
|
|
43,967 |
|
|
|
85,824 |
|
|
|
77,391 |
|
Earnings per common share |
|
$ |
1.40 |
|
|
$ |
1.25 |
|
|
$ |
1.80 |
|
|
$ |
1.64 |
|
|
$ |
3.20 |
|
|
$ |
2.89 |
|
Earnings per common share
assuming dilution |
|
$ |
1.38 |
|
|
$ |
1.24 |
|
|
$ |
1.79 |
|
|
$ |
1.62 |
|
|
$ |
3.17 |
|
|
$ |
2.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Six Months Ended |
|
|
|
March 31, 2005 |
|
|
June 30, 2005 |
|
|
|
As |
|
|
As |
|
|
As |
|
|
As |
|
|
|
Reported |
|
|
Restated |
|
|
Reported |
|
|
Restated |
|
|
|
(In thousands) |
|
Cash Flow Statement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
37,348 |
|
|
$ |
33,424 |
|
|
$ |
85,824 |
|
|
$ |
77,391 |
|
Depreciation, depletion and amortization |
|
|
56,192 |
|
|
|
62,021 |
|
|
|
121,868 |
|
|
|
134,420 |
|
Deferred income tax provision |
|
|
19,965 |
|
|
|
17,853 |
|
|
|
46,067 |
|
|
|
41,528 |
|
Net cash flow provided by operating
activities |
|
|
111,186 |
|
|
|
110,979 |
|
|
|
250,655 |
|
|
|
250,235 |
|
Investment in oil and gas properties |
|
|
(180,059 |
) |
|
|
(179,852 |
) |
|
|
(289,612 |
) |
|
|
(289,192 |
) |
Net cash used in investing activities |
|
|
(180,753 |
) |
|
|
(180,546 |
) |
|
|
(291,350 |
) |
|
|
(290,930 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
March 31, 2004 |
|
June 30, 2004 |
|
September 30, 2004 |
|
December 31, 2004 |
|
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
|
(In thousands, except per share amounts) |
Income Statement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and
amortization |
|
$ |
46,744 |
|
|
$ |
53,300 |
|
|
$ |
50,060 |
|
|
$ |
56,217 |
|
|
$ |
46,139 |
|
|
$ |
51,534 |
|
|
$ |
45,210 |
|
|
$ |
49,810 |
|
Total operating expenses |
|
|
75,245 |
|
|
|
81,801 |
|
|
|
81,325 |
|
|
|
87,482 |
|
|
|
85,562 |
|
|
|
90,957 |
|
|
|
80,054 |
|
|
|
84,654 |
|
Income from operations |
|
|
58,335 |
|
|
|
51,779 |
|
|
|
60,899 |
|
|
|
54,742 |
|
|
|
42,744 |
|
|
|
37,349 |
|
|
|
60,037 |
|
|
|
55,437 |
|
Interest expense |
|
|
3,949 |
|
|
|
4,108 |
|
|
|
3,988 |
|
|
|
4,150 |
|
|
|
4,050 |
|
|
|
4,225 |
|
|
|
4,117 |
|
|
|
4,353 |
|
Total other expenses, net |
|
|
3,300 |
|
|
|
3,459 |
|
|
|
5,663 |
|
|
|
5,825 |
|
|
|
3,413 |
|
|
|
3,588 |
|
|
|
2,096 |
|
|
|
2,331 |
|
Net income before income
taxes |
|
|
55,035 |
|
|
|
48,320 |
|
|
|
55,236 |
|
|
|
48,917 |
|
|
|
39,331 |
|
|
|
33,761 |
|
|
|
57,941 |
|
|
|
53,106 |
|
Income tax provision |
|
|
19,262 |
|
|
|
16,912 |
|
|
|
19,333 |
|
|
|
17,121 |
|
|
|
13,766 |
|
|
|
11,816 |
|
|
|
20,279 |
|
|
|
18,587 |
|
Net income |
|
|
35,773 |
|
|
|
31,408 |
|
|
|
35,903 |
|
|
|
31,796 |
|
|
|
25,565 |
|
|
|
21,945 |
|
|
|
37,662 |
|
|
|
34,519 |
|
Earnings per common share |
|
$ |
1.35 |
|
|
$ |
1.19 |
|
|
$ |
1.35 |
|
|
$ |
1.20 |
|
|
$ |
0.96 |
|
|
$ |
0.82 |
|
|
$ |
1.41 |
|
|
$ |
1.29 |
|
Earnings per common share
assuming dilution |
|
$ |
1.33 |
|
|
$ |
1.17 |
|
|
$ |
1.33 |
|
|
$ |
1.18 |
|
|
$ |
0.95 |
|
|
$ |
0.82 |
|
|
$ |
1.40 |
|
|
$ |
1.28 |
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
March 31, 2003 |
|
June 30, 2003 |
|
September 30, 2003 |
|
December 31, 2003 |
|
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
Income Statement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and
amortization |
|
$ |
41,719 |
|
|
$ |
45,433 |
|
|
$ |
41,046 |
|
|
$ |
44,634 |
|
|
$ |
42,020 |
|
|
$ |
45,961 |
|
|
$ |
46,060 |
|
|
$ |
52,785 |
|
Total operating expenses |
|
|
68,645 |
|
|
|
72,358 |
|
|
|
68,700 |
|
|
|
72,289 |
|
|
|
71,704 |
|
|
|
75,645 |
|
|
|
73,066 |
|
|
|
79,791 |
|
Income from operations |
|
|
88,901 |
|
|
|
85,188 |
|
|
|
48,512 |
|
|
|
44,923 |
|
|
|
44,289 |
|
|
|
40,349 |
|
|
|
44,488 |
|
|
|
37,762 |
|
Interest expense |
|
|
5,521 |
|
|
|
5,696 |
|
|
|
5,167 |
|
|
|
5,357 |
|
|
|
4,760 |
|
|
|
4,962 |
|
|
|
3,684 |
|
|
|
3,845 |
|
Total other expenses, net |
|
|
4,850 |
|
|
|
5,025 |
|
|
|
4,471 |
|
|
|
4,661 |
|
|
|
9,268 |
|
|
|
9,469 |
|
|
|
2,609 |
|
|
|
2,771 |
|
Net income before income
taxes |
|
|
84,051 |
|
|
|
80,163 |
|
|
|
44,041 |
|
|
|
40,262 |
|
|
|
35,021 |
|
|
|
30,880 |
|
|
|
41,879 |
|
|
|
34,991 |
|
Income tax provision |
|
|
29,418 |
|
|
|
28,057 |
|
|
|
15,414 |
|
|
|
14,091 |
|
|
|
12,254 |
|
|
|
10,807 |
|
|
|
14,661 |
|
|
|
12,248 |
|
Income before cumulative
effects of accounting
changes, net of tax |
|
|
54,633 |
|
|
|
52,106 |
|
|
|
28,627 |
|
|
|
26,171 |
|
|
|
22,767 |
|
|
|
20,073 |
|
|
|
27,218 |
|
|
|
22,743 |
|
Cumulative effect of
accounting
changes, net of tax |
|
|
1,225 |
|
|
|
2,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
55,858 |
|
|
|
54,205 |
|
|
|
28,627 |
|
|
|
26,171 |
|
|
|
22,767 |
|
|
|
20,073 |
|
|
|
27,218 |
|
|
|
22,743 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative
effects of accounting
changes |
|
$ |
2.07 |
|
|
$ |
1.98 |
|
|
$ |
1.09 |
|
|
$ |
0.99 |
|
|
$ |
0.86 |
|
|
$ |
0.76 |
|
|
$ |
1.03 |
|
|
$ |
0.86 |
|
Cumulative effects of
accounting changes |
|
|
0.05 |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
$ |
2.12 |
|
|
$ |
2.06 |
|
|
$ |
1.09 |
|
|
$ |
0.99 |
|
|
$ |
0.86 |
|
|
$ |
0.76 |
|
|
$ |
1.03 |
|
|
$ |
0.86 |
|
Earnings per common share
assuming dilution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative
effects
of accounting changes |
|
$ |
2.06 |
|
|
$ |
1.97 |
|
|
$ |
1.08 |
|
|
$ |
0.98 |
|
|
$ |
0.86 |
|
|
$ |
0.75 |
|
|
$ |
1.02 |
|
|
$ |
0.86 |
|
Cumulative effects of
accounting changes |
|
|
0.05 |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
assuming dilution |
|
$ |
2.11 |
|
|
$ |
2.05 |
|
|
$ |
1.08 |
|
|
$ |
0.98 |
|
|
$ |
0.86 |
|
|
$ |
0.75 |
|
|
$ |
1.02 |
|
|
$ |
0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
March 31, 2002 |
|
June 30, 2002 |
|
September 30, 2002 |
|
December 31, 2002 |
|
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
As |
|
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
Reported |
|
Restated |
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
Income Statement: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and
amortization |
|
$ |
40,749 |
|
|
$ |
44,847 |
|
|
$ |
42,166 |
|
|
$ |
45,826 |
|
|
$ |
39,662 |
|
|
$ |
43,208 |
|
|
$ |
38,185 |
|
|
$ |
41,615 |
|
Total operating expenses |
|
|
66,330 |
|
|
|
70,428 |
|
|
|
70,456 |
|
|
|
74,116 |
