UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): December 31, 2001
STONE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-12074 72-1235413
(State or other jurisdiction (Commission File (I.R.S. employer
of incorporation or organization) Number) identification no.)
625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (337) 237-0410
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 8, 2001, Stone Energy Corporation ("Stone") entered into
definitive agreements with Conoco Inc., and one of its subsidiaries to acquire
through both stock and asset purchases, interests in eight oil and gas
properties located in the Gulf of Mexico and other complementary infrastructure
assets (the "Acquired Properties") for a total purchase price of $299.7 million.
The acquisitions were completed on December 31, 2001.
Estimated proved reserves associated with the Acquired Properties as of
December 31, 2001 were 60.2 billion cubic feet of gas and 25.7 million barrels
of oil. The Company funded the purchase of the Acquired Properties with
borrowings under its revolving credit facility and net proceeds received from
the issuance of $200 million of 8.25% senior subordinated notes due 2011.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of the Acquired Properties
See "Index to Financial Statements - Financial Statements of the
Acquired Properties" on page F-1.
(b) Unaudited Pro Forma Financial Information
See "Index to Financial Statements - Unaudited Condensed Pro
Forma Financial Information" on page F-1.
(c) Exhibits
2.1 Purchase and Sale Agreement dated as of October 8, 2001
between Stone Energy Corporation and Conoco Inc. and Conoco
Offshore Pipe Line Company
2.2 Share and Pipeline Purchase Agreement dated as of October 8,
2001 between Stone Energy Corporation and Conoco Inc. and
Conoco Offshore Pipe Line Company
23.1 Consent of PricewaterhouseCoopers LLP.
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: January 15, 2002 By: /s/ James H. Prince
---------------------------------------
James H. Prince
Vice President and Chief Financial Officer
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF THE ACQUIRED PROPERTIES:
Report of Independent Accountants.......................................... F-2
Statement of Combined Revenues and Direct Operating Expenses of the
Acquired Properties for the Nine Months Ended September 30, 2001
and for the Year Ended December 31, 2000.......................... F-3
Notes to the Statement of Combined Revenues and Direct Operating Expenses.. F-4
Supplementary Oil and Gas Disclosures (Unaudited).......................... F-5
UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION:
Unaudited Condensed Pro Forma Consolidated Balance Sheet of Stone Energy
Corporation as of September 30, 2001.............................. F-7
Unaudited Condensed Pro Forma Consolidated Statement of Operations of Stone
Energy Corporation for the Nine Months Ended September 30, 2001... F-8
Unaudited Condensed Pro Forma Consolidated Statement of Operations of
Stone Energy Corporation for the Year Ended December 31, 2000..... F-9
Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements... F-10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Stone Energy Corporation:
We have audited the accompanying Statement of Combined Revenues and Direct
Operating Expenses of the Acquired Properties for the nine months ended
September 30, 2001 and for the year ended December 31, 2000. This financial
statement is the responsibility of Conoco Inc's and Stone Energy Corporation's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statement was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Stone Energy Corporation's Form 8-K and is not
intended to be a complete presentation of the properties described above.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the combined revenues and direct operating expenses of
the Acquired Properties as described in Note 2 for the nine-months ended
September 30, 2001 and for the year ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
PricewaterhouseCoopers LLP
Houston, Texas
January 15, 2002
THE ACQUIRED PROPERTIES
STATEMENT OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES
(in thousands)
Nine Months Ended Year Ended
September 30, 2001 December 31, 2000
------------------ -----------------
Revenues.................... $ 87,804 $ 156,379
Direct operating expenses... 12,631 14,094
------------------ -----------------
Excess of revenues over direct
operating expenses......... $ 75,173 $ 142,285
================== =================
The accompanying notes are an integral part of this financial statement.
THE ACQUIRED PROPERTIES
NOTES TO THE STATEMENT OF COMBINED
REVENUES AND DIRECT OPERATING EXPENSES
NOTE 1 - THE PROPERTIES:
On October 8, 2001, Stone Energy Corporation ("Stone") entered into
definitive agreements with Conoco Inc., and one of its subsidiaries ("Conoco")to
acquire through both stock and asset purchases, interests in eight oil and gas
properties located in the Gulf of Mexico and other complementary infrastructure
assets (the "Acquired Properties") for a total purchase price of $299.7 million.
