<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996
REGISTRATION NO. 33-93486
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
STONE ENERGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 72-1235413
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
625 E. KALISTE SALOOM ROAD ANDREW L. GATES, III
LAFAYETTE, LOUISIANA 70508 VICE PRESIDENT -- LEGAL
(318) 237-0410 AND GENERAL COUNSEL
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, 625 E. KALISTE SALOOM ROAD
INCLUDING LAFAYETTE, LOUISIANA 70508
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE (318) 237-0410
OFFICES) (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
Copies to:
<TABLE>
<S> <C>
ALAN P. BADEN THOMAS P. MASON
VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
2300 FIRST CITY TOWER 4200 TEXAS COMMERCE TOWER
1001 FANNIN 600 TRAVIS
HOUSTON, TEXAS 77002-6760 HOUSTON, TEXAS 77002
(713) 758-2222 (713) 220-4200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
********************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
********************************************************************************
SUBJECT TO COMPLETION
NOVEMBER 12, 1996
PROSPECTUS
3,200,000 SHARES [STONE LOGO]
STONE ENERGY CORPORATION
COMMON STOCK
($.01 PAR VALUE)
Of the 3,200,000 shares of Common Stock being offered, 2,741,159 shares are
being sold by the Company and 458,841 shares are being sold by the Selling
Stockholders. See "Selling Stockholders." The Company will not receive any part
of the proceeds from the sale of shares by the Selling Stockholders. The
Underwriters are reserving an aggregate of 100,000 shares of Common Stock to be
offered at the Price to Public set forth below to James H. Stone, Chairman of
the Board and Chief Executive Officer of the Company. See "Underwriting."
The Common Stock is listed on the New York Stock Exchange under the symbol
"SGY." On November 11, 1996, the reported last sale price of the Common Stock on
the New York Stock Exchange Composite Tape was $21 3/4 per share.
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(1)(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total(3)..................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) No Underwriting Discount will be payable by the Company with respect to the
shares sold by the Underwriters to James H. Stone.
(2) Before deducting expenses payable by the Company, estimated at $250,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 480,000 additional shares of Common Stock at the Price to Public, less
Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount, Proceeds to Company, and Proceeds to Selling
Stockholders will be $ , $ , $ , and $ ,
respectively. See "Underwriting."
The Common Stock is offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Common Stock will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through
the facilities of The Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INC
JOHNSON RICE & COMPANY L.L.C.
MORGAN KEEGAN & COMPANY, INC.
The date of this Prospectus is , 1996.
<PAGE> 3
STONE ENERGY PROPERTIES
[MAP DEPICTING LOCATION OF ALL OF THE COMPANY'S PROPERTIES
AND SHOWING PORTIONS OF TEXAS, LOUISIANA AND
MISSISSIPPI AND ADJACENT OFFSHORE AREAS.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised. As used herein, the "Company" or
"Stone Energy" means Stone Energy Corporation and its consolidated subsidiaries,
unless the context requires otherwise. Certain terms relating to the oil and gas
industry are defined in "Glossary of Certain Industry Terms."
THE COMPANY
Stone Energy Corporation is an independent oil and gas company engaged in
the acquisition, exploitation and operation of oil and gas properties onshore
and offshore in the Gulf Coast Basin. The Company and its predecessors have
conducted exploration, development and production operations in the Gulf Coast
Basin since 1973, which gives the Company extensive geophysical, technical and
operational expertise in this area. As of August 31, 1996 (after giving effect
to the 1996 Acquisitions described below), the Company had estimated proved
reserves of approximately 128.9 Bcf of natural gas and 10.5 MMBbls of oil, or an
aggregate of approximately 32.0 MMBOE, with a present value of estimated pre-tax
future net cash flows of $263.5 million.
The Company's business strategy, adopted in 1990, is to increase
production, cash flow and reserves through the acquisition and development of
mature properties located in the Gulf Coast Basin. These properties have
characteristics that include an established production history, proved
undeveloped reserves and multiple prospective reservoirs that provide
significant development opportunities, an attractive price due to low current
production levels and the ability to control operations. Prior to acquiring a
property, the Company performs a thorough geological, geophysical and
engineering analysis of the property to formulate a comprehensive development
plan. Development activities seek to increase cash flow from existing proved
reserves and to establish additional proved reserves. These activities typically
involve the drilling of new wells, workovers and recompletions of existing
wells, and the application of other techniques designed to increase production.
In August and September 1996, the Company acquired one new property and
additional interests in two other properties located onshore Louisiana and in
shallow water offshore Louisiana (the "1996 Acquisitions") that the Company
believes provide significant development opportunities. The combined net
purchase cost of the 1996 Acquisitions was $21.5 million, and as of August 31,
1996, the present value of estimated pre-tax future net cash flows of the 1996
Acquisitions was $62.8 million. As of such date, the estimated proved reserves
attributable to the 1996 Acquisitions were 43.9 Bcf of gas and 1.4 MMBbls of
oil, or an aggregate of approximately 8.7 MMBOE.
From January 1, 1990 through June 30, 1996 (giving pro forma effect to the
1996 Acquisitions) (i) the Company's proved reserve additions totaled 41.9
MMBOE, at an average finding cost (including property acquisition costs and
previously incurred and estimated future development costs) of $5.10 per BOE,
(ii) the Company invested approximately $169 million in new properties that
generated $114 million of net cash flow and had a present value of estimated
pre-tax future net cash flows of $263.5 million as of August 31, 1996 and (iii)
average daily production increased from 1.2 MBOE/d to 9.3 MBOE/d.
Since its initial public offering in 1993, the Company has increased the
number of properties in which it has an interest from five to 14, and serves as
operator of 13 of these properties. In addition, the Company has substantially
expanded its technical database, including 3-D seismic data relating to its
properties and potential acquisitions. As a result, the Company has been able to
significantly increase its development activities. For the period from October
1, 1996 through December 31, 1997, the Company has budgeted capital expenditures
of $104 million, which include plans to drill 23 new wells, conduct 29
workovers/recompletions on existing wells and, depending upon the success of
specific development activities, install five new offshore production platforms.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 2,741,159 shares
Common Stock offered by the Selling Stockholders... 458,841 shares
Common Stock to be outstanding after the
Offering......................................... 14,535,408 shares*
Use of proceeds.................................... To repay the term loan incurred to
finance the cost of the 1996
Acquisitions and certain development
projects, fund future development
projects, finance potential acquisitions
and provide additional working capital
for general corporate purposes. Pending
application of the proceeds remaining
after repayment of the term loan, the
Company also will repay a portion of
outstanding indebtedness under its
revolving bank credit facility. See "Use
of Proceeds."
NYSE symbol........................................ SGY
</TABLE>
- ---------------
* Based on the number of shares of Common Stock outstanding at September 30,
1996. Does not include 715,000 shares of Common Stock that may be acquired
pursuant to outstanding stock options, of which options for 184,665 shares of
Common Stock are currently exercisable.
4
<PAGE> 6
SUMMARY OIL AND GAS RESERVE DATA
The following table sets forth summary information with respect to the
Company's estimated proved oil and gas reserves. All information in this
Prospectus as of December 31, 1993, 1994 and 1995 relating to estimated oil and
gas reserves and the estimated future net cash flows attributable thereto is
based upon the reserve reports (the "Reserve Reports") prepared by independent
petroleum engineers (the "Independent Engineers"), except for the reserves
attributed to Eugene Island Block 243 Field at December 31, 1994, which were
estimated by the Company. Acquired on December 16, 1994, this field comprised
approximately 11% of the Company's estimated total proved reserves at December
31, 1994. All information in this Prospectus as of August 31, 1996 relating to
estimated oil and gas reserves and estimated future net cash flows attributable
thereto for the oil and gas interests acquired in the 1996 Acquisitions is based
on the Reserve Reports of the Independent Engineers. The remainder of the August
31, 1996 information is based on estimates by the Company. All calculations of
estimated reserves have been made in accordance with the rules and regulations
of the Securities and Exchange Commission (the "Commission"), and, except as
otherwise indicated, give no effect to federal or state income taxes otherwise
attributable to estimated future cash flows from the sale of oil and gas. The
present value of estimated future net cash flows has been calculated using a
discount factor of 10%. See "Risk Factors -- Uncertainty of Estimates of Oil and
Gas Reserves," "Business -- Oil and Gas Reserves" and "Experts."