|
|
|
68,293 |
|
|
|
71,839 |
|
|
|
67,405 |
|
|
|
70,835 |
|
Income from operations |
|
|
14,200 |
|
|
|
10,102 |
|
|
|
29,981 |
|
|
|
26,321 |
|
|
|
26,230 |
|
|
|
22,684 |
|
|
|
34,599 |
|
|
|
31,168 |
|
Interest expense |
|
|
5,454 |
|
|
|
5,454 |
|
|
|
6,032 |
|
|
|
6,032 |
|
|
|
5,900 |
|
|
|
5,900 |
|
|
|
5,725 |
|
|
|
5,755 |
|
Total other expenses, net |
|
|
4,577 |
|
|
|
4,577 |
|
|
|
5,388 |
|
|
|
5,388 |
|
|
|
5,167 |
|
|
|
5,167 |
|
|
|
4,651 |
|
|
|
4,681 |
|
Net income before income
taxes |
|
|
9,624 |
|
|
|
5,525 |
|
|
|
24,592 |
|
|
|
20,933 |
|
|
|
21,065 |
|
|
|
17,517 |
|
|
|
29,948 |
|
|
|
26,487 |
|
Income tax provision |
|
|
3,368 |
|
|
|
1,934 |
|
|
|
8,608 |
|
|
|
7,326 |
|
|
|
7,372 |
|
|
|
6,132 |
|
|
|
10,482 |
|
|
|
9,270 |
|
Net income |
|
|
6,256 |
|
|
|
3,591 |
|
|
|
15,984 |
|
|
|
13,607 |
|
|
|
13,693 |
|
|
|
11,385 |
|
|
|
19,466 |
|
|
|
17,217 |
|
Earnings per common share |
|
$ |
0.24 |
|
|
$ |
0.14 |
|
|
$ |
0.61 |
|
|
$ |
0.52 |
|
|
$ |
0.52 |
|
|
$ |
0.43 |
|
|
$ |
0.74 |
|
|
$ |
0.65 |
|
Earnings per common share
assuming dilution |
|
$ |
0.24 |
|
|
$ |
0.14 |
|
|
$ |
0.60 |
|
|
$ |
0.51 |
|
|
$ |
0.52 |
|
|
$ |
0.43 |
|
|
$ |
0.74 |
|
|
$ |
0.65 |
|
8
Note 2 Interim Financial Statements
The condensed consolidated financial statements of Stone Energy Corporation and subsidiary as
of September 30, 2005 and for the three and nine-month periods ended September 30, 2005 and 2004
are unaudited and reflect all adjustments (consisting only of normal recurring adjustments, except
for the Financial Restatement described in Note 1), which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating results for the interim
period. The consolidated financial statements should be read in conjunction with the consolidated
financial statements and notes thereto, together with managements discussion and analysis of
financial condition and results of operations, contained in our Annual Report on Form 10-K. The
results of operations for the three and nine-month periods ended September 30, 2005 are not
necessarily indicative of future financial results.
Note 3 Earnings Per Share
Basic net income per share of common stock was calculated by dividing net income applicable to
common stock by the weighted-average number of common shares outstanding during the period.
Diluted net income per share of common stock was calculated by dividing net income applicable to
common stock by the weighted-average number of common shares outstanding during the period plus the
weighted-average number of dilutive stock options and restricted stock granted to outside directors
and employees. There were approximately 364,000 and 278,000 dilutive shares for the three months
ended September 30, 2005 and 2004, respectively, and 312,000 and 329,000 dilutive shares for the
nine months ended September 30, 2005 and 2004, respectively.
Stock options that were considered antidilutive because the exercise price of the option
exceeded the average price of our stock for the applicable period totaled approximately 369,000 and
747,000 shares in the three months ended September 30, 2005 and 2004, respectively, and 588,000 and
624,000 shares in the nine months ended September 30, 2005 and 2004, respectively.
During the three months ended September 30, 2005 and 2004, approximately 215,000 and 12,000
shares of common stock, respectively, were issued upon the exercise of stock options and vesting of
restricted stock by employees and nonemployee directors. For the nine months ended September 30,
2005 and 2004, approximately 466,000 and 242,000 shares of common stock, respectively, were issued
upon the exercise of stock options and vesting of restricted stock by employees and nonemployee
directors and the awarding of employee bonus stock pursuant to the 2004 Amended and Restated Stock
Incentive Plan.
Note 4 Hedging Activities
We enter into hedging transactions to secure a commodity price for a portion of future
production that is acceptable at the time of the transaction. The primary objective of these
activities is to reduce our exposure to the risk of declining oil and natural gas prices during the
term of the hedge. We do not enter into hedging transactions for trading purposes. We currently
utilize two forms of hedging contracts: fixed price swaps and zero-premium collars.
The following table illustrates our hedging positions as September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zero-Premium Collars |
|
|
Natural Gas |
|
Oil |
|
|
Daily |
|
|
|
|
|
|
|
|
|
Daily |
|
|
|
|
|
|
Volume |
|
|
|
|
|
|
|
|
|
Volume |
|
|
|
|
|
|
(MMBtus/d) |
|
Floor |
|
Ceiling |
|
(Bbls/d) |
|
Floor |
|
Ceiling |
2005 |
|
|
20,000 |
|
|
$ |
4.50 |
|
|
$ |
10.25 |
|
|
|
4,000 |
|
|
$ |
28.00 |
|
|
$ |
52.90 |
|
2005 |
|
|
20,000 |
|
|
|
4.00 |
|
|
|
13.50 |
|
|
|
4,000 |
|
|
|
28.00 |
|
|
|
52.75 |
|
2005 |
|
|
10,000 |
|
|
|
5.00 |
|
|
|
10.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
10,000 |
|
|
|
5.00 |
|
|
|
10.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
10,000 |
|
|
|
5.50 |
|
|
|
10.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Price Gas Swaps |
|
|
Daily |
|
|
|
|
Volume |
|
|
|
|
(MMBtus/d) |
|
Price(1) |
2005 |
|
|
15,000 |
|
|
$ |
3.42 |
|
|
|
|
(1) |
|
Based upon Inside FERC published prices for natural gas deliveries at Kern River. |
9
Under Statement of Financial Accounting Standards (SFAS) No. 133, the nature of a derivative
instrument must be evaluated to determine if it qualifies for hedge accounting treatment. If the
instrument qualifies for hedge accounting treatment, it is recorded as either an asset or liability
measured at fair value and subsequent changes in the derivatives fair value are recognized in
equity through other comprehensive income, to the extent the hedge is considered effective.
Additionally, monthly settlements of effective hedges are reflected in revenue from oil and gas
production. Instruments not qualifying for hedge accounting are recorded in the balance sheet at
fair value and changes in fair value are recognized in earnings. Monthly settlements of
ineffective hedges are recognized in earnings through derivative expense and are not reflected as
revenue from oil and gas production.
