Stone Energy (SGY) 10-Q 2006 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF 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 of Incorporation or Organization)	(I.R.S. Employer Identification No.)
625 E. Kaliste Saloom Road Lafayette, Louisiana (Address of Principal Executive Offices)	70508 (Zip Code)

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.

Yesþ      Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filerþ Accelerated filero Non-accelerated filero

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso      Noþ

     As of May 2, 2006, there were 27,266,201 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 March 31, 2006 and December 31, 2005		1
		Condensed Consolidated Statement of Income for the Three Months Ended March 31, 2006 and 2005		2
		Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2006 and 2005		3
		Notes to Condensed Consolidated Financial Statements		4
		Report of Independent Registered Public Accounting Firm		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			13
Item 4.	Controls and Procedures			13
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings			15
Item 6.	Exhibits			16
	Signature			17
Amend. #2 to Credit Agreement
Letter from Ernst & Young LLP
Certification of Principal Executive Officer
Certification of Principal Financial Officer
Certification of CEO and CFO

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

STONE ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands of dollars)

	March 31,			December 31,
	2006			2005
	(Unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	22,088		$	79,708
Accounts receivable		232,082			211,685
Fair value of hedging contracts		22,788			7,471
Other current assets		2,301			2,795
Total current assets		279,259			301,659
Oil and gas properties – full cost method of accounting:
Proved, net of accumulated depreciation, depletion and amortization of $1,944,812 and $1,880,180 respectively		1,665,045			1,564,312
Unevaluated		226,406			246,647
Building and land, net		5,851			5,521
Fixed assets, net		9,812			9,331
Other assets, net		13,000			12,847
Total assets	$	2,199,373		$	2,140,317
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	166,344		$	160,682
Undistributed oil and gas proceeds		48,052			59,187
Asset retirement obligations		57,745			53,894
Deferred taxes		7,659			2,646
Fair value of hedging contracts		1,249			—
Other current liabilities		13,527			8,744
Total current liabilities		294,576			285,153
Long-term debt		563,000			563,000
Deferred taxes		244,491			231,961
Asset retirement obligations		112,234			113,043
Fair value of hedging contracts		1,255			—
Other long-term liabilities		3,259			3,037
Total liabilities		1,218,815			1,196,194
Commitments and contingencies
Common stock		272			272
Treasury stock		(1,161	)		(1,348	)
Additional paid-in capital		489,144			500,228
Unearned compensation		—			(15,068	)
Retained earnings		479,159			455,183
Accumulated other comprehensive income		13,144			4,856
Total stockholders’ equity		980,558			944,123
Total liabilities and stockholders’ equity	$	2,199,373		$	2,140,317

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

1

STONE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended
	March 31,
	2006			2005
Operating revenue:
Oil production	$	61,512		$	64,631
Gas production		96,922			91,522
Total operating revenue		158,434			156,153
Operating expenses:
Lease operating expenses		34,876			27,924
Production taxes		4,217			2,427
Depreciation, depletion and amortization		65,571			62,021
Accretion expense		3,043			1,790
Salaries, general and administrative expenses		8,477			4,826
Incentive compensation expense		232			646
Total operating expenses		116,416			99,634
Income from operations		42,018			56,519
Other (income) expenses:
Interest		5,915			5,831
Other income		(922	)		(589	)
Total other expenses, net		4,993			5,242
Income before taxes		37,025			51,277
Provision for income taxes:
Current		—			—
Deferred		13,017			17,853
Total income taxes		13,017			17,853
Net income	$	24,008		$	33,424
Basic earnings per share	$	0.88		$	1.25
Diluted earnings per share	$	0.88		$	1.24
Average shares outstanding		27,169			26,730
Average shares outstanding assuming dilution		27,352			27,039

The accompanying notes are an integral part of this statement.

2

STONE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands of dollars)

(Unaudited)

	Three Months Ended
	March 31,
	2006			2005
Cash flows from operating activities:
Net income	$	24,008		$	33,424
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		65,571			62,021
Accretion expense		3,043			1,790
Provision for deferred income taxes		13,017			17,853
Stock compensation expense		1,379			—
Other non-cash items		200			541
Increase in accounts receivable		(20,397	)		(14,006	)
Decrease in other current assets		482			1,242
Increase in accounts payable		351			—
Increase (decrease) in other current liabilities		(6,351	)		7,991
Other		3			123
Net cash provided by operating activities		81,306			110,979
Cash flows from investing activities:
Investment in oil and gas properties		(138,964	)		(179,852	)
Investment in fixed and other assets		(1,593	)		(694	)
Net cash used in investing activities		(140,557	)		(180,546	)
Cash flows from financing activities:
Proceeds from bank borrowings		—			76,000
Deferred financing costs		—			(137	)
Proceeds from the exercise of stock options		1,631			5,014
Net cash provided by financing activities		1,631			80,877
Net increase (decrease) in cash and cash equivalents		(57,620	)		11,310
Cash and cash equivalents, beginning of period		79,708			24,257
Cash and cash equivalents, end of period	$	22,088		$	35,567

The accompanying notes are an integral part of this statement.

3

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 March 31, 2006 and for the three-month periods ended March 31, 2006 and 2005 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 balance sheet at December 31, 2005 has been derived from the audited financial statements at that date. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with the explanatory note regarding restatement and 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, 2005. The results of operations for the three-month period ended March 31, 2006 are not necessarily indicative of future financial results.

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 and restricted stock granted to outside directors and employees. There were approximately 183,000 and 309,000 dilutive shares for the three months ended March 31, 2006 and 2005, respectively.

