Stone Energy Corporation Announces Fourth Quarter and Year-End 2017 Results
Stone Energy Corporation Announces Fourth Quarter and Year-End 2017 Results
LAFAYETTE, La., March 12, 2018 /PRNewswire/ -- Stone Energy Corporation (NYSE: SGY) ("Stone" or the "Company") today announced financial and operational results for the fourth quarter of 2017. Some items of note from the fourth quarter of 2017 and early 2018 include:
-- Estimated proved reserves totaled approximately 32.5 million barrels of
oil equivalent ("Boe") as of December 31, 2017
-- Production volumes averaged approximately 17.6 thousand Boe per day for
the three months ended December 31, 2017
-- Stone-generated Derbio prospect spud in late February 2018
-- Cash on hand totaled approximately $283 million on March 9, 2018
-- Previously announced combination with Talos Energy LLC is progressing
Interim Chief Executive Officer and President James M. Trimble stated, "We have been working hard to execute our strategy of growing value through participating in highly-selective deep water drilling opportunities that leverage our existing infrastructure, and are excited about our progress to-date. Our successful Mt. Providence well should quickly generate additional production and cash flow with minimal incremental operating cost. The Derbio well spud in late February and we eagerly await its results. We could have another non-operated drilling opportunity during 2018, and we continue to review a number of asset acquisition opportunities. Our balance sheet, which includes over $280 million in cash, and an undrawn bank facility allow us the flexibility to pursue a variety of tactical options. In addition, we continue to advance the previously announced combination of Stone with Talos Energy LLC, which we believe will create incremental long-term value for our shareholders."
Financial Results
For the quarter ended December 31, 2017, Stone reported net income of $17.1 million on oil and gas revenue of $76.3 million, or $0.85 per share, which included $14.3 million of non-cash derivative expense. Net cash provided by operating activities for the fourth quarter of 2017 totaled $18.7 million, while discretionary cash flow for the same period totaled $57.0 million. Net cash provided by operating activities totaled $83.2 million for full year 2017, while discretionary cash flow totaled $153.6 million for the same period. See the "Non-GAAP Financial Measure" schedules and the accompanying financial statements for reconciliations of discretionary cash flow, a non-GAAP financial measure, to net cash provided by operating activities.
Net daily production during the fourth quarter of 2017 averaged approximately 17.6 thousand barrels of oil equivalent ("MBoe") per day, compared to net daily production of approximately 19.2 MBoe per day for the quarter ended September 30, 2017. Fourth quarter 2017 volumes were affected by five days of downtime from Hurricane Nate and a ten day planned shut-in of the Pompano platform in November to replace a compressor engine. The production mix for the fourth quarter of 2017 was approximately 72% oil, 21% natural gas, and 7% natural gas liquids ("NGLs"), on an equivalent basis. Net daily production volumes from the Gulf of Mexico ("GOM") for full year 2017 averaged 19.2 MBoe per day, which excludes production from the Appalachia properties that we sold on February 27, 2017. We expect production rates to range from 17.5 MBoe per day to 18.0 MBoe per day for the first quarter of 2018, which includes approximately 0.5 MBoe per day of unplanned downtime.
Prices realized during the fourth quarter of 2017 averaged $58.07 per barrel of oil, $2.31 per Mcf of natural gas, and $30.42 per barrel of NGLs. Average realized prices for the third quarter of 2017 were $48.13 per barrel of oil, $2.46 per Mcf of natural gas, and $21.69 per barrel of NGLs. Prices realized for the year ended December 31, 2017 averaged $50.74 per barrel of oil, $2.56 per Mcf of natural gas, and $22.58 per barrel of NGLs, compared to $44.59 per barrel of oil, $2.19 per Mcf of natural gas, and $13.23 per barrel of NGLs realized during the year ended December 31, 2016, which included the cash settlement of effective 2016 hedging contracts.
Lease operating expenses ("LOE") during the fourth quarter of 2017 totaled approximately $16.6 million, and included approximately $4.3 million of planned major maintenance expense, compared to LOE of $11.8 million for the quarter ended September 30, 2017, which included a previously disclosed $4.5 million reduction of LOE related to the receipt of a federal royalty refund. Lease operating expenses for the years ended December 31, 2017 and 2016 totaled $58.6 million and $79.7 million, respectively. We currently expect our first quarter 2018 LOE to range from $15 million to $17 million, which includes planned major maintenance projects scheduled for the first quarter of 2018.
Transportation, processing, and gathering ("TP&G") expenses during the fourth quarter of 2017 totaled approximately $1.0 million. TP&G expenses for the year ended December 31, 2017 totaled $11.0 million, which included approximately $6.8 million related to the Appalachia properties that we sold on February 27, 2017. We expect TP&G expenses to approximate $1.0 million in the first quarter of 2018.
Depreciation, depletion, and amortization ("DD&A") expense on oil and gas properties for the fourth quarter of 2017 totaled approximately $22.5 million. DD&A expense on oil and gas properties for the year ended December 31, 2017 totaled $133.8 million, compared to DD&A expense on oil and gas properties of $215.7 million for the year ended December 31, 2016. We expect DD&A expense to range from $13 per Boe to $15 per Boe for the first quarter of 2018.