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
AUGUST 31, --------------------------------
1996 1995 1994 1993
---------- -------- -------- --------
<S> <C> <C> <C> <C>
TOTAL NET PROVED:
Oil (MBbls)....................................................... 10,509 7,985 6,455 6,080
Gas (MMcf)........................................................ 128,862 81,179 68,285 58,491
Total (MBOE)...................................................... 31,986 21,515 17,836 15,829
NET PROVED DEVELOPED:
Oil (MBbls)....................................................... 8,762 7,055 5,840 6,035
Gas (MMcf)........................................................ 98,561 67,797 52,215 48,448
Total (MBOE)...................................................... 25,189 18,355 14,543 14,110
Estimated future net cash flows before income taxes (in
thousands)........................................................ $395,451 $259,478 $145,006 $164,945
Present value of estimated future net cash flows before income taxes
(in thousands)(1)................................................. $263,478 $179,725 $ 97,391 $104,713
</TABLE>
- ---------------
(1) The present value of estimated future net cash flows attributable to the
Company's reserves was prepared using constant prices as of the calculation
date, discounted at 10% per annum on a pre-tax basis.
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)..................................... 1,023 1,036 1,400 1,113 1,016 745 540
Gas (MMcf)...................................... 8,608 6,202 8,399 6,629 4,953 2,941 1,522
Oil and gas (MBOE).............................. 2,458 2,070 2,800 2,218 1,842 1,235 794
Average sales prices (inclusive of hedging
activities):
Oil (per Bbl)................................... $ 19.87 $ 17.70 $ 17.70 $ 16.61 $ 17.47 $ 19.54 $ 20.47
Gas (per Mcf)................................... 2.43 1.56 1.66 1.92 2.16 1.96 1.94
Per BOE......................................... 16.78 13.54 13.82 14.06 15.46 16.47 17.64
Average costs (per BOE):
Normal lease operating costs.................... $2.49 $1.96 $2.25 $2.39 $2.35 $3.37 $4.05
General and administrative...................... 1.00 1.25 1.18 1.40 1.22 1.47 1.98
Depreciation, depletion and amortization........ 6.23 5.63 5.57 5.15 4.20 3.83 5.55
</TABLE>
5
<PAGE> 7
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Oil production revenue...................... $20,323 $18,333 $24,775 $18,482 $17,752 $14,557 $11,055
Gas production revenue...................... 20,925 9,691 13,918 12,697 10,718 5,778 2,949
Other revenue............................... 1,499 1,086 1,858 1,708 1,252 616 1,019
------- ------- ------- ------- ------- ------- -------
Total revenue........................... 42,747 29,110 40,551 32,887 29,722 20,951 15,023
------- ------- ------- ------- ------- ------- -------
Expenses:
Operating costs and production taxes........ 8,789 6,434 9,797 9,449 7,148 5,869 4,364
Depreciation, depletion and amortization.... 15,497 11,786 15,719 11,569 8,028 5,019 4,743
Interest expense............................ 2,496 1,485 2,191 982 1,499 1,743 1,698
Other expense............................... -- -- -- -- 1,025 365 2,003
General and administrative.................. 2,456 2,594 3,298 3,099 2,248 1,818 1,570
Incentive compensation plan................. 278 281 85 1,358 -- -- --
------- ------- ------- ------- ------- ------- -------
Total expenses.......................... 29,516 22,580 31,090 26,457 19,948 14,814 14,378
------- ------- ------- ------- ------- ------- -------
Net income before income taxes and cumulative
effect of change in accounting principle.... 13,231 6,530 9,461 6,430 9,774 6,137 645
Provision for income taxes.................... 5,093 2,513 3,645 2,410 943 -- --
------- ------- ------- ------- ------- ------- -------
Net income before cumulative effect of change
in accounting principle..................... 8,138 4,017 5,816 4,020 8,831 6,137 645
Cumulative effect of change in accounting
principle(1)................................ -- -- -- -- -- 1,377 --
------- ------- ------- ------- ------- ------- -------
Net income.................................... $ 8,138 $ 4,017 $ 5,816 $ 4,020 $ 8,831 $ 7,514 $ 645
======= ======= ======= ======= ======= ======= =======
Earnings per common share:
Net income per share before accounting
principle change.......................... $ 0.68 $ 0.34 $ 0.49 $ 0.34 $ 0.88 $ 0.71 $ 0.07
Cumulative effect of accounting principle
change(1)................................. -- -- -- -- -- 0.16 --
------- ------- ------- ------- ------- ------- -------
Net income per common share................. $ 0.68 $ 0.34 $ 0.49 $ 0.34 $ 0.88 $ 0.87 $ 0.07
======= ======= ======= ======= ======= ======= =======
Average shares outstanding.................. 11,933 11,819 11,818 11,801 10,087 8,664 8,664
======= ======= ======= ======= ======= ======= =======
CASH FLOW DATA:
Net cash provided by operating activities
(excluding working capital changes)......... $28,555 $18,208 $25,049 $17,911 $17,852 $11,156 $ 5,388
Investment in oil and gas properties.......... 54,569 36,830 48,122 41,174 18,167 9,366 22,119
Net cash provided by (used in) financing
activities.................................. 39,983 15,666 25,164 6,530 25,166 (4,049) 12,197
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------
ACTUAL
AS
ACTUAL ADJUSTED(2)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $ 10,020
Oil and gas properties, net............ 158,807 158,807
Total assets........................... 201,037
Long-term debt, less current portion... 87,698
Stockholders' equity................... 75,099
</TABLE>
- ---------------
(1) Represents the adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," effective January 1, 1992.
(2) Actual amounts as adjusted for the Offering.
6
<PAGE> 8
UNCERTAINTY OF FORWARD-LOOKING INFORMATION
Certain of the statements set forth under "Summary," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Properties" and
elsewhere in this Prospectus, such as the statements regarding planned capital
expenditures, the availability of capital resources to fund capital expenditures
and the number of anticipated wells to be drilled in 1996 and thereafter, are
forward-looking and are based upon the Company's current belief as to the
outcome and timing of such future events. There are numerous risks and
uncertainties that can affect the outcome and timing of such events, including
many factors beyond the control of the Company. These factors include, but are
not limited to, the matters described in "Risk Factors." Should one or more of
these risks or uncertainties occur, or should underlying assumptions prove
incorrect, the Company's actual results and plans for 1996 and beyond could
differ materially from those expressed in the forward-looking statements.
RISK FACTORS
Prospective purchasers of Common Stock should carefully consider the risk
factors set forth below, as well as the other information contained in this
Prospectus in evaluating an investment in the Common Stock.
VOLATILITY OF OIL AND GAS PRICES. The Company's future revenue,
profitability and rate of growth are substantially dependent upon the prevailing
prices of, and the demand for, oil and natural gas. Prices for oil and natural
gas are subject to wide fluctuation due to changes in the supply of and demand
for oil and natural gas, market uncertainty, and a variety of additional factors
that are beyond the control of the Company, such as various economic, political
and regulatory developments, and competition from other sources of energy.
Additionally, substantially all of the Company's production is sold on month to
month contracts at prevailing prices; however, from time to time the Company has
entered into hedging transactions or fixed price sales contracts for its oil and
gas production. The purpose of these transactions is to reduce the Company's
exposure to future oil and gas price declines. The Company's hedging policy
provides that generally not more than 50% of its production quantities can be
hedged. There can be no assurance, however, that such hedging transactions will
reduce risk or mitigate the effect of any substantial or extended decline in oil
and natural gas prices. Such a decline could have a material adverse effect on
the Company's financial condition and results of operations.
UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES. Estimating quantities of
reserves and future net cash flows is not an exact science. There are numerous
uncertainties inherent in estimating quantities of proved oil and gas reserves,
including many factors beyond the control of the Company. This Prospectus
contains estimates of the proved oil and gas reserves of the Company and the
estimated future net cash flows therefrom. Such estimates rely upon various
assumptions, including those prescribed by the Commission, such as future oil
and gas prices, drilling and operating expenses, capital expenditures, taxes,
and availability of funds. The present value of future net cash flows referred
to in this Prospectus should not be construed as the current market value of the
estimated oil and gas reserves attributable to the Company's properties. The
process of estimating oil and gas reserves is complex, requiring significant
decisions and assumptions in the evaluation of available geological, engineering
and economic data for each reservoir. As a result, any such estimate is
inherently an imprecise estimation of reserve quantities and estimated future
net revenue therefrom. Actual future production, revenue, taxes, development
expenditures, operating expenses and quantities of recoverable oil and gas
reserves will vary from those assumed in the estimate.
