STONE ENERGY CORP - FORM 8-K/A - EX-99.2

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8-K/A - FORM 8-K/A - STONE ENERGY CORP	d307003d8ka.htm
EX-23.1 - EX-23.1 - STONE ENERGY CORP	d307003dex231.htm
EX-99.1 - EX-99.1 - STONE ENERGY CORP	d307003dex991.htm

Exhibit 99.2

STONE ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On December 28, 2011, Stone Energy Corporation (“Stone” or the “Company”), acquired BP Exploration & Production Inc.’s (“BP”) 75% working interest in the five block deep water Pompano field in Mississippi Canyon, a 51% operating working interest in the adjacent Mississippi Canyon block 29, a 50% non-operated working interest in the Mica field which ties back to the Pompano platform, and interests in 23 deep water exploration leases located in the vicinity of the Pompano field, referred to herein as the “Acquired Properties”. Additional details of the acquisition are described in the notes to these financial statements.

The accompanying unaudited pro forma condensed consolidated financial statements and accompanying notes as of and for the nine months ended September 30, 2011 and for the year ended December 31, 2010 (the “Pro Forma Statements”), which have been prepared by Stone’s management, have been derived from (a) the unaudited consolidated financial statements of Stone as of and for the nine months ended September 30, 2011 included in its Quarterly Report on Form 10-Q; (b) the unaudited statement of revenues and direct operating expenses of the Acquired Properties for the nine months ended September 30, 2011; (c) the audited consolidated financial statements of Stone as of and for the year ended December 31, 2010 included in its Annual Report on Form 10-K; and (d) the audited statement of revenues and direct operating expenses of the Acquired Properties for the year ended December 31, 2010.

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not indicate the results of operations or financial position of Stone had the transaction been in effect on the dates or for the periods indicated, or the results of operations or financial position of Stone for any future periods. The pro forma statements of operations are not necessarily indicative of Stone’s operations going forward because the presentation of operations of the Acquired Properties is limited to only revenues and direct operating expenses related thereto, while other operating expenses related to these properties have been excluded. The unaudited pro forma condensed balance sheet was prepared assuming the purchase of the Acquired Properties, including purchase price adjustments to date, and assumed related financing transactions occurred on September 30, 2011. The unaudited pro forma condensed statements of operations were prepared assuming the purchase of the Acquired Properties, including purchase price adjustments, and assumed related financing transactions occurred on January 1, 2010. These Pro Forma Statements should be read in conjunction with Stone’s Annual Report on Form 10-K for the year ended December 31, 2010, Stone’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 and the statements of revenues and direct operating expenses for the Acquired Properties listed as Exhibit 99.1 to this Current Report on Form 8-K/A.

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STONE ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2011

(In thousands of dollars)


	Stone Historical			Acquired Properties				Pro Forma
Assets
Current assets:
Cash and cash equivalents	$	65,454		$	—			$	65,454
Accounts receivable		113,547			—				113,547
Fair value of hedging contracts		56,767			—				56,767
Current income tax receivable		22,149			—				22,149
Deferred taxes		4,713			—				4,713
Inventory		4,802			—				4,802
Other current assets		933			—				933

Total current assets		268,365			—				268,365
Oil and gas properties, full cost method of accounting:
Net proved oil and gas properties		1,092,165			208,680	(a	)		1,300,845
Unevaluated		511,574			17,314	(a	)		528,888
Other property and equipment, net		11,191			—				11,191
Fair value of hedging contracts		50,171			—				50,171
Other assets, net		23,795			—				23,795

Total assets	$	1,957,261		$	225,994			$	2,183,255

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	90,659		$	—			$	90,659
Undistributed oil and gas proceeds		16,924			—				16,924
Accrued interest		9,358			—				9,358
Fair value of hedging contracts		951			—				951
Asset retirement obligations		55,068			—				55,068
Other current liabilities		17,496			—				17,496

Total current liabilities		190,456			—				190,456
Long-term debt		575,000			167,631	(a	)		742,631
Deferred taxes		219,393			—				219,393
Asset retirement obligations		289,604			58,363	(a	)		347,967
Other long-term liabilities		19,034			—				19,034

Total liabilities		1,293,487			225,994				1,519,481

Commitments and contingencies
Stockholders’ equity:
Common stock		481			—				481
Treasury stock		(860	)		—				(860	)
Additional paid-in capital		1,336,460			—				1,336,460
Accumulated deficit		(737,748	)		—				(737,748	)
Accumulated other comprehensive income		65,441			—				65,441

Total stockholders’ equity		663,774			—				663,774

Total liabilities and stockholders’ equity	$	1,957,261		$	225,994			$	2,183,255

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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STONE ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

(In thousands, except per share amounts)


	Stone Historical			Acquired Properties				Pro Forma Adjustments					Pro Forma
Operating revenue:
Oil and gas production	$	651,003		$	139,277	(b	)	$	—				$	790,280
Other operational income		5,916			—				—					5,916
Derivative income, net		3,265			—				—					3,265