Salaries, general, and administrative ("SG&A") expenses (exclusive of incentive compensation) for the fourth quarter of 2017 were $10.1 million, which included approximately $1.9 million associated with the pending Talos combination, discussed below, compared to SG&A expenses of $15.9 million for the quarter ended September 30, 2017. We capitalized $2.1 million of SG&A expenses in the fourth quarter of 2017. SG&A expenses for the year ended December 31, 2017 totaled $57.4 million, compared to SG&A expenses for 2016 of $58.9 million. SG&A expenses for full year 2017 included approximately $8.7 million of workforce reduction and employee severance costs, approximately $6.2 million of costs related to the Board-requested strategic review of the Company and the pending Talos combination, and a previously disclosed charge of approximately $3.9 million of success-based consulting fees paid in connection with a federal royalty recovery. The charges for the workforce reductions, severance payments, and costs associated with the pending Talos combination offset the overall reductions in SG&A expense that we realized in 2017 as a result of staff and other cost reductions in connection with our restructuring. We expect SG&A cash costs, excluding fees associated with the pending Talos combination and incentive compensation, to approximate $9 million to $10 million for the first quarter of 2018, of which we expect to capitalize approximately 14% to 16%.
Accretion expense for the fourth quarter of 2017 was approximately $1.5 million. Accretion expense totaled $26.6 million and $40.2 million for the years ended December 31, 2017 and 2016, respectively. The annual decrease in accretion expense was due to the implementation of fresh start accounting upon emergence from bankruptcy proceedings and the settlement of asset retirement obligations during 2017. We expect accretion expense to approximate $4 million to $5 million in the first quarter of 2018.
Net derivative expense for the fourth quarter of 2017 totaled approximately $14.8 million, comprised of $0.5 million of expense from cash settlements and $14.3 million of non-cash expense resulting from changes in the fair value of derivative instruments. Net derivative expense totaled $15.2 million and $0.8 million for the years ended December 31, 2017 and 2016, respectively. The annual increase was due primarily to our election to not designate our 2017, 2018, and 2019 commodity derivative contracts as cash flow hedges for accounting purposes, as discussed below.
Interest expense for the fourth quarter of 2017 was approximately $3.4 million, which primarily included interest associated with the Company's $225 million 7.50% Senior Second Lien Notes due 2022. Capitalized interest was $1.3 million in the fourth quarter of 2017. Interest expense totaled approximately $11.7 million and $64.5 million for the years ended December 31, 2017 and 2016, respectively. Capitalized interest was approximately $6.5 million and $26.6 million for the years ended December 31, 2017 and 2016, respectively. The annual decrease in interest expense was the result of the elimination of debt upon emergence from bankruptcy on February 28, 2017. For the first quarter of 2018, we expect interest expense to remain approximately $3.4 million.
Year-End 2017 Estimated Proved Reserves and Standardized Measure
Estimated proved reserves as of December 31, 2017 totaled approximately 32.5 million barrels of oil equivalent ("MMBoe"), compared to approximately 35.4 MMBoe of estimated proved reserves for the GOM at year-end 2016, which excluded reserves from the Appalachia properties that we sold on February 27, 2017. The year-end 2017 estimated proved reserves were 67% oil, 26% natural gas, and 7% NGLs, on an equivalent basis. The changes in GOM estimated proved reserves from year-end 2016 to year-end 2017 included production of approximately 7.0 MMBoe, net upward performance revisions of approximately 4.0 MMBoe, and pricing-related revisions of approximately 0.1 MMBoe. In the GOM, Stone replaced approximately 59% of 2017 production, due primarily to the upward revisions of previous estimates.
The standardized measure of discounted future net cash flows from our estimated proved reserves at December 31, 2017, was approximately $393.1 million, using a 10% discount rate and 12-month average prices of $50.05 per barrel of oil, $2.34 per Mcf of gas, and $22.90 per barrel of NGLs, after BTU adjustments and differentials. Estimated future income taxes had no effect on the standardized measure as of December 31, 2017. The year-end 2017 estimated proved reserves included proved developed reserves of approximately 28.3 MMBoe and proved undeveloped reserves of approximately 4.2 MMBoe. In addition to proved reserves, estimated probable reserves totaled approximately 20.8 MMBoe and estimated possible reserves totaled approximately 35.4 MMBoe at December 31, 2017.
All of Stone's year-end 2017 estimated proved, probable, and possible reserves were independently engineered by Netherland, Sewell & Associates, Inc.
2017 Capital Expenditure Update
Capital expenditures for the fourth quarter of 2017 were approximately $58 million, which included approximately $23 million related to drilling the Mt. Providence well and $28 million of plugging and abandonment expenditures. In addition, approximately $2.1 million of SG&A expense and $1.3 million of interest expense were capitalized during the fourth quarter of 2017. For the year ended December 31, 2017, capital expenditures totaled approximately $154 million, which included approximately $84 million of plugging and abandonment expenditures. Capitalized SG&A and interest expenses for the year ended December 31, 2017 totaled approximately $9.5 million and $6.5 million, respectively.
2018 Capital Expenditure Budget
Stone's Board of Directors has authorized a full-year 2018 capital expenditure budget of up to $212 million, which excludes acquisitions and capitalized SG&A and interest, and does not give effect to the potential Talos combination. The budget is spread across Stone's major areas of investment, with approximately 36% allocated to exploration, 27% to development, and 37% to plugging and abandonment expenditures. The allocation of capital across the various areas is subject to change based on several factors, including permitting times, rig availability, non-operator decisions, farm-in opportunities, and commodity pricing.
