Stone Energy Posts $232.6 Million Net Loss In Q1 2009

Published: 05-May-2009

By: Staff Writer Staff Writer Staff Writer

Stone Energy Corporation (Stone Energy) has reported total operating revenues of $132.4 million for the first quarter of 2009, compared with the total operating revenues of $203.2 million in the year-ago quarter. It also reported a net loss of $232.6 million, or $5.90 loss per share, for the first quarter of 2009, compared with the net income of $62.2 million, or $2.22 per share, in the year-ago quarter.

Stone Energy has reported first quarter 2009 oil and gas revenue of $129.5 million, compared oil and gas revenue of $203.2 million in the year-ago quarter. The reported net loss for the first quarter of 2009 included a pre-tax non-cash charge of $340.1 million ($221.1 million after tax) recognized due to a non-cash full cost ceiling test write-down and a $5.9 million pre-tax inventory impairment charge ($3.8 million after tax). Without the ceiling test write-down and impairment charge, the first quarter 2009 adjusted net loss would have been $7.7 million, or $0.20 per share.

Discretionary cash flow totaled $59.2 million during the first quarter of 2009, compared to $150.3 million during the first quarter of 2008. Although $112.8 million in proceeds from unwinding hedging contracts was received as cash during the first quarter of 2009, the gain will be recognized for accounting purposes over the next three quarters which is the remaining life of the original derivative contracts.

Daily production during the first quarter of 2009 averaged 194 million cubic feet of gas equivalent (MMcfe) per day, or 5% more than the average daily production of 185 MMcfe per day in the comparable period of 2008. This increase was primarily due to incremental volumes from the Bois d'Arc acquisition which closed in August 2008. First quarter volumes were materially affected by continued pipeline shut-ins from Hurricane Ike, which curtailed production by about 70 MMcfe per day for the quarter. Production volumes in the fourth quarter of 2008 were 189 MMcfe per day, which were also impacted by third party pipeline access. Production volumes averaged about 211 MMcfe per day during April 2009.

David Welch, chief executive officer stated, Operationally we are starting to experience an increase in volumes with the commencement of oil barging from Mississippi Canyon 109 (Amberjack) in late March and expect further increases in volumes with the completion of repairs on third party pipelines this quarter. Third party pipeline shut-ins significantly curtailed our production in the first quarter, and the delays have impacted our production estimates for the year. Given the current low commodity prices, we are actively managing our capital expenditure budget and have reduced our GOM operated rigs from four to zero. For the remainder of the year, we remain focused on low cost recompletion and workover projects to help maintain production.

However, even with a limited capital program, we continue to invest in the deep water GOM and the Marcellus Shale. On the cost side, we had lingering hurricane related major maintenance expenses in the first quarter of about $13 million, which are substantially complete and should significantly decline in subsequent quarters. The $113 million in cash proceeds from the unwinding of our hedges in the first quarter enhanced our liquidity, allowing us to reduce bank debt by $25 million during the quarter, and an additional $44 million on April 29, 2009, still leaving $90 million in cash. Our goal is to live within cash flow for the second half of the year.

Prices realized during the first quarter of 2009 averaged $46.52 per barrel of oil and $7.17 per thousand cubic feet (Mcf) of natural gas, or 38% lower on a gas equivalent basis, as compared to the first quarter of 2008 average realized prices of $95.72 per barrel of oil and $8.82 per Mcf of natural gas. All unit pricing amounts include the cash settlement of effective hedging contracts which totaled about $35.2 million for the first quarter 2009. Hedging transactions increased the average realized price of natural gas by $2.34 per Mcf in the first quarter of 2009, compared to $0.09 per Mcf in the first quarter of 2008. Hedging transactions increased the average realized price of oil by $9.76 per barrel in the first quarter of 2009, compared to a decrease of $4.06 per barrel in the first quarter of 2008.

Lease operating expenses during the first quarter of 2009 totaled $58.2 million, or $3.34 per thousand cubic feet of gas equivalent (Mcfe), compared to $30.3 million, or $1.80 per Mcfe, for the comparable quarter in 2008. The increase in lease operating expenses is a primarily a result of $23.9 million of lease operating expenses associated with the properties acquired from Bois d'Arc and $13 million of hurricane related damage repairs from Hurricanes Gustav and Ike, which added $0.75 per Mcfe to the first quarter 2009 expenses and is expected to decrease significantly over subsequent quarters.

Depreciation, depletion and amortization (DD&A) on oil and gas properties for the first quarter of 2009 totaled $59.2 million, or $3.40 per Mcfe, compared to $62.7 million, or $3.73 per Mcfe, for the first quarter of 2008. The decrease from 2008 is primarily due to the year-end ceiling test write-down, which reduced the carrying value of the full cost pool for our oil and gas properties.

Accretion expense for the first quarter of 2009 was $8.4 million compared to $4.4 million for the comparable period of 2008. The increase in accretion expense in the first quarter of 2009 was primarily due to utilizing a higher interest rate, which reduced the present value of the asset retirement obligations.

Salaries, general and administrative (SG&A) expenses for the first quarter of 2009 were $11.7 million, or $0.67 per Mcfe, compared to $10.3 million, or $0.61 per Mcfe, in the first quarter of 2008. The increase in SG&A is primarily due to an increase in salaries and wage expense resulting from the Bois d'Arc acquisition and salary adjustments.

Capital expenditures before capitalized SG&A and interest during the first quarter of 2009 were about $101.8 million. The capital expenditure amount includes $6.5 million of plugging and abandonment. Additionally, $4.6 million of SG&A expenses and $6.3 million of interest were capitalized during the quarter.

Stone Energy had $400 million in borrowings outstanding at March 31, 2009 under its bank credit facility with a borrowing base of $625 million, and letters of credit totaling $46 million, resulting in $179 million of available borrowings at March 31, 2009. On April 29, 2009, the bank group completed its semi-annual borrowing base redetermination and approved a $425 million borrowing base. On April 29, 2009, Stone Energy reduced its borrowings outstanding to $356 million using cash on hand, had $69 million in outstanding letters of credit, leaving no availability on the credit facility, and had a remaining cash position of about $90 million. Stone Energy has been and remains in compliance with all of the financial covenants under the credit facility. The next borrowing base redetermination is expected by November 1, 2009.

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