Any significant variance from the assumptions could materially affect the
quantity and value of the Company's reserves as compared to the estimates set
forth in this Prospectus. The Company's production operations may be curtailed
or suspended as a result of governmental requirements or price controls,
mechanical difficulties or other circumstances beyond the control of the
Company.
7
<PAGE> 9
The Company's properties may also be susceptible to hydrocarbon drainage from
production by other operators on adjacent properties. In addition, these
reserves may be subject to downward or upward revision based upon production
history, results of future exploration and development, prevailing oil and gas
prices and other factors.
NEED FOR ACQUISITION AND DEVELOPMENT OF ADDITIONAL RESERVES. The Company's
future success, as is generally the case in the industry, depends upon its
ability to find, develop or acquire additional oil and gas reserves that are
economically recoverable. Unless the Company acquires additional properties
containing proved reserves or conducts successful development and exploitation
activities on properties it currently owns, the Company's proved reserves will
decline. The successful acquisition of producing properties requires an
assessment of recoverable reserves, future oil and gas prices and operating
costs, potential environmental and other liabilities, title issues and other
factors. Such assessments are necessarily inexact and their accuracy is
inherently uncertain. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Operating Environment."
The Company's strategy includes increasing its production and reserves by
the implementation of a carefully designed field-wide development plan that is
formulated prior to acquisition of a property. There can be no assurance,
however, that the Company's development projects will result in significant
additional reserves or that the Company will have success drilling productive
wells at economically viable costs. Furthermore, while the Company's revenues
may increase if prevailing oil and gas prices increase, the Company's finding
costs for additional reserves could also increase.
The Company intends to make substantial capital expenditures for the
acquisition, exploration, development and production of its oil and natural gas
reserves. While the Company believes that the net proceeds from the Offering,
cash flow from operations and borrowings under the Company's existing bank
credit facility should provide the Company sufficient funds for its planned
activities through the end of 1997, additional debt or equity financing may be
required prior to such time or thereafter to fund further exploration,
exploitation and development activities or future property acquisitions. No
assurances can be given as to the availability or terms of any such additional
financing that may be required or that financing will continue to be available
under the Company's existing bank credit facility. In the event such capital
resources are not available to the Company, its exploration, exploitation and
development activities and future property acquisitions may be curtailed.
CONFLICTS OF INTEREST. Certain employees of the Company, including James H.
Stone, the Company's Chairman of the Board and Chief Executive Officer, own
working interests in certain of the Company's oil and gas properties acquired
prior to 1995 and will have the opportunity to participate as working interest
owners in certain of the Company's future drilling activities on such
properties. In addition, certain officers of the Company were granted net
profits interests in the Company's working interests in certain of the oil and
gas properties of the Company acquired prior to the Company's initial public
offering in 1993. The recipients of the net profits interests are not required
to pay capital costs incurred on the properties burdened by such interests.
Therefore, a conflict of interest may exist between the Company and such persons
with respect to the drilling of additional wells or other development
operations. The Company and James H. Stone also continue to manage programs
formed prior to 1993, and James H. Stone continues to participate in various oil
and gas operations and ventures. It is possible, as a result of these
activities, that conflicts of interest could arise.
CONTROL BY MANAGEMENT. After completion of the Offering, executive officers
and directors of the Company will beneficially own approximately 33.0% of the
outstanding Common Stock. This percentage ownership is based on the number of
shares of Common Stock outstanding at September 30, 1996 and the beneficial
ownership of such persons at such date, as adjusted for the shares to be sold by
the Company and the Selling Stockholders in the Offering and the 100,000
additional shares of Common Stock to be purchased in the Offering by James H.
Stone, the
8
<PAGE> 10
Chairman of the Board and Chief Executive Officer of the Company. See
"Underwriting." As a result, these persons may be in a position to control the
Company through their ability to determine the outcome of elections of the
Company's directors and certain other matters requiring the vote or consent of
the Company's stockholders.
MARKETABILITY OF PRODUCTION. The marketability of the Company's production
depends upon the availability and capacity of gas gathering systems, pipelines
and processing facilities, and the unavailability or lack of capacity thereof
could result in the shut-in of producing wells or the delay or discontinuance of
development plans for properties. In addition, Federal and state regulation of
oil and gas production and transportation, general economic conditions and
changes in supply and demand could adversely affect the Company's ability to
produce and market its oil and natural gas on a profitable basis.
COMPETITION. The Company operates in a highly competitive environment. The
Company competes with major and independent oil and gas companies for the
acquisition of desirable oil and gas properties, as well as for the equipment
and labor required to develop and operate such properties. Many of these
competitors have financial and other resources substantially greater than those
of the Company.
DRILLING RISKS. Drilling involves numerous risks, including the risk that
no commercially productive oil or gas reservoirs will be encountered. The cost
of drilling and completing wells is often uncertain, and drilling operations may
be curtailed, delayed or cancelled as a result of a variety of factors,
including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, weather conditions, and shortages
or delays in the delivery of equipment. There can be no assurance as to the
success of the Company's future drilling activities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Operating Environment."
OPERATING HAZARDS. The oil and gas business involves a variety of operating
risks, including the risk of fire, explosions, blow-outs, pipe failure,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures or discharges of toxic gases, the occurrence of any of which
could result in substantial losses to the Company due to injury or loss of life,
severe damage to or destruction of property, natural resources and equipment,
pollution or other environmental damage, clean-up responsibilities, regulatory
investigation and penalties, and suspension of operations. In addition to the
foregoing, the Company's offshore operations are subject to the additional
hazards of marine operations, such as capsizing, collision and adverse weather
and sea conditions. In accordance with customary industry practice, the Company
maintains insurance against some, but not all, of the risks described above.
There can be no assurance that any insurance obtained by the Company will be
adequate to cover any losses or liabilities. The Company cannot predict the
continued availability of insurance or the availability of insurance at premium
levels that justify its purchase.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Oil and gas operations are
subject to various federal, state and local governmental regulations which may
be changed from time to time in response to economic or political conditions.
Matters subject to regulation include discharge permits for drilling operations,
drilling and abandonment bonds or other financial responsibility requirements,
reports concerning operations, the spacing of wells, unitization and pooling of
properties and taxation. From time to time, regulatory agencies have imposed
price controls and limitations on production by restricting the rate of flow of
oil and gas wells below actual production capacity in order to conserve supplies
of oil and gas. In addition, the production, handling, storage, transportation
and disposal of oil and gas, by-products thereof and other substances and
materials produced or used in connection with oil and gas operations are subject
to regulation under federal, state and local laws and regulations primarily
relating to protection of human health and the environment. These laws and
regulations have continually imposed increasingly strict requirements for water
and air pollution control and solid waste management.
9
<PAGE> 11
ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation and
Bylaws and the provisions of the Delaware General Corporation Law include a
number of provisions which may have the effect of encouraging persons
considering unsolicited tender offers or other unilateral takeover proposals to
negotiate with the Board of Directors rather than pursue non-negotiated takeover
attempts. These provisions include a classified board of directors, authorized
blank check preferred stock, restrictions on business combinations and the
availability of authorized but unissued Common Stock.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $ million ($ million if the over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
expenses of the Offering payable by the Company. The Company intends to use the
net proceeds of this Offering to retire its $31.2 million term loan and to
reduce the outstanding balance of its revolving credit facility from $49.4
million (as of November 4, 1996) to $ million ($ million if the
over-allotment option is exercised in full). The term loan was incurred to
finance the cost of the 1996 Acquisitions and certain development projects.
Subsequent to these transactions, it is anticipated that the Company will use
the increased availability under its bank credit facility, together with cash
flow from operations, to fund the further development of the Company's oil and
gas properties, to finance potential property acquisitions and to provide
additional working capital for general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Historical Financing Sources."