Liquidity Update
As of December 31, 2017, Stone's liquidity approximated $369.6 million, which included approximately $87.4 million of undrawn capacity under the Company's revolving credit facility plus approximately $263.5 million of cash on hand and approximately $18.7 million of cash being held in a restricted account to satisfy near-term plugging and abandonment activities. As of March 9, 2018, Stone had cash on hand of approximately $283 million, and $3 million in cash held in the restricted abandonment account.
As of December 31, 2017, Stone's outstanding debt totaled approximately $235.9 million, consisting of $225.0 million of 7.50% Senior Second Lien Notes due 2022 and approximately $10.9 million outstanding under a building loan. Further, the Company had no outstanding borrowings, and outstanding letters of credit of approximately $12.6 million, under its $100 million borrowing base.
As of December 31, 2017, we had a current income tax receivable of $36.3 million, the majority of which relates to expected tax refunds from the carryback of net operating losses to previous tax years; $20.1 million of which was collected in January 2018.
We expect that cash flows from operating activities, cash on hand, and availability under our revolving credit facility will be adequate to meet the current 2018 operating and capital expenditure needs of the Company.
Combination of Stone Energy Corporation and Talos Energy LLC
As previously announced, on November 21, 2017, the Boards of Directors of Stone and Talos Energy LLC ("Talos") unanimously approved the combination of Talos and Stone in an all-stock transaction (the "Transaction") that will create a premier offshore-focused exploration and production company. The company will be named Talos Energy, Inc. and is expected to trade on the New York Stock Exchange under the new ticker symbol "TALO." Under the terms of the Transaction, each outstanding share of Stone common stock will be exchanged for one share of Talos Energy, Inc. common stock and the current Talos stakeholders will be issued an aggregate of approximately 34.1 million common shares of the new company. At closing, Talos stakeholders will own 63% of the combined company, with Stone shareholders owning the remaining 37%. Outstanding warrants to acquire Stone common stock will become warrants to acquire Talos Energy, Inc. common stock, with terms and conditions substantially identical to their existing terms and conditions.
Completion of the Transaction is subject to the approval of Stone stockholders, the consummation of a tender offer and consent solicitation for Stone's 7.50% Senior Second Lien Notes due 2022, certain regulatory approvals, and other customary conditions.
Franklin Advisers, Inc. and MacKay Shields LLC, as investment managers for approximately 53% of the outstanding shares of Stone common stock as of September 30, 2017, have entered into voting agreements to vote in favor of the Transaction, subject to certain conditions.
The Transaction is expected to close in the second quarter of 2018.
The above is a summary of the material terms of the Transaction. This summary highlights only certain substantive provisions of the Transaction and is not intended to be a complete description of the Transaction. This summary is qualified in its entirety by reference to the Sailfish Energy Holdings Corporation Registration Statement on Form S-4 filed with the Securities and Exchange Commission ("SEC") on December 29, 2017, as amended on February 8, 2018.
Fresh Start Accounting and Hedge Accounting Changes
Upon emergence from Chapter 11 reorganization, Stone adopted fresh start accounting effective February 28, 2017. Under the principles of fresh start accounting, a new reporting entity was created, and Stone's assets and liabilities were recorded at their fair values as of the fresh start reporting date. Also, effective January 1, 2017, we elected to no longer designate our 2017, 2018, and 2019 commodity derivative contracts as cash flow hedges for accounting purposes. Accordingly, the net changes in the mark-to-market valuations and the monthly settlements on these derivative contracts will be recorded in earnings through derivative income/expense. As a result, Stone's financial statements dated on or after March 1, 2017 will not be comparable with financial statements issued prior to that date. References to "Predecessor" refer to Stone prior to the adoption of fresh start accounting while references to "Successor" refer to Stone subsequent to the adoption of fresh start accounting. Please review Stone's Annual Report on Form 10-K for the year ended December 31, 2017 for further details regarding fresh start accounting and the financial information presented at the end of this press release.
Operational Update
Mississippi Canyon 72 - Derbio (Deep Water). The Derbio well (the MC 72 #3 well) spud on February 27, 2018, with results expected in the second quarter of 2018. Derbio is a Stone-generated prospect and follows the Rampart Deep success announced in September 2017, which reduced the exploration risk of the Derbio prospect. If successful, the Rampart Deep/Derbio project could be a multi-well tie back to the 100% Stone-owned Pompano platform, with first production expected by late 2019. Working interest partners in the Derbio prospect are Stone with 40%, Deep Gulf Energy III, LLC with 30%, and two entities managed by Ridgewood Energy Corporation, Ridgewood Rampart, LLC and ILX Prospect Rampart, LLC, each owning 15%.
Mississippi Canyon 116 - Rampart Deep (Deep Water). As previously announced, the Rampart Deep well, operated by Deep Gulf Energy III, LLC, encountered approximately 107 net vertical feet of liquids-rich natural gas pay in three primary zones, as interpreted by Stone. In addition to the reserve potential of Rampart Deep, this well also provides critical information that reduces the exploration risk of Stone's Derbio prospect. Completion of the Rampart Deep well was deferred while the partners analyze the well data, and will be further evaluated in conjunction with future Derbio drilling results, which may impact sanctioning of the project. Working interest partners in the Rampart Deep well are Stone with 40%, Deep Gulf Energy III, LLC with 30%, and two entities managed by Ridgewood Energy Corporation, Ridgewood Rampart, LLC and ILX Prospect Rampart, LLC, each owning 15%.
