UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.  )

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o		Soliciting Material under § 240.14a-12

 

STONE ENERGY CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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STONE ENERGY CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To the Stockholders of Stone Energy Corporation:

     The 2008 Annual Meeting of Stockholders (the “Annual Meeting”) of Stone Energy Corporation (the “Company”) will be held on Thursday, May 15, 2008 at 10:00 a.m., local time, at the Windsor Court Hotel, 300 Gravier Street, New Orleans, Louisiana, for the following purposes:

	(1)		To elect two individuals to the Company’s Board of Directors;
	(2)		To ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2008;
	(3)		To approve the proposed amendment to the Company’s Bylaws to eliminate the classified structure of the Board of Directors; and
	(4)		To transact such other business as may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof.

     Information relevant to these matters is set forth in the accompanying proxy statement.

     The close of business on March 20, 2008 was fixed as the record date for the determination of stockholders entitled to receive notice of and to vote at the Annual Meeting or any adjournment(s) or postponement(s) thereof.

     You are cordially invited to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting, we ask that you vote as soon as possible. You may vote by mailing a completed proxy card, by telephone or via the Internet. For detailed information regarding voting instructions, please refer to the section entitled “Voting Rights and Solicitation—Voting by Mail, via the Internet or by Telephone” in the accompanying proxy statement.

				By Order of the Board of Directors,
		Lafayette, Louisiana		Andrew L. Gates, III
		March 28, 2008		Senior Vice President, General Counsel
				and Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE STOCKHOLDER
MEETING TO BE HELD ON MAY 15, 2008

     This Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2008 Annual Meeting of Stockholders, the 2007 Annual Report to Stockholders and the Annual Report on Form 10-K for the fiscal year ended December 31, 2007 of Stone Energy Corporation are available at http://bnymellon.mobular.net/bnymellon/sgy.

TABLE OF CONTENTS

		Page
PURPOSE OF MEETING			1
VOTING RIGHTS AND SOLICITATION			1
Voting; Revocation			1
Voting by Mail, via the Internet or by Telephone			2
Quorum; Required Votes			2
Recommendations of the Board			2
Annual Meeting Admission			3
2007 Annual Report			3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			4
ITEM I: ELECTION OF DIRECTORS			6
CORPORATE GOVERNANCE			9
General			9
The Board and its Committees			9
Compensation Committee Interlocks and Insider Participation			11
Consideration of Director Nominees			11
Processes and Procedures for Determining Executive and Director Compensation			12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			13
COMPENSATION DISCUSSION AND ANALYSIS			14
Compensation Objectives and Philosophy			14
Role of Executive Officers in Compensation Decisions			15
Benchmarking			15
Executive Compensation Components			16
COMPENSATION COMMITTEE REPORT			22
EXECUTIVE COMPENSATION			23
Summary Compensation			23
Grants of Plan Based Awards			25
Narrative Disclosure to Summary Compensation Table and Grant of Plan Based Awards Table			26
Outstanding Equity Awards at Fiscal Year-End			26
Option Exercises and Stock Vested			27
Non-Qualified Deferred Compensation			28
Potential Payment Upon Termination or Change in Control			29
Employment Agreements, Termination of Employment, Severance and Change-in-Control Plans			32
Payments Made Upon Termination			35
Payments Made Upon Retirement			35
Payments Made Upon Death or Disability			35
Payments Made Upon a Change of Control or Voluntary Termination for Good Reason			35
EQUITY COMPENSATION PLAN INFORMATION			38
DIRECTOR COMPENSATION			38
General			38
Retainers, Fees and Equity Compensation			39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			40
Policies and Procedures			40
Transactions			40
AUDIT COMMITTEE REPORT			41
ITEM II: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			42
ITEM III: AMENDMENT TO THE BYLAWS TO ELIMINATE THE CLASSIFIED STRUCTURE OF THE BOARD			43
OTHER MATTERS FOR 2008 ANNUAL MEETING			45
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS			45
STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING			45
HOUSEHOLDING			46

STONE ENERGY CORPORATION

625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
(337) 237-0410

PROXY STATEMENT

     These proxy materials are furnished to you in connection with the solicitation by and on behalf of the Board of Directors (the “Board”) of the Stone Energy Corporation (“we”, “our” or the “Company”) for use at the Annual Meeting to be held on Thursday, May 15, 2008 at 10:00 a.m., local time, at the Windsor Court Hotel, 300 Gravier Street, New Orleans, Louisiana, or at any adjournment(s) or postponement(s) thereof (the “Annual Meeting”).

     The solicitation of proxies by the Board will be conducted primarily by mail. In addition, officers, directors and employees of the Company may solicit proxies personally or by telephone, facsimile or electronic means. These officers, directors and employees will not receive any extra compensation for these services. We have retained BNY Mellon Shareowner Services to aid in the distribution of proxy materials and to provide voting and tabulation services for the Annual Meeting. For these services, we estimate that we will pay BNY Mellon a fee of approximately $7,000 and reimburse it for certain expenses. In addition, we will reimburse brokers, custodians, nominees and fiduciaries for reasonable expenses incurred by them in forwarding proxy materials to beneficial owners of common stock of the Company. The costs of the solicitation, including the cost of the preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to stockholders, will be borne by the Company.

     These proxy materials are being mailed to stockholders of the Company on or about April 8, 2008.

PURPOSE OF MEETING

     The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of Annual Meeting of Stockholders. Each proposal is described in more detail in this proxy statement.

VOTING RIGHTS AND SOLICITATION

Voting; Revocation

     At the close of business on March 20, 2008, the record date for the determination of stockholders entitled to receive notice of and to vote at the Annual Meeting, there were 28,425,995 shares of common stock outstanding, each share of which is entitled to one vote. Common stock is the only class of outstanding securities of the Company entitled to receive notice of and to vote at the Annual Meeting.

     If you are a registered stockholder, you may revoke your proxy at any time before the shares are voted at the Annual Meeting by:

	•		timely submitting a proxy with new voting instructions using the telephone or Internet voting system;
	•		voting in person at the Annual Meeting by completing a ballot; however, attending the Annual Meeting without completing a ballot will not revoke any previously submitted proxy;
	•		timely delivery of a valid, later-dated executed proxy card; or
	•		filing an instrument of revocation received by the Secretary of Stone Energy Corporation at 625 E. Kaliste Saloom Road, Lafayette, Louisiana 70508, by 10:00 a.m. on May 14, 2008.

     If you are a street-name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your bank, broker or nominee in accordance with that entity’s procedures.

     In the absence of a revocation, shares represented by the proxies will be voted at the Annual Meeting.

Voting by Mail, via the Internet or by Telephone

     Registered Stockholders. Stockholders whose shares are registered in their own name may vote by mailing a completed proxy card, via the Internet or by telephone. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card, sign, date and return the enclosed proxy card in the enclosed prepaid and addressed envelope and your shares will be voted at the Annual Meeting in the manner you direct. In the event no directions are specified, the proxies will be voted FOR each of the nominees of the Board, FOR the ratification of the appointment of Ernst and Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2008, FOR the proposed amendment to the Company’s Bylaws to eliminate the classified structure of the Board, and in the discretion of the proxy holders (Richard A. Pattarozzi, David H. Welch and B.J. Duplantis) as to any other matters that may properly come before the Annual Meeting.

     Street Name Holders. If your shares are registered in the name of a bank or brokerage firm and you have not elected to receive your proxy materials electronically, you may nevertheless be eligible to vote your shares over the Internet or by telephone rather than by mailing a completed voting instruction card provided by the bank or brokerage firm. Please check the voting instructions card provided by your bank or brokerage firm for availability and instructions. If Internet or telephone voting is unavailable from your bank or brokerage firm, please complete and return the enclosed voting instruction card in the prepaid and addressed envelope provided.

Quorum; Required Votes

     The presence at the Annual Meeting, in person or by proxy, of the stockholders entitled to cast at least a majority of the votes that all common stockholders are entitled to cast is necessary to constitute a quorum. Each vote represented at the Annual Meeting in person or by proxy will be counted toward a quorum. If a quorum is not present, the Annual Meeting may be adjourned from time to time until a quorum is obtained.

     Under the rules of the New York Stock Exchange, brokers holding shares of record for a customer have the discretionary authority to vote on some matters if the brokers do not receive timely instructions from the customer regarding how the customer wants the shares voted. There are also non-discretionary matters for which brokers do not have discretionary authority to vote even if they do not receive timely instructions from the customer. When a broker does not have any discretion to vote on a particular matter, the customer has not given timely instructions on how the broker should vote the customer’s shares and the broker indicates it does not have authority to vote the customer’s shares on its proxy, a “broker non-vote” results. Although any broker non-vote would be counted as present at the Annual Meeting for purposes of determining a quorum, it would be treated as not entitled to vote with respect to non-discretionary matters. For Items I, II and III to be voted on at the Annual Meeting, brokers will have discretionary authority in the absence of timely instructions from their customers.

Recommendations of the Board

     Item I. (Election of Directors). To be elected, each nominee for election as a Class III director must receive the affirmative vote of a plurality of the votes of the shares of common stock cast at the Annual Meeting. This means that director nominees with the most votes are elected. Votes may be cast in favor of or withheld from the election of each nominee. Votes that are withheld from a director’s election will be counted toward a quorum but will not affect the outcome of the vote on this Item.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” ITEM I.

     Item II. (Ratification of the Appointment of Independent Registered Public Accounting Firm). Ratification of the appointment of Ernst & Young LLP as the Company’s independent public accounting firm for the fiscal year ending December 31, 2008 requires the affirmative vote of the holders of a majority of the votes of the shares of common stock cast on this Item at the Annual Meeting. Abstentions and broker non-votes will not affect the outcome of the vote on this Item.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” ITEM II.

     Item III. (Amendment to the Bylaws to Eliminate the Classified Structure of the Board). The Board has agreed to amend the Company’s Bylaws to eliminate the classified structure of the Board if there is an affirmative vote of the holders of a majority of the votes of the shares of common stock cast in favor of this Item at the Annual Meeting. Abstentions and broker non-votes will not affect the outcome of the vote on this Item.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” ITEM III.

