UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2001
or
[ ] 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 (I.R.S. employer
of incorporation or organization) identification no.)
625 E. Kaliste Saloom Road 70508
Lafayette, Louisiana (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (337) 237-0410
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No__
As of August 7, 2001, there were 26,184,269 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
TABLE OF CONTENTS
Page
PART I
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet
as of June 30, 2001 and December 31, 2000.................... 1
Condensed Consolidated Statement of Operations
for the Three and Six Months Ended June 30, 2001 and 2000.... 2
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended June 30, 2001 and 2000.............. 3
Notes to Condensed Consolidated Financial Statements........... 4
Auditors' Review Report........................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 8
PART II
Item 4. Submission of Matters to a Vote of Security Holders............. 11
Item 6. Exhibits and Reports on Form 8-K................................ 12
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
June 30, December 31,
ASSETS 2001 2000
------------------ ----------------
Current assets:
Cash and cash equivalents.................................... $37,867 $78,557
Marketable securities, at market............................. - 300
Accounts receivable.......................................... 85,803 95,722
Put contracts................................................ 13,505 1,847
Other current assets......................................... 2,825 2,916
------------------ ----------------
Total current assets....................................... 140,000 179,342
Oil and gas properties, net:
Proved....................................................... 788,165 691,882
Unevaluated.................................................. 73,849 55,691
Building and land, net........................................... 5,338 4,914
Fixed assets, net................................................ 5,213 4,441
Put contracts.................................................... 7,386 3,152
Other assets, net................................................ 2,983 4,681
------------------ ----------------
Total assets............................................... $1,022,934 $944,103
================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $128,274 $116,281
Fair value of swap contracts.................................. 6,239 -
Other current liabilities..................................... 5,911 9,996
------------------ ----------------
Total current liabilities.................................. 140,424 126,277
Long-term debt................................................... 100,000 148,000
Production payments.............................................. 7,619 10,906
Deferred tax liability........................................... 101,010 64,271
Fair value of swap contracts..................................... 7,193 -
Other long-term liabilities...................................... 2,020 2,418
------------------ ----------------
Total liabilities.......................................... 358,266 351,872
------------------ ----------------
Common stock..................................................... 262 260
Additional paid in capital....................................... 446,574 440,729
Retained earnings................................................ 219,569 151,242
Other comprehensive loss......................................... (1,737) -
------------------ ----------------
Total stockholders' equity................................. 664,668 592,231
------------------ ----------------
Total liabilities and stockholders' equity................. $1,022,934 $944,103
================== ================
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Revenues
Oil and gas production..................... $106,011 $83,382 $249,005 $153,310
Other income............................... 718 920 1,725 1,861
------------- ------------- ------------- -------------
Total revenues...................... 106,729 84,302 250,730 155,171
------------- ------------- ------------- -------------
Expenses
Normal lease operating expenses............ 12,266 9,718 22,948 18,890
Major maintenance expenses................. 1,259 1,667 2,606 2,215
Production taxes........................... 1,657 1,940 3,519 3,621
Depreciation, depletion and
amortization............................. 41,888 26,352 78,524 52,865
Interest................................... 743 2,183 1,818 4,825
Salaries, general and administrative....... 3,196 3,192 5,920 5,911
Incentive compensation plan................ - 336 523 588
Hedge premium expense...................... 879 - 1,334 -
Merger expenses............................ 108 - 25,631 -
------------- ------------- ------------- -------------
Total expenses...................... 61,996 45,388 142,823 88,915
------------- ------------- ------------- -------------
Net income before income taxes............... 44,733 38,914 107,907 66,256
------------- ------------- ------------- -------------
Provision for income taxes:
Current.................................... (2,226) 67 500 67
Deferred................................... 17,891 13,552 39,080 21,605
------------- ------------- ------------- -------------
15,665 13,619 39,580 21,672
------------- ------------- ------------- -------------