For information concerning certain of the Company's development plans, see
"Business -- Properties." Although the Company is currently evaluating several
potential property acquisitions, it does not have any contracts, understandings
or other arrangements with respect to any such acquisitions.
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See "Selling Stockholders."
10
<PAGE> 12
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, as adjusted to give effect to the application of the
estimated $ million in net proceeds from the sale of the shares of Common
Stock being offered by the Company in the Offering. This table should be read in
conjunction with the Company's historical consolidated financial statements and
pro forma consolidated financial statements and the notes thereto. Also see "Use
of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
HISTORICAL AS ADJUSTED
--------- ---------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term loans.............................................. $ 87,698
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding............ -- --
Common Stock, $.01 par value, 25,000,000 shares authorized;
11,794,249 shares and 14,535,408 shares issued and
outstanding, respectively............................... 118 145
Additional paid-in capital................................. 52,191
Retained earnings.......................................... 22,790
--------- ---------
Total stockholders' equity......................... 75,099
--------- ---------
Total capitalization............................... $ 162,797
========= =========
</TABLE>
11
<PAGE> 13
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on the New York Stock Exchange under the symbol
"SGY." The following table sets forth, for the periods indicated, the high and
low sales price per share for the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1994
First Quarter................................................... $14 1/8 $ 9 7/8
Second Quarter.................................................. 12 3/8 10
Third Quarter................................................... 18 1/2 11
Fourth Quarter.................................................. 19 1/4 12 3/8
1995
First Quarter................................................... $19 1/4 $14
Second Quarter.................................................. 15 5/8 11 5/8
Third Quarter................................................... 13 5/8 11
Fourth Quarter.................................................. 15 3/4 11 1/4
1996
First Quarter.................................................. $17 1/4 $13 1/4
Second Quarter.................................................. 20 1/8 15 5/8
Third Quarter................................................... 23 1/2 17 3/4
Fourth Quarter (through November 11, 1996)...................... 22 1/4 18 1/8
</TABLE>
On November 11, 1996, the last reported sales price on the New York Stock
Exchange Composite Tape was $21 3/4 per share. As of September 30, 1996, there
were approximately 154 holders of record of the Common Stock.
The Company has not in the past paid, and does not intend to pay in the
foreseeable future, cash dividends on its Common Stock. The Company currently
intends to retain earnings, if any, for the future operation and development of
its business. The Company has entered into a credit facility that contains
provisions that may have the effect of limiting or prohibiting the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Historical Financing
Sources."
12
<PAGE> 14
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth a summary of selected historical financial
information for the Company for the nine months ended September 30, 1996 and
1995 and the five years ended December 31, 1995. The year end information is
derived from the audited consolidated financial statements of the Company and
the notes thereto. The financial information for the nine-month periods ended
September 30, 1996 and 1995 is unaudited and reflects 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 such interim periods. The results of operations for the
nine-month period ended September 30, 1996 are not necessarily indicative of
results for the full year. See the Company's financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTMEBER 30, YEAR ENDED DECEMBER 31,
-------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Oil production revenue................... $ 20,323 $ 18,333 $ 24,775 $18,482 $17,752 $14,557 $11,055
Gas production revenue................... 20,925 9,691 13,918 12,697 10,718 5,778 2,949
Other revenue............................ 1,499 1,086 1,858 1,708 1,252 616 1,019
------- ------- ------- ------- ------- ------- -------
Total revenue........................ 42,747 29,110 40,551 32,887 29,722 20,951 15,023
------- ------- ------- ------- ------- ------- -------
Expenses:
Normal lease operating expenses.......... 6,115 4,052 6,294 5,312 4,326 4,164 3,213
Major maintenance expenses............... 271 106 446 1,834 822 148 311
Production taxes......................... 2,403 2,276 3,057 2,303 2,000 1,557 840
Depreciation, depletion and
amortization........................... 15,497 11,786 15,719 11,569 8,028 5,019 4,743
Interest................................. 2,496 1,485 2,191 982 1,499 1,743 1,698
Other expense............................ -- -- -- -- 245 365 2,003
General and administrative............... 2,456 2,594 3,298 3,099 2,248 1,818 1,570
Incentive compensation plan.............. 278 281 85 1,358 -- -- --
Exchange offer expenses.................. -- -- -- -- 780 -- --
------- ------- ------- ------- ------- ------- -------
Total expenses....................... 29,516 22,580 31,090 26,457 19,948 14,814 14,378
------- ------- ------- ------- ------- ------- -------
Net income before income taxes and
cumulative effect of change in accounting
principle................................ 13,231 6,530 9,461 6,430 9,774 6,137 645
Provision for income taxes................. 5,093 2,513 3,645 2,410 943 -- --
------- ------- ------- ------- ------- ------- -------
Net income before cumulative effect of
change in accounting principle........... 8,138 4,017 5,816 4,020 8,831 6,137 645
Cumulative effect of change in accounting
principle(1)............................. -- -- -- -- -- 1,377 --
------- ------- ------- ------- ------- ------- -------
Net income................................. $ 8,138 $ 4,017 $ 5,816 $ 4,020 $ 8,831 $ 7,514 $ 645
======= ======= ======= ======= ======= ======= =======
Earnings per common share:
Net income per share before accounting
principle change....................... $ 0.68 $ 0.34 $ 0.49 $ 0.34 $ 0.88 $ 0.71 $ 0.07
Cumulative effect of accounting principle
change(1).............................. -- -- -- -- -- 0.16 --
------- ------- ------- ------- ------- ------- -------
Net income per common share.............. $ 0.68 $ 0.34 $ 0.49 $ 0.34 $ 0.88 $ 0.87 $ 0.07
======= ======= ======= ======= ======= ======= =======
Average shares outstanding............... 11,933 11,819 11,818 11,801 10,087 8,664 8,664
======= ======= ======= ======= ======= ======= =======
CASH FLOW DATA:
Net cash provided by operating activities
(excluding working capital changes)...... $ 28,555 $ 18,208 $ 25,049 $17,911 $17,852 $11,156 $ 5,388
Net cash provided by operating
activities............................... 15,340 21,237 27,499 9,609 13,857 14,417 6,853
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit).................. $ 10,020 $ 3,083 $ 5,379 $ 4,437 $18,421 $(6,655) $(5,343)
Oil and gas properties, net................ 158,807 104,723 111,248 81,291 60,097 49,722 44,534
Total assets............................... 201,037 126,698 139,460 109,956 98,770 65,117 57,536
Long-term debt, less current portion....... 87,698 38,325 47,754 22,725 21,620 26,659 27,776
Stockholders' equity (deficit)(2).......... 75,099 65,127 66,927 61,045 56,997 2,046 (2,568)
</TABLE>
- ---------------
(1) Represents the adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," effective January 1, 1992.
(2) Mandatorily redeemable preferred stock outstanding at December 31, 1992 and
1991 of $15,203 and $14,385, respectively, is not included in stockholders'
equity.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORMATION OF STONE ENERGY
The Company was formed in March 1993 to become a holding company for The
Stone Petroleum Corporation ("TSPC"), its subsidiaries and certain partnership
interests, and approximately 8.1 million shares of Common Stock were issued to
holders of interests in those entities. In July 1993, the Company also sold
approximately 3.7 million shares of newly issued Common Stock in the Company's
initial public offering (the "Initial Public Offering") and received net
proceeds of approximately $40.8 million.
OPERATING ENVIRONMENT
At present, the Company does not expect that changes in the rates of
overall economic growth or inflation will significantly impact product prices in
the short-term. While gas prices seem most dependent on weather in North America
and corresponding usage, oil prices are more subject to global economic forces
and supply. Because all of these factors are beyond the control of the Company,
its marketing efforts have been devoted to achieving the best price available in
each geographic location and a limited amount of fixed price sales and hedging
transactions to take advantage of short-term prices it believes to be
attractive.
Demand for drilling rigs and related products and services has increased
sharply in recent months, and the Company has experienced delays of one to two
months in obtaining drilling rigs and higher costs than originally budgeted.
Despite these changes in the market for drilling supplies and services, the
Company does not expect these current conditions to have a material impact on
the timing or long-term profitability of its planned activities.
The inventory of oil and gas properties offered for sale has declined over
the last several years. This reduced availability of properties, combined with
the emergence during the same period of a number of well-capitalized independent
oil and gas companies, has caused an increase in the prices paid for properties.