The acquisitions were completed on December 31, 2001.
Estimated proved reserves associated with the Acquired Properties as of
December 31, 2001 were 60.2 billion cubic feet of gas and 25.7 million barrels
of oil. The Company funded the purchase of the Acquired Properties with
borrowings under its revolving credit facility and net proceeds received from
the issuance of $200 million of 8.25% senior subordinated notes due 2011. Based
upon the Company's preliminary estimates, 9% of the purchase price, or
approximately $27 million, was allocated to unevaluated oil and gas properties.
NOTE 2 - BASIS OF PRESENTATION:
The statement of combined revenues and direct operating expenses has been
derived from Conoco's historical financial records. Revenues and direct
operating expenses included in the accompanying statement represents Stone's
acquired interest in the Acquired Properties and are prepared on the accrual
basis of accounting. Revenues from the production of oil and gas properties are
recorded on the basis of sales to third-party customers. Differences between
these sales and our share of production are not significant. During the periods
presented, the Acquired Properties were not accounted for as a separate division
by Conoco and therefore certain costs, such as depreciation, depletion and
amortization, general and administrative expenses, and corporate income taxes
were not allocated to the individual properties nor would such allocated
historical costs be representative of future costs. Additionally, full separate
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America are not presented; as such information
is neither readily available on an individual property basis nor practicable to
obtain in these circumstances. These financial statements may not be
representative of future operations.
THE ACQUIRED PROPERTIES
SUPPLEMENTARY OIL AND GAS DISCLOSURES (Unaudited)
OIL AND GAS RESERVE QUANTITIES
The following oil and gas reserve information was derived from the reserve
report prepared by the Company as of December 31, 2001 based on studies
performed by its petroleum engineering staff using information supplied by
Conoco. The estimated proved reserve volumes presented for periods prior to the
Company's December 31, 2001 reserve report were recomputed based on production
from the Acquired Properties during the applicable periods presented. The
following table presents the estimated remaining net proved and proved developed
oil and gas reserves attributable to the Acquired Properties at September 30,
2001, December 31, 2000 and January 1, 2000, along with a summary of changes in
the quantities of net remaining proved reserves during the nine months ended
September 30, 2001 and the year ended December 31, 2000.
Proved reserves are estimated quantities of crude oil and natural gas that
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods.
ESTIMATED NET QUANTITIES OF OIL AND GAS RESERVES ATTRIBUTED TO
THE ACQUIRED PROPERTIES
Crude Oil Natural Gas
(MBbl) (MMcf)
--------- -----------
Estimated total proved reserves:
January 1, 2000............................ 32,354 78,646
Production for 2000...................... 3,698 11,769
--------- -----------
December 31, 2000.......................... 28,656 66,877
--------- -----------
Production for the nine months of 2001... 2,156 3,699
--------- -----------
September 30, 2001......................... 26,500 63,178
========= ===========
Estimated proved developed reserves:
January 1, 2000.......................... 27,000 68,364
December 31, 2000........................ 23,302 56,595
September 30, 2001....................... 21,146 52,896
STANDARDIZED MEASURES OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES
The following information has been developed utilizing procedures
prescribed by Statement of Financial Accounting Standards No. 69, Disclosures
about Oil and Gas Producing Activities ("FAS 69") and was derived from the
reserve report prepared by the Company as of December 31, 2001 based on natural
gas and crude oil reserve and production volumes estimated by the Company's
petroleum engineering staff. Estimated future net cash flow information
presented for periods prior to the Company's December 31, 2001 reserve report
were recomputed based on future development and operating costs and production
associated with the Acquired Properties during the applicable periods presented.
It may be useful for certain comparative purposes, but should not be solely
relied upon in evaluating the Acquired Properties or their performance. Further,
information contained in the following table should not be considered as
representative of realistic assessments of future cash flows, nor should the
Standardized Measure of Discounted Future Net Cash Flows be viewed as
representative of the current value of the Acquired Properties.