     The Board recommends that you vote FOR each of the director nominees, FOR the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2008, FOR the proposed amendment to the Company’s Bylaws to eliminate the classified structure of the Board, and in the discretion of the proxy holders as to any other matters that may properly come before the Annual Meeting.

Annual Meeting Admission

     If you wish to attend the Annual Meeting in person, you must present a form of personal identification. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.

2007 Annual Report

     The Company’s 2007 Annual Report to Stockholders, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission, is being mailed to all stockholders entitled to vote at the Annual Meeting. The 2007 Annual Report does not constitute a part of the proxy soliciting material.

     A copy of the Annual Report on Form 10-K for the fiscal year ended December 31, 2007, including the financial statements and the financial statement schedules, if any, but not including exhibits, is also available at http://bnymellon.mobular.net/bnymellon/sgy and a copy will be furnished at no charge to each person to whom a proxy statement is delivered upon the written request of such person addressed to the following:

STONE ENERGY CORPORATION
Attention: Chief Financial Officer
625 E. Kaliste Saloom Road
Lafayette, LA 70508

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE STOCKHOLDER
MEETING TO BE HELD ON MAY 15, 2008

     The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2008 Annual Meeting of Stockholders, the 2007 Annual Report to Stockholders and the Annual Report on Form 10-K for the fiscal year ended December 31, 2007 of Stone Energy Corporation are available at http://bnymellon.mobular.net/bnymellon/sgy.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding beneficial ownership of common stock as of March 20, 2008 (unless otherwise indicated) of (1) each person known by the Company to own beneficially more than 5% of its outstanding common stock; (2) the Company’s Chief Executive Officer, the Company’s Chief Financial Officer and each of the Company’s other three most highly compensated executive officers who were serving as executive officers at the end of 2007; (3) each of the Company’s directors and nominees; and (4) all executive officers and directors of the Company as a group. Unless otherwise indicated, each of the persons below has sole voting and investment power with respect to the shares beneficially owned by such person.

		Amount and
		Nature of
		Beneficial				Percent of
Name of Beneficial Owner		Ownership(1)				Class
Barclays Global Investors, N.A. (2)			2,522,419				8.9	%
Dimensional Fund Advisors, LP (3)			2,226,239				7.8	%
Goldman Sachs Asset Management (US) (4)			1,601,556				5.6	%
David H. Welch			208,373				*
Kenneth H. Beer			59,654				*
Jerome F. Wenzel, Jr.			33,132				*
Andrew L. Gates, III			82,465				*
J. Kent Pierret			78,068				*
Robert A. Bernhard (5)			143,025				*
George R. Christmas			16,000				*
B. J. Duplantis			20,212				*
John P. Laborde			36,137				*
Richard A. Pattarozzi			14,800				*
Donald E. Powell			1,600				*
Kay G. Priestly			4,800				*
David R. Voelker (6)			95,492				*
Executive officers and directors as a group (consisting of 16 persons)			860,962				3.0	%

ITEM I:
ELECTION OF DIRECTORS

     The Board is currently divided into three classes. The members of each class are elected to serve a three-year term with the term of office for each class ending in consecutive years. The Bylaws of the Company allow for a maximum of 13 directors and, currently, nine directors serve on the Company’s Board.

     Based on recommendations from the Nominating and Governance Committee, the Board has nominated Robert A. Bernhard and David H. Welch for re-election as Class III directors to serve until the 2011 Annual Meeting and until their successors have been elected and qualified, or until their earlier resignation or removal. If, however, stockholders approve Item III (Amendment to the Bylaws to Eliminate the Classified Structure of the Board), the Class III director nominees will serve until the Company’s 2009 Annual Meeting and until their successors have been elected and qualified, or until their earlier resignation or removal. Each nominee is currently a director, and both nominees were previously elected to the Board by the stockholders. Each nominee has consented to being named as a nominee in this proxy statement and has indicated a willingness to serve if elected.

     A plurality of votes cast is required for the election of directors. Although the Board does not contemplate that either of the nominees will be unable to serve, if such a situation arises prior to the Annual Meeting, the proxy holders will vote for the election of such other person(s) as may be nominated by the Board. The remaining seven directors named below will not be required to stand for election at the Annual Meeting because their present terms expire in either 2009 or 2010.

     The following table sets forth information regarding the names, ages as of March 20, 2008 and principal occupations of the nominees and directors, other directorships in certain companies held by them and the length of continuous service as a director of the Company.

		Principal Occupation and		Director
		Directorships		Since				Age
Class I Directors
David R. Voelker		Owner, Frantzen, Voelker and Conway Investments, LLC, a personal holding investment company			1993				54
Kay G. Priestly		Vice President, Finance and Chief Financial Officer, Kennecott Utah Copper (a member of the Rio Tinto Group — Rio Tinto plc and Rio Tinto Limited), which is a world leader in mining, smelting and refining			2006				52
Donald E. Powell		Former Federal Coordinator of Gulf Coast Rebuilding, former Chairman of the Federal Deposit Insurance Corporation, former President and CEO of the First National Bank of Amarillo			2008				66
Class II Directors
George R. Christmas		Retired Lieutenant General, U.S. Marine Corps; President, Marine Corps Heritage Foundation, a private, non-profit organization, which preserves and promotes the history and tradition of the United States Marine Corps			2003				68
B. J. Duplantis		Senior Partner of the law firm of Gordon, Arata, McCollam, Duplantis & Eagan			1993				68
John P. Laborde		Retired Chairman Emeritus, Tidewater Inc., which has the world’s largest workboat fleet; Chairman and Director, VT Halter Marine, Inc., which is a shipbuilder; Chairman, Laborde Marine Lifts, Inc., Laborde Products, Inc., Lab-More Properties, LLC, Lab-Rex LLC, and LIS Energy Services, Inc., which are privately held energy service companies			1993				84
Richard A. Pattarozzi Chairman of the Board		Former Vice President of Shell Oil Company, an oil and gas company; Director, Tidewater Inc., Global Industries, Ltd., Superior Energy Services Inc. and FMC Technologies Inc.			2000				64
Class III Director Nominees
Robert A. Bernhard		Consultant, MB Investment Partners, an investment advisory firm; Non-voting member of McFarland, Dewey and Co. LLC, an investment banking firm			1993				79
David H. Welch		President and Chief Executive Officer of the Company; Director, IberiaBank Corporation			2004				59

     Each of the nominees and directors has been engaged in the principal occupation set forth opposite his name for at least the past five years except as described below.

     David H. Welch was appointed President, Chief Executive Officer and a Class III director of the Company effective April 1, 2004. Mr. Welch most recently served as Senior Vice President of BP America, Inc., an oil and gas exploration and exploitation company, from 2000 until 2003, and Vice President of BP, Inc., an oil and gas exploration and exploitation company, from 1997 until 1999.

     Kay G. Priestly was elected as a Class I director in 2006. Ms. Priestly is currently the Vice President, Finance, and Chief Financial Officer of Kennecott Utah Copper, which is engaged in mining, smelting and refining natural resources. Ms. Priestly served as Vice President, Risk Management and General Auditor, for Entergy Corporation, an integrated energy company engaged primarily in electric power production and retail distribution operations, from 2004 to 2006. Ms. Priestly is the former Executive Vice President and Chief Operating Officer of American Nursing Services, Inc., which provides nursing services, where she served from 2002 through 2003. Ms. Priestly is a certified public accountant and has over 25 years of diverse financial and management experience, having been named in 2000 as a managing partner of the New Orleans office of Arthur Andersen LLP, an international accounting firm, and as a member of Arthur Andersen’s global executive team.

     Donald E. Powell accepted an appointment by the Board as a Class I director in March 2008. Mr. Powell served as the Federal Coordinator of Gulf Coast Rebuilding from November 2005 until March 2008. Mr. Powell was the 18^th Chairman of the Federal Deposit Insurance Corporation, where he served from August 2001 until November 2005. Mr. Powell previously served as President and Chief Executive Officer of the First National Bank of Amarillo, where he started his banking career in 1971.

THE BOARD RECOMMENDS STOCKHOLDERS VOTE “FOR”
ITEM I TO ELECT THE CLASS III DIRECTOR NOMINEES IDENTIFIED ABOVE.

CORPORATE GOVERNANCE

General

     Stone Energy Corporation is committed to good corporate governance. The Board has adopted several governance documents to guide the operation and direction of the Board and its committees, which include Corporate Governance Guidelines, Code of Business Conduct and Ethics (which applies to all directors and employees, including the Chief Executive Officer, Chief Finance Officer and Chief Accounting Officer) and charters for the Audit Committee, Compensation Committee and Nominating and Governance Committee. Each of these documents is available on our website (www.stoneenergy.com) and stockholders may obtain a printed copy, free of charge, by sending a written request to Stone Energy Corporation, Attention: Chief Financial Officer, 625 E. Kaliste Saloom Road, Lafayette, Louisiana 70508, facsimile number 337-237-0426.

The Board and its Committees

     The Board held 12 meetings during 2007 (including four regularly scheduled meetings) and also took one action by written consent. Each director attended the 2007 Annual Meeting in accordance with our policy that each director is to attend the Annual Meeting of Stockholders. Each director also attended each of the four regularly-scheduled quarterly meetings. None of the incumbent directors attended fewer than 75% of the total meetings of the Board and the Board committees of which he or she was a member during 2007. Ms. Priestly missed three of the special meetings of the Board, and Messrs. Christmas, Laborde and Pattarozzi each missed one of these meetings. Mr. Gary attended all of the meetings prior to his death on April 28, 2007. Mr. Stone, who was Chairman of the Board, attended all except one meeting prior to his death on January 14, 2008. Mr. Pattarozzi was named non-executive Chairman of the Board on February 14, 2008.