Total operating revenue		660,184			139,277				—					799,461


Operating expenses:
Lease operating expenses		152,326			23,487	(b	)		—					175,813
Other operational expenses		5,579			—				—					5,579
Production taxes		5,808			—				—					5,808
Depreciation, depletion and amortization		248,201			—				33,034		(c	)		281,235
Accretion expense		34,469			—				4,523		(d	)		38,992
Salaries, general and administrative expenses		42,759			—				—					42,759
Incentive compensation expense		5,888			—				—					5,888

Total operating expenses		495,030			23,487				37,557					556,074


Income from operations		165,154			115,790				(37,557	)				243,387


Other (income) expenses:
Interest expense		12,192			—				6,388		(e	)		18,580
Interest income		(1,464	)		—				—					(1,464	)
Other income		(776	)		—				—					(776	)
Loss on early extinguishment of debt		1,820			—				—					1,820
Other expense		671			—				—					671

Total other expenses		12,443			—				6,388					18,831


Net income before income taxes		152,711			115,790				(43,945	)				224,556


Provision for income taxes:
Current		5,808			—				—					5,808
Deferred		50,474			—				26,511		(f	)		76,985

Total income taxes		56,282			—				26,511					82,793


Net income	$	96,429		$	115,790			($	70,456	)			$	141,763


Basic earnings per share	$	1.99											$	2.93
Diluted earnings per share	$	1.99											$	2.92

Average shares outstanding		47,681												47,681
Average shares outstanding assuming dilution		47,706												47,706

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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STONE ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 31, 2011

(In thousands, except per share amounts)


	Stone Historical			Acquired Properties				Pro Forma Adjustments					Pro Forma
Operating revenue:
Oil and gas production	$	637,403		$	101,806	(b	)	$	—				$	739,209
Other operational income		2,994			—				—					2,994
Derivative income, net		3,300			—				—					3,300

Total operating revenue		643,697			101,806				—					745,503


Operating expenses:
Lease operating expenses		133,307			23,683	(b	)		—					156,990
Other operational expenses		1,452			—				—					1,452
Production taxes		6,828			—				—					6,828
Depreciation, depletion and amortization		204,777			—				19,205		(c	)		223,982
Accretion expense		23,134			—				3,392		(d	)		26,526
Salaries, general and administrative expenses		29,494			—				—					29,494
Incentive compensation expense		7,104			—				—					7,104

Total operating expenses		406,096			23,683				22,597					452,376


Income from operations		237,601			78,123				(22,597	)				293,127


Other (income) expenses:
Interest expense		6,470			—				4,845		(e	)		11,315
Interest income		(170	)		—				—					(170	)
Other income		(1,499	)		—				—					(1,499	)
Loss on early extinguishment of debt		607			—				—					607
Other expense		501			—				—					501

Total other expenses		5,909			—				4,845					10,754


Net income before income taxes		231,692			78,123				(27,442	)				282,373


Provision (benefit) for income taxes:
Current		(15,043	)		—				—					(15,043	)
Deferred		97,926			—				18,144		(f	)		116,070

Total income taxes		82,883			—				18,144					101,027


Net income	$	148,809		$	78,123			($	45,586	)			$	181,346


Basic earnings per share	$	3.04											$	3.71
Diluted earnings per share	$	3.04											$	3.71

Average shares outstanding		47,963												47,963
Average shares outstanding assuming dilution		48,006												48,006

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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STONE ENERGY CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

On December 28, 2011, Stone Energy Corporation (“Stone” or the “Company”) acquired BP Exploration & Production Inc.’s (“BP”) 75% working interest in the five block deep water Pompano field in Mississippi Canyon, a 51% operating working interest in the adjacent Mississippi Canyon block 29, a 50% non-operated working interest in the Mica field which ties back to the Pompano platform, and interests in 23 deep water exploration leases located in the vicinity of the Pompano field, referred to herein as the “Acquired Properties”. All preferential rights relating to the properties were waived or unexercised by the holders thereof. The stated purchase price of $204 million was adjusted under the agreement to $167.6 million, after adjusting for the effective date of July 1, 2011. The acquisition was consummated in accordance with the Purchase and Sale Agreement dated as of November 18, 2011, between the Company and BP.

The historical financial information is derived from the historical consolidated financial statements of Stone and the historical statements of revenues and direct operating expenses of the Acquired Properties (which were based on information provided by BP). The unaudited pro forma condensed consolidated balance sheet was prepared assuming the purchase of the Acquired Properties, including purchase price adjustments to date, and assumed related financing transaction occurred on September 30, 2011. The unaudited pro forma condensed consolidated statements of operations were prepared assuming the purchase of the Acquired Properties, including purchase price adjustments to date, and assumed related financing transaction occurred on January 1, 2010.