Net income................................... $29,068 $25,295 $68,327 $44,584
============= ============= ============= =============
Earnings per common share:
Basic earnings per share .................. $1.11 $0.98 $2.62 $1.73
============= ============= ============= =============
Diluted earnings per share................. $1.10 $0.96 $2.58 $1.70
============= ============= ============= =============
Average shares outstanding................. 26,085 25,784 26,033 25,739
============= ============= ============= =============
Average shares outstanding assuming
dilution.................................. 26,456 26,315 26,449 26,211
============= ============= ============= =============
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
--------------------------------------
2001 2000
---------------- ----------------
Cash flows from operating activities:
Net income.................................................. $68,327 $44,584
Adjustments to reconcile net income to net cash
provided by operating activities:
DD&A.................................................... 78,524 52,865
Provision for deferred income taxes..................... 39,080 21,605
Non-cash effect of production payments.................. (3,096) (2,752)
Amortization of hedge premiums.......................... 1,334 -
Other non-cash expenses................................. 815 491
---------------- ----------------
184,984 116,793
Decrease in marketable securities....................... 300 34,606
(Increase) decrease in accounts receivable.............. 9,919 (17,789)
(Increase) decrease in other current assets............. (300) 722
Increase in other accrued liabilities................... 8,298 2,063
Investment in put contracts............................. (6,466) -
Other................................................... (694) (105)
---------------- ----------------
Net cash provided by operating activities..................... 196,041 136,290
---------------- ----------------
Cash flows from investing activities:
Investment in oil and gas properties...................... (193,929) (117,571)
Building additions and renovations........................ (489) (591)
Sale of oil and gas properties............................ 1,366 -
(Increase) decrease in other assets ...................... 86 (1,087)
---------------- ----------------
Net cash used in investing activities......................... (192,966) (119,249)
---------------- ----------------
Cash flows from financing activities:
Proceeds from borrowings.................................. 5,000 36,500
Repayment of debt......................................... (53,000) (28,500)
Deferred financing costs.................................. - (200)
Purchase of treasury stock................................ (200) (648)
Proceeds from the exercise of stock options............... 4,435 2,373
---------------- ----------------
Net cash provided by (used in) financing activities........... (43,765) 9,525
---------------- ----------------
Net increase (decrease) in cash and cash equivalents.......... (40,690) 26,566
Cash and cash equivalents, beginning of period................ 78,557 17,651
---------------- ----------------
Cash and cash equivalents, end of period...................... $37,867 $44,217
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized).................... $1,738 $4,379
Income taxes............................................ 500 67
STONE ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements of Stone Energy Corporation
at June 30, 2001 and for the three- and six-month periods then ended are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
period. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in our Annual Report on Form 10-K for the year
ended December 31, 2000. The results of operations for the three- and six-month
periods ended June 30, 2001 are not necessarily indicative of future financial
results. Certain prior period amounts have been reclassified to conform to
current period presentation.
In accordance with the pooling of interests method of accounting for a
merger transaction, all results were combined to give effect to the merger of
Stone and Basin Exploration, Inc. Prior to the merger, Basin accounted for
depreciation, depletion and amortization (DD&A) of oil and gas properties using
the units of production method. In connection with the restatement of our
financial statements on a pooling of interests basis, Basin's historical
provision for DD&A was restated to conform to the future gross revenue method
used by us. All periods presented reflect the effect of this adjustment.
In addition to the DD&A adjustment, we reclassified Basin's financial
statements to conform to Stone's presentation.
NOTE 2 - EARNINGS PER SHARE
Basic net income per share of common stock was calculated by dividing net
income applicable to common stock by the weighted-average number of common
shares outstanding during the period. Diluted net income per share of common
stock was calculated by dividing net income by the weighted-average number of
common shares outstanding during the period plus the weighted-average number of
dilutive stock options granted to outside directors and employees. There were
approximately 371,000 dilutive shares and 531,000 dilutive shares for the second
quarters of 2001 and 2000 respectively, and 416,000 dilutive shares and 472,000
dilutive shares for the first six months of 2001 and 2000, respectively.
