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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2002

or

|_| Transition Report Pursuant to Section 13 or 15(d) or the Securities Exchange Act of 1934

For the transition period from               to           

Commission file number 1-12074

STONE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)

                                           Delaware                                                                 72-1235413
                             (State or other jurisdiction                                                (I.R.S. Employer
                         of incorporation or organization)                                        Identification No.)

                              625 E. Kaliste Saloom Road                                                     70508
                                    Lafayette, Louisiana                                                         (Zip code)
                   (Address of principal executive offices)

Registrant's telephone number, including area code:  (337) 237-0410

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
                                                                                    Yes |X|     No  |_|

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
                                                                                    Yes |X|     No  |_|

     As of November 4, 2002 there were 26,336,532 shares of the registrant's Common Stock, par value $.01 per share, outstanding.

TABLE OF CONTENTS

    Page
PART I – FINANCIAL INFORMATION  
 
Item 1. Financial Statements:  
     Condensed Consolidated Balance Sheet
      as of September 30, 2002 and December 31, 2001		 1
 
     Condensed Consolidated Statement of Operations
      for the Three and Nine Months Ended September 30, 2002 and 2001		 2
 
     Condensed Consolidated Statement of Cash Flows
      for the Nine Months Ended September 30, 2002 and 2001		 3
 
     Notes to Condensed Consolidated Financial Statements 4
 
     Report of Independent Public Accountants 8
 
Item 2.    Management's Discussion and Analysis of Financial
      Condition and Results of Operations		 9
 
Item 3.    Quantitative and Qualitative Disclosures About Market Risk 14
 
Item 4.    Controls and Procedures 15
 
PART II. – OTHER INFORMATION  
 
Item 1.    Legal Proceedings 15
 
Item 6.    Exhibits and Reports on Form 8-K 15
 
Signature 16
 
Certification of Principal Executive Officer 17
 
Certification of Principal Financial Officer 18




PART I  -  FINANCIAL INFORMATION
Item 1.      Financial Statements

STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)

  September 30,
2002
     December 31,
2001
  
Assets (Unaudited)        
      Current assets:          
Cash and cash equivalents $23,342     $13,155  
Accounts receivable 57,273     46,987  
Put contracts 2,010     26,207  
Other current assets 8,118     1,832  
         Total current assets 90,743     88,181  
           
Oil and gas properties:          
      Proved, net of accumulated depreciation, depletion and          amortization of $1,136,185 and $1,015,455, respectively 920,459     880,534  
      Unevaluated 108,251     113,372  
Building and land, net 5,260     5,352  
Fixed assets, net 5,339     4,883  
Put contracts 902     -       
Other assets, net 13,812     9,461  
         Total assets $1,144,766     $1,101,783  
Liabilities and Stockholders’ Equity          
      Current liabilities:          
Accounts payable to vendors $57,827     $69,197  
Undistributed oil and gas proceeds 25,625     23,741  
Deferred taxes -          5,312  
Fair value of swap contract 5,530     2,194  
Other current liabilities 8,617     5,834  
         Total current liabilities 97,599     106,278  
           
Long–term debt 436,000     426,000  
Production payments 1,144     4,323  
Deferred taxes 50,645     30,244  
Fair value of swap contract 1,036     3,619  
Other long–term liabilities 2,107     1,294  
         Total liabilities 588,531     571,758  
           
Common stock 263     262  
Additional paid–in capital 453,157     449,111  
Retained earnings 111,057     75,213  
Treasury stock (1,706 )   (2,057 )
Other comprehensive income (loss) (6,536 )   7,496  
         Total stockholders’ equity 556,235     530,025  
         Total liabilities and stockholders’ equity $1,144,766     $1,101,783  

The accompanying notes are an integral part of this balance sheet.

STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 30,
   September 30,
2002
   2001
   2002
   2001
Revenues:                      
   Oil and gas production $94,523     $82,366     $275,491     $331,371  
   Other revenues 734     716     2,254     2,441  
        Total revenues 95,257     83,082     277,745     333,812  
Expenses:                      
   Normal lease operating expenses 15,563     12,543     45,936     35,491  
   Major maintenance expenses 5,112     1,765     11,074     4,371  
   Production taxes 1,496     1,736     3,596     5,255  
   Depreciation, depletion and amortization 39,662     47,537     122,577     126,061  
   Write–down of oil and gas properties -          237,741     -          237,741  
   Interest 5,900     771     17,386     2,589  
   Salaries, general and administrative expenses 2,930     3,194     9,480     9,114  
   Incentive compensation plan 192     -          571     523  
   Non–cash derivative expenses 3,337     889     11,844     2,223  
   Merger expenses -          88     -          25,719  
        Total expenses 74,192     306,264     222,464     449,087  
Net income (loss) before income taxes 21,065     (223,182 )   55,281     (115,275 )
Provision (benefit) for income taxes:                      
   Current -          -          -          500  
   Deferred 7,372     (78,114 )   19,348     (39,034 )
        Total income taxes 7,372     (78,114 )   19,348     (38,534 )
Net income (loss) $13,693     ($145,068 )   $35,933     ($76,741 )
Earnings (loss) per common share:                      
   Basic earnings (loss) per share $0.52     ($5.54 )   $1.37     ($2.94 )
   Diluted earnings (loss) per share $0.52     ($5.54 )   $1.36     ($2.94 )
   Average shares outstanding 26,337     26,184     26,317     26,084  
   Average shares outstanding assuming dilution 26,485     26,184     26,497     26,084  

The accompanying notes are an integral part of this statement.



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)

  Nine Months Ended
September 30,
  2002
   2001
Cash flows from operating activities:          
   Net income (loss) $35,933     ($76,741 )
      Adjustments to reconcile net income (loss) to net cash          
         provided by operating activities:          
           Depreciation, depletion and amortization 122,577     126,061  
           Write-down of oil and gas properties -          237,741  
           Provision (benefit) for deferred income taxes 19,348     (39,034 )
           Non-cash effect of production payments (2,979 )   (4,691 )
           Non-cash derivative expenses 11,844     2,223  
           Other non-cash expenses 548     912  
  187,271     246,471  
           
      Decrease in marketable securities -          300  
      (Increase) decrease in accounts receivable (10,286 )   42,416  
      Increase in other current assets (2,305 )   (526 )
      Increase (decrease) in other accrued liabilities 4,667     (10,152 )
      Investment in put contracts (9,384 )   (6,466 )
      Other -          (1,251 )
Net cash provided by operating activities 169,963     270,792  
Cash flows from investing activities:          
     Investment in oil and gas properties (167,435 )   (286,518 )
     Building and fixed asset additions (5,885 )   (721 )
     Sale of unevaluated properties 419     1,366  
Net cash used in investing activities (172,901 )   (285,873 )
Cash flows from financing activities:          
     Proceeds from bank borrowings 22,000     5,000  
     Repayment of bank debt (12,000 )   (53,000 )
     Deferred financing costs (283 )   -       
     Repurchase of treasury stock -          (200 )
     Proceeds from exercise of stock options 3,408     4,801  
Net cash provided by (used in) financing activities 13,125     (43,399 )
Net increase (decrease) in cash and cash equivalents 10,187     (58,480 )
           
Cash and cash equivalents, beginning of period 13,155     78,557  
Cash and cash equivalents, end of period $23,342     $20,077  
Supplemental disclosures of cash flow information:          
    Cash paid during the period for:          
       Interest (net of amount capitalized) $15,023     $4,715  
       Income taxes -          500  

The accompanying notes are an integral part of this statement.

