Stone Energy Misses on Lower Price

Zacks

Stone Energy Corp. (SGY) has reported second-quarter 2012 earnings of 62 cents per share, which missed the Zacks Consensus Estimate of 82 cents due to lower price realization and higher operating expenses. The quarterly earnings figure was also down 47.0% from the year-earlier profit of $1.17 per share.

Total operating revenue dropped 3.9% year over year to $226.6 million in the quarter from $235.7 million. The reported figure was also below the Zacks Consensus Estimate of $246.0 million.

Operational Highlights

During the quarter, production averaged 242.7 million cubic feet of gas equivalent per day (MMcfe/d), up 3.6% from the year-earlier level of 234.2 MMcfe/d. Of the total production, natural gas accounted for nearly 47%, while 46% was oil and the remaining 7% was natural gas liquids (NGL).

Overall realization on a per Mcfe basis amounted to $9.97 in the reported quarter versus $10.95 per Mcfe in second quarter 2011. Natural gas prices were down at $2.70 per Mcf from $4.61 per Mcf in the year-ago quarter, while Stone Energy sold oil at an average price of $107.74 per barrel (up 2.4% on an annualized basis). Natural gas liquids prices also decreased 42.1% from the year-ago quarter to $39.00 per barrel.

On the cost front, unit lease operating expenses increased to $2.33 per Mcfe (versus $2.14 per Mcfe in the year-ago quarter). Depreciation, depletion and amortization was $3.91 per Mcfe (versus $3.37 per Mcfe), while salaries, general and administrative (SG&A) expenses were 60 cents per Mcfe (versus 50 cents per Mcfe).

Liquidity

At quarter end, the company had approximately $223.8 million in cash and $808.1 million in long-term debt, with a debt-to-capitalization ratio of 49.3% versus 52.3% in the preceding quarter. Discretionary cash flow was $147.1 million, down 15.0% year over year.

Guidance

For the upcoming quarter, the company expects net daily production of 245−260 MMcfe. For full-year 2012, the company anticipates total volume in the range of 245–260 MMcfe per day, up 15–22% from the 2011 level of 214 MMcfe/d.

The company had projected its capital outlay for the year at $625 million. Earlier the amount was distributed across Stone's foremost areas with approximately 34% for the Gulf of Mexico (GoM) conventional shelf, 24% for Deep Water/Deep Gas projects, 30% for the Marcellus Shale and 12% for Onshore Oil projects and new ventures.

Outlook

Lafayette, Louisiana-based Stone Energy is an independent oil and gas exploration and production company engaged in the acquisition and subsequent exploration, development, operation and production of oil and gas properties located primarily in the GoM.

Currently, Stone Energy holds an opportune place in the industry with widespread high yielding inventory. The company has an extensive capital project inventory and is generating surplus cash flow with no bank debt. Although Stone Energy aims to apportion the capital across its portfolio, the focus will be on the GoM shelf as well as the Marcellus region.

Recently, Stone Energy has entered into a purchase agreement for independent energy giant Anadarko Petroleum Corporation’s (APC) working interest in a U.S. Gulf field. The purchase by Stone Energy comprises Anadarko's 25% working interest in the five block deepwater Pompano field in Mississippi Canyon, 22% in Mississippi Canyon Block 29, and another 10% in portions of Mississippi Canyon Block 72. This new acquisition will aid the company to grow and maintain steady cash.

During the quarter, Stone Energy successfully drilled the deep gas La Cantera #2 delineation well and completed 19 wells in Mary and Heather fields in the Marcellus shale.

However, as is the case with other independent exploration and production companies, results for Stone Energy are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. Realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flow.

Hence, we maintain our long-term Neutral recommendation for the company, which holds a Zacks #3 Rank, equivalent to a short-term Hold rating.

 

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