Options which were considered antidilutive because the exercise price of
the option exceeded the average price of our stock for the applicable period
totaled approximately 625,000 shares and 262,000 shares in the second quarters
of 2001 and 2000, respectively, and 551,000 shares and 320,000 shares in the
first six months of 2001 and 2000, respectively.
NOTE 3 - HEDGING ACTIVITIES
We enter into hedging transactions to secure a price for a portion of
future production that is acceptable to us at the time the transaction is
entered into. The primary objective of these activities is to reduce our
exposure to the possibility of declining oil and gas prices during the term of
the hedge. We do not enter into hedging transactions for trading purposes. We
currently utilize two forms of hedging contracts: fixed price swaps and puts.
Fixed price swaps typically provide for monthly payments by us (if prices
rise) or to us (if prices fall) based on the difference between the strike price
and the agreed-upon average of NYMEX prices.
Put contracts are not costless; they are purchased at a rate per unit of
hedged production that fluctuates with the commodity futures market. The
historical cost of the put contracts represents our maximum cash exposure. We
are not obligated to make any further payments under the put contracts
regardless of future commodity price fluctuations. Under put contracts, monthly
payments are made to us if NYMEX prices fall below the agreed upon floor price,
while allowing us to fully participate in commodity prices above that floor.
Since over 90% of our production has historically been derived from the
Gulf Coast Basin, we believe that fluctuations in NYMEX prices will closely
match changes in market prices for our production. Oil contracts typically
settle using the average of the daily closing prices for a calendar month.
Natural gas contracts typically settle using the average closing prices of near
month NYMEX futures contracts for the three days prior to the settlement date.
Our hedge positions as of July 1, 2001 are summarized as follows:
Puts
------------------------------------------------------
Gas Oil
------------------------- -------------------------
Volume Volume
(BBtus) Floor (Bbls) Floor
----------- ----------- ----------- -----------
2001............ 14,720 $3.50 644,000 $25.00
2002............ 21,900 3.50 1,277,500 24.00
Fixed Price Gas Swaps
--------------------------------------------
Volume (BBtus) Price
----------------- -----------------
2001............ 3,680 $2.33
2002............ 3,650 2.15
2003............ 3,650 2.15
During the second quarters of 2001 and 2000, we realized net decreases in
oil and gas revenues related to hedging transactions of $4.4 million and $8.3
million, respectively. Six-month 2001 and 2000 oil and gas revenues included net
decreases of $13.1 million and $12.2 million, respectively.
During the second quarter and first six months of 2001, we recognized $0.9
million and $1.3 million of hedge premium expenses, which represents
amortization of the historical cost associated with oil and gas put contracts
that settled during the respective periods of 2001. At June 30, 2001, the
unsettled put contracts were recorded as assets totaling $20.9 million and the
unsettled gas swaps were recorded as liabilities totaling $13.4 million. All
changes in fair values of the puts and swaps were recorded in equity through
other comprehensive income (See Note 6).
NOTE 4 - LONG-TERM DEBT
Our borrowing base at June 30, 2001 was $200 million with outstanding
letters of credit totaling $7.5 million and no outstanding borrowings.
NOTE 5 - PRODUCTION PAYMENTS
In 1999, we acquired a 51% working interest in the Lafitte Field by
executing an agreement that included a dollar-denominated production payment to
be satisfied through the sale of production from the purchased property. Based
on the quarterly revaluation of this transaction, at June 30, 2001, the
production payment associated with this purchase totaled $1.6 million.
In July 1999, we acquired an additional working interest in East Cameron
Block 64 and a 100% working interest in West Cameron Block 176 in exchange for a
volumetric production payment. This agreement requires that 7.3 MMcf of gas per
day be delivered to the seller from South Pelto Block 23 until 8 Bcf of gas have
been distributed. We amortize the volumetric production payment as specified
deliveries of gas are made to the seller and recognize non-cash revenue in the
form of gas production revenues. At June 30, 2001, the volumetric production
payment was $6 million, and we recognized $1.5 million and $3 million as gas
revenues during each of the three- and six-month 2001 and 2000 periods,
respectively.