          Stock options that were considered antidilutive because the exercise price of the option exceeded the average price of our stock for the applicable period totaled approximately 712,000 and 650,000 shares in the three months ended March 31, 2006 and 2005, respectively. During the three months ended March 31, 2006 and 2005, approximately 54,000 and 187,000 shares, respectively, were issued upon the exercise of stock options by employees and nonemployee directors and the awarding of employee bonus stock pursuant to the 2004 Amended and Restated Stock Incentive Plan.

Note 3 – Hedging Activities

          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 risk of declining oil and natural gas prices during the term of the hedge. We do not enter into hedging transactions for trading purposes. We currently utilize zero-premium collars for hedging purposes.

          The following table illustrates our hedging positions as of March 31, 2006:

	Zero-Premium Collars
	Natural Gas						Oil
	Daily						Daily
	Volume		Floor		Ceiling		Volume		Floor		Ceiling
	(MMBtus/d)		Price		Price		(Bbls/d)		Price		Price
2006		10,000	$	8.00	$	14.28		3,000	$	55.00	$	76.40
2006		20,000		9.00		16.55		2,000		60.00		78.20
2006		20,000		10.00		16.40		—		—		—
2007		—		—		—		3,000		60.00		78.35

          Under Statement of Financial Accounting Standards (“SFAS”) No. 133, 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. Additionally, monthly settlements of effective hedges are reflected in revenue from oil and gas production. Instruments not qualifying for hedge accounting are recorded in the balance sheet at fair value and changes in fair value are recognized in earnings. Monthly settlements of ineffective hedges are recognized in earnings through derivative expense and are not reflected as revenue from oil and gas production.

          During the three months ended March 31, 2006, we realized a net increase in gas revenue related to our effective zero-premium collars of $4.2 million. We realized a net decrease of $2.9 million in gas revenue related to swaps and a decrease of $0.4 million in oil revenue related to our zero-premium collars for the three months ended March 31, 2005.

4

Note 4 – Long-Term Debt

          Long-term debt consisted of the following:

	March 31,		December 31,
	2006		2005
	(Unaudited)
	(In millions)
81/4% Senior Subordinated Notes due 2011	$	200	$	200
63/4% Senior Subordinated Notes due 2014		200		200
Bank debt		163		163
Total long-term debt	$	563	$	563

          On March 28, 2006 the bank credit facility was amended whereby we granted a valid, perfected, first-priority lien in favor of the participating banks on the majority of our oil and gas properties. Borrowings outstanding at March 31, 2006 under our bank credit facility totaled $163.0 million, and letters of credit totaling $22.9 million have been issued under the facility. At March 31, 2006, we had $114.1 million of borrowings available under the credit facility and the weighted average interest rate was approximately 6.0%. On April 3, 2006 we borrowed an additional $35.0 million under the facility leaving $79.1 million of borrowings available under the facility. The borrowing base under the credit facility is re-determined periodically based on the bank group’s evaluation of our proved oil and gas reserves.

Note 5 – Comprehensive Income

          The following table illustrates the components of comprehensive income for the three months ended March 31, 2006 and 2005:

	Three Months Ended
	March 31,
	2006		2005
	(Unaudited)
	(In millions)
Net income	$	24.0	$	33.4
Other comprehensive income (loss), net of tax effect:
Adjustment for fair value accounting of derivatives		8.3		(11.1	)
Comprehensive income	$	32.3	$	22.3

Note 6 – Asset Retirement Obligations

           During the first quarter of 2006 and 2005, we recognized non-cash expenses of $3.0 million and $1.8 million, respectively, related to the accretion of our asset retirement obligations. As of March 31, 2006, accretion expense represents the only change in our asset retirement obligations since December 31, 2005.

Note 7 – Stock-Based Compensation

          On December 16, 2004, the FASB issue SFAS No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB Opinion No. 25 and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123(R) has become effective for us on January 1, 2006.

          We have elected to adopt the requirements of SFAS No 123(R) using the “modified prospective” method. Under this method, compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. For the three months ended March 31, 2006 we incurred $2.5 million of stock-based compensation of which $1.4 million related to restricted stock issuances, $1.0 million related to stock option grants and $0.1 million related to employee bonus stock awards and of which a total of approximately $1.1 million was capitalized into Oil and Gas Properties. The net effect of the implementation of SFAS No. 123(R) on net income for the three months ended March 31, 2006 was immaterial.

5

          For the three months ended March 31, 2005, if stock-based compensation expense had been determined consistent with the expense recognition provisions under SFAS No. 123, our net income, basic earnings per share and diluted earnings per share would have approximated the pro forma amounts below (in thousands of dollars, except per share amounts):

Net income	$	33,424
Add: Stock-based compensation expense included in net income, net of tax		113
Less: Stock-based compensation expense using fair value method, net of tax		(577	)
Pro forma net income	$	32,960
Basic earnings per share	$	1.25
Pro forma basic earnings per share	$	1.23
Diluted earnings per share	$	1.24
Pro forma diluted earnings per share	$	1.22

          Under our 2004 Amended and Restated Stock Incentive Plan (the “Plan”), we may grant both incentive stock options qualifying under Section 422 of the Internal Revenue Code and options that are not qualified as incentive stock options to all employees and directors. All such options must have an exercise price of not less than the fair market value of the common stock on the date of grant and may not be re-priced without stockholder approval. Stock options to all employees vest ratably over a five-year service-vesting period and expire ten years subsequent to award. Stock options issued to non-employee directors vest ratably over a three-year service-vesting period and expire ten years subsequent to award. In addition, the Plan provides that shares available under the Plan may be granted as restricted stock. Restricted stock typically vests over a three-year period. During the periods ended March 31, 2006 and 2005, we granted 15,000 stock options valued at $313,500 and 10,500 stock options valued at $192,695, respectively. Fair value for the three months ended March 31, 2006 and 2005 was determined using the Black-Scholes option pricing model with the following assumptions:

	2006			2005
Dividend yield		0.00	%		0.00	%
Expected volatility		36.59	%		37.15	%
Risk-free rate		4.58	%		3.92	%
Expected option life	6.0 years			6.0 years
Forfeiture rate		10.00	%		0.00	%

          Expected volatility and expected option life are based on a historical average. The risk-free rate is based on quoted rates on zero-coupon Treasury Securities for terms consistent with the expected option life.

          During the period ended March 31, 2006 we issued 26,850 shares of restricted stock valued at $1,275,000. The fair value of restricted shares is determined based on the average of the high and low prices on the issuance date and assumes a 5% forfeiture rate.

          A summary of activity under the Plan during the three months ended March 31, 2006 is as follows:

	Number						Aggregate
	of			Wgtd. Avg.		Wgtd. Avg.	Intrinsic
	Options			Exer. Price		Term	Value
Options outstanding, beginning of period		1,902,062		$	41.99
Granted		15,000			47.75
Exercised		(50,200	)		32.49
Forfeited		(15,050	)		38.31
Expired		—			—
Options outstanding, end of period		1,851,812			42.38	5.3 years	$	4,075,349
Options exercisable, end of period		1,146,192			43.43	4.1 years		1,320,359
Options unvested, end of period		705,620			40.69	7.2 years		2,754,990

6

	Number of			Wgtd. Avg.
	Restricted			Fair Value
	Shares			Per Share
Restricted stock outstanding, beginning of period		344,038		$	51.52
Issuances		26,850			47.48
Forfeitures		(7,800	)		52.96
Restricted stock outstanding, end of period		363,088			51.19

          The weighted average grant-date fair value of options granted during the three months ended March 31, 2006 was $20.90. The total intrinsic value of options exercised during the three months ended March 31, 2006 was $0.6 million. The weighted average issuance date fair value of restricted shares issued during the three months ended March 31, 2006 was $47.48.

          As of March 31, 2006, there was $23.2 million of unrecognized compensation cost related to non-vested share-based compensation arrangements under the Plan. That cost is being amortized on a straight-line basis over the vesting period and is expected to be recognized over a weighted-average period of 2.6 years.

Note 8 – Subsequent Event

          On April 23, 2006, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with Plains Exploration and Production Company (“PXP”) and Plains Acquisition Corporation, a wholly-owned subsidiary of PXP (“Plains Acquisition”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Plains Acquisition will merge with and into Stone in a stock-for-stock transaction in which Stone will become a wholly-owned subsidiary of PXP and each outstanding share of common stock of Stone will be converted into the right to receive 1.25 shares of PXP common stock. In connection with the closing of the transaction, PXP will issue approximately 34.5 million shares to Stone stockholders and assume the debt of Stone. The closing of the transaction is anticipated to be completed in the third quarter of 2006.

          The Merger Agreement has been approved by the boards of directors of both Stone and PXP. The Merger is subject to Stone’s stockholders approving the Merger and to PXP’s stockholders approving the issuance of shares of PXP stock to be used as merger consideration, and other customary closing conditions.

          Stone and PXP have each agreed to certain covenants in the Merger Agreement. Among other covenants, Stone has agreed, subject to certain exceptions to permit Stone’s board of directors to comply with its fiduciary duties, not to solicit, negotiate, provide information in furtherance of, approve, recommend or enter into a Target Acquisition Proposal (as defined in the Merger Agreement).

Note 9 – Commitments and Contingencies

          On December 30, 2004, Stone was served with two petitions (civil action numbers 2004-6227 and 2004-6228) filed by the Louisiana Department of Revenue (“LDR”) in the 15th Judicial District Court (Parish of Lafayette, Louisiana) claiming additional franchise taxes due. In one case, the LDR is seeking additional franchise taxes from Stone in the amount of $640,000, plus accrued interest of $352,000 (calculated through December 15, 2004), for the franchise year 2001. In the other case, the LDR is seeking additional franchise taxes from Stone (as successor to Basin Exploration, Inc.) in the amount of $274,000, plus accrued interest of $159,000 (calculated through December 15, 2004), for the franchise years 1999, 2000 and 2001. Further, on December 29, 2005, the LDR filed another petition in the 15^th Judicial District Court claiming additional franchise taxes due for the taxable years ended December 31, 2002 and 2003 in the amount of $2.6 million plus accrued interest calculated through December 15, 2005 in the amount of $1.2 million. These assessments all relate to the LDR’s assertion that sales of crude oil and natural gas from properties located on the Outer Continental Shelf, which are transported through the state of Louisiana, should be sourced to the state of Louisiana for purposes of computing the Louisiana franchise tax apportionment ratio. The Company disagrees with these contentions and intends to vigorously defend itself against these claims.

          Stone has received notice that the staff of the SEC is conducting an informal inquiry into the revision of Stone’s proved reserves and the financial statement restatement. In addition, Stone has received an inquiry from the Philadelphia Stock Exchange investigating matters including trading prior to Stone’s October 6, 2005 announcement. Stone intends to cooperate fully with both inquiries.