The pro forma adjustments were based on information and estimates by management. These unaudited pro forma condensed consolidated financial statements are provided for illustrative purposes only and may or may not provide an indication of results in the future.

Note 2 – Pro Forma Adjustments and Other Information

The unaudited pro forma condensed consolidated financial statements include the following pro forma adjustments:

(a) The value of the net assets acquired in the transaction was allocated to the assets acquired and liabilities assumed. The cash consideration was assumed to be funded from borrowings from the Company’s revolving credit facility with no amounts used from cash on hand.

(b) Revenues and direct operating expenses of the Acquired Properties were derived from the historical records of BP.

(c) Depreciation, depletion and amortization (“DD&A”) was estimated using the full-cost method of accounting and determined as the incremental DD&A expense due to adding the Acquired Properties costs, reserves and production into the computation. The purchase price allocation included $17.3 million allocated to unevaluated costs. No DD&A expense was estimated for the unevaluated properties.

(d) Asset retirement obligations and related accretion were estimated by the management of Stone.

(e) Interest expense was computed using interest rates that were in effect during the applicable time period. The weighted average assumed interest rate was 4.25%.

(f) The income tax effects of the pro forma adjustments were computed using our applicable estimated effective income tax rate.

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Note 3 – Supplemental Oil and Gas Disclosures

Pro Forma Reserve Quantity Information

The following table presents certain unaudited pro forma information regarding Stone’s proved oil and natural gas reserves as of December 31, 2010 assuming the acquisition of the Acquired Properties occurred on January 1, 2010. There are numerous uncertainties inherent in estimating quantities of proved reserves and in providing the future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact.


	Stone						Acquired Properties						Stone Pro Forma
	Oil (MBbls)			Natural Gas (MMcf)			Oil (MBbls)			Natural Gas (MMcf)			Oil (MBbls)			Natural Gas (MMcf)			Oil and Natural Gas (MMcfe)
Total estimated proved reserves:
Balance at December 31, 2009		32,336			216,694			16,900			30,267			49,236			246,961			542,378
Revisions of previous estimates		3,299			13,439			—			—			3,299			13,439			33,231
Extensions, discoveries and other additions		2,668			82,846			—			—			2,668			82,846			98,854
Purchase of producing properties		637			3,816			—			—			637			3,816			7,637
Sales of reserves in place		(23	)		(153	)		—			—			(23	)		(153	)		(289	)
Production		(5,714	)		(41,937	)		(1,557	)		(2,566	)		(7,271	)		(44,503	)		(88,129	)

Balance at December 31, 2010		33,203			274,705			15,343			27,701			48,546			302,406			593,682


Estimated proved developed reserves at December 31, 2010		25,000			174,876			9,942			22,662			34,942			197,538			407,190

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Pro Forma Standardized Measure of Discounted Future Net Cash Flows

The following tables present the standardized measure of future net cash flows related to the estimated proved oil and gas reserves of Stone, the Acquired Properties and on a pro forma combined basis as of December 31, 2010 together with changes therein. You should not assume that the future net cash flows or the discounted future net cash flows, referred to in the tables below, represent the fair value of our estimated oil and gas reserves or those of the Acquired Properties.


	Year Ended December 31, 2010
	Stone			Acquired Properties (1)			Pro Forma Combined
	(in thousands)
Future cash inflows	$	3,803,004		$	1,352,145		$	5,155,149
Less related future costs:
Production costs		(1,191,718	)		(526,287	)		(1,718,005	)
Development costs		(907,956	)		(295,689	)		(1,203,645	)
Income taxes		(330,651	)		(185,559	)		(516,210	)

Future net cash flows before 10% discount		1,372,679			344,610			1,717,289
10% annual discount for estimated timing of cash flows		(415,050	)		(116,859	)		(531,909	)


Standardized measure of discounted future net cash flows	$	957,629		$	227,751		$	1,185,380

(1)	Income taxes were calculated by applying the statutory federal income tax rate to the pre-tax future net cash flows.


	Year Ended December 31, 2010
	Stone			Acquired Properties			Pro Forma Combined
	(in thousands)
Standardized measure at beginning of year	$	614,987		$	137,264		$	752,251
Sales and transfers of oil and gas produced, net of production costs		(487,418	)		(115,790	)		(603,208	)
Changes in price, net of future production costs		485,272			237,763			723,035
Extensions, discoveries, and improved recovery net of future production and development costs		270,629			—			270,629
Changes in estimated future development costs, net of development costs incurred during the period		119,986			—			119,986
Revisions of quantity estimates		147,509			—			147,509
Accretion of discount		64,836			17,238			82,074
Net change in income taxes		(196,219	)		(48,724	)		(244,943	)
Purchase of reserves in-place		21,264			—			21,264
Sales of reserves in-place		1,424			—			1,424
Changes in production rates due to timing and other		(84,641	)		—			(84,641	)

Net increase in standardized measure		342,642			90,487			433,129

Standardized measure at end of year	$	957,629		$	227,751		$	1,185,380

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