The Company believes that the following factors should be taken into
account in reviewing the following information: (1) future costs and selling
prices will probably differ from those required to be used in these
calculations; (2) due to future market conditions and governmental regulations,
actual rates of production achieved in future years may vary significantly from
the rate of production assumed in the calculations; (3) a 10% discount rate may
not be reasonable as a measure of the relative risk inherent in realizing future
net oil and gas revenues; and (4) future net revenues may be subject to
different rates of income taxation.
THE ACQUIRED PROPERTIES
SUPPLEMENTARY OIL AND GAS DISCLOSURES (Unaudited)
(Continued)
Under the Standardized Measure, future cash inflows were estimated by
applying period-end oil and natural gas prices to the estimated future
production of period-end proved reserves. The prices used for the September 30,
2001 calculation were $22.00 per barrel of oil and $2.16 per Mcf of gas.
Year-end 2000 prices used were $29.72 per barrel of oil and $10.71 per Mcf of
gas. Future cash inflows were reduced by estimated future development,
abandonment and production costs based on period-end costs in order to arrive at
net cash flow before tax. Future income tax expense has been computed by
applying period-end statutory tax rates to aggregate future pre-tax net cash
flows, reduced by the tax basis of the properties involved. FAS 69 requires the
use of a 10% discount rate.
Management does not rely solely upon the following information in making
investment and operating decisions. Such decisions are based upon a wide range
of factors, including estimates of probable as well as proved reserves and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated.
The Standardized Measure of Discounted Future Net Cash Flows Relating to
Proved Oil and Gas Reserves attributed to the Acquired Properties is as follows:
Nine Months Ended Year Ended
September 30, 2001 December 31, 2000
------------------ -----------------
(in thousands)
Future cash inflows........................................... $724,220 $1,572,808
Less related future:
Production costs.......................................... 142,876 155,506
Development and abandonment costs......................... 65,663 90,111
------------------ -----------------
Future net cash flows before income taxes..................... 515,681 1,327,191
Income tax expense............................................ (157,831) (405,139)
------------------ -----------------
Future net cash flows net of taxes............................ 357,850 922,052
10% annual discount for estimated timing of cash flows........ (109,206) (268,324)
------------------ -----------------
Standardized measure of discounted future net cash flows...... $248,644 $653,728
================== =================
A summary of the changes in standardized measure of discounted future net
cash flows relating to proved oil and gas reserves attributed to the Acquired
Properties is as follows:
Nine Months Ended Year Ended
September 30, 2001 December 31, 2000
------------------ -----------------
(in thousands)
Beginning of period........................................... $653,728 $378,731
Revisions of previous estimates:
Changes in prices and costs............................... (567,510) 525,864
Accretion of discount..................................... 93,967 53,063
Sales of oil and gas, net of production costs............. (75,173) (142,285)
Development cost changes.................................. (32,598) (32,598)
Net change in income taxes................................ 178,215 (134,047)
Other..................................................... (1,985) 5,000
------------------ -----------------
Net (decrease) increase....................................... (405,084) 274,997
------------------ -----------------
End of period.................................................
$248,644 $653,728
================== =================
UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION
Set forth below is certain unaudited condensed pro forma financial
information with respect to Stone's acquisition of Conoco's interest in eight
oil and gas properties and related infrastructure assets located in the Gulf of
Mexico. The unaudited condensed pro forma consolidated balance sheet at
September 30, 2001 gives effect to the acquisition as if it had occurred on
September 30, 2001. The unaudited condensed pro forma consolidated income
statements for the year ended December 31, 2000 and the nine months ended
September 30, 2001 give effect to the acquisition as if it had occurred on
January 1, 2000. Stone's historical results give retroactive effect to Stone's
merger with Basin Exploration, Inc., which was accounted for under the
pooling-of-interests method. The unaudited condensed pro forma consolidated
financial statements should be read in conjunction with the notes thereto and
the statement of combined revenues and direct operating expenses and related
notes included elsewhere in this Form 8-K.