NOTE 6 - COMPREHENSIVE INCOME
Prior to the adoption of SFAS No. 133, the only component of comprehensive
income on our balance sheet was net income. Effective January 1, 2001, we
adopted SFAS No. 133 which created other components of comprehensive income as
presented in the table below.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(in thousands)
Net income................................................. $29,068 $25,295 $68,327 $44,584
Other comprehensive income (loss), net of tax effect:
Cumulative effect of accounting change
for derivatives..................................... - - (26,114) -
Net change in fair value of derivatives............... 18,394 - 24,377 -
------------ ------------ ------------ ------------
Total other comprehensive income (loss)............. 18,394 - (1,737) -
------------ ------------ ------------ ------------
Comprehensive income....................................... $47,462 $25,295 $66,590 $44,584
============ ============ ============ ============
NOTE 7 - NEW ACCOUNTING STANDARD
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for fiscal years beginning after June 15,
2002. This statement will require us to record the fair value of liabilities
related to future asset retirement obligations in the period the obligation is
incurred. We expect to adopt SFAS No. 143 on January 1, 2003. Upon adoption, we
will be required to recognize cumulative transition amounts for existing asset
retirement obligation liabilities, asset retirement costs and accumulated
depreciation. We have not yet determined the transition amounts.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF
STONE ENERGY CORPORATION:
We have reviewed the accompanying condensed consolidated balance sheet of
Stone Energy Corporation (a Delaware corporation) as of June 30, 2001, and the
related condensed consolidated statements of operations for the three-month and
six-month periods ended June 30, 2001 and 2000, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 2001 and 2000.
These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the 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 reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
July 31, 2001
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Throughout this document we make statements that are classified as
"forward-looking". Please refer to the "Forward-Looking Statements" section
beginning on page 11 of this document for an explanation of these types of
assertions. We use the terms "Stone", "Stone Energy", "Company", "we", "us" and
"our" to refer to Stone Energy Corporation. Results for all periods reflect the
combination of Stone and Basin.
OVERVIEW
Stone Energy Corporation is an independent oil and gas company engaged in
the acquisition, exploration, development and operation of oil and gas
properties in the Gulf Coast Basin and Rocky Mountains.
Our business strategy is to increase production, cash flow and reserves
through the acquisition and development of mature properties. Currently, our
property base consists of 82 producing properties, 50 in the Gulf Coast Basin
and 32 in the Rocky Mountains. We serve as operator on 55 of our producing
properties, which enables us to better control the timing and cost of
rejuvenation activities. We believe that there will continue to be opportunities
to acquire properties in the Gulf Coast Basin due to the increased focus by
major and large independent companies on projects away from the onshore and
shallow water shelf regions of the Gulf of Mexico.
BASIS OF PRESENTATION
In accordance with the pooling of interests method of accounting for a
merger transaction, all results were combined to give effect to the combination
of Stone and Basin Exploration, Inc. Prior to the merger, Basin accounted for
depreciation, depletion and amortization (DD&A) of oil and gas properties using
the units of production method. In connection with the restatement of our
financial statements on a pooling of interests basis, Basin's historical
provision for DD&A was restated to conform to the future gross revenue method
used by us. All periods presented reflect the effect of this adjustment.
In addition to the DD&A adjustment, we reclassified Basin's financial
statements to conform to Stone's presentation.