STONE ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Interim Financial Statements

         The condensed consolidated financial statements of Stone Energy Corporation and subsidiary as of September 30, 2002 and for the three- and nine-month periods then ended are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations for the three- and nine-month periods ended September 30, 2002 are not necessarily indicative of future financial results. Certain prior period amounts have been reclassified to conform to current period presentation.

Note 2 - Earnings Per Share

         Basic net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period plus the weighted-average number of dilutive stock options granted to outside directors and employees. There were approximately 148,000 dilutive shares for the third quarter of 2002 and 180,000 dilutive shares for the first nine months of 2002.

         Options considered antidilutive because the exercise price of the option exceeded the average price of our common stock for the applicable period totaled approximately 1,321,000 shares in the third quarter of 2002 and 1,072,000 shares in the first nine months of 2002.

         In periods of net losses, basic and dilutive net loss per share of common stock are calculated by dividing net loss applicable to common stock by the weighted-average number of common shares outstanding during the period. In addition, the weighted-average number of options granted to outside directors and employees that are traditionally considered dilutive are added to anti-dilutive shares for those periods. Since we reported net losses for the three- and nine-month periods ended September 30, 2001, there were no dilutive shares for those periods and antidilutive shares totaled approximately 1,053,000 and 962,000 shares, respectively.

Note 3 - Ceiling Test Write-Down

         The Securities and Exchange Commission requires full-cost companies to calculate a comparison of net capitalized costs of proved oil and gas properties to the discounted present value of future cash flows from the related reserves. The calculation is made using commodity prices at the end of the period held flat for the life of the reserves. If capitalized costs exceed discounted future cash flows, the assets are required to be written down to the value of the discounted cash flows. On September 30, 2001, natural gas prices closed at $1.83 per MMBtu. As a result of the low natural gas price on September 30, 2001, we recorded a $237.7 million non-cash write-down of our oil and gas properties during the third quarter of 2001. The write-down of oil and gas properties did not result in the loss of any proved reserve volumes.

Note 4 - Hedging Activities

         We adopted Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective January 1, 2001. Under SFAS No. 133, as amended, the nature of a derivative instrument must be evaluated to determine if it qualifies for hedge accounting treatment. If the instrument qualifies for hedge accounting treatment, it is recorded as either an asset or liability measured at fair value and subsequent changes in the derivative's fair value are recognized in equity through other comprehensive income, to the extent the hedge is considered effective. Instruments not qualifying for hedge accounting treatment are recorded in the balance sheet at fair value and changes in fair value are recognized in earnings.

         We enter into hedging transactions to secure a commodity price for a portion of future production that is acceptable at the time of the transaction. The primary objective of these activities is to reduce our exposure to the possibility of declining oil and natural gas prices during the term of the hedge. We do not enter into hedging transactions for trading purposes. We utilize two forms of hedging contracts: a fixed price swap and puts.

         Under SFAS No. 133, our oil and natural gas put contracts are considered effective cash flow hedges and, therefore, changes in fair value of the puts are reflected in other comprehensive income. Put contracts are not costless; they are purchased at a rate per unit of hedged production that fluctuates with the commodity futures market. The historical cost of the put contracts represents our maximum cash exposure. We are not obligated to make any further payments under the put contracts regardless of future commodity price fluctuations. Under put contracts, monthly payments are made to us if NYMEX prices fall below the agreed upon floor price, while allowing us to fully participate in commodity prices above that floor price. Oil contracts typically settle using the average daily closing prices for a calendar month. Natural gas contracts typically settle using the average closing prices of near month NYMEX futures contracts for the three days prior to the settlement date. Since over 90% of our production has historically been derived from the Gulf Coast Basin, we believe that fluctuations in NYMEX prices will closely match changes in market prices we receive for our production.

