October 21, 2005
Mr. Kenneth H. Beer
Senior Vice President and Chief Financial Officer
Stone Energy Corporation
625 E. Kaliste Saloom Road
Lafayette, LA 70508
Re: Stone Energy Corporation
Form 10-K for the Fiscal Year Ended December 31, 2004
Filed March 9, 2005
File No. 001-12074
Press Release dated October 6, 2005
Dear Mr. Prince:
We have reviewed your Form 10-K for the Fiscal Year Ended
December 31, 2004 and press release dated October 6, 2005; and
have
the following comments. Please provide a written response to our
comments. Please be as detailed as necessary in your explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the Fiscal Year Ended December 31, 2004
Results of Operations, page 21
Reserves, page 22
1. You present the average oil and gas prices used in determining
reserves excluding the effects of hedges in place at year end.
The
guidance in SAB Topic 12(D)(3)(b) pertains to derivative contracts
that are accounted for as cash flow hedges under SFAS 133, and
requires hedge adjusted prices to be utilized in conducting the
full
cost ceiling test under Rule 4-10(c)(4) of Regulation S-X. Please
comply with the requirements of this guidance, including the
disclosure provisions. If you believe no revision is necessary
due
to the absence of different results applying this guidance, or
regard
the changes as immaterial, submit an analysis supporting your
view.
Please ensure that you address the effect on the ceiling test, as
well as the effect on the Standardized Measure of Discounted
Future
Net Cash Flows.
Financial Statements
Consolidated Statement of Cash Flows, page F-5
2. Your adjustments to reconcile net income to net cash provided
by
operating activities do not include a reconciling item related to
payables. The guidance in SFAS 95 paragraph 29 requires the
reconciliation to include among other things, changes in payables
pertaining to operating activities. Tell us the reasons you
believe
you would not need to revise your Statement to comply with the
requirements of SFAS 95.
Note 9 - Hedging Activities, page F-17
3. Please disclose the estimated amount of unrealized gains or
losses
expected to be reclassified into earnings within the next 12
months
to comply with the guidance in SFAS 133, paragraph 45 (b)(2).
Note 4 - Investment in Oil and Gas Properties, page F-14
4. Your table of unevaluated costs does not appear to include the
amounts related to capitalized interest which you identify on page
F-
9. As such, it appears you may need to revise the table to
include
the amount of capitalized interest in each of the respective
years.
Additionally, you should provide a description of the current
status
of the significant properties or projects excluded from
amortization,
and the anticipated timing of including the costs in the
amortization
computation, to comply with Regulation S-X Rule 4-10(c)(7).
Engineering Comments
Form 10-K for the Fiscal Year Ended December 31, 2004
Risk Factors, page 7
5. We could find no risk factor disclosing the risk you face from
hurricanes in the Gulf of Mexico which you stated is the only
reason
for your decline in production in 2004. As approximately 90% of
your
reserves and production are in the Gulf of Mexico, include a risk
factor disclosing the risks you face and how this risk has
specifically affected your previous results as to production, loss
of
revenues and cost of repairs from hurricanes and other major
storms
in the Gulf of Mexico.
Properties, page 13
6. Provide more detailed reserve and production information.
Indicate what percentage of your reserves and production is from
which geographic area or individually significant fields. See
Item
102 of Regulation S-K and Instruction 3 to Item 102 as to the
required disclosure of production, reserves, locations,
development
and the nature of your interest for your significant properties.
Note the SEC`s EDGAR program now accepts digital maps, so please
include these as necessary.
Oil and Natural Gas Reserves, page 14
7. We note that you used four different third-party engineers in
2004
to determine your proved reserves. Indicate which independent
third-
party engineering firm worked on what part of your reserves and
the
percentage of your overall reserves they evaluated.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 20
8. We note that in the 2004 10-K report in the MD&A you informed
investors that your 9% overall decrease in production for 2004
compared to 2003, was the result of extended downtime from
Hurricane
Ivan. Tell us when your Gulf of Mexico production was fully
restored
from the effects of Hurricane Ivan and what the production was at
the
first of the year, just prior to the Hurricane and after
production
had been fully restored. Tell us if production in your other
geographical areas declined from year-end 2003 to year-end 2004
and
if so by how much.