RESULTS OF OPERATIONS
The following table sets forth certain operating information with respect
to our oil and gas operations.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
PRODUCTION:
Oil (MBbls)............................................... 1,039 1,160 2,049 2,148
Gas (MMcf):
Produced excluding volumetric production payment........ 17,290 15,771 33,658 32,527
Volumetric production payment........................... 664 666 1,321 1,333
------------ ------------ ------------ ------------
Total gas volumes produced............................. 17,954 16,437 34,979 33,860
Oil and gas (MMcfe):
Produced excluding volumetric production payment........ 23,524 22,731 45,952 45,415
Volumetric production payment........................... 664 666 1,321 1,333
------------ ------------ ------------ ------------
Total oil and gas volumes produced..................... 24,188 23,397 47,273 46,748
SALES DATA (IN THOUSANDS) (a):
Oil....................................................... $27,586 $28,282 $57,174 $52,880
Gas:
Gas sales excluding volumetric production payment...... 76,931 53,606 188,843 97,442
Volumetric production payment.......................... 1,494 1,494 2,988 2,988
------------ ------------ ------------ ------------
Total gas sales........................................ 78,425 55,100 191,831 100,430
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
AVERAGE SALES PRICES (a):
Oil (per Bbl)............................................. $26.55 $24.38 $27.90 $24.62
Gas (per Mcf):
Price excluding volumetric production payment.......... 4.45 3.40 5.61 3.00
Volumetric production payment.......................... 2.24 2.24 2.24 2.24
Net average price...................................... 4.37 3.35 5.48 2.97
Oil and gas (per Mcfe):
Price excluding volumetric production payment.......... 4.44 3.60 5.35 3.31
Volumetric production payment.......................... 2.24 2.24 2.24 2.24
Net average price ..................................... 4.38 3.56 5.27 3.28
EXPENSES (PER MCFE):
Normal lease operating expenses (b)....................... $0.51 $0.42 $0.49 $0.40
Salaries, general and administrative...................... 0.13 0.14 0.13 0.13
DD&A on oil and gas properties............................ 1.71 1.11 1.64 1.11
(a) Includes the effects of hedging
(b) Excludes major maintenance expenses
NET INCOME. For the second quarter of 2001, we reported net income totaling
$29.1 million, or $1.10 per share, compared to net income reported for the
second quarter of 2000 of $25.3 million, or $0.96 per share. Net income for the
first six months of 2001 and 2000 totaled $68.3 million and $44.6 million, or
$2.58 and $1.70 per share, respectively.
During the second quarter of 2001, non-recurring merger expenses totaled
$0.1 million, bringing total merger expenses from the Basin transaction to $25.6
million, or $18.5 million after taxes. Excluding merger expenses, net income for
the three- and six-months ended June 30, 2001 totaled $29.1 million, or $1.10
per share, and $86.8 million, or $3.28 per share, respectively. All per share
amounts are on a diluted basis.
OIL AND GAS REVENUES. As a result of higher realized prices and increased
production volumes, oil and gas revenues for the second quarter of 2001
increased 27% to $106 million, compared to $83.4 million for the second quarter
of 2000. Year-to-date oil and gas revenues increased 62% to $249 million
compared to $153.3 million during the comparable 2000 period.
PRICES. Prices realized during the second quarter of 2001 averaged $26.55
per barrel of oil and $4.37 per Mcf of gas. This represents a 23% increase, on a
thousand cubic feet of gas equivalent (Mcfe) basis, over second quarter 2000
average realized prices of $24.38 per barrel of oil and $3.35 per Mcf of gas.
Average realized prices during the first half of 2001 were $27.90 per barrel of
oil and $5.48 per Mcf of gas compared to $24.62 per barrel of oil and $2.97 per
Mcf of gas realized during the first half of 2000. All unit pricing amounts
include the effects of hedging.
During the second quarter of 2001, hedging transactions reduced the average
price we received for gas by $0.25 per Mcf compared to net decreases of $3.56
per barrel and $0.26 per Mcf for the second quarter of 2000. Hedging
transactions for the first half of 2001 reduced the average price we received
for gas by $0.39 per Mcf compared to net decreases of $3.79 per barrel and $0.13
per Mcf for the comparable 2000 period.