During the three months ended September 30, 2005 and 2004, we realized net decreases in gas
revenue related to our effective swaps of $4.7 million and $2.3 million, respectively. During the
nine months ended September 30, 2005 and 2004, we realized net decreases in gas revenue related to
effective swaps of $11.2 million and $6.7 million, respectively. In addition, we realized a net
decrease in oil revenue related to our effective zero-premium collars in the amount of $6.1 million
during the three months ended September 30, 2005 and $7.5 million during the nine months ended
September 30, 2005.
As a result of extended shut-ins of production after Hurricane Katrina and Hurricane Rita, our
September, October and November crude oil production levels were below the volumes which we had
hedged. Consequently, one of our crude oil hedges for the months of September, October and
November was deemed to be ineffective. During the third quarter of 2005, we recognized $4.8
million of derivative expenses, $1.5 million of which represented a charge related to the cash
settlement of the ineffective September crude oil collar and $3.3 million of which represented a
non-cash charge related to the mark-to-market fair value change in the ineffective October and
November crude oil collars. Derivative expenses for the three- and nine-month periods ended
September 30, 2004 totaled $1.1 million and $3.0 million, respectively, representing the cost
associated with oil and gas puts that settled during those periods.
Note 5 Long-Term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
|
(Unaudited) |
|
|
|
(In millions) |
|
81/4% Senior Subordinated Notes due 2011 |
|
$ |
200 |
|
|
$ |
200 |
|
63/4% Senior Subordinated Notes due 2014 |
|
|
200 |
|
|
|
200 |
|
Bank debt |
|
|
113 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
513 |
|
|
$ |
482 |
|
|
|
|
|
|
|
|
Borrowings outstanding at September 30, 2005 under our bank credit facility totaled $113.0
million, and letters of credit totaling $13.1 million have been issued under the facility. At
September 30, 2005, we had $298.9 million of borrowings available under the credit facility and the
weighted average interest rate was approximately 4.9%. During the third quarter of 2005, we repaid
$45.0 million of debt under the facility. During the fourth quarter of 2005, we borrowed $50.0
million of debt under the facility. As of March 1, 2006, we had a borrowing base under the credit
facility of $300 million with availability of an additional $114.1 million of borrowings. Our
borrowing base was reduced from $425 million to $300 million after we announced our reserve
revision in October 2005.
Under the financial covenants of our credit facility, we must (i) maintain a ratio of
consolidated debt to consolidated EBITDA, as defined in the amended credit agreement, for the
preceding four quarterly periods of not greater than 3.25 to 1 and (ii) maintain a Consolidated
Tangible Net Worth (as defined). In addition, the credit facility places certain customary
restrictions or requirements with respect to disposition of properties, incurrence of additional
debt, change of ownership and reporting responsibilities. These covenants may limit or prohibit us
from paying cash dividends. During 2005, the participating banks in our credit facility granted
waivers from certain covenants regarding the filing of our financial statements until March 31,
2006. Additionally, we agreed to secure borrowings under the facility with a security interest in
certain oil and gas properties. As of the date of this filing we had not completed the transfer of
the security interests to the banks participating in the facility. If we are unable to complete
this transaction by March 31, 2006, it is possible that the balance of facility could become due at
that time; however, we believe we could replace the facility if this were to occur.
10
On December 15, 2004, we issued $200 million 63/4% Senior Subordinated Notes due 2014. The
notes were sold at par value and we received net proceeds of $195.5 million and are subordinated to
our senior unsecured credit facility and rank pari passu with our 81/4% Senior Subordinated Notes.
There is no sinking fund requirement and the notes are redeemable at our option, in whole but not
in part, at any time before December 15, 2009 at a Make-Whole Amount. Beginning December 15, 2009,
the notes are redeemable at our option, in whole or in part, at 103.375% of their principal amount
and thereafter at prices declining annually to 100% on and after December 15, 2012. In addition,
before December 15, 2007, we may redeem up to 35% of the aggregate principal amount of the notes
issued with net proceeds from an equity offering at 106.75%. The notes provide for certain
covenants, which include, without limitation, restrictions on liens, indebtedness, asset sales,
dividend payments and other restricted payments. We received notice of non-compliance from
holders of over 25 percent of the outstanding principal amount of our $200 million 63/4% Senior
Subordinated Notes due 2014 relating to the non-issuance of financial statements. The receipt of
notice of non-compliance started a 60 day period beginning February 15, 2006 in which to cure the
default relating to the non-issuance of financial statements. As a consequence of these notices,
we became unable to borrow additional funds under our bank credit facility until the default was
cured. We believe the filing of this Form 10-Q and our Form 10-K for the year ended December 31,
2005 has cured the default.
Note 6 Comprehensive Income
The following table illustrates the components of comprehensive income for the three and nine
months ended September 30, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
Restated |
|
|
|
|
|
Restated |
|
|
|
(In millions) |
|
|
|
(Unaudited) |
|
Net income |
|
$ |
33.0 |
|
|
$ |
21.9 |
|
|
$ |
110.4 |
|
|
$ |
85.1 |
|
Other comprehensive income (loss), net of tax effect: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment for fair value accounting of
derivatives |
|
|
(11.2 |
) |
|
|
(4.4 |
) |
|
|
(15.0 |
) |
|
|
(7.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
21.8 |
|
|
$ |
17.5 |
|
|
$ |
95.4 |
|
|
$ |
77.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Asset Retirement Obligations
During the third quarter of 2005 and 2004, we recognized non-cash expenses of $1.8 million and
$1.5 million, respectively, related to the accretion of our asset retirement obligation. For the
nine-month periods ended September 30, 2005 and 2004, we recognized accretion expense of $5.4
million and $4.4 million, respectively. For the three- and nine-month periods ended September 30,
2005, we settled $0.8 million of asset retirement obligations and recorded a revision to the asset
retirement obligation in the amount of $49.1 million related to higher estimated costs combined
with a shortened time frame to plug and abandon our facilities.
Note 8 Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123,
Accounting for Stock-Based Compensation, which became effective with respect to us in 1996. Under
SFAS No. 123, companies can either record expense based on the fair value of stock-based
compensation upon issuance or elect to remain under the current method, Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, whereby no compensation cost is
recognized upon grant if certain requirements are met. We have continued to account for our
stock-based compensation under APB Opinion No. 25.
11
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation
Transition and Disclosure, an amendment of FASB Statement No. 123, to amend the disclosure
requirements of SFAS No. 123 to require prominent disclosure in both annual and interim financial
statements about the method of accounting for stock-based employee compensation and the effects of
the method used on reported results. If the compensation expense for stock-based compensation
plans had been determined consistent with the expense recognition provisions under SFAS No. 123 and
assuming the straight-line method for recognition of expenses in the applicable vesting periods,
our net income and earnings per common share and earnings per common share assuming dilution for
the periods presented would have approximated the pro forma amounts below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2004 |
|
|
2005 |
|
|
2004 |
|
|
|
|
|
|
Restated |
|
|
|
|
|
Restated |
|
|
|
(In millions, except per share amounts) |
|
|
|
(Unaudited) |
|
Net income |
|
$ |
33.0 |
|
|
$ |
21.9 |
|
|
$ |
110.4 |
|
|
$ |
85.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Stock-based compensation expense included
in net income, net of tax |
|
|
0.7 |
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
Less: Stock-based compensation expense using fair
value method, net of tax |
|
|
(1.7 |
) |
|
|
(1.4 |
) |
|
|
(4.1 |
) |
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
32.0 |
|
|
$ |
20.5 |
|
|
$ |
107.4 |
|
|
$ |
81.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.22 |
|
|
$ |
0.82 |
|
|
$ |
4.11 |
|
|
$ |
3.21 |
|
Pro forma basic earnings per share |
|
|
1.18 |
|
|
|
0.77 |
|
|
|
4.00 |
|
|
|
3.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.20 |
|
|
$ |
0.82 |
|
|
$ |
4.06 |
|
|
$ |
3.17 |
|
Pro forma diluted earnings per share |
|
|
1.17 |
|
|
|
0.76 |
|
|
|
3.95 |
|
|
|
3.01 |
|
On December 16, 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which is a
revision of SFAS No. 123. SFAS No. 123(R) supersedes APB Opinion No. 25 and amends SFAS No. 95,
Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach
described in SFAS No. 123; however, SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, be recognized in the income statement based on their
fair values. Pro forma disclosure will no longer be an alternative.
SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:
|
1. |
|
the modified prospective method in which compensation cost is
recognized beginning with the effective date (a) based on the requirements of SFAS
No. 123(R) for all share-based payments granted after the effective date and (b)
based on the requirements of SFAS No. 123 for all awards granted to employees prior
to the effective date of SFAS No. 123(R) that remain unvested on the effective date;
or |
|
|
2. |
|
the modified retrospective method which includes the requirements of
the modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under SFAS No. 123 for purposes
of pro forma disclosures either (a) all prior periods presented or (b) prior interim
periods of the year of adoption. |
In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 107 which expressed the views of the SEC regarding the interaction between SFAS No.
123(R) and certain SEC rules and regulations. SAB No. 107 provides guidance related to the
valuation of share-based payment arrangements for public companies, including assumptions such as
expected volatility and expected term. In April 2005, the SEC approved a rule that delayed the
effective date of SFAS No. 123(R) for public companies. As a result, SFAS No. 123(R) will be
effective for us on January 1, 2006.
12
Stone has elected to adopt the requirements of SFAS No. 123(R) using the modified
prospective method. We have historically used the Black-Scholes option-pricing model for
estimating stock compensation expense for disclosure purposes and intend to continue using such
method upon adoption of SFAS No. 123(R).
We expect the implementation of SFAS No. 123(R) to impact our 2006 financial statements as
follows:
|
|
|
Expense amounts related to stock option issuances will be expensed in the
income statement prospectively as opposed to the pro forma disclosures
previously presented in prior periods. Expense amounts on stock options to
be incurred in 2006 and future periods will be contingent upon several
factors including the number of options issued and capitalization rates and
therefore, prior pro forma amounts should not be assumed to be necessarily
indicative of future expense amounts. |
|
|
|
|
Unearned Compensation and Additional Paid-In Capital balances related to
our restricted stock issuances will be reversed. |
|
|
|
|
The tax benefits from the vesting of restricted stock and the exercise of
stock options will no longer be recorded as an addition to Additional
Paid-In Capital until we are in a current tax paying position. Presently,
all of our income taxes are being deferred and we have substantial net
operating losses available for carryover to future periods. |
On August 16, 2005, Stone awarded restricted stock grants to all employees. Unearned
compensation expense in the amount of $14.1 million was recorded in the third quarter of 2005 for
the restricted stock grants and will be amortized over the vesting period of the restricted stock
grants. Stock compensation totaled $1.1 million for the third quarter of 2005. Of this amount,
$0.5 million was expensed and $0.6 million was capitalized as part of the cost of oil and gas
properties.
Note 9 Commitments and Contingencies
On December 30, 2004, Stone was served with two petitions (civil action numbers 2004-6227 and
2004-6228) filed by the Louisiana Department of Revenue (LDR) in the 15th Judicial District Court
(Parish of Lafayette, Louisiana) claiming additional franchise taxes due. In one case, the LDR is
seeking additional franchise taxes from Stone in the amount of $640,000, plus accrued interest of
$352,000 (calculated through December 15, 2004), for the franchise year 2001. In the other case,
the LDR is seeking additional franchise taxes from Stone (as successor to Basin Exploration, Inc.)
in the amount of $274,000, plus accrued interest of $159,000 (calculated through December 15,
2004), for the franchise years 1999, 2000 and 2001. Further, on December 29, 2005, the LDR filed
another petition in the 15th Judicial District Court claiming additional franchise taxes
due for the taxable years ended December 31, 2002 and 2003 in the amount of $2.6 million plus
accrued interest calculated through December 15, 2005 in the amount of $1.2 million. These
assessments all relate to the LDRs assertion that sales of crude oil and natural gas from
properties located on the Outer Continental Shelf, which are transported through the state of
Louisiana, should be sourced to the state of Louisiana for purposes of computing the Louisiana
franchise tax apportionment ratio. The Company disagrees with these contentions and intends to
vigorously defend itself against these claims.
Stone has received notice that the staff of the SEC is conducting an informal inquiry into the
revision of Stones proved reserves and the financial statement restatement. In addition, Stone
has received an inquiry from the Philadelphia Stock Exchange investigating matters including
trading prior to Stones October 6, 2005 announcement. Stone intends to cooperate fully with both
inquiries.
13
On or around November 30, 2005, George Porch filed a putative class action in the United
States District Court for the Western District of Louisiana against Stone, David H. Welch, Kenneth
H. Beer, D. Peter Canty and James H. Prince purporting to allege violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 (the Exchange Act). Three similar complaints were
filed soon thereafter. All complaints assert a putative class period commencing on June 17, 2005
and ending on October 6, 2005. All complaints contend that, during the putative class period,
defendants, among other things, misstated or failed to disclose (i) that Stone had materially
overstated Stones financial results by overvaluing its oil reserves through improper and
aggressive reserve methodologies; (ii) that the Company lacked adequate internal controls and was
therefore unable to ascertain its true financial condition; and (iii) that as a result of the
foregoing, the values of the Companys proved reserves, assets and future net cash flows were
materially overstated at all relevant times. A motion to consolidate these actions and to appoint
a lead plaintiff will be heard on March 22, 2006. In addition, on or about December 16, 2005,
Robert Farer filed a complaint in the United States District Court for the Western District of
Louisiana alleging claims derivatively on behalf of Stone, and three similar complaints were filed
soon thereafter in federal and state court. Stone is named as a nominal defendant, and certain
current and former officers and directors are named as defendants in these actions, which allege
breaches of the fiduciary duties owed to Stone, gross mismanagement, abuse of control, waste of
corporate assets, unjust enrichment, and violations of the Sarbanes-Oxley Act of 2002. Stone
intends to vigorously defend these lawsuits.
Stones Certificate of Incorporation and/or its Restated Bylaws provide, to the extent
permissible under the law of Delaware (Stones state of incorporation), for indemnification of and
advancement of defense costs to Stones current and former directors and officers for potential
liabilities related to their service to Stone. Stone has purchased directors and officers
insurance policies that, under certain circumstances, may provide coverage to Stone and/or its
officers and directors for certain losses resulting from securities-related civil liabilities
and/or the satisfaction of indemnification and advancement obligations owed to directors and
officers. These insurance policies may not cover all costs and liabilities incurred by Stone and
its current and former officers and directors in these regulatory and civil proceedings.
14
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Form 10-Q and the information referenced herein contain statements that constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The words plan, expect, project,
estimate, assume, believe, anticipate, intend, budget, forecast, predict and other
similar expressions are intended to identify forward-looking statements. These statements appear
in a number of places and include statements regarding our plans, beliefs or current expectations,
including the plans, beliefs and expectations of our officers and directors. We use the terms
Stone, Stone Energy, Company, we, us and our to refer to Stone Energy Corporation.
When considering any forward-looking statement, you should keep in mind the risk factors that
could cause our actual results to differ materially from those contained in any forward-looking
statement. 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 our Annual Report on Form
10-K. Furthermore, the assumptions that support our forward-looking statements are based upon
information that is currently available and is subject to change. We specifically disclaim all
responsibility to publicly update any information contained in a forward-looking statement or any
forward-looking statement in its entirety and therefore disclaim any resulting liability for
potentially related damages. All forward-looking statements attributable to Stone Energy
Corporation are expressly qualified in their entirety by this cautionary statement.