9. We note that since 2002 your overall production rate has
declined
by over 15% and therefore, your statement in the 2004 10-K that
your
production decrease was solely due to weather appears to be
incorrect. Tell us how you plan to provide investors with correct
information about your past and future production rates.
10. Reconcile for us the fact that while your production since
2002
has declined by over 15% you increased your proved reserves over
the
same period by 10%.
Oil and Gas Reserve Information - Unaudited, page F-23
11. Expand the disclosure to provide the required information by
geographic area.
Press Release dated October 6, 2005
12. You state that during the third quarter you conducted an
internal
review of all fields including using a third party engineering
firm
to review and re-map several of your largest Gulf of Mexico
fields.
As we understand, you typically use third party engineering firms
to
evaluate your reserves. In your latest 10-K report you provide
the
consent of four such firms. Tell us the extent and nature of the
work they performed at year- end 2004. Tell us which third party
engineering firm performed the evaluation of your Gulf of Mexico
fields at year-end 2004 that were revised downward and which third
party engineering firm(s) reviewed those reserves in the third
quarter. Describe the extent and nature of the work they
performed
during the third quarter review.
13. Provide us with the reasons that you performed a reserve
review
in the third quarter and if you perform a comparable review every
year just prior to beginning the normal end-of-year reserve
evaluation. Tell us how often in a year you perform a reserves
review comparable to the one just performed in the third quarter.
14. Provide us with an itemized list of the fields and reservoirs
that were included in the reserve revision and the amount of oil
and
gas reserves revised for each field and reservoir, and the
classification of those reserves before revision. Tell us for
each
reserve classification in each field and reservoir, the data you
obtained that prompted the reserve revision and when you received
that data. For proved producing reserves that were included in
the
reserve revision provide to us a production graph over time for
each
reservoir and include on the graph the forecast of future
production
as of the December 31, 2004 reserve report. Also on the graph for
each reservoir provide the actual production data through
September
2005. Also tell us the remaining proved reserves that were
estimated
for each reservoir as of December 31, 2004. For proved
undeveloped
reserves provide a production graph of the estimated future
production as of December 31, 2004 and the total proved reserves
for
each reservoir. Include all 2005 production data on the graph if
the
reserves were developed in 2005.
15. For each field and reservoir that was revised downward after
the
recent third quarter review, tell us when you first attributed
proved
reserves to each reservoir and the basis of that attribution.
16. Provide us with structure maps of the fields that had the
reserve
revisions with an outline of the proved area in each field prior
to
the reserve revision and the new outline of the proved area after
the
revision. Annotate on the maps the wells that were drilled into
the
reservoir, and distinguish between producing wells and dry holes,
and
include the date the wells were drilled the current producing rate
and the proved reserves attributed to each well and the cumulative
production for each well. We may have further comments.
17. Tell us how the reserve revision may affect any financial
covenants for borrowings and credit facilities you may have that
are
based on proved reserves.
18. Your release is unclear in that you state you lost 3 platforms
in
Hurricane Rita and 5 lesser structures or caissons were also lost.
Please clarify for us if the loss of these platforms and
facilities
are related to the revisions of proved reserves. Tell us how many
proved reserves were attributed to these structures and platforms
and
the current status of these reserves.
19. Tell us if any new wells were drilled in 2005 in the fields
included in the reserve revision and, if so, when they were
drilled
and the production results obtained versus the production forecast
in
the prior reserve report of proved reserves. Tell us of any re-
completions or work-overs in 2005 in these fields and the
production
rates after the re-completion or work-over versus that forecast in
the prior reserve report of proved reserves.
20. Tell us if any of the properties that you revised your
reserves
downward on were located in the deepwater Gulf of Mexico, and if
so,
which ones.
Closing Comments
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Please furnish
a
letter that keys your responses to our comments and provides any
requested information. Detailed letters greatly facilitate our
review. Please understand that we may have additional comments
after
reviewing your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Mark A. Wojciechowski at (202) 551-3759 or,
in
his absence, Karl Hiller at (202) 551-3686 if you have questions
regarding comments on the financial statements and related
matters.
You may contact James Murphy, Petroleum Engineer, at (202) 551-
3703
if you have questions related to engineering issues and related
disclosures. Please contact me at (202) 551-3740 with any other
questions.
Sincerely,
H. Roger Schwall
Assistant Director
??
??
??
??
Mr. Kenneth H. Beer
Stone Energy Corporation
October 21, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE
MAIL STOP 7010