          On or around November 30, 2005, George Porch filed a putative class action in the United States District Court for the Western District of Louisiana against Stone, David H. Welch, Kenneth H. Beer, D. Peter Canty and James H. Prince purporting to allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Three similar complaints were filed soon thereafter. All complaints assert a putative class period commencing on June 17, 2005 and ending on October 6, 2005. All complaints contend that, during the putative class period, defendants, among other things, misstated or failed to disclose (i) that Stone had

7

materially overstated Stone’s financial results by overvaluing its oil reserves through improper and aggressive reserve methodologies; (ii) that the Company lacked adequate internal controls and was therefore unable to ascertain its true financial condition; and (iii) that as a result of the foregoing, the values of the Company’s proved reserves, assets and future net cash flows were materially overstated at all relevant times. On March 17, 2006, these purported class actions were consolidated under the captionIn re: Stone Energy Corporation Securities Litigation(Docket No. 05-cv-02088), with El Paso Firemen & Policemen’s Pension Fund designated as lead plaintiff. In addition, on or about December 16, 2005, Robert Farer filed a complaint in the United States District Court for the Western District of Louisiana alleging claims derivatively on behalf of Stone, and three similar complaints were filed soon thereafter in federal and state court; the complaint filed in the state court action in Lafayette Parish, 15^th Judicial Court, No. 2005-0505, was recently amended to include a prayer to enjoin the directors from proceeding with a merger agreement with Plains to the extent it includes protections or payoffs to defendants and also to enjoin the merger unless and until a procedure or process, such as an auction, is adopted and implemented to obtain the highest possible price for the Company. Stone is named as a nominal defendant, and certain current and former officers and directors are named as defendants in these actions, which allege breaches of the fiduciary duties owed to Stone, gross mismanagement, abuse of control, waste of corporate assets, unjust enrichment, and violations of the Sarbanes-Oxley Act of 2002. Stone intends to vigorously defend these lawsuits.

          Stone’s Certificate of Incorporation and/or its Restated Bylaws provide, to the extent permissible under the law of Delaware (Stone’s state of incorporation), for indemnification of and advancement of defense costs to Stone’s current and former directors and officers for potential liabilities related to their service to Stone. Stone has purchased directors and officers insurance policies that, under certain circumstances, may provide coverage to Stone and/or its officers and directors for certain losses resulting from securities-related civil liabilities and/or the satisfaction of indemnification and advancement obligations owed to directors and officers. These insurance policies may not cover all costs and liabilities incurred by Stone and its current and former officers and directors in these regulatory and civil proceedings.

8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE STOCKHOLDERS OF
STONE ENERGY CORPORATION:

We have reviewed the condensed consolidated balance sheet of Stone Energy Corporation as of March 31, 2006, and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 2006 and 2005. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Stone Energy Corporation as of December 31, 2005, and the related consolidated statements of income, cash flows, changes in stockholders’ equity and comprehensive income for the year then ended (not presented herein) and in our report dated March 7, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

New Orleans, Louisiana
May 2, 2006

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

          ThisForm 10-Q and the information referenced herein contain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “plan,” “expect,” “project,” “estimate,” “assume,” “believe,” “anticipate,” “intend,” “budget,” “forecast,” “predict” and other similar expressions are intended to identify forward-looking statements. These statements appear in a number of places and include statements regarding our plans, beliefs or current expectations, including the plans, beliefs and expectations of our officers and directors. We use the terms “Stone,” “Stone Energy,” “Company,” “we,” “us” and “our” to refer to Stone Energy Corporation.

          When considering any forward-looking statement, you should keep in mind the risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include the timing and extent of changes in commodity prices for oil and gas, operating risks and other risk factors as described in our Annual Report on Form 10-K. Furthermore, the assumptions that support our forward-looking statements are based upon information that is currently available and is subject to change. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages. All forward-looking statements attributable to Stone Energy Corporation are expressly qualified in their entirety by this cautionary statement.

Overview

          Stone Energy Corporation is an independent oil and gas company engaged in the acquisition, exploration, exploitation, development and operation of oil and gas properties located in the conventional shelf of the Gulf of Mexico (the “GOM”), the deep shelf of the GOM, deep water of the GOM and several basins in the Rocky Mountain Region. Our business strategy is to increase reserves, production and cash flow through the acquisition, exploitation and development of mature properties in the Gulf Coast Basin and exploring opportunities in the deep water environment of the Gulf of Mexico, Rocky Mountain Region and other potential areas. Throughout this document, reference to our “Gulf Coast Basin” properties includes our onshore, shelf and deep shelf properties. Reference to our “Rocky Mountain Region” includes our properties in several Rocky Mountain Basins and the Williston Basin. All period to period comparisons are based on restated amounts (see Explanatory Note and Note 1 – Restatement of Historical Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2005).

Critical Accounting Policies

          Our Annual Report on Form 10-K describes the accounting policies that we believe are critical to the reporting of our financial position and operating results and that require management’s most difficult, subjective or complex judgments. Our most significant estimates are:

• remaining proved oil and gas reserves volumes and the timing of their production;

• estimated costs to develop and produce proved oil and gas reserves;

• accruals of exploration costs, development costs, operating costs and production revenue;

• timing and future costs to abandon our oil and gas properties;

• the effectiveness and estimated fair value of derivative positions;

• classification of unevaluated property costs;

• capitalized general and administrative costs and interest; and

• contingencies.

          This Quarterly Report on Form 10-Q should be read together with the discussion contained in our Annual Report on Form 10-K regarding these critical accounting policies.