         In addition to put contracts, we have utilized a fixed price swap to hedge a portion of our future natural gas production. A fixed price swap provides for monthly payments by us or to us based on the difference between the strike price and the agreed-upon average of NYMEX prices. Our natural gas swap contract was with a subsidiary of Enron Corp. Due to Enron's financial difficulties, there was no assurance that we would receive full or partial payment of any amounts that may have become due to us under the contract. Accordingly, this swap no longer qualifies as an effective hedge under SFAS No. 133. As a result, the change in fair value each period is recorded through earnings and amounts previously recorded in other comprehensive income are amortized through earnings over the remaining life of the swap.

         At September 30, 2002, other comprehensive income included $2.9 million related to the ineffective natural gas swap that remains to be amortized over the original term of the swap contract, which extends through December 2003. In October 2002, we reached an agreement with Enron North America Corp. to purchase the portion of our fixed price natural gas swap contract settling subsequent to October 2002 for $5.9 million.

         During the third quarter of 2002, we recognized non-cash expenses of $3.3 million related to commodity derivatives, $3.9 million of which represents amortized cost associated with put contracts that settled during the respective periods, partially offset by a $1.3 million credit related to the change in fair value of the swap contract. Also included in non-cash derivative expense for the three months ended September 30, 2002 is a $0.7 million charge from amortization of other comprehensive income related to the natural gas swap. At September 30, 2002, the unsettled put contracts were recorded as assets totaling $2.9 million and the unsettled natural gas swap was recorded as a liability totaling $6.6 million.

         Our hedge positions for the period November 1, 2002 through December 31, 2003 are summarized as follows. Currently, we have no open hedge positions subsequent to December 31, 2003.

  Puts
  Gas
 Oil
  Volume
(BBtus)
 Floor
 Cost
(millions)
 Volume
(MBbls)
 Average
Floor
 Cost
(millions)
2002   3,660 $3.50  $0.9 946 $24.77 $1.7
2003 27,375  3.00   4.6 -    -    -   

         During the third quarters of 2002 and 2001, we realized net increases in oil and gas revenues related to hedging transactions of $0.3 million and $2.6 million, respectively. For the first nine months of 2002 and 2001, oil and gas revenues included net increases (decreases) of $6.4 million and ($10.5) million, respectively, related to hedging transactions.

Note 5 - Long-Term Debt

         Long-term debt consisted of the following:

  September 30,
2002
 December 31,
2001
  (Unaudited)  
  (In millions)
     
8¼% Senior Subordinated Notes Due 2011 $200 $200
8¾% Senior Subordinated Notes Due 2007   100   100
Bank debt   136   126
 
        Total long-term debt $436
 $426

         On December 5, 2001, we issued $200.0 million principal amount of 8 1/4% Senior Subordinated Notes due 2011. The Notes were sold at par value and we received net proceeds of $195.5 million. At September 30, 2002, $4.8 million and $0.4 million had been accrued in connection with the interest payments on the 8 1/4% Senior Subordinated Notes and the 8 3/4% Senior Subordinated Notes, respectively.

         Borrowings outstanding at September 30, 2002 under our bank credit facility totaled $136.0 million, and letters of credit totaling $7.3 million have been issued under the facility. The borrowing base under the credit facility was increased to $300.0 million during June 2002. At September 30, 2002, we had $156.7 million of borrowings available under the credit facility and the weighted average interest rate under the credit facility was approximately 3.2%. The credit facility matures on December 20, 2004. The borrowing base limitation is re-determined periodically and is based on a borrowing amount established by the bank group resulting from an evaluation of the value of our proved oil and gas reserves.

Note 6 - Comprehensive Income

         Comprehensive income (loss) consisted of the following:

  Three Months Ended
September 30,
   Nine Months Ended
September 30,
  
  2002
   2001
   2002
   2001
  
  (In thousands)
(Unaudited)
Net income (loss) $13,693   ($145,068 ) $35,933   ($76,741 )
Other comprehensive income (loss), net of tax effect:                
     Cumulative effect of accounting change
          for derivatives		 -        -        -        (26,114 )
     Net change in fair value of derivatives (2,682 ) 12,913   (15,223