Exploration & Production | Quarterly / Earnings Reports | Third Quarter (3Q) Update | Production Rates | Forecast - Production
Stone Edits Guidance as GoM, Appalachian Ops Accelerate
Email
Print 
Bookmark
Stone Energy Corporation announced financial and operational results for the third quarter of 2014.
Highlights:
- Accelerated production schedule at Cardona/Cardona South development project
- Executed attractive multi-year rig contract for deep water drilling program
- Drilled Utica well; production test in fourth quarter
- Closed sale of non-core conventional shelf assets
- Production results slightly above upper guidance
Chairman, President and Chief Executive Officer David Welch stated, "In the third quarter of 2014, we continued to make progress in our development efforts as well as move forward on our exploration projects. In the Gulf of Mexico, we expect to have the deep water Cardona development project on production by December 2014, which would boost our production exit rate for the year. We are participating in the Madison deep water exploration well which is currently drilling, and will participate in the Vernaccia deep water exploration prospect which is scheduled to spud in early 2015. In Appalachia, we have finished drilling our Utica test well and expect to flow first production within the next few weeks. Due to efficiencies, we now expect to drill over 35 wells in our Marcellus program this year. Despite our recent shelf and onshore properties sales, we expect to see a production increase in the fourth quarter over the third quarter of 2014. Our cash position remains strong and we are excited about our outlook for 2015 and beyond."
Operational Update
Stone Energy's detailed third quarter 2014 operations updates can be accessed below:
Stone to Add Marcellus Wells as Efficiencies Stack Up; Talks Utica Test
Stone Looking to Bolster GoM Drilling; Preps for Cardona Production
Deep Gas
South Erath Deep: The South Erath Deep exploration well spud in August of 2014. Stone holds a 17% working interest in the project which is operated by Hilcorp. The well is drilling ahead at 16,250 feet and is expected to reach the target depth of 20,000 feet in December of 2014.
La Montana: A rig has been identified for the La Montana exploration well, which is expected to spud in late 2014 or the first half of 2015. Stone holds a 45% working interest in the project and is the operator. The well is estimated to take four months to drill.
Cayenne: The Cayenne exploration well, slated to use the same rig as the La Montana exploration well, is expected to spud in the second or third quarter of 2015. Stone holds a 50% working interest in the project and is the operator. The well is estimated to take four months to drill.
2014 Guidance
Guidance for the fourth quarter and full year 2014 is shown in the table below (updated guidance numbers are italicized and bolded). The guidance for Production and Lease operating expenses has been adjusted to account for the sale of the non-core conventional shelf properties, which closed on July 31, 2014. Based on the results of our drilling programs throughout 2014, we have additional capital requirements, which required an increase in our capital expenditure budget for 2014. In September 2014, the Board of Directors increased the capital expenditure budget by $70 million to $895 million, which is reflected below.
Financial Results
Stone earned third quarter 2014 adjusted net income of $0.7 million, or $0.01 per share, on oil and natural gas revenues of $175.0 million, before a pre-tax non-cash charge of $47.1 million related to the impairment of oil and gas properties. The non-cash impairment of oil and gas properties is primarily due to lower oil and gas prices, widening basis differentials and increased transportation, processing and gathering expenses in Appalachia which reduced the future net cash flows from proved reserves. If the net capitalized costs of proved oil and gas properties exceed the estimated discounted future net cash flows from proved reserves, an impairment occurs. After the non-cash impairment charge, the reported net loss was $29.4 million for the third quarter of 2014.
The third quarter 2014 loss is compared to net income of $4.4 million, or $0.08 per share, on oil and natural gas revenue of $205.0 million in the second quarter of 2014, and compared to net income of $36.1 million, or $0.72 per share, on oil and natural gas revenue of $255.8 million in the third quarter of 2013. Lower realized oil and natural gas prices and lower production due to the sale of non-core properties were the primary causes of the reduced earnings in the third quarter of 2014 compared to the second quarter of 2014.
Discretionary cash flow totaled $92.2 million during the third quarter of 2014, as compared to $117.5 million during the second quarter of 2014, and as compared to $166.1 million during the third quarter of 2013.