RECENT DEVELOPMENTS
In August and September 1996, the Company acquired one new property and
additional interests in two other properties located onshore Louisiana and in
shallow water offshore Louisiana. The combined net purchase cost of the 1996
Acquisitions was $21.5 million. Included in this Prospectus are pro forma
financial statements that give effect to these three acquisitions. See the
Company's pro forma consolidated financial statements and the notes thereto.
14
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth certain operating information with respect
to the oil and gas operations of the Company and summary information with
respect to the Company's estimated proved oil and gas reserves. See
"Business -- Oil and Gas Reserves."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRODUCTION:
Oil (MBbls)......................... 1,023 1,036 1,400 1,113 1,016
Gas (MMcf).......................... 8,608 6,202 8,399 6,629 4,953
Oil and gas (MBOE).................. 2,458 2,070 2,800 2,218 1,842
SALES DATA (IN THOUSANDS):
Total oil sales..................... $ 20,323 $ 18,333 $ 24,775 $ 18,482 $ 17,752
Total gas sales..................... 20,925 9,691 13,918 12,697 10,718
AVERAGE SALES PRICES (INCLUSIVE OF
HEDGING ACTIVITIES):
Oil (per Bbl)....................... $19.87 $17.70 $17.70 $16.61 $17.47
Gas (per Mcf)....................... 2.43 1.56 1.66 1.92 2.16
Per BOE............................. 16.78 13.54 13.82 14.06 15.46
AVERAGE COSTS (PER BOE):
Normal lease operating
expenses(1)...................... $2.49 $1.96 $2.25 $2.39 $2.35
General and administrative.......... 1.00 1.25 1.18 1.40 1.22
Depreciation, depletion and
amortization..................... 6.23 5.63 5.57 5.15 4.20
</TABLE>
- ---------------
(1) Excludes major maintenance expenses.
<TABLE>
<CAPTION>
AS OF
AUGUST AS OF DECEMBER 31,
31, -------------------------------------
1996 1995 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
RESERVES:
Oil (MBbls)................................. 10,509 7,985 6,455 6,080
Gas (MMcf).................................. 128,862 81,179 68,285 58,491
Oil and gas (MBOE).......................... 31,986 21,515 17,836 15,829
Present value of estimated pre-tax future
net cash flows (in thousands)............ $ 263,478 $ 179,725 $ 97,391 $ 104,713
</TABLE>
15
<PAGE> 17
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995. Net income for the first nine months of 1996 was $8.1
million or $0.68 per share, which represents an increase of 103% over the
comparable period of 1995, and exceeds the twelve month net income for all of
1995.
Total oil and gas revenues for the first nine months of 1996 were $41.2
million, an increase of 47% over the same period in 1995. Gas production volumes
increased 39%, while oil volumes declined 1%. Oil and gas prices for the nine
months ended September 30, 1996, averaged $19.87 per barrel and $2.43 per
thousand cubic feet, representing increases of 12% and 56%, respectively, over
the prices received for the comparable 1995 period.
Operating expenses per BOE for the nine months of 1996 were $2.49. Although
this amount is higher than the comparable 1995 figure, it is well within the
Company's budgeted range for these costs. For the first nine months of 1996,
general and administrative expenses decreased slightly in total and declined 20%
per BOE to $1.00 from $1.25 for the comparable 1995 period.
Depreciation, depletion and amortization expense for oil and gas properties
increased to $15.3 million in the first nine months of 1996 from $11.7 million
for the same period in 1995 due to increased production rates and higher finding
costs per unit. Interest expense for the first nine months of 1996 increased to
$2.5 million from $1.5 million for the comparable 1995 period because of a
higher average outstanding balance under the Company's long term credit
facility.
1995 COMPARED TO 1994. Net income for the year ended December 31, 1995 was
$5.8 million or $0.49 per share, an increase of 45% from 1994 earnings of $4.0
million or $0.34 per share. Net cash flow from operations before working capital
changes for 1995 increased 40% to $25.0 million or $2.11 per share, from
comparable 1994 amounts of $17.9 million or $1.51 per share.
For 1995, oil and gas revenues were $38.7 million as compared to $31.2
million in 1994, a 24% increase. Proceeds from sales of production in 1995 were
64% oil and 36% gas, as compared to 59% and 41%, respectively, for 1994.
Production volumes for 1995 were 1.4 MMBbls of oil and 8.4 Bcf of gas. Oil
production was up 26% and gas deliveries increased 27% from the 1994 amounts of
1.1 MMBbls of oil and 6.6 Bcf of gas. The increase in 1995's revenues resulted
from overall production growth of 26% for the year, despite a 2% decline in the
average prices realized per equivalent barrel. The average gas price per Mcf
decreased by 14% to $1.66 in 1995 from the 1994 amount of $1.92, but the average
oil price per barrel climbed 7% from $16.61 in 1994 to $17.70 in 1995.
Normal operating costs for 1995 increased in total to $6.3 million from
$5.3 million in 1994 due to an increased number of properties and higher
production rates. When stated on a unit basis, such costs were $2.25 per BOE in
1995 and $2.39 per BOE in 1994, a 6% improvement. Major maintenance expenses, or
workover costs of producing zones, were $0.4 million in 1995 as compared to $1.8
million in 1994.
Depreciation, depletion and amortization ("DD&A") expense attributable to
oil and gas properties increased because of higher production rates and
investments in the properties. This non-cash expense increased to $15.6 million
or $5.57 per BOE in 1995 from $11.4 million or $5.15 per BOE in 1994.
During 1995, the Company borrowed funds pursuant to its bank credit
facility to finance a portion of its capital expenditures budget, and interest
expense increased to $2.2 million in 1995 from $1.0 million in 1994. General and
administrative costs also increased in total to $3.3 million in 1995 from $3.1
million in 1994, but on a unit basis declined 16% to $1.18 per BOE in 1995 from
$1.40 per BOE in 1994. The expenses of the Company's bonus plan declined to $0.1
million in 1995 from $1.4 million in 1994.
Pre-tax income increased to $9.5 million in 1995 from $6.4 million in 1994,
and therefore the tax provision increased to $3.6 million in 1995 from $2.4
million in 1994. Except for an estimated
16
<PAGE> 18
minimum tax liability of $0.1 million, the remainder of the tax provision is
deferred and does not require current funding.
The Company's estimated proved reserves at December 31, 1995 were 21.5
million BOE and represent an increase of 21% from the comparable amount one year
earlier of 17.8 MMBOE. Oil reserves increased to 8.0 MMBbls at the end of 1995
from 6.5 MMBbls at the beginning of the year, and gas reserves rose to 81.2 Bcf
at December 31, 1995 from 68.3 Bcf at December 31, 1994. Production during 1995
was 2.8 MMBOE, comprised of 1.4 MMBbls of oil and 8.4 Bcf of gas.
1994 COMPARED TO 1993. Net income for the year ended December 31, 1994 was
$4.0 million or $0.34 per share, and net cash flow from operations before
working capital changes was $17.9 million or $1.51 per share. For the 1993 year,
net income was $8.8 million or $0.88 per share, and net cash flow from
operations before working capital changes was $17.9 million or $1.76 per share.
For 1994, oil and gas revenues were $31.2 million as compared to $28.5
million in 1993, a 10% increase. Sales of production from new properties
accounted for 12% of total 1994 revenues and 28% of fourth quarter revenues.
Proceeds from sales of production in 1994 were 59% oil and 41% gas, as compared
to 62% and 38%, respectively, for 1993. Production volumes for 1994 were 1.1
MMBbls of oil and 6.6 Bcf of gas. Oil production was up 10% and gas deliveries
increased 34% from the 1993 amounts of 1.0 MMBbls of oil and 5.0 Bcf of gas.
The increase in 1994's revenues resulted from a 20% increase in the number
of BOE produced for the year, despite a 9% decline in the average price received
per BOE. During 1994, the Company added six new properties to its asset base
which, when combined with its development activities, resulted in the increase
in production. The average gas price per Mcf decreased by 11% to $1.92 in 1994
from the 1993 amount of $2.16, and the average oil price per barrel declined by
5% from $17.47 in 1993 to $16.61 in 1994.
