Quarterly / Earnings Reports | Fourth Quarter (4Q) Update | Financial Results

Stone Energy Talks Q4 Results Ahead of Talos Merger; Sees Production Dip

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   |    Tuesday,March 13,2018

[Summary: Stone Energy reported its Q4 and full year 2017 results.

Highlights:

  • Estimated proved reserves totaled approximately 32.5 MMBOE as of December 31, 2017
  • Production volumes averaged approximately 17.6 MBOEPD for the three months ended December 31, 2017 (down -8% from 19.2 MBOEPD at year-end 2016)
  • Stone-generated Derbio prospect spud in late February 2018
  • Cash on hand totaled approximately $283 million on March 9, 2018

 

 

 

 

 

 

ORIGINAL RELEASE:

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.


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        Transaction Metrics
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Capital & Finance
        Net Debt
        Management Team
        Operating Costs (LOE)
        CapEx 2018
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        Reserves
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