     Rather than adopting categorical standards, the Board assesses director independence on a case-by-case basis, in each case consistent with applicable legal requirements and the listing standards of the New York Stock Exchange. After reviewing all relationships each director has to the Company, including charitable contributions the Company makes to organizations where its directors serve as board members, the Board has affirmatively determined that the following six directors have no material relationships with the Company and are independent as defined by the current listing standards of the New York Stock Exchange: Messrs. Bernhard, Christmas, Duplantis, Pattarozzi and Voelker and Ms. Priestly. Mr. Welch, the Company’s Chief Executive Officer, is not considered by the Board to be an independent director because of his employment with the Company. Mr. Laborde is not considered by the Board to be an independent director as described in more detail under “Certain Relationships and Related Transactions.” The Board previously determined that Raymond B. Gary, a Class I director who died on April 28, 2007, had no material relationship with the Company and was an independent director and that James H. Stone, a Class III director who died on January 14, 2008, was not an independent director because he was an executive chairman and considered to be part of the management team as described in more detail under “Certain Relationships and Related Transactions.”

     To facilitate candid discussion by non-management directors, our non-management directors meet in executive sessions that are not attended by management in conjunction with each regular board meeting. Mr. Duplantis is an independent director who has been elected “Presiding Director” to preside over meetings of non-management directors and assist in the preparation of the agenda for each meeting. Each director is an equal participant in decisions made by the full board, and the Presiding Director and the other independent directors communicate regularly with the Chief Executive Officer regarding appropriate board agenda topics and other board-related matters. Although Mr. Duplantis has previously presided over meetings of non-management directors, Mr. Pattarozzi will assume this role in the future as non-executive Chairman of the Board.

     The Board has an Anonymous Reporting Policy and Program to handle anonymously any employee complaint or alleged wrongdoing and to prohibit retaliation against any employee who makes a complaint or reports alleged wrongdoing. Any such complaint or report must be furnished to Ms. Priestly, Chairman of the Audit Committee. Additionally, we have an anonymous reporting hotline through a third party allowing employees to anonymously report any employee complaint or allegations of wrongdoing.

     The Board has the following standing committees:

     Audit Committee. The Audit Committee, which currently consists of Ms. Priestly and Messrs. Bernhard and Voelker, met eight times during 2007. Ms. Priestly is the Chairman of the Audit Committee. Mr. Voelker missed one meeting of the Audit Committee in 2007.

     The principal functions of the Audit Committee are to (1) annually review and reassess the adequacy of its charter; (2) review the engagement of an independent registered public accounting firm, including the firm’s qualifications and independence; (3) review with management and the independent registered public accounting firm the Company’s annual and quarterly financial statements; (4) review with management the Company’s major financial risk exposures; (5) review changes to the Company’s significant auditing and accounting principles and practices; (6) consult with the independent registered public accounting firm regarding the firm’s internal quality-control procedures and the procedures for the Company’s financial reporting processes; (7) review the significant reports prepared by the internal auditor; and (8) assist the Board in monitoring compliance with legal and regulatory requirements.

     The Board has determined that each of the members of the Audit Committee satisfy the standards of independence established under the Securities and Exchange Commission’s rules and regulations and listing standards of the New York Stock Exchange. The Board has further determined that each of the members of the Audit Committee is financially literate and is an “audit committee financial expert” as defined by the rules and regulations of the Securities and Exchange Commission.

     Nominating and Governance Committee. The Nominating and Governance Committee, which currently consists of Messrs. Bernhard, Christmas, Duplantis, Pattarozzi and Voelker and Ms. Priestly, met four times during 2007. Mr. Duplantis is the Chairman of the Nominating and Governance Committee. Each of these directors was present for each of these meetings.

     The principal functions of the Nominating and Governance Committee are to (1) assist the Company’s Directors in selecting individuals to be nominated for election to serve as directors and to serve on various committees; (2) annually review and reassess the adequacy of its charter; (3) lead the Board in its annual review of the Board’s performance; and (4) review and assess the adequacy of the Company’s Corporate Governance Guidelines.

     The Nominating and Governance Committee will consider nominees recommended by stockholders in accordance with the procedures described below under “Consideration of Director Nominees.”

     The Board has determined that each of the members of the Nominating and Governance Committee satisfy the standards of independence established under the listing standards of the New York Stock Exchange.

     Compensation Committee. The Compensation Committee, which currently consists of Messrs. Christmas, Pattarozzi and Voelker, met 10 times during 2007. Mr. Pattarozzi is the Chairman of the Compensation Committee. Mr. Pattarozzi missed two of these meetings, and Mr. Voelker missed one of these meetings.

     The principal function of the Compensation Committee is to review and approve the compensation of the officers and other employees of the Company. In addition, the Compensation Committee administers the Company’s stock incentive and cash incentive compensation plans and has the authority to make grants pursuant to these plans. Members of the Compensation Committee are not eligible to participate in any of the plans that they administer except as to options and/or restricted stock granted automatically to nonemployee directors under the 2004 Amended and Restated Stock Incentive Plan.

     The Board has determined that each of the members of the Compensation Committee satisfy the standards of independence established under the Securities and Exchange Commission’s rules and regulations and listing standards of the New York Stock Exchange.

     Executive Committee. The Executive Committee, which currently consists of Messrs. Duplantis and Welch, did not meet during 2007. The principal function of the Executive Committee is to aid and assist the Company’s management in the day-to-day operations of the Company.

     Investment Committee. The Investment Committee, which currently consists of Messrs. Bernhard and Welch and Ms. Priestly, did not meet during 2007. The principal functions of the Investment Committee are to determine the investment objectives for the Company’s cash assets and to select and supervise one or more investment managers, as necessary.

     Non-Management Committee. The Non-Management Committee, which currently consists of Messrs. Bernhard, Christmas, Duplantis, Laborde, Pattarozzi and Voelker and Ms. Priestly, met in executive session four times during 2007. Each of these directors was present for each of these meetings. The Non-Management Committee consists of all non-management directors and meets at regularly scheduled executive sessions without management to review and assess the strategic direction of the Company and management’s performance and to assist in planning for the succession of executive officers. Mr. Duplantis was chosen as the Presiding Director of the committee meetings pursuant to the Company’s Corporate Governance Guidelines.

     Pricing Committee. The Pricing Committee, which currently consists of Messrs. Bernhard and Welch, did not meet during 2007. The principal function of the Pricing Committee is to determine the price at which the Company’s securities are initially sold.

     Reserves Committee. The Reserves Committee, which currently consists of Ms. Priestly and Messrs. Duplantis, Laborde and Pattarozzi, met four times during 2007. Each of these directors was present for each of these meetings. The principal function of the Reserves Committee is to assist the Company’s management in reviewing and assessing the Company’s policies and procedures in estimating proved reserves.

Compensation Committee Interlocks and Insider Participation

     No member of the Compensation Committee is now, or at any time since the beginning of 2007 has been, employed by or served as an officer of the Company or any of its subsidiaries or had any relationships requiring disclosure with the Company or any of its subsidiaries. None of the Company’s executive officers are now, or at any time has been, since the beginning of 2007, a member of the compensation committee or board of directors of another entity, one of whose executive officers has been a member of the Company’s Board or Compensation Committee.

Consideration of Director Nominees

     Stockholder Nominees. The Nominating and Governance Committee will consider all properly submitted stockholder recommendations of candidates for election to the Board. The Company’s Bylaws permit stockholders to nominate candidates for election to the Board provided that such nominees are recommended in writing pursuant to Article III, Section 13 of the Company’s Bylaws not less than 120 days prior to the anniversary date of the immediately preceding annual meeting of the Company’s stockholders. Director nominations for the 2009 Annual Meeting of Stockholders should be received no later than December 10, 2008. In evaluating the recommendations of stockholders for director nominees, as with all other possible director nominees, the Nominating and Governance Committee will address the membership criteria set forth under “—Director Qualifications.” There have been no material changes in the procedures by which stockholders may recommend director nominees.

     Any stockholder recommendations for director nominees should comply with the notice requirements set forth in Article III, Section 13 of the Company’s Bylaws and should be sent in writing to:

Stone Energy Corporation
Attention: Secretary
625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
(337) 237-0426 fax

     Detailed information for submitting recommendations for director nominees is available upon written request to the Company’s Secretary at the address listed above.

     Identifying and Evaluating Nominees for Directors. The Nominating and Governance Committee is responsible for leading the search for individuals qualified to serve as directors and for recommending to the Board nominees as directors to be presented for election at meetings of the stockholders or of the Board. The Nominating and Governance Committee evaluates candidates for nomination to the Board, including those recommended by stockholders, and conducts appropriate inquiries into the backgrounds and qualifications of possible candidates. The Nominating and Governance Committee may retain outside consultants to assist in identifying director candidates in its sole discretion, but it did not engage any outside consultants in connection with selecting the nominees for election at the 2008 Annual Meeting. Stockholders may recommend possible director nominees for consideration by the Nominating and Governance Committee as indicated above. No stockholders of the Company recommended director nominees for the 2008 Annual Meeting.

     Director Qualifications. Our Corporate Governance Guidelines contain qualifications that apply to nominees as directors recommended by the Nominating and Governance Committee. All candidates must possess the requisite skills and characteristics the Board deems necessary. In addition to an assessment of a director’s qualification as independent, the Nominating and Governance Committee considers diversity, age, skills, and experience in the context of the needs of the Board as to the long-term corporate needs for new and supplemental board expertise. In addition, the Board looks for recognized achievement and reputation, an ability to contribute to specific aspects of the Company’s activities and the willingness to commit the time and effort required, including attendance at Board meetings and committee meetings of which he or she is a member.

     The Company’s Corporate Governance Guidelines require that a majority of the directors meet the criteria for independence required by the New York Stock Exchange, and the Nominating and Governance Committee considers the independence standards as part of its process in evaluating director nominees. In accordance with these standards, a director must be determined to have no material relationship with the Company other than as a director to be considered independent.

Processes and Procedures for Determining Executive and Director Compensation

     The Compensation Committee is appointed by the Board to discharge the Board’s responsibilities relating to compensation of the Company’s directors and officers. The Compensation Committee has overall responsibility for approving and evaluating the annual employee incentive compensation plan amount as well as the director and officer compensation plans, policies and programs of the Company. The Compensation Committee is also responsible for preparing the report included in this proxy statement under the caption “Compensation Committee Report.” The Compensation Committee has the sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of director or senior executive compensation and has the sole authority to approve the consultant’s fees and other retention terms. The Compensation Committee also has authority to obtain advice and assistance from internal or external legal, accounting or other advisors. The Compensation Committee may form and delegate authority to subcommittees when appropriate.