Normal operating costs for 1994 increased in total to $5.3 million from
$4.3 million in 1993 due to the increased number of properties and higher
production rates. When stated on a BOE basis, such costs were $2.39 per BOE in
1994 and $2.35 per BOE in 1993. Major maintenance expenses, or workover costs of
producing zones, were $1.8 million in 1994 as compared to $0.8 million in 1993.
The 1994 amount included $1.4 million related to eight workovers at the Cut Off
Field.
General and administrative costs also increased in total in 1994 from 1993,
due primarily to salary increases and staff additions that occurred subsequent
to the Initial Public Offering in July 1993. Additionally, in 1994 the first
payments were made pursuant to the Company's stock performance based incentive
compensation plan.
DD&A expense increased because of increased production rates, increased
finding costs and the Company's utilization of the future gross revenue method
in its DD&A calculation. This non-cash expense increased to $11.4 million in
1994 from $7.7 million in 1993. On a per unit basis, DD&A expense increased to
$5.15 per BOE in 1994 as compared to $4.20 per BOE in 1993.
While the Company did not have a current income tax liability in 1993, a
$0.1 million liability is estimated to have been incurred in 1994. After giving
effect to certain tax attribute carryovers, a relatively small 1993 deferred tax
provision of $0.9 million was booked on $9.8 million of pre-tax income. In 1994,
the Company generated $6.4 million of pre-tax income and recorded a deferred tax
provision of $2.4 million.
Estimated proved reserves of the Company at December 31, 1994, were 6.5
MMBbls of oil and 68.3 Bcf of gas, representing an increase to 17.8 MMBOE from
15.8 MMBOE at the end of 1993. The reserve increase of 4.7 MMBOE was offset by
1994 production of 2.2 MMBOE and the sale of reserves in place of 0.5 MMBOE.
Estimated proved reserves at December 31, 1994, were 64% gas and 36% oil, and
18% of total proved reserves were classified as proved undeveloped.
17
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
The Company has borrowed $21.5 million under the amended credit facility
described below to finance the cost of the 1996 Acquisitions. The Company will
use the net proceeds of this Offering to repay amounts borrowed under the credit
facility. The Company believes that its existing working capital plus the
expected cash flow from operations and borrowings under its bank credit facility
will be sufficient to fund its operations and development activities through the
end of 1997.
WORKING CAPITAL AND CASH FLOW. Working capital at September 30, 1996 was
$10.0 million. Net cash flow from operations before working capital changes for
the third quarter of 1996 was $8.4 million or $0.70 per share, an improvement of
22% from the comparable amounts reported for the quarter ended September 30,
1995 of $6.9 million or $0.58 per share. For the first nine months of 1996, net
cash flow from operations before working capital changes was $28.6 million, an
increase of 57% from the comparable period of 1995.
For the first nine months of 1996, the Company invested $62.9 million in
its oil and gas properties, which includes $1.6 million of capitalized general
and administrative and interest costs. These investments were financed from cash
flow from operations and borrowings under the Company's bank credit facility.
The Company's production is sold on month-to-month contracts at prevailing
prices. From time to time, however, the Company has entered into hedging
transactions or fixed price sales contracts for its oil and gas production. The
purpose of these transactions is to reduce the Company's exposure to future oil
and gas price declines. This hedging policy provides that not more than 50% of
its production quantities can be hedged without the consent of the Company's
Board of Directors. Such swap agreements typically provide for monthly payments
by (if prices rise) or to (if prices decline) the Company based on the
difference between the strike price and the average closing price of the near
month NYMEX futures contract for each month of the agreement. Because its
properties are located in the Gulf Coast Basin, the Company believes that
fluctuations in the NYMEX futures prices will closely match changes in the
market prices for its production.
The Company's net loss from hedging transactions relating to 1995
production was $11,000. Such swap contracts totaled 218.4 MBbls of oil and 460
MMbtu of gas. Additionally, the Company delivered 165.2 MBbls of oil at the Cut
Off Field during the eight month period ending August 31, 1995, at the fixed
price of $18.15 per barrel. The quantities associated with these hedging and
fixed price contracts represented 27% and 6% of the Company's oil and gas
production for 1995, respectively.
The Company's net loss from hedging transactions for the first nine months
of 1996 was $2.5 million. Swap contracts totaled 314.9 MBbls of oil and 3,500
MMbtu of gas which represented 31% and 41%, respectively, of the Company's oil
and gas production for such period. Additionally, the Company has hedged oil and
gas prices for certain future periods, and the applicable periods, quantities
and average prices are as follows:
<TABLE>
<CAPTION>
OIL GAS
------------------ --------------------
VOLUMES PRICE VOLUMES PRICE
PERIOD (MBBLS) ($/BBL) (MMBTU) ($MBTU)
------------------------------------------ ------- ------ ------- --------
<S> <C> <C> <C> <C>
Fourth quarter 1996....................... 176.9 21.60 1,380 2.17
First quarter 1997........................ 164.5 20.76 1,195 2.48
Second quarter 1997....................... N/A N/A 910 2.19
Third quarter 1997........................ N/A N/A 310 2.14
</TABLE>
HISTORICAL FINANCING SOURCES. From 1990 through the first half of 1993, the
Company financed the acquisition and exploitation of oil and gas properties with
funds provided by mezzanine financing sources, joint ventures with an industry
partner, limited partnerships and cash flow from operations. Since the Company's
Initial Public Offering in July 1993, the Company has financed its activities
with
18
<PAGE> 20
offering proceeds, cash flow from operations, borrowings under the NationsBank
credit facility described below and investments by two partnerships formed
before the Initial Public Offering which had uncommitted funds. These
partnerships were provided the option of participating for a combined interest
of 25%, subject to the amount of available funds, in all new properties acquired
by the Company which met their investment criteria. As of December 1994, all
funds of these partnerships were committed and the Company is not required to
offer participation in subsequently acquired properties to these entities,
unless such acquisitions represent additional interests in properties already
owned by the partnerships.
In September 1996, the Company amended its credit facility with NationsBank
of Texas, N.A. ("NationsBank"), as agent for a group of banks that includes the
First National Bank of Commerce ("FNBC"), Hibernia National Bank and the First
National Bank of Boston. The total facility amount was $125 million which is
comprised of a three-year revolving credit facility (the "Revolver") and a
one-year term loan (the "Term Loan"). Proceeds of borrowings are to be used to
finance the acquisition of oil and gas reserves and for general corporate
purposes. Interest is payable quarterly. The credit agreement provides for
certain covenants, including restrictions or requirements with respect to
working capital, net worth, disposition of properties, incurrence of additional
debt, change of ownership and reporting responsibilities. Such covenants may
result in the limitation or prohibition of the payment of cash dividends by the
Company.
The Revolver provides for total availability of $80 million with a
limitation on total outstanding borrowings based on a borrowing base amount
established by the banks for the Company's oil and gas properties, which was $60
million on September 26, 1996. At the option of the Company and after the Term
Loan is repaid, the outstanding balance of the Revolver will bear interest at
the NationsBank base rate, or at LIBOR plus a spread of 0.75% to 1.25%,
depending upon total outstanding borrowings. At November 4, 1996, the Revolver
had an outstanding principal balance of $49.4 million, and letters of credit
totaling $6.6 million had been issued pursuant to the facility. The principal
balance of the Revolver is due on October 1, 1999.
The Term Loan was established to finance the closing of the 1996
Acquisitions and certain development costs incurred by the Company during the
third quarter of 1996, and will be retired with the proceeds of the Offering.
The total amount available under the Term Loan is $45 million, and the principal
balance is due on October 1, 1997. If the Term Loan is outstanding on January 1,
1997, however, the banks have the right but not the obligation to redetermine
the borrowing base of the facility which could result in an acceleration of the
principal payments due under the Term Loan. On September 30, 1996, the
outstanding principal balance of the Term Loan was $31.2 million.
Until the Term Loan is repaid, a single interest rate will apply to the
amounts outstanding under the Revolver and the Term Loan, and the Company has
the option to use an adjusted NationsBank base rate or an adjusted LIBOR rate.
From September 26, 1996 through December 31, 1996, the applicable rates will be
the NationsBank base rate (without adjustment) or LIBOR plus 2%. Beginning
January 1, 1997, the applicable interest rate options are increased by 0.5% each
quarter until the Term Loan is retired. As of November 4, 1996, the weighted
average interest rate of the facility was 7.6% per annum. The Company paid a
facility fee of $650,000 on September 26, 1996, and an additional fee of
$350,000 will be due if the Term Loan is outstanding on January 1, 1997.