Mississippi Canyon 28 - Mt. Providence (Deep Water). As previously announced, the Mt. Providence development well (the MC 28 #4 well) encountered approximately 153 net feet of high quality, primarily oil pay in one Miocene interval with no visible water level, which exceeded pre-drill expectations. Completion operations on the Mt. Providence well will commence in the second quarter of 2018, with first production expected in the third quarter of 2018. The well is expected to have an initial production rate of approximately 3,000 to 5,000 barrels of oil equivalent per day and will be tied back to the 100% Stone-owned Pompano platform through existing subsea infrastructure. Stone generated the prospect and owns a 100% working interest in the well.
Hedge Position
The following table illustrates our derivative positions for 2018 and 2019 as of March 9, 2018:
Oil Hedging Contracts
NYMEX
-----
Put Contracts Swap Contracts
------------- --------------
Daily Put Daily Swap
Volume Price Volume Price
(Bbls/d) ($ per Bbl) (Bbls/d) ($ per Bbl)
-------- ---------- -------- ----------
Jan 2018 - Dec
2018 1,000 $54.00 Jan 2018 - Dec 2018 1,000 $52.50
Jan 2018 - Dec
2018 1,000 $45.00 Jan 2018 - Dec 2018 1,000 $51.98
Jan 2018 - Dec 2018 1,000 $53.67
Jan 2019 - Dec 2019 1,000 $51.00
Jan 2019 - Dec 2019 1,000 $51.57
Jan 2019 - Dec 2019 1,000 $56.16
Jan 2019 - Dec 2019 1,000 $56.10
Collar Contracts
----------------
Daily Put Call
Volume Price Price
(Bbls/d) ($ per Bbl) ($ per Bbl)
Jan 2018 - Dec
2018 1,000 $45.00 $55.35
Natural Gas Hedging Contracts
NYMEX
-----
Collar Contracts
----------------
Daily Put Call
Volume Price Price
(MMBtu/d) ($ per MMBtu) ($ per MMBtu)
Jan 2018 - Dec
2018 6,000 $2.75 $3.24
Other Information
Stone will not be hosting a conference call to discuss the fourth quarter and full year 2017 operational and financial results.
Non-GAAP Financial Measure
In this press release, we refer to a non-GAAP financial measure we call "discretionary cash flow". Discretionary cash flow equals cash flows from operating activities before changes in operating assets and liabilities. Management believes discretionary cash flow is a financial indicator of our company's ability to internally fund capital expenditures and service debt. Management also believes this non-GAAP financial measure of cash flow is useful information to investors because it is widely used by professional research analysts in the valuation, comparison, rating, and investment recommendations of companies in the oil and gas exploration and production industry. Discretionary cash flow should not be considered an alternative to net cash provided by (used in) operating activities or net income (loss), as defined by GAAP. See the "Reconciliation of Non-GAAP Financial Measure" schedules for reconciliations of discretionary cash flow to net cash provided by (used in) operating activities.
Forward-Looking Statements
Certain statements in this press release are forward-looking and are based upon Stone's current belief as to the outcome and timing of future events. All statements, other than statements of historical facts, that address activities or results that Stone plans, expects, believes, projects, estimates, or anticipates will, should, or may occur in the future, including future production of oil and gas, future capital expenditures and drilling and completion of wells, and future financial or operating results are forward-looking statements. All forward-looking numbers are approximate. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include, but are not limited to, the timing, extent, and volatility of changes in commodity prices for oil and gas; operating risks; liquidity risks, including risks relating to our bank credit facility and the Company's ability to access the capital markets; political and regulatory developments and legislation, including developments and legislation relating to our operations in the Gulf of Mexico basin; risks related to our previously announced combination with Talos Energy LLC; and other risk factors and known trends and uncertainties as described in Stone's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K as filed with the Securities and Exchange Commission. For a more detailed discussion of risk factors, please see Part I, Item 1A, "Risk Factors" of the Company's most recent Annual Report on Form 10-K. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, Stone's actual results and plans could differ materially from those expressed in the forward-looking statements. Stone assumes no obligation and expressly disclaims any duty to update the information contained herein, except as required by law.
Estimates for Stone's future production volumes are based on assumptions of capital expenditure levels and the assumption that market demand and prices for oil and gas will continue at levels that allow for economic production of these products. The production, transportation, and marketing of oil and gas are subject to disruption due to transportation and processing availability, mechanical failure, human error, hurricanes, and numerous other factors. Stone's estimates are based on certain other assumptions, such as well performance and uptime estimates, which may vary significantly from those assumed. Delays experienced in well permitting could affect the timing of drilling and production. Lease operating expenses, which include major maintenance costs, vary in response to changes in prices of services and materials used in the operation of our properties, and the amount of maintenance activity required. Estimates of DD&A rates can vary according to reserve additions, capital expenditures, future development costs, and other factors. Therefore, we can give no assurance that our future production volumes, lease operating expenses, or DD&A rates, if provided, will be as estimated.