Other Factors Affecting Our Business and Financial Results

          In addition to the matters discussed above, our business, financial condition and results of operations are affected by a number of other factors. This Quarterly Report on Form 10-Q should be read in conjunction with the discussion in our Annual Report on Form 10-K regarding these other risk factors.

Liquidity and Capital Resources

          Cash Flow.Net cash flow provided by operating activities for the three months ended March 31, 2006 was $81.3 million compared to $111.0 million reported in the comparable period in 2005. Based on our outlook of commodity prices and our estimated production, we expect to fund our 2006 capital expenditures with cash flow provided by operating activities.

     Net cash flow used in investing activities totaled $140.6 million and $180.5 million during the first quarter of 2006 and 2005, respectively, which primarily represents our investment in oil and gas properties.

10

          Net cash flow provided by financing activities totaled $1.6 million for the quarter ended March 31, 2006, which represents proceeds from the exercise of stock options. For the quarter ended March 31, 2005, net cash flow provided by financing activities totaled $80.9 million which primarily represents borrowings under our bank credit facility and proceeds from the exercise of stock options. In total, cash and cash equivalents decreased from $79.7 million as of December 31, 2005 to $22.1 million as of March 31, 2006.

          We had a working capital deficit at March 31, 2006 in the amount of $15.3 million. We believe that our working capital balance should be viewed in conjunction with availability of borrowings under our bank credit facility when measuring liquidity. “Liquidity” is defined as the ability to obtain cash quickly either through the conversion of assets or incurrence of liabilities. See“Bank Credit Facility”.

          Capital Expenditures.First quarter 2006 additions to oil and gas property costs of $145.1 million included $10.2 million of acquisition costs, $5.2 million of capitalized salaries, general and administrative expenses (inclusive of incentive compensation) and $4.3 million of capitalized interest. These investments were financed by cash flow from operating activities and working capital.

          Our 2006 capital expenditures budget, excluding acquisitions, asset retirement costs and capitalized interest and general and administrative expenses, is approximately $360 million. While the 2006 capital expenditures budget does not include any projected acquisitions, we continue to seek growth opportunities that fit our specific acquisition profile.

          Based upon our outlook of commodity prices and our estimated production, we expect to fund our 2006 capital program with cash flow provided by operating activities. To the extent that 2006 cash flow from operating activities exceeds our estimated 2006 capital expenditures, we may pay down a portion of our existing debt. If cash flow from operating activities during 2006 is not sufficient to fund estimated 2006 capital expenditures, we believe that our bank credit facility will provide us with adequate liquidity. See“Bank Credit Facility”.

          Bank Credit Facility.Borrowings outstanding at March 31, 2006 under our bank credit facility totaled $163.0 million, and letters of credit totaling $22.9 million have been issued under the facility. At March 31, 2006, we had $114.1 million of borrowings available under the credit facility and the weighted average interest rate was approximately 6.0%. On April 3, 2006 we borrowed an additional $35.0 million under the facility leaving $79.1 million of borrowings available.

Results of Operations

          The following tables set forth certain information with respect to our oil and gas operations.

	Three Months Ended
	March 31,
	2006		2005		Variance			% Change
Production:
Oil (MBbls)		1,037		1,357		(320	)		(24	%)
Gas (MMcf)		11,269		15,249		(3,980	)		(26	%)
Oil and gas (MMcfe)		17,492		23,391		(5,899	)		(25	%)
Revenue data (in thousands) (a):
Oil revenue	$	61,512	$	64,631		($3,119	)		(5	%)
Gas revenue		96,922		91,522		5,400			6	%
Total oil and gas revenue	$	158,434	$	156,153	$	2,281			2	%
Average prices (a):
Oil (per Bbl)	$	59.32	$	47.63	$	11.69			25	%
Gas (per Mcf)		8.60		6.00		2.60			43	%
Oil and gas (per Mcfe)		9.06		6.68		2.38			36	%
Expenses (per Mcfe):
Lease operating expenses	$	1.99	$	1.19	$	0.80			67	%
Salaries, general and administrative expenses (b)		0.48		0.21		0.27			129	%
DD&A expense on oil and gas properties		3.69		2.62		1.07			41	%

(a)	Includes the cash settlement of effective hedging contracts.
(b)	Exclusive of incentive compensation expense.

          During the first quarter of 2006, net income totaled $24.0 million, or $0.88 per share, compared to $33.4 million, or $1.24 per share for the first quarter of 2005. All per share amounts are on a diluted basis. The variance in quarterly results was due to the following components:

11

          Prices. Prices realized during the first quarter of 2006 averaged $59.32 per Bbl of oil and $8.60 per Mcf of natural gas, or 36% higher, on an Mcfe basis, than first quarter 2005 average realized prices of $47.63 per Bbl of oil and $6.00 per Mcf of natural gas. All unit pricing amounts include the cash settlement of effective hedging contracts. Our effective hedging transactions increased the average price we received for natural gas by $0.38 per Mcf for the first quarter of 2006. Hedging transactions did not impact realized oil prices during the first quarter of 2006. During the first quarter of 2005, effective hedging transactions decreased the average realized price of natural gas by $0.19 per Mcf and oil by $0.33 per barrel.