On November 30, 1995, the Company executed a Term Loan Agreement with FNBC
in the original principal amount of $3.3 million for the purchase of the
RiverStone office building, a portion of which is used by the Company for its
Lafayette office. The loan has a five year term bearing interest at a rate of
7.45% over the entire term of the loan. Principal and interest are payable
monthly and are based upon a 20 year amortization period. The indebtedness under
the agreement is collateralized by the building. This loan agreement contains
covenants and restrictions which are similar to the NationsBank credit facility.
LONG-TERM FINANCING. The Company's development budget for all of its
properties is $26 million for the fourth quarter of 1996 and $78 million for
1997. Initially, this budget has been allocated to
19
<PAGE> 21
finance the continued development of its property base and would be funded by a
combination of cash flow from operations and borrowings currently available
under its bank credit facility. A number of proposals for property acquisitions
are currently outstanding, and evaluations of a number of other properties for
potential purchase or joint venture are continuing, although no offers have been
accepted and no future acquisitions can be assured. The Company's goal is to
maintain a relatively low debt level because of the volatility of oil and gas
prices. The Company may seek additional capital to finance future acquisitions
or development activities beyond its current plans. In addition to the public
markets, the Company would also consider new private financing sources and joint
venture or partnership structures to fund such additional investments.
For information regarding certain regulatory and litigation issues and
accounting matters, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" set forth in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, which is incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
20
<PAGE> 22
BUSINESS
OVERVIEW
Stone Energy is an independent oil and gas company engaged in the
acquisition, exploitation and operation of oil and gas properties in the Gulf
Coast Basin. The Company and its predecessors have conducted exploration,
development and production operations in the Gulf Coast Basin since 1973, which
gives the Company extensive geophysical, technical and operational expertise in
this area. The Company's business strategy is to increase production, cash flow
and reserves through the acquisition and development of mature properties with
established production histories, low current production and significant
exploitation and development potential. Primarily as a result of the subsequent
development and exploitation of the properties it has acquired pursuant to this
strategy, the Company's average net daily production has increased from 1.2 MBOE
in 1990 to 9.0 MBOE in the first nine months of 1996. Seven of the Company's
properties are located in the Gulf of Mexico offshore Louisiana and seven are
located onshore Louisiana.
STRATEGY
ACQUISITION. From 1990 to 1993, the Company acquired its properties by
purchases, primarily from major oil companies. In response to a changing
acquisition environment, the Company has utilized arrangements other than the
purchase of ownership interests, including farmins and partnering ventures. The
Company's flexibility in structuring transactions allows it to apply its
development capital and technical expertise to properties owned by those major
and independent oil companies that have an inventory of development
opportunities that require resources beyond their budgets and technical staff
dedicated to operations in the Gulf Coast Basin.
In its acquisition efforts the Company seeks properties with the following
characteristics:
- Gulf Coast Concentration. The Gulf Coast Basin is the Company's primary
area of operations and expertise. This geographic concentration allows
the Company to closely manage costs and to develop detailed geological
and other information relating to the properties, thereby increasing
their exploitation potential. In addition, large offshore blocks are
highly desirable because of the quality and availability of seismic data,
and the fact that large areas can be held by production while development
plans are formulated and implemented. The Gulf Coast Basin, both onshore
and in shallow water offshore, has a substantial existing infrastructure,
including gathering systems, platforms, pipelines and drilling and
service companies, which facilitates cost effective operations and the
timely development of discoveries.
- Multiple Reservoirs/Opportunities. Properties with multiple sandstone
reservoirs provide increased potential for return by having a number of
opportunities that, individually or in the aggregate, could make the
properties profitable. Wells drilled in the Gulf Coast Basin frequently
have more than one productive horizon.
- Mature Properties with Established Production History. Properties
discovered in the late 1950s through the early 1970s were frequently
completed in the one or two thickest sands on a property that offered the
highest production rates. These original completions are often depleted
or near depletion, and, in many cases, thinner sands were overlooked or
bypassed completely. Additionally, historical production data is used to
project future rates of production and ultimate recoverable reserves.
- Low Current Production. Low production levels reduce bidding competition
from purchasers who favor proved producing reserves. A low level of cash
flow also increases the likelihood that the current property owner will
consider proposals made by the Company.
- Proved Undeveloped and Nonproducing Reserves. The existence of
significant remaining proved undeveloped and nonproducing reserves
provides the opportunity to increase production significantly through the
drilling of new wells, workovers, recompletions and other non-drilling
activities.
21
<PAGE> 23
- Lack of Recent Development Activity. The Company often identifies
additional opportunities with respect to properties that have had little
or no recent mapping or consideration for development potential by the
Seller. The Company applies recent advances in well evaluation techniques
and seismic technology and processing that have often not been applied by
the sellers to mature properties.
- Control of Operations. The Company believes that its position as field
operator is essential to control costs and initiate development
operations, including the timing and extent of such operations through
the first phase of development.
DEVELOPMENT. In connection with its business strategy, prior to each
property acquisition the Company performs a thorough geological, geophysical and
engineering analysis of the property, including 3-D seismic in many cases. The
Company utilizes its geological and engineering assessments to formulate a
comprehensive development plan for the property which typically involves
identification of additional undeveloped formations, the drilling of new wells
in developed and undeveloped formations, the workover or recompletion of
existing wells, and the application of other techniques designed to increase
production. As the Company executes its initial development plan for a property,
it frequently identifies incremental opportunities for further development of
the property.
The Company believes that significant additional development potential
exists in its current asset base of 14 properties. For the period from October
1, 1996 through December 31, 1997, the Company has budgeted capital expenditures
of $104 million, which include plans to drill 23 new wells, conduct 29
workovers/recompletions on existing wells and, depending upon the success of
specific development activities, install five new offshore production platforms.
Investments in the 1996 Acquisitions and the properties described below
constitute 92% of budgeted 1996 capital expenditures (including actual
expenditures through September 30, 1996), and 84% of budgeted 1997 capital
expenditures.
RESULTS TO DATE. From the beginning of 1990, when the Company commenced the
implementation of its current business strategy, through June 30, 1996 (giving
pro forma effect to the 1996 Acquisitions), the Company invested approximately
$169 million in new properties and during this period realized $114 million of
net operating cash flow from these properties. The net present value of the
Company's estimated proved reserves from these properties was $263.5 million at
August 31, 1996. Proved reserve additions during this period totalled 41.9 MMBOE
and were purchased and developed for an average finding cost of $5.10 per BOE
(including property acquisitions and incurred and estimated future development
costs). Operating costs, including major maintenance expenses, for these
properties since their acquisition averaged $2.73 per BOE for this period.
The Company's strategy has resulted in significantly higher levels of
average net daily production, as shown in the table below:
AVERAGE NET DAILY PRODUCTION RATES
<TABLE>
<CAPTION>
OIL GAS OIL
PRODUCTION PRODUCTION AND GAS
(MBBLS/D) (MMCF/D) (MBOE/D)
---------- ---------- --------
<S> <C> <C> <C>
1990..................................... 0.5 4.2 1.2
1991..................................... 1.5 4.2 2.2
1992..................................... 2.0 8.1 3.4
1993..................................... 2.8 13.6 5.1
1994..................................... 3.0 18.2 6.1
1995..................................... 3.8 23.0 7.7
First nine months of 1996................ 3.7 31.4 9.0
</TABLE>
22
<PAGE> 24
OIL AND GAS RESERVES
The following tables set forth summary information with respect to the
Company's estimated proved oil and gas reserves. All information in this
Prospectus as of December 31, 1993, 1994 and 1995 relating to estimated oil and
gas reserves and the estimated future net cash flows attributable thereto is
based upon the Reserve Reports prepared by Atwater Consultants, Ltd. and Cawley,
Gillespie & Associates, Inc., both independent petroleum engineers (the
"Independent Engineers"), except for the reserves attributed to Eugene Island
Block 243 Field at December 31, 1994, which were estimated by the Company.
