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 | |||||||||||||
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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 | |||||||||||||
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Total assets | $ | 1,957,261 | $ | 225,994 | $ | 2,183,255 | ||||||||||
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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 | |||||||||||||
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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 | |||||||||||||
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Total liabilities | 1,293,487 | 225,994 | 1,519,481 | |||||||||||||
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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 | |||||||||||||
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Total stockholders’ equity | 663,774 | — | 663,774 | |||||||||||||
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Total liabilities and stockholders’ equity | $ | 1,957,261 | $ | 225,994 | $ | 2,183,255 | ||||||||||
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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 | ||||||||||||||||||||
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Total operating revenue | 660,184 | 139,277 | — | 799,461 | ||||||||||||||||||||
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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 | ||||||||||||||||||||
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Total operating expenses | 495,030 | 23,487 | 37,557 | 556,074 | ||||||||||||||||||||
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Income from operations | 165,154 | 115,790 | (37,557 | ) | 243,387 | |||||||||||||||||||
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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 | ||||||||||||||||||||
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Total other expenses | 12,443 | — | 6,388 | 18,831 | ||||||||||||||||||||
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Net income before income taxes | 152,711 | 115,790 | (43,945 | ) | 224,556 | |||||||||||||||||||
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Provision for income taxes: | ||||||||||||||||||||||||
Current | 5,808 | — | — | 5,808 | ||||||||||||||||||||
Deferred | 50,474 | — | 26,511 | (f | ) | 76,985 | ||||||||||||||||||
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Total income taxes | 56,282 | — | 26,511 | 82,793 | ||||||||||||||||||||
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Net income | $ | 96,429 | $ | 115,790 | ($ | 70,456 | ) | $ | 141,763 | |||||||||||||||
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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 | ||||||||||||||||||||
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Total operating revenue | 643,697 | 101,806 | — | 745,503 | ||||||||||||||||||||
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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 | ||||||||||||||||||||
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Total operating expenses | 406,096 | 23,683 | 22,597 | 452,376 | ||||||||||||||||||||
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Income from operations | 237,601 | 78,123 | (22,597 | ) | 293,127 | |||||||||||||||||||
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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 | ||||||||||||||||||||
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Total other expenses | 5,909 | — | 4,845 | 10,754 | ||||||||||||||||||||
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Net income before income taxes | 231,692 | 78,123 | (27,442 | ) | 282,373 | |||||||||||||||||||
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Provision (benefit) for income taxes: | ||||||||||||||||||||||||
Current | (15,043 | ) | — | — | (15,043 | ) | ||||||||||||||||||
Deferred | 97,926 | — | 18,144 | (f | ) | 116,070 | ||||||||||||||||||
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Total income taxes | 82,883 | — | 18,144 | 101,027 | ||||||||||||||||||||
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Net income | $ | 148,809 | $ | 78,123 | ($ | 45,586 | ) | $ | 181,346 | |||||||||||||||
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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 | ) | ||||||||||||||
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Balance at December 31, 2010 | 33,203 | 274,705 | 15,343 | 27,701 | 48,546 | 302,406 | 593,682 | |||||||||||||||||||||
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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 | ||||||||||
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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 | ) | ||||||
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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 | ) | ||||||
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Standardized measure of discounted future net cash flows | $ | 957,629 | $ | 227,751 | $ | 1,185,380 | ||||||
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(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 | ||||||||||
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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 | ) | |||||||
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Net increase in standardized measure | 342,642 | 90,487 | 433,129 | |||||||||
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Standardized measure at end of year | $ | 957,629 | $ | 227,751 | $ | 1,185,380 | ||||||
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-20-