STONE ENERGY CORPORATION
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2001
(In thousands)
STONE PRO FORMA COMBINED
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
--------------- -------------- ----------------
Current assets................................ $103,481 ($4,230) (a) $99,251
Oil and gas properties, net:
Proved.................................... 593,268 272,754 (a) 949,641
83,619 (b)
Unevaluated............................... 67,600 26,976 (a) 94,576
Other assets, net............................. 18,919 18,919
--------------- ----------------
Total assets............................ $783,268 $1,162,387
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $104,657 $104,657
Other current liabilities................. 4,192 4,192
--------------- ----------------
Total current liabilities............... 108,849 108,849
Long-term debt................................ 100,000 $295,500 (a) 395,500
Deferred tax liability........................ 34,417 29,267 (b) 63,684
Other long-term liabilities................... 11,690 11,690
--------------- ----------------
Total liabilities....................... 254,956 579,723
--------------- ----------------
Common stock.................................. 262 262
Additional paid in capital.................... 447,027 447,027
Retained earnings............................. 69,847 54,352 (b) 124,199
Other comprehensive income.................... 11,176 11,176
--------------- ----------------
Total stockholders' equity.............. 528,312 582,664
--------------- ----------------
Total liabilities and stockholders' equity $783,268 $1,162,387
=============== ================
The accompanying notes are an integral part of this balance sheet.
STONE ENERGY CORPORATION
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(In thousands, except per share amounts)
Stone Acquired Pro Forma Combined Pro
Historical Properties Adjustments Forma
---------------- ------------ ------------- --------------
Revenues
Oil and gas production............................. $331,371 $87,804 $419,175
Other income....................................... 2,441 2,441
---------------- ------------- ---------------
Total revenues.............................. 333,812 87,804 421,616
---------------- ------------- ---------------
Expenses
Direct operating expenses.......................... 39,862 12,631 52,493
Production taxes................................... 5,255 5,255
Depreciation, depletion and amortization........... 126,061 $33,234 (c) 159,295
Write-down of oil and gas properties............... 237,741 (101,075) (g) 136,666
Interest........................................... 2,589 14,328 (d) 16,917
Salaries, general and administrative and other..... 11,860 113 (e) 11,973
Merger expenses.................................... 25,719 25,719
---------------- ------------- ---------------
Total expenses.............................. 449,087 12,631 408,318
---------------- ------------- ---------------
Net income (loss) before income taxes................ (115,275) 75,173 13,298
---------------- ------------- ---------------
Income tax provision (benefit):
Current............................................ 500 500
Deferred........................................... (39,034) 42,979 (f) 3,945
---------------- ------------- ---------------
Total income taxes.......................... (38,534) 4,445
---------------- ------------- ---------------
Net income (loss).................................... (76,741) $75,173 $8,853
================ ============= ===============
Earnings (loss) per common share:
Basic earnings (loss) per share.................... ($2.94) $0.34
================ ===============
Diluted earnings (loss) per share.................. ($2.94) $0.33
================ ===============
Average shares outstanding......................... 26,084 26,084
================ ===============
Average shares outstanding assuming dilution....... 26,084 26,456
================ ===============
The accompanying notes are an integral part of this statement.
STONE ENERGY CORPORATION
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(In thousands, except per share amounts)
Stone Acquired Pro Forma Combined Pro
Historical Properties Adjustments Forma
---------------- ------------- ---------------- -------------
Revenues
Oil and gas production............................. $381,938 $156,379 $538,317
Other income....................................... 4,228 4,228
---------------- ------------- -------------
Total revenues.............................. 386,166 156,379 542,545
---------------- ------------- -------------
Expenses
Direct operating expenses.......................... 49,081 14,094 63,175
Production taxes................................... 6,538 6,538
Depreciation, depletion and amortization........... 110,859 $44,848 (c) 155,707
Interest........................................... 9,395 19,209 (d) 28,604
Salaries, general and administrative and other..... 14,447 150 (e) 14,597
Merger expenses.................................... 1,297 1,297
---------------- ------------- -------------
Total expenses.............................. 191,617 14,094 269,918
---------------- ------------- -------------
Net income before income taxes....................... 194,549 142,285 272,627
---------------- ------------- -------------
Income tax provision:
Current............................................ 450 450
Deferred........................................... 67,642 27,327 (f) 94,969
---------------- ------------- -------------
Total income taxes.......................... 68,092 95,419
---------------- ------------- -------------
Net income........................................... $126,457 $142,285 $177,208
================ ============= =============
Earnings per common share:
Basic earnings per share........................... $4.90 $6.87
================ =============
Diluted earnings per share......................... $4.80 $6.73
================ =============
Average shares outstanding......................... 25,804 25,804
================ =============
Average shares outstanding assuming dilution....... 26,335 26,335
================ =============
The accompanying notes are an integral part of this statement.