     The Compensation Committee annually reviews and approves corporate goals and objectives relevant to senior executive compensation, evaluates the senior executives’ performance in light of those goals and objectives, and recommends to the Board the compensation levels of the Chief Executive Officer (“CEO”) based on this evaluation. In determining the long-term incentive component of CEO compensation, the Compensation Committee considers the Company’s performance and relative stockholder return, the value of similar incentive awards to CEOs at comparable companies, and the awards given to the CEO in past years. The Compensation Committee annually reviews and makes recommendations to the Board with respect to the compensation of all directors, officers and other key executives, including incentive-compensation plans, equity-based plans, and the grant or award of “perquisites.” The Compensation Committee annually reviews and approves, for the CEO, the executive officers, and any other person whose total compensation is reasonably likely to equal or exceed the total compensation of any member of senior management (1) the annual base salary level, (2) the annual incentive opportunity level, (3) the long-term incentive opportunity level, (4) employment agreements, severance arrangements, and change in control agreements/provisions, in each case as, when and if appropriate, and (5) any special or supplemental benefits.

     Please see “Compensation Discussion and Analysis” for additional information on the roles of compensation consultants, if any, and our management team in determining the form and amount of executive compensation.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934 and related regulations require the Company’s executive officers and directors and persons who beneficially own more than 10% of a registered class of the Company’s equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Executive officers, directors and greater than 10% beneficial owners are also required by Securities and Exchange Commission regulation to furnish the Company with copies of all Section 16(a) forms they file.

     Based solely on its review of copies of such forms received by it, the Company believes that, during the period from January 1, 2007 to March 20, 2008, its officers, directors and greater than 10% beneficial owners complied with all applicable filing requirements of Section 16(a).

COMPENSATION DISCUSSION AND ANALYSIS

     The following Compensation Discussion and Analysis describes the material elements of compensation for Stone Energy Corporation’s executive officers, including the individuals who served during fiscal 2007 as our CEO and Chief Financial Officer, respectively, as well as the other individuals included in the Summary Compensation Table (“Named Executive Officers” or “NEOs”). As more fully described below, the Compensation Committee makes all decisions for the total direct compensation (base salary, incentive plan and other bonus awards, stock options, and restricted stock) of the executive officers, including the NEOs. The day-to-day design and administration of health, welfare, sick leave, vacation, and relocation plans, policies and procedures applicable to salaried employees in general are handled by our Vice President, Human Resources and Administration. The Compensation Committee remains responsible for certain fundamental changes outside the day-to-day requirements necessary to maintain these plans and policies.

Compensation Objectives and Philosophy

     The Board and the Compensation Committee believe that the most effective executive compensation program is one designed to reward the achievement of our specific annual, long-term and strategic goals and align executives’ interests with those of the stockholders with the ultimate objective of improving stockholder value. The Compensation Committee evaluates both performance and compensation to ensure that we maintain the ability to attract and retain superior employees in key positions and that overall compensation remains competitive relative to compensation paid by our Peer Group (identified below). The compensation objectives are to attract and retain the workforce that helps ensure our future success, to motivate and inspire employee behavior that fosters success, to support our culture and overall business objectives, and to provide our stockholders with a superior rate of return over time.

     Our overall compensation philosophy is based on the subjective evaluation of each individual employee within the context of and in consideration of three sets of parameters: (1) competitive employment market dynamics, (2) the Company’s absolute and relative performance, and (3) the individual’s performance and contribution. The Compensation Committee and management use these three factors in determining an individual employee’s total compensation.

Competitive employment market dynamics: The oil and gas industry is currently highly competitive for experienced workers, primarily in the technical fields. Our goal is to pay competitively in the industry. We utilize a third party survey to ensure awareness of the competitive dynamics of employee and officer compensation. To the extent possible, we attempt to align the interests of employees, including officers, with the interests of our stockholders. However, while equity awards are the most logical way to align those interests, we are aware that equity awards also increase dilution by increasing the total number of shares outstanding. The Board and the Compensation Committee attempt to strike a balance to provide those elements and quantities of compensation needed to attract and retain valuable employees and also provide our stockholders with reasonable rates of return over time.

Our long-term incentive program is geared to the competitive employee marketplace and is also designed to align the employees with the stockholders. Each eligible classification of employee has a market-based target number of restricted shares to be granted as a long-term incentive.

The Company’s absolute and relative performance: Annually, the Compensation Committee sets minimum, target and stretch performance goals in production, reserves, costs and safety, which apply to all officers and employees. Our bonus program is 70% to 85% tied to these goals as determined by the Compensation Committee each year. The Compensation Committee also retains the discretion to award a percentage of the annual bonus based on its subjective evaluation of our performance. For 2008 performance, the discretionary percentage has been reduced to 15% and a relative per share performance parameter has been added to further align employee and stockholder interests.

In the long term, we desire to outperform our peers in stockholder return. Thus, the long-term incentive program is tied to the performance of the Company’s stock relative to that of its Peer Group.

The individual’s performance and contribution: We have historically attempted to compensate an individual’s performance and contribution on an annual basis. Each employee, including officers, conducts an annual performance appraisal with his immediate supervisor, which, in the case of officers, is the CEO, to determine whether the employee’s performance has been excellent, satisfactory or not satisfactory. These performance appraisals are used by management to recommend whether the employee receives the same percentage award as others in his group or receives some upward or downward adjustment to the basic percentage award. Managers may also use scorecards to set goals for an individual or a group to establish performance. The Compensation

Committee relies on the CEO’s assessments and the Compensation Committee’s own observations as to individual performance and contribution, which assessments are based on these appraisals as well as his own evaluations. Countering individual performance is the desire for team unity and performance.

Role of Executive Officers in Compensation Decisions

     The Compensation Committee makes all compensation decisions for the NEOs and approves equity awards to all of our officers. The CEO and the Vice President, Human Resources and Administration, provide information and/or make recommendations to the Compensation Committee concerning compensation, and the CEO has some discretion in making compensation decisions for employees other than officers. The Compensation Committee determines base salaries for executive officers, including the NEOs. The CEO proposes new base salary amounts based on his evaluation of individual performance and expected future contributions, a review of survey data to ensure competitive compensation against the external market, including the Peer Group, and comparison of the base salaries of the executive officers who report directly to the CEO to ensure internal equity. The CEO also makes recommendations to the Compensation Committee relating to measures, targets and similar items that affect compensation, and the CEO typically attends a portion of Compensation Committee meetings and reviews and discusses compensation matters with the Compensation Committee.

Benchmarking

     In order to achieve the objective of paying competitively within the oil and gas industry, the Compensation Committee uses a third-party market survey for the purpose of obtaining compensation and benefits data. The Compensation Committee generally uses the same benchmark data for each form of compensation and for each executive position. In 2007, we participated in a survey provided by Effective Compensation, Inc. (“ECI”), an independent consulting firm located in Denver, Colorado that specializes in working with clients to improve their organization’s efficiency through a competitive, focused total compensation process. The Annual Oil & Gas E&P Industry Compensation Survey provides data for over 250 jobs found in exploration and production firms in the United States. While participation varies from year to year, there were 112 participants in the 2007 survey.

     The Compensation Committee compares each element of total compensation against a group of publicly-traded energy companies (collectively, the “Peer Group”), which are participants in the Annual Oil & Gas E&P Industry Compensation Survey. For the long-term incentive measure, which is based on the Company’s relative share price performance, we also use the Peer Group. The Peer Group, which is periodically reviewed and updated by the Compensation Committee, consists of companies against which the Compensation Committee believes we compete for stockholder investment.

     The Peer Group in 2007 consisted of the following companies:

	•		Bois d’Arc Energy, Inc.
	•		Cabot Oil & Gas Corporation,
	•		Callon Petroleum Company,
	•		Comstock Resources, Inc.,
	•		Energy Partners, Ltd.,
	•		Forest Oil Corporation,
	•		Newfield Exploration Company,
	•		St. Mary Land and Exploration Company,
	•		Swift Energy Company,
	•		The Houston Exploration Company, and
	•		W&T Offshore, Inc.

     In 2008, we eliminated Cabot Oil & Gas Corporation, Comstock Resources, Inc., Forest Oil Corporation and St. Mary Land and Exploration Company from the Peer Group. We sold substantially all of our Rocky Mountain properties in 2007 to focus on our Gulf of Mexico properties, and the eliminated companies are not focused in the Gulf of Mexico. We removed The Houston Exploration Company from the Peer Group because it was acquired by Forest Oil Corporation. We also added ATP Oil & Gas Corporation, Energy XXI (Bermuda) Limited, Mariner Energy, Inc., McMoRan Exploration Company and PetroQuest Energy Inc. to the Peer Group in 2008.

     We compete with many larger companies for top executive talent and generally set base compensation below the market median, but we enable executives to earn a total possible compensation for NEOs at approximately the 75^th percentile of total compensation if annual targets are met, and at the 90^th percentile if stretch targets are met. Base pay is set at the lowest 25^th percentile paid to similarly situated executives of participating companies, including the majority of the companies in the Annual Oil & Gas E&P Industry Compensation Survey and the Peer Group. Variations may occur due to the experience of an individual and other market factors. Over the long term, the Compensation Committee’s goal is to generate stockholder returns in excess of the average of the Annual Oil & Gas E&P Industry Compensation Survey and the Peer Group.

     A significant percentage of total compensation is allocated to incentives as a result of the philosophy outlined above. There is no official policy or target for the allocation between either cash and non-cash or short-term and long-term incentive compensation. The Compensation Committee reviews information provided by the independent compensation consulting firm to determine the appropriate level and mix of incentive compensation. Income from such incentive compensation is typically realized as a result of the performance of the Company and/or the individual, depending on the type of award, compared to established goals.