PRODUCTION. Natural gas production during the second quarter of 2001
increased to approximately 18 billion cubic feet compared to second quarter 2000
gas production of 16.4 billion cubic feet, while oil production during the
second quarter of 2001 totaled approximately 1 million barrels compared to 1.2
million barrels of oil produced during the second quarter of 2000. On a gas
equivalent basis, production volumes for the second quarter of 2001 increased to
24.2 Bcfe compared to second quarter 2000 production of 23.4 Bcfe. Year-to-date
2001 production totaled 2 million barrels of oil and 35 billion cubic feet of
gas while six-month 2000 production totaled 2.1 million barrels of oil and 33.9
billion cubic feet of gas.
EXPENSES. Normal operating costs during the second quarter of 2001 totaled
$12.3 million, compared to $9.7 million for the comparable quarter in 2000. The
increase in operating costs was due primarily to industry-wide increases in the
costs of oil field products and services.
Depreciation, depletion and amortization (DD&A) expense on oil and gas
properties for the second quarter of 2001 totaled $41.5 million or $1.71 per
Mcfe, compared to $25.9 million or $1.11 per Mcfe for the second quarter of
2000. Second quarter 2001 DD&A expense was negatively impacted by lower
quarter-end oil and natural gas prices. Year-to-date 2001 DD&A expense on oil
and gas properties totaled $77.7 million, or $1.64 per Mcfe, compared to $52
million, or $1.11 per Mcfe, for the comparable period in 2000.
Salaries, general and administrative expenses for the second quarter of
2001 were virtually unchanged from second quarter 2000 expense of $3.2 million.
However, production increases drove the per-unit costs down by $0.01 per Mcfe to
$0.13 per Mcfe for the second quarter of 2001.
As a result of the retirement of all bank debt and the increase in
capitalized interest on unevaluated properties, interest expense for the second
quarter of 2001 decreased to $0.7 million from $2.2 million for the comparable
2000 period.
Stone's estimated effective tax rate is 35%. However, we estimated that
approximately $5.2 million of merger-related expenses were not tax deductible.
This resulted in an effective tax rate of 37% for the first half of 2001. In
addition, we have determined our current income tax expense to be $0.5 million
for the six months ended June 30, 2001, representing a $2.2 million reduction
from first quarter 2001 current tax expense. This reduction was the result of a
re-determination of our estimated current year tax position at June 30, 2001.
HEDGING ACTIVITIES
During the second quarter and first six months of 2001, we recognized $0.9
million and $1.3 million of hedge premium expenses, which represents
amortization of the historical cost associated with oil and gas put contracts
that settled during the respective periods of 2001. At June 30, 2001, the
unsettled put contracts were recorded as assets totaling $20.9 million and the
unsettled gas swaps were recorded as liabilities totaling $13.4 million. All
changes in fair values of the puts and swaps were recorded in equity through
other comprehensive income.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW. Net cash flow from operations before working capital changes for
the second quarter and first six months of 2001 was $88.3 million, or $3.34 per
share, and $185 million, or $6.99 per share, compared to $64.3 million and
$116.8 million, or $2.44 and $4.46 per share, reported for the respective
periods of 2000. Excluding the effect of non-recurring merger expenses, net cash
flow from operations for the second quarter of 2001 was $88.4 million, or $3.34
per share, and for the first half of 2001 was $203.5 million, or $7.69 per
share.
CAPITAL EXPENDITURES. Capital expenditures during the second quarter of
2001 totaled $91.2 million and included $2.5 million of capitalized salaries,
general and administrative costs and $1.7 million of capitalized interest. This
brought capital expenditures for the first half of 2001 to a total of $193.3
million including $5.6 million of capitalized salaries, general and
administrative costs and $3.2 million of capitalized interest. These investments
were financed by a combination of cash flow from operations and working capital.