          Production.During the first quarter of 2006, total production volumes decreased 25% to 17.5 Bcfe compared to 23.4 Bcfe produced during the first quarter of 2005. Oil production during the first quarter of 2006 totaled approximately 1,037,000 barrels compared to 1,357,000 barrels produced during the first quarter of 2005, while natural gas production totaled 11.3 Bcf during the first quarter of 2006 compared to 15.2 Bcf produced during the first quarter of 2005. Stone’s first quarter 2006 production rates were negatively impacted by natural declines from producing wells and extended Gulf Coast production shut-ins due to Hurricane Katrina and Hurricane Rita, amounting to volumes of approximately 6.6 Bcfe, or 73 MMcfe per day. This compares to an approximate 1.7 Bcfe deferral, or 19 MMcfe per day, from Hurricane Ivan in the comparable quarter of 2005. Approximately 83% of our first quarter 2006 production volumes were generated from our Gulf Coast Basin properties while the remaining 17% came from our Rocky Mountain Region properties.

          Oil and Gas Revenue.First quarter 2006 oil and gas revenue totaled $158.4 million, compared to first quarter 2005 oil and gas revenue of $156.2 million. The increase in oil and gas revenue is attributable to a 36% increase in realized oil and gas prices significantly offset by a 25% decrease in production volumes on a gas equivalent basis for the first quarter of 2006 compared to the comparable period in 2005.

          Expenses.Lease operating expenses during the first quarter of 2006 totaled $34.9 million compared to $27.9 million for the first quarter of 2005. On a unit of production basis, first quarter 2006 lease operating expenses were $1.99 per Mcfe as compared to $1.19 per Mcfe for the first quarter of 2005. During the first quarter of 2006, lease operating expenses included $7.7 million of repairs in excess of estimated insurance recoveries related to Hurricanes Katrina and Rita. First quarter 2006 lease operating expenses also increased as a result of increases in overall industry service costs over the first quarter of 2005.

          Depreciation, depletion and amortization (“DD&A”) on oil and gas properties for the first quarter of 2006 totaled $64.6 million, or $3.69 per Mcfe compared to $61.3 million, or $2.62 per Mcfe for the first quarter of 2005. The increase in 2006 DD&A per Mcfe is attributable to the unit cost of current period net reserve additions (including related future development costs) exceeding the per unit amortizable base as of the beginning of the year.

          Salaries, general and administrative (“SG&A”) expenses (exclusive of incentive compensation) for the first quarter of 2006 were $8.5 million compared to $4.8 million in the first quarter of 2005. The increase in SG&A is due to additional compensation expense associated with restricted stock issuances, increased employment and base salary levels and higher legal and consulting fees.

          During the three months ended March 31, 2006 and 2005, we incurred $3.0 and $1.8 million, respectively, of accretion expense related to asset retirement obligations. The increase in first quarter 2006 accretion expense is due to higher estimated asset retirement costs combined with a shortened time frame to plug and abandon our facilities.

          Production taxes during the first quarter of 2006 totaled $4.2 million compared to $2.4 million in the first quarter of 2005. The increase is due to a prior year ad valorem tax adjustment on certain of our Rocky Mountain properties expensed in the first quarter of 2006.

Recent Accounting Developments

          Stock-Based Compensation. On December 16, 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123; however, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values. Pro forma disclosure will no longer be an alternative.

          SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

12

2. A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

          In March 2005, the SEC issued SAB No. 107 which expressed the views of the SEC regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations. SAB No. 107 provides guidance related to the valuation of share-based payment arrangements for public companies, including assumptions such as expected volatility and expected term. In April 2005, the SEC approved a rule that delayed the effective date of SFAS No. 123(R) for public companies. SFAS No. 123(R) became effective for us on January 1, 2006.

          Stone has elected to adopt the requirements of SFAS No. 123(R) using the “modified prospective” method. We have historically used the Black-Scholes option-pricing model for estimating stock compensation expense for disclosure purposes and are continuing to use such method after adoption of SFAS No. 123(R). The effect of the adoption of SFAS No. 123(R) for the three months ended March 31, 2006 was immaterial.

Defined Terms

          Oil and condensate are stated in barrels (“Bbls”) or thousand barrels (“MBbls”). Natural gas is stated herein in billion cubic feet (“Bcf”), million cubic feet (“MMcf”) or thousand cubic feet (“Mcf”). Oil and condensate are converted to natural gas at a ratio of one barrel of liquids per six Mcf of gas. Bcfe, MMcfe, and Mcfe represent one billion cubic feet, one million cubic feet and one thousand cubic feet of gas equivalent, respectively. MMBtu represents one million British Thermal Units and BBtu represents one billion British Thermal Units. An active property is an oil and gas property with existing production. A primary term lease is an oil and gas property with no existing production, in which we have a specific time frame to establish production without losing the rights to explore the property. Liquidity is defined as the ability to obtain cash quickly either through the conversion of assets or incurrence of liabilities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

          Our major market risk exposure continues to be the pricing applicable to our oil and natural gas production. Our revenues, profitability and future rate of growth depend substantially upon the market prices of oil and natural gas, which fluctuate widely. Oil and gas price declines and volatility could adversely affect our revenues, cash flows and profitability. Price volatility is expected to continue. In order to manage our exposure to oil and gas price declines, we occasionally enter into oil and gas price hedging arrangements to secure a price for a portion of our expected future production. We do not enter into hedging transactions for trading purposes.

          Our hedging policy provides that not more than one-half of our estimated production quantities can be hedged without the consent of the Board of Directors. We believe our current hedging positions have hedged approximately 35% — 45% of our estimated 2006 production. SeeItem 1. Financial Statements – Note 3 – Hedging Activitiesfor a detailed discussion of hedges in place to manage our exposure to oil and natural gas price declines.