     We use the data from the Annual Oil & Gas E&P Industry Compensation Survey to match the executive positions to organization type, which for us is the Independent Public Company Category, then by revenue size. The data is segregated by position or job responsibilities for each of the executives, managers and all other employees. The data includes statistical distributions at the 25^th, 50^th, and 75^th quartiles, as well as the average. We believe that the market data provided by the Annual Oil & Gas E&P Industry Compensation Survey provides sufficient information on competitive employment market dynamics to fashion a competitive compensation program designed to attract and retain those highly capable employees necessary to be competitive in our industry.

     To create greater alignment between stockholders and employee compensation, the employees, other than administrative or clerical employees, have a base salary target below the 50^th percentile (the bottom 25^th percentile for officers) and then have the opportunity to earn higher bonus amounts if we meet certain targets for performance goals such as production growth, reserves growth/replacement, lower costs, safety performance, and stock price performance relative to the Peer Group.

Executive Compensation Components

     For the fiscal year ended December 31, 2007, the components of compensation for NEOs were:

	•		base salary,
	•		cash incentive/discretionary bonus compensation,
	•		equity incentive compensation, and
	•		perquisites and other benefits.

     Base Salary. While the Compensation Committee believes it is crucial to provide salaries within a competitive market range in order to attract and retain personnel who are highly talented, the Compensation Committee has established a philosophy of generally providing more conservative base salaries (bottom 25^th percentile for officers) and more aggressive incentive compensation opportunities than the market in order to strongly emphasize pay-for-performance. The specific competitive markets considered depend on the nature and level of the positions in question and the labor markets from which qualified individuals would be recruited. The Compensation Committee reviews the executive group’s salaries on an annual basis and adjusts them if they deviate substantially from the marketplace, including the Peer Group.

     Executive officer base salaries are based on job responsibilities and individual contribution, with reference to base salary levels of executives at the Peer Group and ECI survey companies, and these base salaries are included in determining severance and change in control benefits. The Compensation Committee also considers the expected tax treatment to the Company and its executive officers as one of the factors in determining compensation matters. Section 162(m) of the Internal Revenue Code of 1986, as amended, generally limits the deductibility of certain

compensation expenses in excess of $1 million to any individual in any fiscal year, although certain qualifying performance-based compensation is not subject to the limits on deductibility. The Compensation Committee currently considers the deductibility under Section 162(m) of compensation of its executives to the extent reasonably practical and consistent with the Company’s objectives, but the Compensation Committee may nonetheless approve compensation that does not fall within these requirements. The Compensation Committee may authorize compensation that results in amounts above the limits if it determines that such compensation is in the best interests of the Company.

     Cash Incentive/Discretionary Bonus Compensation. In February 2005, the Board approved and adopted the Revised (2005) Annual Incentive Compensation Plan, which provides for a maximum incentive pool equal to twice the aggregate base salaries of all eligible employees for the relevant plan year. The Compensation Committee is responsible for determining the participants, performance criteria to be used, award levels and allocation of generated incentives. Any allocated incentives are awarded to individuals, including executive officers, based upon a combination of company and individual performance factors. Our overall objective for this Plan is not to reward employees until our stockholders have been appropriately rewarded for investing in our stock. The Compensation Committee is not required to grant awards for all amounts available under this Plan.

     The CEO is compensated for his individual performance in meeting strategic goals and milestones. The CEO compensation is predicated primarily on the achievement of the reserves, production, cost and safety goals which are laid out in the discussion above. In addition, the Compensation Committee also considers certain strategic milestones which will vary from year to year. In 2007, the Compensation Committee considered three primary strategic milestones: (1) the sale of substantially all of the Company’s Rocky Mountain properties, which was successfully completed in June 2007, (2) the recruitment of a Vice President of Exploration, which was successfully completed with the hiring of Richard L. Smith on July 23, 2007, and (3) the success in the October 2007 Gulf of Mexico lease sale in which Stone acquired 16 new offshore blocks, comprising approximately 5,000 acres for each block, for a total of $13 million.

     In compensating the other named executives, the CEO and Compensation Committee also considered the contributions of each of these individuals to the achievement of the reserves, production, cost and safety goals as well as certain specific functional milestones, which vary from year to year.

     We believe that attracting, motivating and retaining highly qualified, highly capable employees is critical to our success. We have designed our compensation program to attract, motivate and retain top quality employees. The compensation program is also designed to align employee rewards with shareholder returns. To attract, motivate and retain employees, the base salaries must be market competitive or other elements of compensation must be added to make compensation market competitive. To align stockholder returns and employee rewards, the bonus program is tied to the drivers of value and profit creation. Those drivers include reserves, production, costs and safety. Increasing reserves and production while managing costs and safety increase the value of the Company, which should lead to realizing greater shareholder value.

     Under the Plan, annual cash incentive payments are primarily tied to several performance criteria determined by the Compensation Committee on an annual basis. The Compensation Committee established the 2007 performance goals for the Plan and their relative weighting:

	•		growing production (20%),
	•		growing reserves (20%),
	•		managing lease operating expenses (20%),
	•		managing total recordable incident rates for safety matters (10%), and
	•		a discretionary portion (30% ).

     We selected the business metrics because they are the primary operating metrics that we use in evaluating our performance. The Production measure is the average daily rate of production during 2007. The Reserves measure is the amount of estimated proved reserves booked during 2007 as a result of drilling activity authorized by the $320 million capital expenditures budget, plus a $20 million contingency fund held by the Board. The Reserves measure excludes pricing revisions (for 2007, pricing revisions would have resulted in an additional 12 Bcfe that are not included in the actual results set forth below) and significant acquisitions. The Lease Operating Expenses factor is the total dollar amount attributable to base lease operating expenses, excluding major maintenance items, in 2007. The Total Recordable Incident

Rate factor is the number of safety incidents per 200,000 man-hours worked for employees and certain contractors. The discretionary factor is within the sole discretion of the Compensation Committee.

     To achieve the full points allocated for a particular measure, the target amount must be achieved, and no points are earned if less than the minimum amount is achieved. Achieving the stretch amount earns 200% of the points for that measure and should be difficult but highly advantageous to the Company to achieve.

     To the extent that performance criteria are met, an incentive pool is generated from which annual cash incentive payments are awarded. The amount of the incentive pool, however, may not exceed twice the aggregate base salaries of all eligible employees for the relevant plan year. The Compensation Committee established the 2008 performance goals for the Plan, and the performance factors include growing production (20%), growing reserves (20%), managing lease operating expenses (15%), managing total recordable incident rates for safety matters (10%), and the performance of the Company’s stock price relative to its peers (20%), leaving a 15% factor in the sole discretion of the Compensation Committee.

     For the 2007 performance year, a Company-wide total of $9.1 million for cash incentive/bonus compensation was paid on March 10, 2008. Awards granted to the NEOs for the 2007 performance year are presented under “Bonus” and “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table.

     As approved by the Compensation Committee and the Board, there were four measures of performance with associated targets plus one discretionary measure used to determine the amounts earned for cash incentive compensation in 2007. Achieving the target performance for all measures would yield a score of 70 points. An additional 30 points could be awarded in the sole discretion of the Compensation Committee. Earning 100 points results in an annual cash incentive opportunity for each executive officer of the Company of 100% of annual base salary. For 2007, the Compensation Committee determined that one hundred twenty (120) points had been earned, including 30 discretionary points. The Compensation Committee awarded the discretionary points because the Company satisfied three primary strategic milestones: (1) the sale of substantially all of the Company’s Rocky Mountain properties, which was successfully completed in June 2007, (2) the recruitment of a Vice President of Exploration, which was successfully completed with the hiring of Richard L. Smith on July 23, 2007, and (3) the success in the October 2007 Gulf of Mexico lease sale in which Stone acquired 16 new offshore blocks, comprising approximately 5,000 acres for each block, for a total of $13 million.

     The target points and earned points for each of the four measures in 2007 are set forth below:

		Target Points				Earned Points
Reserves			20				17
Production			20				36
Lease Operating Expenses			20				24
Safety (total recordable incident rate)			10				13
Discretionary			30				30
Total			100				120

     The Committee and the Board had approved the following performance measures and targets to be used in determining the annual cash incentive compensation pool for 2007:

																		Target				Earned
Factor		Minimum				Target				Stretch				Results				Points				Points
Reserves (Bcfe)			57				74.3				95				72				20	%			17	%
Production (MMcfe/d)			180	*			197	*			230	*			224				20	%			36	%
Base LOE ($MM)		$	90	*		$	85	*		$	75	*			83				20	%			24	%
Safety (Total Recordable Incident Rate)			1.5				1.0				0.5				86				10	%			13	%
Discretionary																			30	%			30	%

     The Compensation Committee and the Board approved the following performance measures and targets to be used in determining the annual cash incentive compensation pool for 2008:

Factor		Minimum				Target				Stretch				Points
Reserves (Bcfe)			60				71				90				20
Production (MMcfe/d)			175				195				215				20
Total LOE ($MM)		$	149			$	145			$	130				15
Safety (Total Recordable Incident Rate)			1.05				0.85				.065				10
Relative Stock Performance			#7				#3				#1				20
Discretionary															15

     For 2008, the operating metrics are defined as they were in 2007, except that the Reserves measure is the amount of estimated proved reserves booked during 2008 as a result of drilling activity authorized by the $395 million capital expenditures budget. The Reserves measure excludes revisions due to pricing and significant acquisitions. In addition, the Committee approved the addition of a new metric to address the relative ranking of our stock price performance as compared to our Peer Group of eleven companies. This factor was added to reinforce our objective that compensation be tied to our performance and increasing stockholder value. For 2008, the Lease Operating Expenses factor is the total dollar amount attributable to base lease operating expenses, including major maintenance and insurance premiums.