Overview
Stone Energy Corporation is an independent oil and gas company engaged in the acquisition and
subsequent exploration, development, production and operation of oil and gas properties located in
the conventional shelf of the Gulf of Mexico (the GOM), the deep shelf of the GOM, the deep water
of the GOM, several basins of the Rocky Mountains and the Williston Basin. Throughout this
document, reference to our Gulf Coast Basin properties includes our onshore, shelf and deep shelf
properties. Reference to our Rocky Mountain Region includes our properties in several Rocky
Mountain Basins and the Williston Basin. All period to period comparisons are based on restated
amounts.
Critical Accounting Policies
Our Annual Report on Form 10-K describes the accounting policies that we believe are critical
to the reporting of our financial position and operating results and that require managements most
difficult, subjective or complex judgments. Our most significant estimates are:
|
|
|
remaining proved oil and gas reserves volumes and the timing of their production; |
|
|
|
|
estimated costs to develop and produce proved oil and gas reserves; |
|
|
|
|
accruals of exploration costs, development costs, operating costs and production revenue; |
|
|
|
|
timing and future costs to abandon our oil and gas properties; |
|
|
|
|
the effectiveness and estimated fair value of derivative positions; |
|
|
|
|
classification of unevaluated property costs; |
|
|
|
|
capitalized general and administrative costs and interest; and |
|
|
|
|
contingencies. |
This Quarterly Report on Form 10-Q should be read together with the discussion contained in
our Annual Report on Form 10-K regarding these critical accounting policies.
Other Factors Affecting Our Business and Financial Results
In addition to the matters discussed above, our business, financial condition and results of
operations are affected by a number of other factors. This Quarterly Report on Form 10-Q should be
read in conjunction with the discussion in our Annual Report on Form 10-K regarding these other
risk factors.
15
Results of Operations
The following tables set forth certain information with respect to our oil and gas operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
Variance |
|
|
% Change |
|
Production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls) |
|
|
1,111 |
|
|
|
1,358 |
|
|
|
(247 |
) |
|
|
(18 |
%) |
Gas (MMcf) |
|
|
12,728 |
|
|
|
12,919 |
|
|
|
(191 |
) |
|
|
(1 |
%) |
Oil and gas (MMcfe) |
|
|
19,394 |
|
|
|
21,067 |
|
|
|
(1,673 |
) |
|
|
(8 |
%) |
Revenue data (in thousands) (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil revenue |
|
$ |
59,872 |
|
|
$ |
56,752 |
|
|
$ |
3,120 |
|
|
|
6 |
% |
Gas revenue |
|
|
99,403 |
|
|
|
71,554 |
|
|
|
27,849 |
|
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil and gas revenue |
|
$ |
159,275 |
|
|
$ |
128,306 |
|
|
$ |
30,969 |
|
|
|
24 |
% |
Average prices (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (per Bbl) |
|
$ |
53.89 |
|
|
$ |
41.79 |
|
|
$ |
12.10 |
|
|
|
29 |
% |
Gas (per Mcf) |
|
|
7.81 |
|
|
|
5.54 |
|
|
|
2.27 |
|
|
|
41 |
% |
Oil and gas (per Mcfe) |
|
|
8.21 |
|
|
|
6.09 |
|
|
|
2.12 |
|
|
|
35 |
% |
Expenses (per Mcfe): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
$ |
1.59 |
|
|
$ |
1.46 |
|
|
$ |
0.13 |
|
|
|
9 |
% |
Salaries, general and administrative expenses (b) |
|
|
0.27 |
|
|
|
0.16 |
|
|
|
0.11 |
|
|
|
69 |
% |
DD&A expense on oil and gas properties |
|
|
2.92 |
|
|
|
2.41 |
|
|
|
0.51 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2005 |
|
|
2004 |
|
|
Variance |
|
|
% Change |
|
Production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls) |
|
|
4,080 |
|
|
|
4,454 |
|
|
|
(374 |
) |
|
|
(8 |
%) |
Gas (MMcf) |
|
|
44,260 |
|
|
|
42,000 |
|
|
|
2,260 |
|
|
|
5 |
% |
Oil and gas (MMcfe) |
|
|
68,740 |
|
|
|
68,724 |
|
|
|
16 |
|
|
|
0 |
% |
Revenue data (in thousands) (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil revenue |
|
$ |
203,979 |
|
|
$ |
167,548 |
|
|
$ |
36,431 |
|
|
|
22 |
% |
Gas revenue |
|
|
296,687 |
|
|
|
236,562 |
|
|
|
60,125 |
|
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil and gas revenue |
|
$ |
500,666 |
|
|
$ |
404,110 |
|
|
|
96,556 |
|
|
|
24 |
% |
Average prices (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (per Bbl) |
|
$ |
49.99 |
|
|
$ |
37.62 |
|
|
$ |
12.37 |
|
|
|
33 |
% |
Gas (per Mcf) |
|
|
6.70 |
|
|
|
5.63 |
|
|
|
1.07 |
|
|
|
19 |
% |
Oil and gas (per Mcfe) |
|
|
7.28 |
|
|
|
5.88 |
|
|
|
1.40 |
|
|
|
24 |
% |
Expenses (per Mcfe): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
$ |
1.29 |
|
|
$ |
1.07 |
|
|
$ |
0.22 |
|
|
|
21 |
% |
Salaries, general and administrative expenses (b) |
|
|
0.21 |
|
|
|
0.16 |
|
|
|
0.05 |
|
|
|
31 |
% |
DD&A expense on oil and gas properties |
|
|
2.76 |
|
|
|
2.31 |
|
|
|
0.45 |
|
|
|
19 |
% |
|
|
|
(a) |
|
Includes the cash settlement of effective hedging contracts. |
|
(b) |
|
Exclusive of incentive compensation expense. |
Net Income. During the third quarter of 2005, net income totaled $33.0 million, or $1.20 per
share, compared to $21.9 million, or $0.82 per share for the third quarter of 2004. The
increase in third quarter net income was primarily due to an increase in realized oil and natural
gas prices. For the nine months ended September 30, 2005, net income totaled $110.4 million, or
$4.06 per share, compared to $85.1 million, or $3.17 per share, during the comparable 2004 period.
The increase in year-to-date net income was primarily due to an increase in natural gas production
volumes and an increase in realized oil and natural gas prices. All per share amounts are on a
diluted basis.
Prices. Prices realized during the third quarter of 2005 averaged $53.89 per Bbl of oil and
$7.81 per Mcf of natural gas, or 35% higher, on an Mcfe basis, than third quarter 2004 average
realized prices of $41.79 per Bbl of oil and $5.54 per Mcf of natural gas. Average realized prices
during the first nine months of 2005 were $49.99 per Bbl of oil and $6.70 per Mcf of natural gas
compared to $37.62 per Bbl of oil and $5.63 per Mcf of natural gas realized during the first nine
months of 2004. All unit pricing amounts include the cash settlement of effective hedging
contracts.
16
During the third quarters of 2005 and 2004, our effective hedging transactions reduced the
average price we received for natural gas by $0.37 and $0.18 per Mcf, respectively. In addition,
average realized oil prices were reduced by $5.47 per Bbl during the third quarter of 2005 as a
result of effective hedges. Hedging transactions did not impact realized oil prices during the
third quarter of 2004. Effective hedging transactions for natural gas during the first nine
months of 2005 and 2004 decreased the average price we received for natural gas by $0.25 and $0.16
per Mcf, respectively. Average realized oil prices for the first nine months of 2005 were reduced
by $1.83 as a result of effective hedges. There was no hedging impact on realized oil prices for
the first nine months of 2004.
Production. During the third quarter of 2005, total production volumes decreased 8%
to 19.4 Bcfe compared to 21.1 Bcfe produced during the third quarter of 2004. Oil production
during the third quarter of 2005 totaled approximately 1,111,000 barrels compared to 1,358,000
barrels produced during the third quarter of 2004, while natural gas production totaled 12.7 Bcf
during the third quarter of 2005 compared to12.9 Bcf produced during the third quarter of 2004.