Interest Rate Risk

          Stone had long-term debt outstanding of $563 million at March 31 2006, of which $400 million, or approximately 71%, bears interest at a fixed rate. The fixed rate debt as of March 31, 2006 consisted of $200 million of 8¹/4% Senior Subordinated Notes due 2011 and $200 million of 6³/4% Senior Subordinated Notes due 2014. The remaining $163 million of debt outstanding at March 31, 2006 bears interest at a floating rate. At March 31, 2006, the weighted average interest rate under our floating-rate debt was approximately 6.0%. We currently have no interest rate hedge positions in place to reduce our exposure to changes in interest rates.

          Since the filing of our 2005 Annual Report on Form 10-K, there have been no material changes in reported market risk as it relates to interest rates and commodity prices.

Item 4. Controls and Procedures

Deficiencies Relating to Reserve Reporting

          In October 2005 we completed an internal review of our estimates of proved oil and natural gas reserves. As a result of this review, we reduced our estimate of total proved oil and natural gas reserves at December 31, 2004 by approximately 237 Bcfe. Management concluded that the impact of the reserve adjustment on previously issued financial statements was material and required a restatement. The audit committee of our board of directors engaged the law firm of Davis Polk & Wardwell (“Davis Polk”) to assist in its investigation of reserve revisions. Davis Polk presented its final report to the audit committee and board of directors on

13

November 28, 2005. The final report found that a number of factors at Stone contributed to the write-down of reserves, including the following:

• Stone lacked adequate internal guidance or training on the SEC definition of proved reserves;

• There is evidence that some members of Stone management failed to fully grasp the conservatism of the SEC’s “reasonable certainty” standard of booking reserves; and

• There is also evidence that there was an optimistic and aggressive “tone from the top” with respect to estimating proved reserves.

          As part of its final report, Davis Polk proposed a number of recommendations, including the following:

• adopt and distribute written guidelines to its staff on the SEC reserve reporting requirements;

• provide annual training for employees on the SEC requirements;

• continue to emphasize the difference between SEC’s standard of measuring proved reserves and the criteria that Stone might use in making business decisions; and

• institute and cultivate a culture of compliance to ensure that the foregoing contributing factors do not recur.

          The audit committee and board of directors have accepted the Davis Polk final report, and the board of directors implemented and resolved to continue to implement all of the recommendations.

          Consequently, we revised our historical proved reserves for the period from December 31, 2001 to June 30, 2005. This revision of reserves also resulted in a restatement of financial information for the years 2001 through 2004 and for the first six months of 2005. This restatement, as well as specific information regarding its impact, is discussed in Note 1 to the consolidated financial statements included in our annual report on Form 10-K. Restatement of previously issued financial statements to reflect the correction of a misstatement is an indicator of the existence of a material weakness in internal control over financial reporting as defined in the Public Company Accounting Oversight Board’s Auditing Standard No. 2, “An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.” We have identified deficiencies in our internal controls that did not prevent the overstatement of our proved oil and natural gas reserves. These deficiencies, which we believe constituted a material weakness in our internal control over financial reporting, included an overly aggressive and optimistic tone by some members of management which created a weak control environment surrounding the booking of proved oil and natural gas reserves, and inadequate training and understanding of the SEC rules for booking oil and natural gas reserves. In light of the determination that previously issued financial statements should be restated, our management concluded that a material weakness in internal control over financial reporting existed as of December 31, 2005 and disclosed this matter to the Audit Committee and our independent registered public accounting firm.

     Remedial Actions

          Our management, at the direction of our board of directors, is actively working to improve the control environment and to implement controls and procedures that will ensure the integrity of our proved reserve booking process.

          We have implemented the following actions to mitigate weaknesses identified:

• Those members of management that the Davis Polk report specifically suggested contributed to the aggressive and optimistic tone of management in booking estimated proved reserves are no longer employed by or affiliated with Stone as employees, officers or directors.

• A new Vice President, Reserves, has been appointed to oversee the booking of estimated proved reserves and the training of all personnel involved in the reserve estimation process.

• Formal training programs have been implemented and all personnel involved in the reserve estimation process have, since the announcement of the reserve revision, received formal training in SEC requirements for reporting estimated proved reserves.

• A nationally recognized engineering firm with greater capabilities for geological reviews was contracted to audit our Gulf Coast Basin reserves. The Gulf Coast Basin is the area where the downward revisions occurred. Such audit was conducted as of December 31, 2005 and was completed early in 2006.

• We have adopted and distributed a written policy and guidelines for booking estimated proved reserves to all personnel involved in the reserve estimation process.

          We intend to move forward with the following remedial actions in 2006:

• continue our formal training programs;

• have 100% of our proved reserves fully engineered by outside engineering firms no later than December 31, 2006; and

• during 2006 and thereafter, consult with our outside engineering firms on an interim basis on the original booking of significant acquisitions, extensions, discoveries and other additions.

14

Evaluation of Disclosure Control and Procedures

          Our Chief Executive Officer and our Chief Financial Officer, with the participation of other members of our senior management, reviewed and evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. In making this evaluation, the Chief Executive Officer and the Chief Financial Officer considered the issues discussed above, together with the remedial steps we have taken. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, because of the material weakness discussed above, as of March 31, 2006, our disclosure controls and procedures were not effective in recording, processing, summarizing and reporting information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.