STONE ENERGY CORPORATION
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
On October 8, 2001, Stone Energy Corporation ("Stone") entered into
definitive agreements with Conoco Inc., and one of its subsidiaries to acquire
through both stock and asset purchases, interests in eight oil and gas
properties located in the Gulf of Mexico and other complementary infrastructure
assets (the "Acquired Properties") for a total purchase price of $299.7 million.
The acquisitions were completed on December 31, 2001.
Estimated proved reserves associated with the Acquired Properties as of
December 31, 2001 were 60.2 billion cubic feet of gas and 25.7 million barrels
of oil. The Company funded the purchase of the Acquired Properties with
borrowings under its revolving credit facility and net proceeds received from
the issuance of $200 million of 8.25% senior subordinated notes due 2011.
The unaudited condensed pro forma consolidated balance sheet at September
30, 2001 gives effect to the acquisition as if it had occurred on September 30,
2001. The unaudited condensed pro forma consolidated statements of operations
for the year ended December 31, 2000 and the nine months ended September 30,
2001 give effect to the acquisition as if it had occurred on January 1, 2000.
Accounting policies used in the preparation of the unaudited condensed pro forma
consolidated financial statements are those disclosed in Stone's historical
consolidated financial statements.
The preparation of the unaudited condensed pro forma consolidated financial
statements is based on certain adjustments to Stone's historical financial
statements and the statement of combined revenues and direct operating expenses
of the Acquired Properties and are not necessarily indicative of the financial
position or results of operations had the above described property acquisition
occurred on the assumed dates, nor should you rely on the unaudited condensed
pro forma information as an indication of future results. These unaudited
condensed pro forma consolidated financial statements should be read in
conjunction with the financial statement of the Acquired Properties included in
this Form 8-K and of Stone contained in its Annual Report on Form 10-K for the
year ended December 31, 2000, the Quarterly Report on Form 10-Q for the period
ended September 30, 2001 and the Current Report on Form 8-K dated September 19,
2001.
NOTE 2 - PRO FORMA ADJUSTMENTS:
Pro forma entries necessary to adjust Stone's historical financial
statements are as follows:
(a) To record the net purchase price of the Acquired Properties
financed with borrowings under Stone's credit facility and net
proceeds from the issuance of $200 million of 8.25% senior
subordinated notes due 2011. Based upon our preliminary estimates,
approximately $27 million (9% of the $299.7 million purchase price)
was allocated to unevaluated oil and gas properties.
(b) To reflect the September 30, 2001 non-cash ceiling test write-down
amount that would have been recorded had the acquisition occurred on
September 30, 2001.
(c) To adjust Stone's historical depreciation, depletion and
amortization to amounts that would have been recorded had the
acquisition occurred on January 1, 2000.
(d) To record interest expense, net of amounts capitalized of $1.4
million and $1.9 million during 2001 and 2000, respectively, related
to the borrowings under Stone's credit facility and the issuance of
$200 million of 8.25% senior subordinated notes due 2011 to finance
the acquisition.
(e) To record an estimated increase in salaries, general and
administrative costs, net of amounts capitalized of approximately $0.1
million during each of 2001 and 2000, respectively, primarily related
to employee costs as a direct result of the acquisition.
(f) To reflect Stone's historical tax rate during the applicable
periods presented.
(g) To reflect the September 30, 2001 non-cash ceiling test write-down
amount that would have been recorded had the acquisition occurred on
January 1, 2000.