Stones third quarter 2005 production rates were negatively impacted by Gulf Coast production
shut-ins due to Hurricane Katrina and Hurricane Rita, amounting to volumes of approximately 6.4
Bcfe, or 70 MMcfe per day. This compares to an approximate 1.7 Bcfe deferral, or 19 MMcfe per day,
from Hurricane Ivan in the comparable quarter of 2004. Approximately 87% of our third quarter 2005
production volumes were generated from our Gulf Coast Basin properties while the remaining 13% came
from our Rocky Mountain Region properties. Year-to-date 2005 production totaled 4,080,000 barrels
of oil and 44.3 Bcf of natural gas compared to 4,454,000 barrels of oil and 42.0 Bcf of natural gas
produced during the comparable 2004 period, a zero change on a Mcfe basis. Approximately 91% of
year-to-date 2005 production volumes were generated from our Gulf Coast Basin properties while the
remaining 9% came from Rocky Mountain Region properties.
Oil and Gas Revenue. Third quarter 2005 oil and gas revenue totaled $159.3 million, compared
to third quarter 2004 oil and gas revenue of $128.3 million. The increase in oil and gas revenue
is attributable to a 35% increase in realized oil and natural gas prices in the third quarter of
2005 over the comparable period in 2004. Year-to-date 2005 oil and gas revenue totaled $500.7
million compared to $404.1 million during the comparable 2004 period, primarily due to a 24%
increase in realized oil and natural gas prices.
Expenses. Lease operating expenses during the third quarter of 2005 totaled $30.9 million
compared to $30.8 million for the third quarter of 2004. Primarily as a result of the production
disruption from Hurricane Katrina and Hurricane Rita, however, unit costs increased to $1.59 per
Mcfe during the third quarter of 2005 compared to $1.46 for the comparable period of 2004. For the
first nine months of 2005, lease operating expenses were $88.5 million, a 20% increase in total and
on a unit basis over the $73.5 million of lease operating expenses for the comparable period of
2004. The increase in lease operating expenses for the first nine months of 2005 over the
comparable 2004 period is the combined result of an increase in the number of active wells,
increases in overall industry service costs, and increased costs associated with storm-related
shut-ins and evacuations.
Depreciation, depletion and amortization (DD&A) on oil and gas properties for the third
quarter of 2005 totaled $56.6 million compared to $50.9 million for the third quarter of 2004. For
the nine months ended September 30, 2005 and 2004, DD&A expense totaled $189.5 million and $159.0
million, respectively. The increase in 2005 DD&A on a unit basis is the result of increases in the
full-cycle unit cost of finding and developing proved reserves.
Salaries, general and administrative (SG&A) expenses (exclusive of incentive compensation)
for the third quarter of 2005 were $5.2 million compared to $3.4 million in the third quarter of
2004. For the nine months ended September 30, 2005 and 2004, SG&A totaled $14.7 million and $10.7
million, respectively. The increase in SG&A is due to an increase in employment of personnel
during 2005, salary adjustments and stock compensation expense related to restricted stock grants
issued to all employees in August 2005.
As a result of extended shut-ins of production after Hurricane Katrina and Hurricane Rita, our
September, October and November crude oil production levels were below the volumes which we had
hedged. Consequently, one of our crude oil hedges for the months of September, October and
November was deemed to be ineffective. During the third quarter of 2005, we recognized $4.8
million of derivative expenses, $1.5 million of which represented a charge related to the cash
settlement of the ineffective September crude oil collar and $3.3 million of which represented a
non-cash charge related to the mark-to-market fair value change in the ineffective October and
November crude oil collars. Derivative expenses for the three- and nine-month periods ended
September 30, 2004 totaled $1.1 million and $3.0 million, respectively, representing the cost
associated with oil and gas puts that settled during those periods.
As of March 1, 2006, we have a borrowing base under the new bank credit facility of $300
million, of which $114.1 million of borrowings are currently available. Interest expense increased
to $5.8 million, net of $3.9 million of capitalized interest, in the third quarter of 2005 compared
to $4.2 million, net of $1.6 million capitalized interest, in the third quarter of 2004. This
increase in interest expense was the result of increased bank borrowings and the issuance of our
$200 million 63/4% Senior Subordinated Notes during December 2004. For the nine months ended
September 30, 2005, interest expense totaled $17.6 million, net of $10.7 million of capitalized
interest, compared to $12.5 million, net of capitalized interest of $4.5 for the comparable period
of 2004.
17
Recent Accounting Developments
Stock-Based Compensation. On December 16, 2004, the FASB issued SFAS No. 123(R), Share-Based
Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No.
95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach
described in SFAS No. 123; however, SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, be recognized in the income statement based on their
fair values. Pro forma disclosure will no longer be an alternative.
SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:
|
1. |
|
A modified prospective method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of SFAS No. 123(R)
for all share-based payments granted after the effective date and (b) based on the
requirements of SFAS No. 123 for all awards granted to employees prior to the
effective date of SFAS No. 123(R) that remain unvested on the effective date. |
|
|
2. |
|
A modified retrospective method which includes the requirements of the
modified prospective method described above, but also permits entities to restate
based on the amounts previously recognized under SFAS No. 123 for purposes of pro
forma disclosures either (a) all prior periods presented or (b) prior interim
periods of the year of adoption. |
In March 2005, the SEC issued SAB No. 107 which expressed the views of the SEC regarding the
interaction between SFAS No. 123(R) and certain SEC rules and regulations. SAB No. 107 provides
guidance related to the valuation of share-based payment arrangements for public companies,
including assumptions such as expected volatility and expected term. In April 2005, the SEC
approved a rule that delayed the effective date of SFAS No. 123(R) for public companies. As a
result, SFAS No. 123(R) will be effective for us on January 1, 2006.
Stone has elected to adopt the requirements of SFAS No. 123(R) using the modified
prospective method. We have historically used the Black-Scholes option-pricing model for
estimating stock compensation expense for disclosure purposes and intend to continue using such
method upon adoption of SFAS No. 123(R).
On August 16, 2005, Stone awarded restricted stock grants to all employees. Unearned
compensation expense in the amount of $14.1 million was recorded in the third quarter of 2005 for
the restricted stock grants and will be amortized over the vesting period of the restricted stock
grants. Stock compensation totaled $1.1 million for the third quarter of 2005. Of this amount,
$0.5 million was expensed and $0.6 million was capitalized as part of the cost of oil and gas
properties.
Liquidity and Capital Resources
Cash Flow. Net cash flow provided by operating activities for the nine months ended September
30, 2005 was $402.0 million compared to $299.4 million reported in the comparable period in 2004.
Net cash flow used in investing activities totaled $407.8 million and $269.9 million during the
first nine months of 2005 and 2004, respectively, which primarily represents our investment in oil
and gas properties. Net cash flow provided by financing activities totaled $43.9 million for the
nine months ended September 30, 2005 which primarily represents borrowings under our bank credit
facility and proceeds from the exercise of stock options. For the nine months ended September 30,
2004, net cash flow provided by financing activities totaled $4.3 million which primarily
represents proceeds from the exercise of stock options. In total, cash and cash equivalents
increased from $24.3 million as of December 31, 2004 to $62.4 million as of September 30, 2005.
We had working capital at September 30, 2005 in the amount of $9.8 million. We believe that
our working capital balance should be viewed in conjunction with availability of borrowings under
our bank credit facility when measuring liquidity. See Bank Credit Facility and Senior
Subordinated Notes.
Capital Expenditures. Third quarter 2005 additions to oil and gas property costs (exclusive
of asset retirement obligations) of $91.1 million included $4.8 million of acquisition costs,
$5.2 million of capitalized salaries, general and administrative expenses (inclusive of incentive
compensation) and $3.9 million of capitalized interest. Year-to-date 2005 additions to oil and gas
property costs (exclusive of asset retirement obligations) of $395.8 million included $130.4
million of acquisition costs, $15.1 million of capitalized salaries, general and administrative
expenses (inclusive of incentive compensation) and $10.7 million of capitalized interest. These
investments were financed by cash flow from operating activities, borrowings under our credit
facility and working capital.