Changes in Internal Control Over Financial Reporting

          Except as discussed above, there has not been any change in our internal control over financial reporting that occurred during our quarter ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

          On December 30, 2004, Stone was served with two petitions (civil action numbers 2004-6227 and 2004-6228) filed by the Louisiana Department of Revenue (“LDR”) in the 15th Judicial District Court (Parish of Lafayette, Louisiana) claiming additional franchise taxes due. In one case, the LDR is seeking additional franchise taxes from Stone in the amount of $640,000, plus accrued interest of $352,000 (calculated through December 15, 2004), for the franchise year 2001. In the other case, the LDR is seeking additional franchise taxes from Stone (as successor to Basin Exploration, Inc.) in the amount of $274,000, plus accrued interest of $159,000 (calculated through December 15, 2004), for the franchise years 1999, 2000 and 2001. Further, on December 29, 2005, the LDR filed another petition in the 15^th Judicial District Court claiming additional franchise taxes due for the taxable years ended December 31, 2002 and 2003 in the amount of $2.6 million plus accrued interest calculated through December 15, 2005 in the amount of $1.2 million. These assessments all relate to the LDR’s assertion that sales of crude oil and natural gas from properties located on the Outer Continental Shelf, which are transported through the state of Louisiana, should be sourced to the state of Louisiana for purposes of computing the Louisiana franchise tax apportionment ratio. The Company disagrees with these contentions and intends to vigorously defend itself against these claims.

          Stone has received notice that the staff of the SEC is conducting an informal inquiry into the revision of Stone’s proved reserves and the financial statement restatement. In addition, Stone has received an inquiry from the Philadelphia Stock Exchange investigating matters including trading prior to Stone’s October 6, 2005 announcement. Stone intends to cooperate fully with both inquiries.

          On or around November 30, 2005, George Porch filed a putative class action in the United States District Court for the Western District of Louisiana against Stone, David H. Welch, Kenneth H. Beer, D. Peter Canty and James H. Prince purporting to allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Three similar complaints were filed soon thereafter. All complaints assert a putative class period commencing on June 17, 2005 and ending on October 6, 2005. All complaints contend that, during the putative class period, defendants, among other things, misstated or failed to disclose (i) that Stone had materially overstated Stone’s financial results by overvaluing its oil reserves through improper and aggressive reserve methodologies; (ii) that the Company lacked adequate internal controls and was therefore unable to ascertain its true financial condition; and (iii) that as a result of the foregoing, the values of the Company’s proved reserves, assets and future net cash flows were materially overstated at all relevant times. On March 17, 2006, these purported class actions were consolidated under the captionIn re: Stone Energy Corporation Securities Litigation(Docket No. 05-cv-02088), with El Paso Firemen & Policemen’s Pension Fund designated as lead plaintiff. In addition, on or about December 16, 2005, Robert Farer filed a complaint in the United States District Court for the Western District of Louisiana alleging claims derivatively on behalf of Stone, and three similar complaints were filed soon thereafter in federal and state court; the complaint filed in the state court action in Lafayette Parish, 15^th Judicial Court, No. 2005-0505, was recently amended to include a prayer to enjoin the directors from proceeding with a merger agreement with Plains to the extent it includes protections or payoffs to defendants and also to enjoin the merger unless and until a procedure or process, such as an auction, is adopted and implemented to obtain the highest possible price for the Company. Stone is named as a nominal defendant, and certain current and former officers and directors are named as defendants in these actions, which allege breaches of the fiduciary duties owed to Stone, gross mismanagement, abuse of control, waste of corporate assets, unjust enrichment, and violations of the Sarbanes-Oxley Act of 2002. Stone intends to vigorously defend these lawsuits.

          Stone’s Certificate of Incorporation and/or its Restated Bylaws provide, to the extent permissible under the law of Delaware (Stone’s state of incorporation), for indemnification of and advancement of defense costs to Stone’s current and former directors and officers for potential liabilities related to their service to Stone. Stone has purchased directors and officers insurance policies that, under certain circumstances, may provide coverage to Stone and/or its officers and directors for certain losses resulting from securities-

15

related civil liabilities and/or the satisfaction of indemnification and advancement obligations owed to directors and officers. These insurance policies may not cover all costs and liabilities incurred by Stone and its current and former officers and directors in these regulatory and civil proceedings.

Item 6. Exhibits

*10.1	–	Amendment No. 2 to the Credit Agreement between the Registrant, the financial institutions named therein and Bank of America, N.A., as administrative agent, dated March 28, 2006.
*15.1	–	Letter from Ernst & Young LLP dated May 2, 2006, regarding unaudited interim financial information.
*31.1	–	Certification of Principal Executive Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
*31.2	–	Certification of Principal Financial Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
*†32.1	–	Certification of Chief Executive Officer and Chief Financial Officer of Stone Energy Corporation pursuant to 18 U.S.C. § 1350.

*	Filed herewith
†	Not considered to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.

16

SIGNATURE

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	STONE ENERGY CORPORATION
Date: May 5, 2006		By:	/s/ J. Kent PierretJ. Kent Pierret
			Senior Vice President,
			Chief Accounting Officer and Treasurer
			(On behalf of the Registrant and as
			Chief Accounting Officer)

17

EXHIBIT INDEX

*10.1	–	Amendment No. 2 to the Credit Agreement between the Registrant, the financial institutions named therein and Bank of America, N.A., as administrative agent, dated March 28, 2006.
*15.1	–	Letter from Ernst & Young LLP dated May 2, 2006, regarding unaudited interim financial information.
*31.1	–	Certification of Principal Executive Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
*31.2	–	Certification of Principal Financial Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
*†32.1	–	Certification of Chief Executive Officer and Chief Financial Officer of Stone Energy Corporation pursuant to 18 U.S.C. § 1350.

*	Filed herewith
†	Not considered to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.