Important Additional Information
In connection with the Transaction, Sailfish Energy Holdings Corporation, a subsidiary of Stone that will be renamed Talos Energy, Inc. as of the closing of the Transaction ("Newco"), has filed with the SEC a registration statement on Form S-4, including Amendment No. 1 thereto, containing a preliminary consent solicitation/prospectus of Newco and Stone. The registration statement has not yet become effective. After the registration statement is declared effective by the SEC, Newco will file with the SEC a definitive consent solicitation/prospectus and Stone will mail the definitive consent solicitation/prospectus to its stockholders and file other documents regarding the Transaction with the SEC. This communication is not a substitute for any proxy statement, registration statement, proxy statement/prospectus or other documents Stone and/or Newco may file with the SEC in connection with the Transaction. INVESTORS AND STOCKHOLDERS OF STONE ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY THE REGISTRATION STATEMENT AND THE CONSENT SOLICITATION/PROSPECTUS REGARDING THE TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and stockholders may obtain a free copy of the consent solicitation/prospectus, as well as other filings containing information about Talos, Stone and/or Newco, without charge, at the SEC's website (http://www.sec.gov). Copies of the consent solicitation/prospectus and the filings with the SEC that are incorporated by reference in the consent solicitation/prospectus may also be obtained, without charge, from Stone by directing a request to Stone Energy Corporation, 625 E. Kaliste Saloom Road, Lafayette, Louisiana, 70508, Attention: Investor Relations, Telephone: (337) 237-0410, or from Talos by directing a request to talos@fticonsulting.com.
No Offer or Solicitation
This communication is for informational purposes only and is not intended to and does not constitute an offer to subscribe for, buy or sell, the solicitation of an offer to subscribe for, buy or sell or an invitation to subscribe for, buy or sell any securities or the solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the Transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.
Participants in the Solicitation
Talos, Stone, Newco and certain of their respective directors, executive officers and members of management and employees may be deemed to be participants in the solicitation of written consents in respect of the Transaction. Information regarding Stone's directors and executive officers is set forth in Stone's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Information regarding Talos's directors and executive officers and more detailed information regarding the identity of all potential participants, and their direct and indirect interests, by security holdings or otherwise, is set forth in the consent solicitation/prospectus and other relevant materials filed with the SEC. Free copies of these documents may be obtained from the sources indicated above.
Stone Energy is an independent oil and natural gas exploration and production company headquartered in Lafayette, Louisiana with an additional office in New Orleans. Stone is engaged in the acquisition, exploration, development, and production of properties in the Gulf of Mexico basin. For additional information, contact Kenneth H. Beer, Chief Financial Officer, at 337-521-2210 phone, 337-521-9880 fax or via e-mail at CFO@StoneEnergy.com.
STONE ENERGY CORPORATION
SUMMARY STATISTICS
(Unaudited)
Successor Predecessor Predecessor
--------- ----------- -----------
Three Months Three Months Combined Twelve Months
Ended Ended Twelve Months Ended
December 31, December 31, Ended December 31,
2017 2016 December 31, 2016
2017
(1)(2)
-----
PRODUCTION QUANTITIES
Oil (MBbls) 1,175 1,562 5,077 6,308
Natural gas (MMcf) 2,023 9,399 12,653 29,441
Natural gas liquids (MBbls) 110 889 811 2,183
Oil, natural gas and NGLs (MBoe) 1,622 4,018 7,997 13,398
AVERAGE DAILY PRODUCTION
Oil (MBbls) 12.8 17.0 13.9 17.2
Natural gas (MMcf) 22.0 102.2 34.7 80.4
Natural gas liquids (MBbls) 1.2 9.7 2.2 6.0
Oil, natural gas and NGLs (MBoe) 17.6 43.7 21.9 36.6
REVENUE DATA (in thousands) (3)
Oil revenue $68,236 $77,144 $257,629 $281,246
Natural gas revenue 4,673 21,274 32,350 64,601
Natural gas liquids revenue 3,346 13,769 18,316 28,888
----- ------ ------ ------
Total oil, natural gas and NGLs
revenue $76,255 $112,187 $308,295 $374,735
AVERAGE REALIZED PRICES (3)
Oil (per Bbl) $58.07 $49.39 $50.74 $44.59
Natural gas (per Mcf) $2.31 $2.26 $2.56 $2.19
Natural gas liquids (per Bbl) $30.42 $15.49 $22.58 $13.23
Oil, natural gas and NGLs (per Boe) $47.01 $27.92 $38.55 $27.97
AVERAGE COSTS PER BOE
Lease operating expenses $10.26 $6.05 $7.33 $5.94
Transp, processing and gathering
expenses $0.64 $2.27 $1.38 $2.07
Salaries, general and administrative
expenses $6.23 $2.67 $7.18 $4.40
DD&A expense on oil and gas properties $13.90 $13.02 $16.73 $16.10
(1) Results include operational and financial
results from the Appalachia basin through
the close of the sale of Appalachia
properties on February 27, 2017.
(2) For illustrative purposes, the Company has
combined the Successor and Predecessor
results to derive combined results for
the twelve month period ended December
31, 2017. The combination was generated
by addition of comparable financial
statement line items. However, because of
various adjustments to the consolidated
financial statements in connection with
the application of fresh start
accounting, including asset valuation
adjustments and liability adjustments,
the results of operations for the
Successor will not be comparable to those
of the Predecessor. The financial
information in the Consolidated Statement
of Operations and Reconciliations of Non-
GAAP Financial Measures on the following
pages provides the Successor's and the
Predecessor's GAAP results for the
applicable periods. The Company believes
that subject to consideration of the
impact of fresh start accounting,
combining the results of the Predecessor
and Successor provides meaningful
information about production, revenues,
commodity prices and costs that assists a
reader in understanding the Company's
financial results for the applicable
period.