Budgeted Capital Expenditures. Our 2006 capital expenditures budget, excluding acquisitions
and capitalized salaries, general and administrative expenses and interest, is approximately $360
million. While the 2006 capital expenditures budget does not include any projected acquisitions, we
continue to seek growth opportunities that fit our specific acquisition profile.
18
Based upon our outlook of commodity prices and our estimated production, we expect to fund our
2006 capital program with cash flow provided by operating activities. To the extent that 2006 cash
flow from operating activities exceeds our estimated 2006 capital expenditures, we may pay down a
portion of our existing debt. If cash flow from operating activities during 2006 is not sufficient
to fund estimated 2006 capital expenditures, we believe that our bank credit facility will provide
us with adequate liquidity.
Bank Credit Facility and Senior Subordinated Notes. At September 30, 2005, we had $113
million of borrowings outstanding under our bank credit facility and letters of credit totaling
$13.1 million have been issued under the facility. At September 30, 2005, we had a loan base
under the credit facility of $425 million. At September 30, 2005, we had $298.9 million of
borrowings available under the credit facility and the weighted average interest rate was
approximately 4.9%. During the third quarter of 2005 we repaid $45 million of debt under the
facility. As of March 1, 2006, we had a borrowing base under the credit facility of $300 million
with availability of an additional $114.1 million of borrowings. Our borrowing base was reduced
from $425 million to $300 million after we announced our reserve revision in October 2005.
Under the financial covenants of our credit facility, we must (i) maintain a ratio of
consolidated debt to consolidated EBITDA, as defined in the amended credit agreement, for the
preceding four quarterly periods of not greater than 3.25 to 1 and (ii) maintain a Consolidated
Tangible Net Worth (as defined). In addition, the credit facility places certain customary
restrictions or requirements with respect to disposition of properties, incurrence of additional
debt, change of ownership and reporting responsibilities. These covenants may limit or prohibit us
from paying cash dividends. During 2005, the participating banks in our credit facility granted
waivers from certain covenants regarding the filing of our financial statements until March 31,
2006. Additionally, we agreed to secure borrowings under the facility with a security interest in
certain oil and gas properties. As of the date of this filing we had not completed the transfer of
the security interests to the banks participating in the facility. If we are unable to complete
this transaction by March 31, 2006, it is possible that the balance of facility could become due at
that time; however, we believe we could replace the facility if this were to occur.
On December 15, 2004, we issued $200 million 63/4% Senior Subordinated Notes due 2014. The
notes were sold at par value and we received net proceeds of $195.5 million and are subordinated to
our senior unsecured credit facility and rank pari passu with our 81/4% Senior Subordinated Notes.
There is no sinking fund requirement and the notes are redeemable at our option, in whole but not
in part, at any time before December 15, 2009 at a Make-Whole Amount. Beginning December 15, 2009,
the notes are redeemable at our option, in whole or in part, at 103.375% of their principal amount
and thereafter at prices declining annually to 100% on and after December 15, 2012. In addition,
before December 15, 2007, we may redeem up to 35% of the aggregate principal amount of the notes
issued with net proceeds from an equity offering at 106.75%. The notes provide for certain
covenants, which include, without limitation, restrictions on liens, indebtedness, asset sales,
dividend payments and other restricted payments. We received notice of non-compliance from holders
of over 25 percent of the outstanding principal amount of our $200 million 63/4% Senior Subordinated
Notes due 2014 relating to the non-issuance of financial statements. The receipt of notice of
non-compliance started a 60 day period beginning February 15, 2006 in which to cure the default
relating to the non-issuance of financial statements. As a consequence of these notices, we became
unable to borrow additional funds under our bank credit facility until the default was cured. We
believe the filing of this Form 10-Q and our Form 10-K for the year ended December 31, 2005 has
cured the default.
Defined Terms
Oil and condensate are stated in barrels (Bbls) or thousand barrels (MBbls). Natural gas
is stated herein in billion cubic feet (Bcf), million cubic feet (MMcf) or thousand cubic feet
(Mcf). Oil and condensate are converted to natural gas at a ratio of one barrel of liquids per
six Mcf of gas. Bcfe, MMcfe, and Mcfe represent one billion cubic feet, one million cubic feet and
one thousand cubic feet of gas equivalent, respectively. MMBtu represents one million British
Thermal Units and BBtu represents one billion British Thermal Units. An active property is an oil
and gas property with existing production. A primary term lease is an oil and gas property with no
existing production, in which we have a specific time frame to establish production without losing
the rights to explore the property. Liquidity is defined as the ability to obtain cash quickly
either through the conversion of assets or incurrence of liabilities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
Our major market risk exposure continues to be the pricing applicable to our oil and natural
gas production. Our revenues, profitability and future rate of growth depend substantially upon
the market prices of oil and natural gas, which fluctuate widely. Oil and gas price declines and
volatility could adversely affect our revenues, cash flows and profitability. Price volatility is
expected to continue. In order to manage our exposure to oil and gas price declines, we
occasionally enter into oil and gas price hedging arrangements to secure a price for a portion of
our expected future production. We do not enter into hedging transactions for trading purposes.
Our hedging policy provides that not more than one-half of our estimated production quantities
can be hedged without the consent of the Board of Directors. See Item 1. Financial Statements
Note 4 Hedging Activities for a detailed discussion of hedges in place to manage our exposure to
oil and natural gas price declines.
19
Interest Rate Risk
Stone had long-term debt outstanding of $513 million at September 30, 2005, of which $400
million, or approximately 78%, bears interest at a fixed rate. The fixed rate debt as of September
30, 2005 consisted of $200 million of 81/4% Senior Subordinated Notes due 2011 and $200 million of
63/4% Senior Subordinated Notes due 2014. The remaining $113 million of debt outstanding at
September 30, 2005 bears interest at a floating rate. At September 30, 2005, the weighted average
interest rate under our floating-rate debt was approximately 4.9%. We currently have no interest
rate hedge positions in place to reduce our exposure to changes in interest rates.
Since the filing of our 2004 Annual Report on Form 10-K, there have been no material changes
in reported market risk as it relates to interest rates and commodity prices.
Item 4. Controls and Procedures
Deficiencies Relating to Reserve Reporting
We recently completed an internal review of our estimates of proved oil and natural gas
reserves. As a result of this review, we reduced our estimate of total proved oil and natural gas
reserves at December 31, 2004 by approximately 237 Bcfe. Management concluded that the impact of
the reserve adjustment on previously issued financial statements was material and required a
restatement. The audit committee of our board of directors engaged the law firm of Davis Polk &
Wardwell (Davis Polk) to assist in its investigation of reserve revisions. Davis Polk presented
its final report to the audit committee and board of directors on November 28, 2005. The final
report found that a number of factors at Stone contributed to the write-down of reserves, including
the following:
|
|
|
Stone lacked adequate internal guidance or training on the SEC definition of proved
reserves; |
|
|
|
|
There is evidence that some members of Stone management failed to fully grasp the
conservatism of the SECs reasonable certainty standard of booking reserves; and |
|
|
|
|
There is also evidence that there was an optimistic and aggressive tone from the
top with respect to estimating proved reserves. |
As part of its final report, Davis Polk proposed a number of recommendations, including the
following:
|
|
|
adopt and distribute written guidelines to its staff on the SEC reserve reporting requirements; |
|
|
|
|
provide annual training for employees on the SEC requirements; |
|
|
|
|
continue to emphasize the difference between SECs standard of measuring proved
reserves and the criteria that Stone might use in making business decisions; and |
|
|
|
|
institute and cultivate a culture of compliance to ensure that the foregoing
contributing factors do not recur. |
The audit committee and board of directors have accepted the Davis Polk final report, and the
board of directors implemented and resolved to continue to implement all of the recommendations.