     Stock Incentive Plan. Stock option and restricted stock grants are designed to align the long-term interests of the Company’s employees with those of its stockholders by directly linking compensation to stockholder return, as well as by enabling employees to develop and maintain a significant, long-term equity ownership position in the Company. The Company’s 2004 Amended and Restated Stock Incentive Plan (“Stock Incentive Plan”) currently authorizes the Compensation Committee to award stock incentives for up to 4,225,000 shares of common stock. The Compensation Committee grants non-statutory options at an exercise price equal to the fair market value of the Company’s common stock on the date of grant. Options granted to employees generally have 10-year terms, with exercise restrictions that lapse over a five-year period. Options granted to non-employee directors have had 5-year terms, with exercise restrictions that lapse over a three-year period. The Plan requires stockholder approval to amend any outstanding option contract to lower the option price. Stock options provide for financial gain derived from the potential appreciation in stock price from the date that the option is granted until the date that the option is exercised. The exercise price of stock option grants is set at fair market value (average of the Company’s high and low stock price) on the grant date. The Company’s long-term performance ultimately determines the value of stock options because gains from stock option exercises are entirely dependent on the long-term appreciation of the Company’s stock price. Restricted stock grants are to fully vest in two or more years at the discretion of the Compensation Committee, and, with very few exceptions, the restricted stock grants fully vest in three years. In 2007, there was a total of 218,084 shares granted (restricted stock and stock options) pursuant to the plan.

     Long-Term Incentive Program. The implementation of the Long-Term Incentive Program (“LTIP”) in 2006 was designed to provide compensation for performance and be competitive for similar positions in the marketplace. The size of the awards under the LTIP is determined by the Company’s prior year performance. However, the performance factor was not used in determining the awards granted in 2006 and January of 2007 due to merger discussions in 2006 and our desire to facilitate retention objectives by providing awards that were at the target level subject to time-based vesting requirements.

     The LTIP creates guidelines established by the Compensation Committee pursuant to which grants of restricted shares are made pursuant to the Stock Incentive Plan. Long-term incentive grants to executive officers are based on job responsibilities and potential for individual contributions, with reference to the levels of total compensation of executives at the Peer Group and ECI survey companies. When it makes grants, the Compensation Committee also considers prior grants of stock options and restricted shares, and the Compensation Committee exercises judgment and discretion in view of these criteria and its general policies. Participants receive awards of restricted shares 50% of which are based solely on market competitive dynamics and 50% of which are based on a defined performance factor; the restrictions on the restricted shares awarded lapse over a three-year period. Mr. Welch has a provision in his employment agreement providing that, after he has completed five consecutive years of employment with the Company as President and CEO, the Board will agree that he will not be required to forfeit upon his retirement any unvested stock options or restricted shares

that were granted to him and the options will continue to vest and the restrictions will continue to lapse without his being an employee.

     The defined performance factor for 2007 was a relative share price factor (RSPF) that was designed to yield a value of 0.5 for poor performance and a 1.5 value for outstanding performance. The defined performance factor for 2007 was 1.25 because the Company was tied for third in the relative peer position based on the Company’s stock relative share price factor (averaging 1.3 for third place and 1.2 for fourth place resulted in 1.25). The restricted stock and stock option awards in January 2008 reflected this 2007 performance factor. There was no 2006 performance factor used in granting awards in 2006 and January 2007, and, therefore, awards in 2006 and January 2007 were granted solely at the target level (1.0). Poor performance is defined as the change in percentage share price being in the bottom of the Peer Group and outstanding performance as the change in percentage share price being in the top of the Peer Group with interpolation as per the table below. Thus, if performance was better than average, the LTI shares awarded would have been greater than target and if performance was worse than average, the LTI shares awarded would have been lower than target.

Relative Peer
Position (RPP)		RSPF				RPP				RSPF
1			1.5				7				1.0
2			1.5				8				0.9
3			1.3				9				0.8
4			1.2				10				0.7
5			1.1				11				0.5
6			1.0				12				0.5

     The above table shows the relative ranking of the Company in the Peer Group and the corresponding relative share price performance factor (RSPF). For example, if the Company is in the number 3 position in the Peer Group performance (i.e. the Company’s average daily share price change relative to the peers), then the share multiplier would be 1.3, if the Company is in the number 12 position, then the share multiplier would be 0.5. For 2007, the Company was tied for the number 3 position, and, therefore, it averaged the number 3 and 4 positions (1.3 and 1.2) to achieve a 1.25 performance factor. This performance factor, used in granting restricted stock awards in January 2008, affects one-half of the target number of shares, and, for example, if an executive is targeted for 7,000 shares, 3,500 shares would be multiplied times 1.25 to result in a total award of 7,875 (3,500 plus 4,375) shares. The 2007 performance levels determined the size of awards made in 2008.

     401(k) Plan. Under our 401(k) profit sharing plan, eligible employees are permitted to defer receipt of up to 60% of their compensation up to a maximum amount, plus up to an additional $5,000 catch-up adjustment for employees over the age of 50 (subject to certain limitations imposed under the Code). The plan provides that a discretionary match of employee deferrals, before catch-up adjustments, may be made by the Company, at its discretion, in cash or shares of common stock. During the year ended December 31, 2007, and since the inception of this plan, we have made annual matching contributions of $1 for every $2 contributed by an employee.

     Deferred Compensation Plan. The Stone Energy Corporation Deferred Compensation Plan provides eligible executives and other highly compensated individuals with the option to defer up to 100% of their compensation for a calendar year, and the Compensation Committee may, at its discretion, match a portion or all of the participant’s deferral based upon a percentage determined by the Board. The amounts held under the plan are invested in various investment funds maintained by a third party in accordance with the direction of each participant. During the year ended December 31, 2007, and since the inception of this plan, there were no matching contributions made by the Company, and the Compensation Committee does not anticipate any matching contributions in 2008.

     Perquisites and Other Benefits. Perquisites and other benefits represent a small part of our overall compensation package. These benefits help us attract and retain senior level executives and are reviewed periodically to ensure that they are competitive with industry norms. The perquisites for the CFO included inducements to move to the Company’s headquarters in Lafayette, Louisiana, consisting of temporary housing assistance (now expired) with cash payments to cover the tax liability for the imputed value of such assistance. We also sponsor membership in golf or social

clubs for certain senior executives who have responsibility for entertainment deemed necessary or desirable to conduct business and recruit employees.

     The NEOs also participate in a variety of retirement, health and welfare, and paid time-off benefits designed to enable us to attract and retain our workforce in a competitive marketplace. Health and welfare and paid time-off benefits help ensure that we have a productive and focused workforce through reliable and competitive health and other benefits that are available to all employees on a non-discriminatory basis. However, the Company continues to pay life insurance premiums for policies that were purchased for the benefit of its officers in prior years, with Mr. Gates being the only current NEO with such a policy.

     Severance Plan and Change of Control Plans. Our severance and change of control plans are designed to facilitate our ability to attract and retain executives as we compete for talented employees in a marketplace where such protections are commonly offered. We believe that providing consistent, competitive levels of severance protection to senior executives helps minimize distraction during times of uncertainty and helps to retain key employees. The severance plans provide benefits to ease an employee’s transition due to the unexpected employment termination by the Company due to ongoing changes in the Company’s employment needs. The Compensation Committee is responsible for administering these policies and plans.

     Tax Deductibility of Pay. The Compensation Committee also considers the expected tax treatment to the Company and its executive officers as one of the factors in determining compensation matters. Section 162(m) of the Internal Revenue Code of 1986, as amended, generally limits the deductibility of certain compensation expenses in excess of $1 million to any individual in any fiscal year, although certain qualifying performance-based compensation is not subject to the limits on deductibility. The Compensation Committee currently considers the deductibility under Section 162(m) of compensation of its executives to the extent reasonably practical and consistent with the Company’s objectives, but the Compensation Committee may nonetheless approve compensation that does not fall within these requirements. The Compensation Committee may authorize compensation that results in amounts above the limits if it determines that such compensation is in the best interests of the Company. None of the Company’s officers or employees received more than $1 million in base salary in 2006 or in 2007.

     Sections 280G and 4999. We provide our CEO and CFO with certain tax protection in the form of a gross-up payment to reimburse the executive for any excise tax under Code Section 4999 as well as any additional income taxes resulting from such reimbursement. Code Section 4999 imposes a 20% non-deductible excise tax on the recipient of an “excess parachute payment” and Code Section 280G disallows the tax deduction to the payor of any amount of an excess parachute payment that is contingent on a change of control. A payment as a result of a change of control must exceed three (3) times the executive’s base amount in order to be considered an excess parachute payment, and then the excise tax is imposed on the parachute payments that exceed the executive’s base amount. The intent of the tax gross-up is to provide a benefit without a tax penalty to these executives who are displaced in the event of a change of control. We believe the provision of tax protection for excess parachute payments for these executive officers is consistent with market practice, is a valuable executive retention tool, and is consistent with the objectives of our overall executive compensation program.

     Section 409A. We operate our plans in good faith compliance with Section 409A as permitted by the regulations issued by the Internal Revenue Service. We have amended our plans as necessary to comply with Code Section 409A requirements.

     Accounting for Stock-Based Compensation. We are accounting for stock-based payments in accordance with the requirements of Statement of Financial Accounting Standard 123(R).

COMPENSATION COMMITTEE REPORT

     The Compensation Committee does hereby state that:

	(A)		The Compensation Committee has reviewed and discussed the foregoing “Compensation Discussion and Analysis” with management; and
	(B)		Based on the review and discussions, the Compensation Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in Stone Energy Corporation’s proxy statement and incorporated by reference into Stone Energy Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Compensation Committee,

Richard A. Pattarozzi — Chairman
George R. Christmas
David R. Voelker

EXECUTIVE COMPENSATION

Summary Compensation

     The following table sets forth the compensation earned by the NEOs for services rendered in all capacities to the Company and its subsidiaries for the fiscal years ended December 31, 2007 and December 31, 2006.