(3) Through December 31, 2016, we designated
our commodity derivatives as cash flow
hedges for accounting purposes upon
entering into the contracts.
Accordingly, they were recorded as either
an asset or liability measured at fair
value and subsequent changes in the
derivative's fair value were recognized
in stockholders' equity through other
comprehensive income (loss), net of
related taxes, to the extent the hedge
was considered effective. Monthly
settlements of effective hedges were
reflected in revenue from oil and natural
gas production. With respect to our 2017,
2018 and 2019 commodity derivative
contracts, we have elected to not
designate these contracts as cash flow
hedges for accounting purposes.
Accordingly, the net changes in the mark-
to-market valuations and the monthly
settlements on these derivative contracts
will be recorded in earnings through
derivative income/expense. As a result
of these mark-to-market adjustments, we
will likely experience volatility in
earnings from time to time due to
commodity price volatility. Further,
this change in accounting method effects
the comparability of 2017 revenues,
average realized prices and derivative
income/expense to 2016 revenues, average
realized prices and derivative income/
expense, respectively.
STONE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Successor Predecessor
--------- -----------
Three Months Three Months
Ended Ended
December 31, December 31,
2017 2016
---- ----
Operating revenue:
Oil production $68,236 $77,144
Natural gas
production 4,673 21,274
Natural gas
liquids
production 3,346 13,769
Other operational
income 72 920
Total operating
revenue 76,327 113,107
------ -------
Operating expenses: (1)
Lease operating
expenses 16,646 24,301
Transportation,
processing and
gathering
expenses 1,039 9,103
Production taxes 183 1,254
Depreciation,
depletion and
amortization 23,337 53,372
Write-down of oil
and gas
properties - 73,094
Accretion expense 1,453 10,082
Salaries, general
and
administrative
expenses 10,099 10,735
Incentive
compensation
expense 3,399 1,666
Restructuring fees - 13,424
Other operational
expenses 67 6,187
Derivative
expense, net 14,802 123
------ ---
Total operating
expenses 71,025 203,341
------ -------
Income (loss) from
operations 5,302 (90,234)
----- -------
Other (income) expenses:
Interest expense 3,424 14,694
Interest income (423) (76)
Other income (437) (599)
Other expense 369 569
Reorganization
items, net - 10,947
--- ------
Total other
expense 2,933 25,535
----- ------
Income (loss)
before income
taxes 2,369 (115,769)
----- --------
Provision (benefit) for income
taxes:
Current (14,769) (1,496)
Deferred - 2,133
--- -----
Total income taxes (14,769) 637
------- ---
Net income (loss) $17,138 ($116,406)
======= =========
Net income (loss)
per share $0.85 ($20.76)
Average shares
outstanding -
diluted 19,997 5,607
(1) Through December 31, 2016, we designated
our commodity derivatives as cash flow
hedges for accounting purposes upon
entering into the contracts.
Accordingly, they were recorded as either
an asset or liability measured at fair
value and subsequent changes in the
derivative's fair value were recognized
in stockholders' equity through other
comprehensive income (loss), net of
related taxes, to the extent the hedge
was considered effective. Monthly
settlements of effective hedges were
reflected in revenue from oil and natural
gas production. With respect to our 2017,
2018 and 2019 commodity derivative
contracts, we have elected to not
designate these contracts as cash flow
hedges for accounting purposes.
Accordingly, the net changes in the mark-
to-market valuations and the monthly
settlements on these derivative contracts
will be recorded in earnings through
derivative income/expense. As a result
of these mark-to-market adjustments, we
will likely experience volatility in
earnings from time to time due to
commodity price volatility. Further,
this change in accounting method effects
the comparability of 2017 revenues,
average realized prices and derivative
income/expense to 2016 revenues, average
realized prices and derivative income/
expense, respectively.