Net daily production during the third quarter of 2014 averaged 39.6 thousand barrels of oil equivalent (MBoe) per day (237 MMcfe per day), compared with net daily production of 44.1 MBoe (264 MMcfe) per day in the second quarter of 2014, and net daily production of 49.4 MBoe (296 MMcfe) per day in the third quarter of 2013. Production volumes in the third quarter of 2014 were impacted by the sale of non-core conventional shelf and onshore properties. Third quarter of 2014 production mix was 36% oil, 14% natural gas liquids and 50% natural gas.
On July 31, 2014, Stone completed the sale of its non-core Gulf of Mexico conventional shelf properties to Talos Energy Offshore LLC for cash consideration of approximately $178 million, after giving effect to preliminary purchase price adjustments. Talos also assumed related future undiscounted abandonment liabilities. Production volumes associated with these properties averaged approximately 48 million cubic feet of gas equivalent (MMcfe) per day (58% natural gas) in July 2014.
Prices realized during the third quarter of 2014 averaged $93.15 per barrel of oil, $42.45 per barrel of NGLs and $2.77 per Mcf of natural gas. Average realized prices for the third quarter of 2013 were $103.16 per barrel of oil, $38.77 per barrel of NGLs and $3.80 per Mcf of natural gas. Effective hedging transactions did not increase or decrease the average realized price of natural gas and decreased the average realized price of oil by $1.02 per barrel in the third quarter of 2014. Ineffective hedging on gas provided approximately $5.8 million in derivative income for the third quarter of 2014. Effective hedging transactions increased the average realized price of natural gas by $0.39 per Mcf and decreased the average realized price of oil by $4.14 per barrel in the third quarter of 2013.
Lease operating expenses during the third quarter of 2014 totaled $43.6 million ($11.97 per Boe or $2.00 per Mcfe), compared to $54.0 million ($11.88 per Boe or $1.98 per Mcfe), in the third quarter of 2013. We expect lease operating expenses to continue to decline in the fourth quarter of 2014 to reflect the sale of non-core shelf properties in the third quarter.
Transportation, processing and gathering expenses during the third quarter of 2014 totaled $16.7 million ($4.59 per Boe or $0.77 per Mcfe) compared to $13.1 million ($2.88 per Boe or $0.48 per Mcfe) in the third quarter of 2013. The increase is attributable to higher gas and NGL volumes in Appalachia which has a higher associated charge per unit.
Depreciation, depletion and amortization (DD&A) on oil and gas properties for the third quarter of 2014 totaled $79.2 million ($21.77 per Boe or $3.63 per Mcfe), compared to $91.9 million ($20.23 per Boe or $3.37 per Mcfe), in the third quarter of 2013. The decrease in DD&A is attributable to increased booked reserves as a result of successful drilling efforts in Appalachia and the sale of non-core conventional shelf properties.
Salaries, general and administrative (SG&A) expenses for the third quarter of 2014 were $16.3 million ($4.48 per Boe or $0.75 per Mcfe), compared to $14.2 million ($3.12 per Boe or $0.52 per Mcfe), in the third quarter of 2013. The increase in SG&A was attributable to increased staffing and compensation adjustments.
Capital expenditures before capitalized SG&A and interest during the third quarter of 2014 were approximately $147.1 million, which includes $22.3 million of plugging and abandonment expenditures. Additionally, $7.9 million of SG&A and $10.8 million of interest were capitalized during the third quarter of 2014. This is compared to capital expenditures before capitalized SG&A and interest during the third quarter of 2013 of approximately $161.6 million, which includes $23.8 million of plugging and abandonment expenditures. Additionally, $8.5 million of SG&A and $11.9 million of interest were capitalized during the third quarter of 2013. Based on the results of our drilling programs in 2014, additional capital requirements have been identified. On September 29, 2014, Stone announced that its Board of Directors authorized a $70 million increase of the 2014 capital expenditure budget, from $825 million to $895 million.
As of September 30 and November 3, 2014, there were no outstanding borrowings under the bank credit facility and $19.2 million in letters of credit had been issued, leaving $480.8 million of availability. In October 2014, our $500 million borrowing base was reaffirmed. As of November 3, 2014, we had cash on hand of approximately $307 million inclusive of $177.6 million of restricted cash, which will become available on January 27, 2015.