SUMMARY COMPENSATION TABLE

																						Non-Equity
																						Incentive
														Stock				Option				Plan				All Other
Name and										Bonus				Awards				Awards				Compensation				Compensation				Total
Principal Position		Year				Salary ($)				($) (1)				($) (2)				($) (3)				($) (4)				($) (5)				($)
David H. Welch			2007			$	465,000			$	136,250			$	1,190,364			$	797,966			$	408,750			$	17,864			$	3,016,194
President and Chief			2006				430,000				193,500				942,572				698,649				236,500				17,251				2,518,472
Executive Officer
Kenneth H. Beer			2007				295,000				87,500				465,300				161,060				262,500				13,616				1,284,976
Senior Vice President			2006				275,000				123,750				354,667				133,740				151,250				43,174				1,081,581
Chief Financial Officer
Jerome F. Wenzel, Jr.			2007				230,000				72,500				223,447				38,260				217,500				7,750				789,457
Senior Vice President,			2006				208,646				93,891				206,452				38,260				114,755				17,500				679,504
Operations/Exploitation
Andrew L. Gates, III			2007				220,000				55,000				219,016				65,679				165,000				11,540				736,235
Senior Vice President,			2006				200,000				90,000				141,573				83,027				110,000				11,000				635,600
General Counsel & Secretary
J. Kent Pierret			2007				210,000				62,500				190,257				62,323				187,500				8,130				720,710
Senior Vice President,			2006				182,500				82,125				123,877				66,164				100,375				7,500				562,541
CAO & Treasurer

		Mr. Welch				Mr. Beer				Mr. Wenzel				Mr. Gates				Mr. Pierret
Company 401(k) match		$	7,750			$	7,750			$	7,750			$	7,750			$	7,750
Life insurance premiums			—				—				—				3,500				—
Annual dues for club memberships			10,114				60				—				290				380
Housing allowance			—				4,000				—				—				—
Tax gross-up on housing allowance			—				1,806				—				—				—
		$	17,864			$	13,616			$	7,750			$	11,540			$	8,130

The following table provides detail for the All Other Compensation column in the Summary Compensation Table for each of the named NEOs in 2006:

		Mr. Welch				Mr. Beer				Mr. Wenzel				Mr. Gates				Mr. Pierret
Company 401(k) match		$	7,500			$	7,500			$	7,500			$	7,500			$	7,500
Life insurance premiums			—				—				—				3,500				—
Annual dues for club memberships			9,751				—				—				—				—
Moving allowance			—				—				10,000
Housing allowance			—				24,811				—				—				—
Tax gross-up on housing allowance			—				10,863				—				—				—
		$	17,251			$	43,174			$	17,500			$	11,000			$	7,500

Grants of Plan Based Awards

     The following table discloses detail regarding equity awards during the fiscal year ended 2007 under plan-based grants for the NEOs. It also discloses potential future payouts under the Company’s non-equity incentive plan.

2007 GRANTS OF PLAN BASED AWARDS TABLE

																						All Other
																						Option
																		All Other				Awards:
																		Stock				Number								Closing
																		Awards:				of								Market				Grant Date
																		Number				Securities				Exercise or				Price on				Fair Value
						Estimated Future Payouts Under												of Shares				Underly-				Base Price				Grant				of Stock
						Non-Equity Incentive Plan Awards (1)												of Stock				ing				of Option				Date of				and Option
		Grant				Target				Threshold				Maximum				or Units				Options				Awards				Options				Awards
Name		Date				($)				($)				($)				(#)				(#)				($/Sh) (2)				($/Sh) (2)				($) (3)
David H. Welch			1/9/07				—				—				—				20,000				—				—				—			$	663,800
			1/9/07				—				—				—				—				15,000			$	33.19			$	33.30			$	204,900
			—				—			$	465,000			$	930,000				—				—				—				—				—
Kenneth H. Beer			1/9/07				—				—				—				10,000				—				—				—			$	331,900
			1/9/07				—				—				—				—				10,000			$	33.19			$	33.30			$	136,600
			—				—			$	295,000			$	590,000				—				—				—				—				—
Jerome F. Wenzel,Jr.			1/9/07				—				—				—				9,000				—				—				—			$	298,710
			—				—			$	230,000			$	460,000				—				—				—				—				—
Andrew L. Gates, III			1/9/07				—				—				—				7,000				—				—				—			$	232,330
			—				—			$	220,000			$	440,000				—				—				—				—				—
J. Kent Pierret			1/9/07				—				—				—				6,000				—				—				—			$	199,140
			—				—			$	210,000			$	420,000				—				—				—				—				—

     On January 15, 2008, Mr. Welch was granted 25,000 stock options, and Mr. Beer was granted 15,000 stock options. Stock options are priced at fair market value on the date of the grant. The exercise price of these options is $44.67, and they vest 20% each year over a five-year period, with the first vesting of 20% beginning on January 15, 2009. On January 15, 2008, Mr. Welch was granted 28,125 shares of restricted stock, Mr. Beer was granted 16,875 shares of restricted stock, Mr. Wenzel was granted 10,125 shares of restricted stock, and Messrs. Pierret and Gates were each granted 7,875 shares of restricted stock. The forfeiture restrictions on the restricted stock lapse 33.3% each year over a three-year period. These 2008 grants were related to 2007 performance. These grants will be shown in the 2008 Grants of Plan Based Awards Table contained in our 2009 Proxy Statement.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

     The following narrative provides additional information about the various compensation plans, programs and policies reflected in the Summary Compensation Table and the Grants of Plan-Based Awards table.

     At the annual meeting in 2004, the stockholders approved the current 2004 Amended and Restated Stock Incentive Plan (the “2004 Plan”). The 2004 Plan is an amendment and restatement of the 2001Amended and Restated Stock Option Plan, which was originally effective as of May 17, 2001 and was also approved by the stockholders. The aggregate maximum number of shares authorized to be issued under the 2004 Plan is 4,225,000. The 2004 Plan is the Company’s only equity compensation plan, and any awards of stock options or restricted stock are pursuant to the 2004 Plan.

     The material terms of the employment agreements for Messrs. Welch and Beer are set forth below under “Employment Agreements, Termination of Employment, Severance and Change-in-Control Plans — Employment Agreements.” None of the other NEOs has an employment agreement. The Company has never paid dividends, but any restricted stock awards to employees entitle the recipient to receive dividends, if paid, and to vote the shares. Once stock options or restricted stock are granted, there are no performance-based conditions to vesting. Vesting of stock options occurs over a period of five years, and restrictions lapse on restricted stock over a period of three years. There were no material modifications of any stock option or restricted stock awards during 2007. The proportion of salary and bonus or cash-based compensation to equity-based compensation will vary, year to year, with the Company’s stock price and with the annual bonus amounts, but, over time, the proportions should be approximately equal.

Outstanding Equity Awards at Fiscal Year-End

     The following table contains information concerning the number and value of exercisable and unexercisable options as well as the number and value of unvested restricted stock awards at December 31, 2007.

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007
		Option Awards																Stock Awards
		Number of				Number of
		Securities				Securities												Number of
		Underlying				Underlying				Option								Shares or Units				Market Value of Shares
		Unexercised				Unexercised				Exercise				Option				of Stock That				or Units of Stock That
		Options (#)				Options (#)				Price				Expiration				Have Not Vested				Have Not Vested
Name		Exercisable				Unexercisable				($)				Date				(#)				($)
David H. Welch			—				15,000	(1)		$	33.19				1/9/2017
			3,000				12,000	(2)			47.75				2/7/2016
			12,000				18,000	(3)			48.29				6/16/2015
			60,000				40,000	(4)			48.90				4/1/2014
																			11,044	(9)		$	518,074
																			8,333	(10)			390,901
																			13,333	(11)			625,451
																			20,000	(12)			938,200
Kenneth H. Beer			—				10,000	(5)		$	33.19				1/9/2017
			12,000				18,000	(6)			53.20				8/1/2015
																			6,667	(13)		$	312,749
																			10,000	(14)			469,100
Jerome F. Wenzel, Jr.			6,000				4,000	(7)		$	44.04				10/1/2014
																			2,333	(15)		$	109,441
																			9,000	(16)			422,190
Andrew L. Gates, III			3,200				800	(8)		$	36.46				11/14/2013
			18,000				—				32.96				12/6/2012
			5,000				—				38.79				09/10/2011
			25,000				—				58.16				5/18/2010
																			2,667	(17)		$	125,109
																			7,000	(18)			328,370
J. Kent Pierret			2,400				600	(8)		$	36.46				11/14/2013
			10,800				—				32.96				12/6/2012
			2,000				—				38.79				09/10/2011
			45,000				—				58.16				05/18/2010
																			2,333	(19)		$	109,441
																			6,000	(20)			281,460

Option Exercises and Stock Vested

     The following table sets forth information regarding the number of options exercised and stock awards vested, and the related value received during 2007 for the NEOs.

OPTION EXERCISES AND STOCK VESTED TABLE
		Option Awards								Stock Awards
		Number of								Number of
		Shares				Value				Shares				Value Realized
		Acquired				Realized				Acquired				on
		on Exercise				on Exercise				on Vesting				Vesting
Name		(#)				($)				(#)				($)
David H. Welch			—				—				20,522			$	680,426
Kenneth H. Beer			—				—				6,666				215,112
Jerome F. Wenzel, Jr.			—				—				2,333				71,506
Andrew L. Gates, III			10,000				38,550				2,666				81,713
J. Kent Pierret			—				—				2,333				71,506

Non-Qualified Deferred Compensation

     The following table sets forth information regarding non-qualified deferred compensation during the last fiscal year for the NEOs.

NON-QUALIFIED DEFERRED COMPENSATION TABLE
		Executive				Aggregate				Aggregate
		Contributions				Earnings				Balance at Last
		in Last FY				in Last FY				FYE
Name		($) (1)				($)				($)
David H. Welch			839,677				262,160				2,098,496
Kenneth H. Beer			211,523				30,122				391,486
Jerome F. Wenzel, Jr.			—				3,277				43,469
Andrew L. Gates, III			—				23,098				322,463
J. Kent Pierret			—				—				—

     The Stone Energy Corporation Deferred Compensation Plan provides eligible executives and other highly compensated individuals with the option to defer up to 100% of their salary and/or 100% of their bonus for a calendar year, and the Compensation Committee may, at its discretion, match all or a portion of the participant’s deferral based upon a percentage determined by the Board. Deferral elections are made separately for salary and/or bonus not later than December for amounts to be earned in the following year. In addition, the Board may elect to make discretionary profit sharing contributions to the plan. Since the inception of the plan there have been no matching or profit sharing contributions made by the Company, and the Compensation Committee does not anticipate making any matching or profit sharing contributions in 2008.