BUDGETED CAPITAL EXPENDITURES. Our 2001 capital expenditures budget,
excluding acquisitions, capitalized salaries, general and administrative costs
and interest, is currently $275 million and is expected to be allocated 93% to
Gulf Coast operations and 7% to Rocky Mountain activities. As of June 30, 2001,
we spudded 51 of the 73 gross wells planned for 2001. Of the 73 wells, 43 are
planned in the onshore and shallow water offshore regions of the Gulf Coast
Basin and 30 in the Rocky Mountains. While the 2001 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 on oil and gas prices and production rates, we
believe that our cash on hand and cash flow from operations will be sufficient
to fund the current 2001 capital expenditures budget. If oil and gas prices or
production rates fall below our current expectations, we believe that the
available borrowings under our bank credit facility will be sufficient to fund
the capital expenditures in excess of operating cash flow.
Our borrowing base is currently $200 million with outstanding letters of
credit totaling $7.5 million and no outstanding borrowings.
Although we do not budget acquisitions, we continue to evaluate properties
and transaction alternatives to add to our existing property base. One or a
combination of certain of these possible transactions could fully utilize our
existing sources of capital. Although we have no plans to access the public
markets for purposes of capital, if the opportunity arose, we would consider
such funding sources to provide capital in excess of what is currently available
to us. We would compare the cost of debt financing with the potential dilution
of equity offerings to determine the appropriate financing vehicle to maximize
stockholder value.
FORWARD-LOOKING STATEMENTS. This Form 10-Q and the information incorporated
by reference contain statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The words "expect", "project", "estimate", "believe",
"anticipate", "intend", "budget", "plan", "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.
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 as filed with the Securities and Exchange Commission. 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.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on May 17, 2001, three Class II
Directors, B. J. Duplantis, John P. Laborde and Richard A. Pattarozzi, were
elected to serve as Directors until the 2004 annual meeting of stockholders. B.
J. Duplantis received the vote of 20,715,369 shares with the vote of 2,148,252
shares withheld, John P. Laborde received the vote of 21,419,004 shares with the
vote of 1,444,617 shares withheld and Richard A. Pattarozzi received the vote of
21,774,915 shares with the vote of 1,088,706 shares withheld. No other Director
was standing for election. James H. Stone, Joe R. Klutts and Robert A. Bernhard
are Class III Directors whose terms expire at the 2002 annual meeting of
stockholders. Peter K. Barker, D. Peter Canty, Raymond B. Gary and David R.
Voelker are Class I Directors whose terms expire at the 2003 annual meeting of
stockholders.
Management's proposal to approve and adopt the 2001 Amended and Restated
Stock Option Plan was approved. The vote was 16,595,919 shares for, 4,127,704
shares against and 125,543 shares abstained.
Management's proposal to ratify the Board of Director's appointment of
Arthur Andersen LLP as our independent auditors for the year 2001 was approved.
The vote was 22,740,756 shares for, 116,147 shares against and 6,718 shares
abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Stone Energy Corporation 2001 Amended and Restated Stock Option Plan
(incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8 (Registration No. 333-64448)).
10.2 - Form of Stone Energy Corporation Nonstatutory Stock Option Agreement
(incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 (Registration No. 333-64448)).
10.3 - Form of Stone Energy Corporation Nonemployee Director's Stock Option
Agreement (incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-8 (Registration No.
333-64448)).
*15.1- Letter from Arthur Andersen LLP dated August 6, 2001, regarding
unaudited interim financial information.
* Filed herewith
(b) We filed the following reports on Form 8-K during the three months ended
June 30, 2001:
Date of Event Reported Item Reported
---------------------- -------------
April 23, 2001 Item 5
May 2, 2001 Item 7
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 thereunto duly authorized.
STONE ENERGY CORPORATION
Date: August 9, 2001 By: /s/James H. Prince
-------------------------------------
James H. Prince
Vice President, Chief Financial
Officer and Treasurer
(On behalf of Registrant and as
Principal Financial Officer)