STONE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Successor Predecessor Predecessor
--------- ----------- -----------
Combined Period from Period from Twelve
Twelve March 1, 2017 January 1, 2017 Months Ended
Months Ended through through December 31,
December 31, December 31, February 28, 2016
2017 2017 2017
(1)(2) (1)
----- ---
Operating revenue:
Oil production $257,629 $211,792 $45,837 $281,246
Natural gas production 32,350 18,874 13,476 64,601
Natural gas liquids production 18,316 9,610 8,706 28,888
Other operational income 10,911 10,008 903 2,657
------ ------
Total operating revenue 319,206 250,284 68,922 377,392
------- ------- ------ -------
Operating expenses: (3)
Lease operating expenses 58,620 49,800 8,820 79,650
Transportation, processing and
gathering expenses 11,017 4,084 6,933 27,760
Production taxes 1,311 629 682 3,148
Depreciation, depletion and
amortization 137,319 99,890 37,429 220,079
Write-down of oil and gas
properties 256,435 256,435 - 357,431
Accretion expense 26,598 21,151 5,447 40,229
Salaries, general and
administrative expenses 57,446 47,817 9,629 58,928
Incentive compensation expense 10,053 8,045 2,008 13,475
Restructuring fees 739 739 - 29,597
Other operational expenses 3,889 3,359 530 55,453
Derivative expense, net 15,166 13,388 1,778 810
------ ------ ----- ---
Total operating expenses 578,593 505,337 73,256 886,560
------- ------- ------ -------
Gain (loss) on Appalachia
Properties divestiture 213,348 (105) 213,453 -
------- ---- ------- ---
Income (loss) from operations (46,039) (255,158) 209,119 (509,168)
------- -------- ------- --------
Other (income) expenses:
Interest expense 11,744 11,744 - 64,458
Interest income (1,043) (998) (45) (550)
Other income (1,471) (1,156) (315) (1,439)
Other expense 14,566 1,230 13,336 596
Reorganization items, net (437,744) - (437,744) 10,947
-------- --- -------- ------
Total other (income) expense (413,948) 10,820 (424,768) 74,012
-------- ------ -------- ------
Income (loss) before income
taxes 367,909 (265,978) 633,887 (583,180)
------- -------- ------- --------
Provision (benefit) for income taxes:
Current (14,769) (18,339) 3,570 (5,674)
Deferred - - - 13,080
--- --- --- ------
Total income taxes (14,769) (18,339) 3,570 7,406
------- ------- ----- -----
Net income (loss) $382,678 ($247,639) $630,317 ($590,586)
======== ========= ======== =========
Net income (loss) per share ($12.38) $110.99 ($105.63)
Average shares outstanding - diluted 19,997 5,634 5,591
(1) Results include operational and financial
results from the Appalachia basin through
the close of the sale of Appalachia
properties on February 27, 2017.
(2) For illustrative purposes, the Company has
combined the Successor and Predecessor
results to derive combined results for
the twelve month period ended December
31, 2017. The combination was generated
by addition of comparable financial
statement line items. However, because of
various adjustments to the consolidated
financial statements in connection with
the application of fresh start
accounting, including asset valuation
adjustments and liability adjustments,
the results of operations for the
Successor will not be comparable to those
of the Predecessor. The Company believes
that subject to consideration of the
impact of fresh start accounting,
combining the results of the Predecessor
and Successor provides meaningful
information that assists a reader in
understanding the Company's financial
results for the applicable period.
(3) Through December 31, 2016, we designated
our commodity derivatives as cash flow
hedges for accounting purposes upon
entering into the contracts.
Accordingly, they were recorded as either
an asset or liability measured at fair
value and subsequent changes in the
derivative's fair value were recognized
in stockholders' equity through other
comprehensive income (loss), net of
related taxes, to the extent the hedge
was considered effective. Monthly
settlements of effective hedges were
reflected in revenue from oil and natural
gas production. With respect to our 2017,
2018 and 2019 commodity derivative
contracts, we have elected to not
designate these contracts as cash flow
hedges for accounting purposes.
Accordingly, the net changes in the mark-
to-market valuations and the monthly
settlements on these derivative contracts
will be recorded in earnings through
derivative income/expense. As a result
of these mark-to-market adjustments, we
will likely experience volatility in
earnings from time to time due to
commodity price volatility. Further,
this change in accounting method effects
the comparability of 2017 revenues,
average realized prices and derivative
income/expense to 2016 revenues, average
realized prices and derivative income/
expense, respectively.
STONE ENERGY CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
DISCRETIONARY CASH FLOW to NET CASH PROVIDED BY OPERATING ACTIVITIES
(In thousands)
(Unaudited)
Successor Predecessor
Three Months Three Months
Ended Ended
December 31, December 31,
2017 2016
---- ----
Net income (loss) as reported $17,138 ($116,406)
Reconciling items:
Depreciation, depletion and amortization 23,337 53,372
Write-down of oil and gas properties - 73,094
Deferred income tax provision - 2,133
Accretion expense 1,453 10,082
Non-cash stock compensation expense 359 2,036
Non-cash interest expense 1 4,126
Non-cash derivative expense (1) 14,338 210
Non-cash reorganization items - 8,332
Other non-cash expense 368 167
--- ---
Discretionary cash flow 56,994 37,146
Change in income taxes payable (8,588) (1,496)
Settlement of asset retirement obligations (27,542) (5,408)
Other working capital changes (2,185) 15,453
Net cash provided by operating activities $18,679 $45,695
======= =======
(1) Through December 31, 2016, we designated
our commodity derivatives as cash flow
hedges for accounting purposes upon
entering into the contracts.
Accordingly, they were recorded as either
an asset or liability measured at fair
value and subsequent changes in the
derivative's fair value were recognized
in stockholders' equity through other
comprehensive income (loss), net of
related taxes, to the extent the hedge
was considered effective. Monthly
settlements of effective hedges were
reflected in revenue from oil and natural
gas production. With respect to our 2017,
2018 and 2019 commodity derivative
contracts, we have elected to not
designate these contracts as cash flow
hedges for accounting purposes.
Accordingly, the net changes in the mark-
to-market valuations and the monthly
settlements on these derivative contracts
will be recorded in earnings through
derivative income/expense. As a result
of these mark-to-market adjustments, we
will likely experience volatility in
earnings from time to time due to
commodity price volatility. Further,
this change in accounting method effects
the comparability of 2017 revenues,
average realized prices and derivative
income/expense to 2016 revenues, average
realized prices and derivative income/
expense, respectively.