     All employee contributions to the plan and investment returns on those contributions are fully vested, and there have not been any Company contributions to the plan. Distributions due to termination of employment will be made as a lump-sum cash payment or in installments, based on the participant’s election and subject to the six-month delay of distributions imposed on certain key employees of the Company by section 409A of the Code. Distributions upon a “change of control” (as defined in the plan) will be made in a lump sum. The amounts held under the plan are invested in various investment funds maintained by a third party in accordance with the direction of each participant. Investment options under the plan are identical to the investment options available to participants in the Stone Energy Corporation 401(k) Profit Sharing Plan. Both the Deferred Compensation Plan and the 401(k) Profit Sharing Plan utilize a mutual fund investment window that enables participants to elect a wide variety of mutual funds. Participants may change their investment elections daily. The investment funds and rate of return for the year ended December 31, 2007, for the investment options actually elected by one or more the NEOs for all or any portion of 2007 are as follows:

	•		David H. Welch — Stock investments include Fidelity Contrafund, Fidelity International Discovery, Fidelity Select Healthcare Fund and Fidelity Japan Fund with a combined rate of return for the year ended December 31, 2007 of 16.1%.
	•		Kenneth H. Beer — Stock investments include Fidelity Leveraged Co. Stock Fund, Fidelity Diversified International Fund, Fidelity Small Cap Stock Fund and Spartan US Equity Index with a combined rate of return for the year ended December 31, 2007 of 12.2%.
	•		Jerome F. Wenzel, Jr. — Stock investments include Fidelity Cap Appreciation Fund, Fidelity Spartan US Equity Index, Baron Asset Fund and Fidelity Diversified International with a combined rate of return for the year ended December 31, 2007 of 8.2%.
	•		Andrew L. Gates, III — Stock investments include Fidelity Mega Cap Fund, Fidelity Balanced Fund, Fidelity Value Fund, Fidelity Convertible Securities Fund and Fidelity Strategic Dividend and Income Fund with a rate of return for the year ended December 31, 2007 of 7.7%.

Potential Payment Upon Termination or Change of Control

     The table below reflects the amount of compensation to each of the NEOs of the Company in the event of termination of such executive’s employment. The amount of compensation payable to each NEO upon “Involuntary Termination” without cause or for “Good Reason,” “Change of Control” termination without “Cause” or for “Good Reason,” voluntary termination, or in the event of disability or death of the executive is shown below. These terms are based upon the definitions in the Company’s Executive Change in Control Severance Plan and the Company’s Executive Change in Control Severance Policy (“2005 Executive Policy”), which are described in greater detail below:

	•		“Cause” shall mean shall mean any termination of an executive’s employment by reason of the executive’s willful and continued failure to substantially perform their duties after written notice of such failure has been given to the executive, or the willful engaging by the executive in conduct that is materially injurious to the Company and its affiliates taken as a whole, monetarily or otherwise.
	•		A “Change of Control” is generally deemed to have occurred if the event set forth in any of the following paragraphs shall have occurred:

	•		any person is or becomes the Beneficial Owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of 20% or more of the combined voting power of the Company’s securities (though not including securities that were acquired directly from the Company);
	•		the current Board of Directors fails to constitute the majority of the members of the Board, unless the Board members replacing the current members were appointed or elected by the current Board;
	•		an arrangement, merger or consolidation of the Company other than a transaction which would: (1) result in the voting securities of the Company outstanding immediately prior to such transaction continuing to represent at least 65% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after transaction, or (2) result in an arrangement, merger or consolidation which is effected to implement a recapitalization of the Company (or similar transaction) in which no person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities; or
	•		the Company’s stockholders approve a plan of complete liquidation or dissolution of the Company, or there is a sale or disposition of all or substantially all of the Company’s assets.

•

“Good Reason” shall mean the occurrence (without the executive’s express written consent) on or within 12 months after any Change of Control of any one of the following acts by the Company:

	•		a material reduction in the executive’s annual base salary as in effect on the date of the Change of Control;
	•		a material diminution in the authority, duties or responsibilities of the Executive as in effect immediately prior to the Change of Control; or
	•		a requirement that the executive transfer to a work location that is more than 50 miles from such executive’s principal work location immediately prior to the Change of Control.

•

An “Involuntary Termination” means any termination of the executive’s employment by the Company other than for Cause or a termination by the executive on or following a Change of Control, but not later than 12 months after the Change of Control, for a Good Reason.

     The following assumptions were used in determining the amounts below in the Potential Payment Upon Termination or Change of Control Table:

	•		All terminations would be effective as of December 31, 2007 (the last business day of 2007).
	•		The closing share price of Stone Energy common stock as of December 31, 2007 was $46.91. The closing price of the Company’s stock on the New York Stock Exchange on March 20, 2008 was $49.20, which could change the payout in the event of a Change of Control. There can be no assurance that a Change of Control would produce the same or similar results as those described if it occurs on any other date or at any other price, or if any assumption is not correct in fact.
	•		The actual amounts to be paid can only be determined at the time of such executive’s separation from the Company. The cash incentive compensation, for example, is a pro rata share of the bonus opportunity for the year up to the date of termination at the then projected year-end rate of payout in an amount, if any, as determined by the Compensation Committee in its sole discretion.

	•		Outplacement services are not to exceed a cost to the Company of 5% of the base annual salary of the executive.
	•		Vacation pay assumes the executive has not used any vacation days and is being paid for all unused days.
	•		The 401(k) match assumes the executive is eligible for the maximum contribution.
	•		Tax gross-up payments reflect the amount payable to the executives to offset any excise tax imposed under the Internal Revenue Code. The amount shown assumes the “base amount” is the five-year average W-2 earnings for the period of calendar years 2002 through 2006. The benefit amount in excess of a named executive officer’s “base amount” is considered an “excess parachute payment” and if the “parachute payment” is equal to or greater than three times the base amount, it is subject to an excise tax. The calculation of the gross up amounts are based upon an excise tax rate under Section 4999 of 20%, a 35% federal income tax rate and a 1.45% Medicare tax rate. We have also made the assumptions that (1) no amounts will be discounted as attributable to reasonable compensation, (2) all cash severance payments are contingent upon a Change in Control, and (3) we could rebut the presumption required under applicable regulations that the equity awards granted in 2007 were contingent upon a Change in Control.

POTENTIAL PAYMENT UPON TERMINATION OR CHANGE OF CONTROL TABLE

						Involuntary				Change of Control
						Termination				Termination
						w/o Cause or for				w/o Cause or for				Voluntary
Name				Benefit		Good Reason				Good Reason				Termination				Death				Disability
David H. Welch				Severance (1)		$	2,780,700			$	2,780,700			$	—				(2	)			(2	)
				Cash incentive compensation (4)			545,000				545,000				—				—				—
				Tax gross-up payment (5)			—				1,605,520				—				—				—
				Outplacement (6)			23,250				23,250				—				—				—
				401(k) match (7)			—				7,750				—				—				—
				Health and welfare benefits (8)			5,451				5,451				—				—				—
				Stock options and restricted stock —
				accelerated vesting (9)			—				2,678,426				—				—				—
				Vacation pay (10)			44,712				44,712				44,712				—				—
				Total		$	3,399,113			$	7,690,809			$	44,712
Kenneth H. Beer				Severance (1)		$	1,764,100			$	1,764,100			$	—				(2	)			(2	)
				Cash incentive compensation (4)			350,000				350,000				—				—				—
				Tax gross-up payment (5)			—				955,001				—				—				—
				Outplacement (6)			14,750				14,750				—				—				—
				401(k) match (7)			—				7,750				—				—				—
				Health and welfare benefits (8)			5,451				5,451				—				—				—
				Stock options and restricted stock —
				accelerated vesting (9)			—				919,049				—				—				—
				Vacation pay (10)			28,365				28,365				28,365				—				—
				Total		$	2,162,666			$	4,044,466			$	28,365
Jerome F. Wenzel, Jr.				Severance (1)		$	230,000			$	687,700			$	—				(2	)			(2	)
				Cash incentive compensation (4)			290,000				290,000				—				—				—
				Tax gross-up payment			—				—				—				—				—
				Outplacement (6)			11,500				11,500				—				—				—
				401(k) match (7)			—				7,750				—				—				—
				Health and welfare benefits (8)			5,451				5,451				—				—				—
				Stock options and restricted stock — accelerated vesting (9)			—				543,111				—				—				—
				Vacation pay (10)			22,115				22,115				22,115				—				—
				Total		$	559,066			$	1,567,627			$	22,115
Andrew L. Gates, III				Severance (1)		$	220,000			$	657,800			$	—				(2	)			(2	)
				Cash incentive compensation (4)			220,000				220,000				—				—				—
				Tax gross-up payment			—				—				—				—				—
				Outplacement (6)			11,000				11,000				—				—				—
				401(k) match (7)			—				7,750				—				—				—
				Health and welfare benefits (8)			5,451				5,451				—				—				—
				Stock options and restricted stock — accelerated vesting (9)			—				461,839				—				—				—
				Vacation pay (10)			21,154				21,154				21,154				—				—
				Total		$	477,605			$	1,384,994			$	21,154
J. Kent Pierret				Severance (1)		$	210,000			$	627,900			$	—				(2	)			(2	)
				Cash incentive compensation (4)			250,000				250,000				—				—				—
				Tax gross-up payment			—				—				—				—				—
				Outplacement (6)			10,500				10,500				—				—				—
				401(k) match (7)			—				7,750				—				—				—
				Health and welfare benefits (8)			5,451				5,451				—				—				—
				Stock options and restricted stock — accelerated vesting (9)			—				397,171				—				—				—
				Vacation pay (10)			20,192				20,192				20,192				—				—
				Total		$	496,143			$	1,318,964			$	20,192