Consequently, we have revised our historical proved reserves for the period from December 31,
2001 to June 30, 2005. This revision of reserves also resulted in a restatement of financial
information for the years 2001 through 2004 and for the first six months of 2005. This restatement,
as well as specific information regarding its impact, is discussed in Note 1 to the consolidated
financial statements included in Item 1. Financial Statements. Restatement of previously issued
financial statements to reflect the correction of a misstatement is an indicator of the existence
of a material weakness in internal control over financial reporting as defined in the Public
Company Accounting Oversight Boards Auditing Standard No. 2, An Audit of Internal Control Over
Financial Reporting Performed in Conjunction with an Audit of Financial Statements. We have
identified deficiencies in our internal controls that did not prevent the overstatement of our
proved oil and natural gas reserves. These deficiencies, which we believe constituted a material
weakness in our internal control over financial reporting, included an overly aggressive and
optimistic tone by some members of management which created a weak control environment surrounding
the booking of proved oil and natural gas reserves, and inadequate training and understanding of
the SEC rules for booking oil and natural gas reserves. In light of the determination that
previously issued financial statements should be restated, our management concluded that a material
weakness in internal control over financial reporting existed as of December 31, 2004 and disclosed
this matter to the Audit Committee and our independent registered public accounting firm.
20
Remedial Actions
Our management, at the direction of our board of directors, is actively working to
improve the control environment and to implement controls and procedures that will ensure the
integrity of our proved reserve booking process.
We have implemented the following actions to mitigate weaknesses identified:
|
|
|
Those members of management that the Davis Polk report
specifically suggested contributed to the aggressive and optimistic
tone of management in booking estimated proved reserves are no
longer employed by or affiliated with Stone as employees, officers
or directors. |
|
|
|
|
A new Vice President, Reserves, has been appointed to oversee the
booking of estimated proved reserves and the training of all
personnel involved in the reserve estimation process. |
|
|
|
|
Formal training programs have been implemented and all personnel
involved in the reserve estimation process have, since the
announcement of the reserve revision, received formal training in
SEC requirements for reporting estimated proved reserves. |
|
|
|
|
A nationally recognized engineering firm with greater
capabilities for geological reviews was contracted to audit our Gulf
Coast Basin reserves. The Gulf Coast Basin is the area where the
downward revisions occurred. Such audit was conducted as of
December 31, 2005 and was completed early in 2006. |
|
|
|
|
We have adopted and distributed a written policy and guidelines
for booking estimated proved reserves to all personnel involved in
the reserve estimation process. |
We intend to implement the following actions in 2006:
|
|
|
continue our formal training programs; |
|
|
|
|
have 100% of our proved reserves fully engineered by outside engineering firms no later than
December 31, 2006; and |
|
|
|
|
during 2006 and thereafter, consult with our outside
engineering firms on an interim basis on
the original booking of significant acquisitions, extensions,
discoveries and other additions. |
Evaluation of Disclosure Control and Procedures
Our Chief Executive Officer and our Chief Financial Officer, with the participation of other
members of our senior management, reviewed and evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report. In making this
evaluation, the Chief Executive Officer and the Chief Financial Officer considered the issues
discussed above, together with the remedial steps we have taken. Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, because of the material
weakness discussed above, as of September 30, 2005 and
December 31, 2004, our disclosure controls and procedures were not
effective in recording, processing, summarizing and reporting information required to be disclosed
by us in the reports we file or submit under the Securities Exchange Act of 1934.
Changes in Internal Control Over Financial Reporting
Except as discussed above, there has not been any change in our internal control over
financial reporting that occurred during our quarter ended September 30, 2005 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
21
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On December 30, 2004, Stone was served with two petitions (civil action numbers
2004-6227 and 2004-6228) filed by the Louisiana Department of Revenue (LDR) in the 15th Judicial
District Court (Parish of Lafayette, Louisiana) claiming additional franchise taxes due. In one
case, the LDR is seeking additional franchise taxes from Stone in the amount of $640,000, plus
accrued interest of $352,000 (calculated through December 15, 2004), for the franchise year 2001.
In the other case, the LDR is seeking additional franchise taxes from Stone (as successor to Basin
Exploration, Inc.) in the amount of $274,000, plus accrued interest of $159,000 (calculated through
December 15, 2004), for the franchise years 1999, 2000 and 2001. Further, on December 29, 2005,
the LDR filed another petition in the 15th Judicial District Court claiming additional
franchise taxes due for the taxable years ended December 31, 2002 and 2003 in the amount of $2.6
million plus accrued interest calculated through December 15, 2005 in the amount of $1.2 million.
These assessments all relate to the LDRs assertion that sales of crude oil and natural gas from
properties located on the Outer Continental Shelf, which are transported through the state of
Louisiana, should be sourced to the state of Louisiana for purposes of computing the Louisiana
franchise tax apportionment ratio. The Company disagrees with these contentions and intends to
vigorously defend itself against these claims.
Stone has received notice that the staff of the SEC is conducting an informal inquiry into the
revision of Stones proved reserves and the financial statement restatement. In addition, Stone
has received an inquiry from the Philadelphia Stock Exchange investigating matters including
trading prior to Stones October 6, 2005 announcement. Stone intends to cooperate fully with both
inquiries.
On or around November 30, 2005, George Porch filed a putative class action in the United
States District Court for the Western District of Louisiana against Stone, David H. Welch, Kenneth
H. Beer, D. Peter Canty and James H. Prince purporting to allege violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934. Three similar complaints were filed soon thereafter.
All complaints assert a putative class period commencing on June 17, 2005 and ending on October 6,
2005. All complaints contend that, during the putative class period, defendants, among other
things, misstated or failed to disclose (i) that Stone had materially overstated Stones financial
results by overvaluing its oil reserves through improper and aggressive reserve methodologies; (ii)
that the Company lacked adequate internal controls and was therefore unable to ascertain its true
financial condition; and (iii) that as a result of the foregoing, the values of the Companys
proved reserves, assets and future net cash flows were materially overstated at all relevant times.
A motion to consolidate these actions and to appoint a lead plaintiff will be heard on March 22,
2006. In addition, on or about December 16, 2005, Robert Farer filed a complaint in the United
States District Court for the Western District of Louisiana alleging claims derivatively on behalf
of Stone, and three similar complaints were filed soon thereafter in federal and state court.
Stone is named as a nominal defendant, and certain current and former officers and directors are
named as defendants in these actions, which allege breaches of the fiduciary duties owed to Stone,
gross mismanagement, abuse of control, waste of corporate assets, unjust enrichment, and violations
of the Sarbanes-Oxley Act of 2002. Stone intends to vigorously defend these lawsuits.
Stones Certificate of Incorporation and/or its Restated Bylaws provide, to the extent
permissible under the law of Delaware (Stones state of incorporation), for indemnification of and
advancement of defense costs to Stones current and former directors and officers for potential
liabilities related to their service to Stone. Stone has purchased directors and officers
insurance policies that, under certain circumstances, may provide coverage to Stone and/or its
officers and directors for certain losses resulting from securities-related civil liabilities
and/or the satisfaction of indemnification and advancement obligations owed to directors and
officers. These insurance policies may not cover all costs and liabilities incurred by Stone and
its current and former officers and directors in these regulatory and civil proceedings.
Item 6. Exhibits
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*31.1
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Certification of Principal Executive Officer of Stone Energy Corporation
as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. |
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*31.2
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Certification of Principal Financial Officer of Stone Energy
Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934. |
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*32.1
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Certification of Chief Executive Officer and Chief Financial Officer of Stone
Energy Corporation pursuant to 18 U.S.C. § 1350. |
* |
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Filed herewith |
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Not considered to be filed for the purposes of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of that section. |
22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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STONE ENERGY CORPORATION
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Date: March 10, 2006 |
By: |
/s/ J. Kent Pierret
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J. Kent Pierret |
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Senior Vice President,
Chief Accounting Officer and Treasurer
(On behalf of the Registrant and as
Chief Accounting Officer) |
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23
EXHIBIT INDEX
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*31.1
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Certification of Principal Executive Officer of Stone Energy
Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of
1934. |
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*31.2
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Certification of Principal Financial Officer of Stone Energy
Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of
1934. |
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*32.1
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Certification of Chief Executive Officer and Chief Financial Officer of Stone
Energy Corporation pursuant to 18 U.S.C. § 1350. |
* |
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Filed herewith |
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Not considered to be filed for the purposes of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of that section. |