STONE ENERGY CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
DISCRETIONARY CASH FLOW to NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
(In thousands)
(Unaudited)
Successor Predecessor Predecessor
--------- ----------- -----------
Combined Period from Period from Twelve Months
Twelve Months March 1, 2017 January 1, Ended
Ended through 2017 December 31,
December 31, December 31, through 2016
2017 2017 February 28,
2017
(1)(2) (1)
----- ---
Net income (loss) as reported $382,678 ($247,639) $630,317 ($590,586)
Reconciling items:
Depreciation, depletion and
amortization 137,319 99,890 37,429 220,079
Write-down of oil and gas
properties 256,435 256,435 - 357,431
Deferred income tax provision - - - 13,080
Accretion expense 26,598 21,151 5,447 40,229
(Gain) loss on sale of oil and gas
properties (213,348) 105 (213,453) -
Non-cash stock compensation expense 3,897 1,252 2,645 8,443
Non-cash interest expense 4 4 - 18,404
Non-cash derivative expense (3) 17,326 15,548 1,778 1,471
Non-cash reorganization items (458,677) - (458,677) 8,332
Other non-cash expense 1,417 1,245 172 6,248
----- ----- --- -----
Discretionary cash flow 153,649 147,991 5,658 83,131
Change in income taxes payable (10,174) (13,744) 3,570 20,088
Settlement of asset retirement
obligations (84,312) (80,671) (3,641) (20,514)
Investment in derivative contracts (6,152) (2,416) (3,736) -
Other working capital changes 30,181 37,916 (7,735) (4,117)
Net cash provided by (used in)
operating activities $83,192 $89,076 ($5,884) $78,588
======= ======= ======= =======
(1) Results include operational and financial
results from the Appalachia basin through
the close of the sale of Appalachia
properties on February 27, 2017.
(2) For illustrative purposes, the Company has
combined the Successor and Predecessor
results to derive combined results for
the twelve month period ended December
31, 2017. The combination was generated
by addition of comparable financial
statement line items. However, because of
various adjustments to the consolidated
financial statements in connection with
the application of fresh start
accounting, including asset valuation
adjustments and liability adjustments,
the results of operations for the
Successor will not be comparable to those
of the Predecessor. The Company believes
that subject to consideration of the
impact of fresh start accounting,
combining the results of the Predecessor
and Successor provides meaningful
information that assists a reader in
understanding the Company's financial
results for the applicable period.
(3) Through December 31, 2016, we designated
our commodity derivatives as cash flow
hedges for accounting purposes upon
entering into the contracts.
Accordingly, they were recorded as either
an asset or liability measured at fair
value and subsequent changes in the
derivative's fair value were recognized
in stockholders' equity through other
comprehensive income (loss), net of
related taxes, to the extent the hedge
was considered effective. Monthly
settlements of effective hedges were
reflected in revenue from oil and natural
gas production. With respect to our 2017,
2018 and 2019 commodity derivative
contracts, we have elected to not
designate these contracts as cash flow
hedges for accounting purposes.
Accordingly, the net changes in the mark-
to-market valuations and the monthly
settlements on these derivative contracts
will be recorded in earnings through
derivative income/expense. As a result
of these mark-to-market adjustments, we
will likely experience volatility in
earnings from time to time due to
commodity price volatility. Further,
this change in accounting method effects
the comparability of 2017 revenues,
average realized prices and derivative
income/expense to 2016 revenues, average
realized prices and derivative income/
expense, respectively.
STONE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
Successor Predecessor
--------- -----------
December 31, December 31,
2017 2016
---- ----
Assets
------
Current assets:
Cash and cash equivalents $263,495 $190,581
Restricted cash 18,742 -
Accounts receivable 39,258 48,464
Fair value of derivative contracts 879 -
Current income tax receivable 36,260 26,086
Other current assets 7,138 10,151
----- ------
Total current assets 365,772 275,282
Oil and gas properties, full cost method of
accounting:
Proved 713,157 9,616,236
Less: accumulated depreciation, depletion and
amortization (353,462) (9,178,442)
-------- ----------
Net proved oil and gas properties 359,695 437,794
Unevaluated 102,187 373,720
Other property and equipment, net 17,275 26,213
Other assets, net 13,844 26,474
Total assets $858,773 $1,139,483
======== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable to vendors $54,226 $19,981
Undistributed oil and gas proceeds 5,142 15,073
Accrued interest 1,685 809
Fair value of derivative contracts 8,969 -
Asset retirement obligations 79,300 88,000
Current portion of long-term debt 425 408
Other current liabilities 22,579 18,602
------ ------
Total current liabilities 172,326 142,873
Bank credit facility - 341,500
7.5% Senior Second Lien Notes due 2022 225,000 -
4.2% Building Loan 10,502 10,876
Asset retirement obligations 133,801 154,019
Fair value of derivative contracts 3,085 -
Other long-term liabilities 5,891 17,315
Total liabilities not subject to compromise 550,605 666,583
Liabilities subject to compromise - 1,110,182
Total liabilities 550,605 1,776,765
Predecessor common stock - 56
Predecessor treasury stock - (860)
Predecessor additional paid-in capital - 1,659,731
Successor common stock 200 -
Successor additional paid-in capital 555,607 -
Accumulated deficit (247,639) (2,296,209)
Total stockholders' equity 308,168 (637,282)
------- --------
Total liabilities and stockholders' equity $858,773 $1,139,483
======== ==========
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SOURCE Stone Energy Corporation