Acquired on December 16, 1994, this field comprised approximately 11% of the
Company's estimated total proved reserves at December 31, 1994. All information
in this Prospectus as of August 31, 1996 relating to estimated oil and gas
reserves and estimated future net cash flows attributable thereto for the oil
and gas interests acquired in the 1996 Acquisitions is based on the Reserve
Reports of the Independent Engineers. The remainder of the August 31, 1996
information is based on estimates by the Company. All calculations of estimated
reserves and future net cash flows have been made in accordance with the rules
and regulations of the Commission, and, except as otherwise indicated, give no
effect to federal or state income taxes otherwise attributable to estimated
future cash flows from the sale of oil and gas. The present value of estimated
future net cash flows has been calculated using a discount factor of 10%. For
purposes of estimated cash flows at August 31, 1996, average product prices of
$21.95 per Bbl and $2.43 per Mcf were used.
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
AUGUST 31, --------------------------------
1996 1995 1994 1993
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Total net proved:
Oil (MBbls).................................. 10,509 7,985 6,455 6,080
Gas (MMcf)................................... 128,862 81,179 68,285 58,491
Total (MBOE)................................. 31,986 21,515 17,836 15,829
Net proved developed:
Oil (MBbls).................................. 8,762 7,055 5,840 6,035
Gas (MMcf)................................... 98,561 67,797 52,215 48,448
Total (MBOE)................................. 25,189 18,355 14,543 14,110
Estimated future net cash flows before income
taxes (in thousands)......................... $ 395,451 $259,478 $145,006 $164,945
Present value of estimated future net cash
flows before income taxes (in
thousands)(1)................................ $ 263,478 $179,725 $ 97,391 $104,713
</TABLE>
- ---------------
(1) The present value of estimated future net cash flows attributable to the
Company's proved reserves was prepared using constant prices as of the
calculation date, discounted at 10% per annum on a pre-tax basis.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and the timing of
development expenditures, including many factors beyond the control of the
producer. The reserve data set forth herein represent only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact way, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment and the existence of
development plans. As a result, estimates of reserves made by different
engineers for the same property will often vary. Results of drilling, testing
and production subsequent to the date of an estimate may justify a revision of
such estimates. Accordingly, reserve estimates are generally different from the
quantities of oil and gas that are ultimately produced. Further, the estimated
future net revenues from proved reserves and the present value thereof are based
upon certain assumptions, including geological success, prices, future
production levels and costs that may not prove to be correct. Predictions about
prices and future production levels are
23
<PAGE> 25
subject to great uncertainty, and the meaningfulness of such estimates depends
on the accuracy of the assumptions upon which they are based.
ACQUISITION, PRODUCTION AND DRILLING ACTIVITY
ACQUISITION AND DEVELOPMENT COSTS. The following table sets forth certain
information regarding the costs incurred by the Company in its development and
acquisition activities during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition costs................................... $ 8,074 $11,465 $ 4,106
Development costs................................... 27,383 22,241 12,368
Exploratory costs................................... 8,261 4,719 140
------- ------- -------
Subtotal.......................................... 43,718 38,425 16,614
General and administrative costs, net of fees and
reimbursements.................................... 1,790 2,749 1,553
------- ------- -------
Total costs incurred................................ $45,508 $41,174 $18,167
======= ======= =======
</TABLE>
PRODUCTIVE WELL AND ACREAGE DATA. The following table sets forth certain
statistics for the Company regarding the number of productive wells and
developed and undeveloped acreage as of December 31, 1995.
<TABLE>
<CAPTION>
GROSS NET
------ ------
<S> <C> <C>
Productive Wells:
Oil(1)......................................................... 42.00 28.55
Gas(2)......................................................... 26.00 17.31
------ ------
Total.................................................. 68.00 45.86
====== ======
Developed Acres:
Onshore Louisiana.............................................. 2,914 2,069
Offshore Louisiana............................................. 6,729 3,360
------ ------
Total.................................................. 9,643 5,429
====== ======
Undeveloped Acres(3):
Onshore Louisiana.............................................. 13,297 11,681
Offshore Louisiana............................................. 22,886 13,148
------ ------
Total.................................................. 36,183 24,829
====== ======
</TABLE>
- ---------------
(1) Four gross wells each have dual completions.
(2) Nine gross wells each have dual completions.
(3) Unless production is established, leases covering approximately 0.92% of the
Company's undeveloped acreage will expire in 1996, 2.12% in 1997, 3.41% in
1998, 6.96% in 1999 and 4.74% in 2000. Leases covering the remainder of the
Company's undeveloped gross acreage (81.85%) are held by production.
24
<PAGE> 26
DRILLING ACTIVITY. The following table sets forth the Company's drilling
activity for each of the years indicated.
<TABLE>
<CAPTION>
GROSS NET
------ ----
<S> <C> <C>
1995:
Exploratory............................................ 3.00 2.94
Development............................................ 6.00 4.40
1994:
Exploratory............................................ 2.00 1.75
Development............................................ 12.00 7.64
1993:
Exploratory............................................ -- --
Development............................................ 6.00 3.72
</TABLE>
All wells drilled were productive except for one gross development well (0.53
net), which was drilled in 1993, three gross development wells (2.34 net), which
were drilled in 1994, and two gross exploratory wells (1.94 net) and one gross
development well (0.38 net), which were drilled in 1995.
PROPERTIES
Of the seven areas described below, the first three, Lake Hermitage,
Vermilion Block 46 and Vermilion Block 131, comprise the 1996 Acquisitions.
Prior to these purchases, the Company had acquired interests in Vermilion Block
46 in 1993 and in the Lake Hermitage Field in 1994. Subsequent to the 1996
Acquisitions, the Company owns and operates a controlling interest in each of
these properties. The Company's purchase of a 50% interest in Vermilion Block
131 includes the right to operate this field. The remaining interest in the
property is owned by a major oil company. The 1996 Acquisitions represent an
important expansion of the Company's asset base. The Company believes that each
of these properties has the characteristics targeted by the Company in its
acquisition strategy, including low current production and multiple
opportunities to increase production, cash flow and reserves through development
activities. Production volumes are presented on a gross well basis, unless
otherwise indicated.
LAKE HERMITAGE. On August 1, 1996, the Company increased its interest in
approximately 6,400 acres in the Lake Hermitage Field by purchasing the
interests of a group of privately-held companies in the field for $6.5 million.
The Company had previously drilled six successful wells (including four dually
completed wells) on designated areas in the field under a farmout agreement
entered into in 1994 with the prior owners. Pursuant to prior contractual
obligations, the Company assigned a portion of the acquired interest to two
partnerships it manages for a proportionate share of the purchase price. After
giving effect to these transactions, the Company holds an approximate 76%
working interest and an approximate 61% net revenue interest in the field except
for certain deep rights held by a major oil company, which are below the
horizons currently being targeted by the Company.
The Lake Hermitage Field is located in Plaquemines Parish, Louisiana,
approximately 25 miles south southeast of New Orleans. The field is a salt dome
structure discovered in 1928 and has produced significant quantities of oil and
gas from multiple sandstone reservoirs between 3,100 and 14,200 feet. In the
August 1996 purchase, the Company acquired an interest in four productive wells,
that are producing at the combined daily rates of approximately 100 Bbls of oil
and 0.4 MMcf of gas. On August 2, 1996, the Company tested the dually-completed
LLDSB No. 2, at the combined daily rates of 660 Bbls of oil and 2.4 MMcf of gas.
The well was spudded on May 18, 1996, and was drilled to a total depth of 11,645
feet. Based on electric log and core analysis, a total of 185 feet of pay was
determined to be productive in a total of eight sands. First sales from the well
are expected in October 1996.
25
<PAGE> 27
The Company intends to acquire 3-D seismic data over the Lake Hermitage
salt dome in 1997, the interpretation of which could lead to additional field
development. For the remainder of 1996 and 1997, the Company plans to recomplete
and workover six wells, four of which were acquired in August 1996. Total
investments in the property for the seismic data and the workover program are
expected to be $4.5 million for the fourth quarter of 1996 and for 1997. In the
second quarter of 1996, which was prior to the 1996 Acquisitions, the Company's
share of average daily production was 120 Bbls of oil and 4.2 MMcf of gas.
VERMILION BLOCK 46. On September 27, 1996, the Company acquired a 62.5%
working interest in the Vermilion Block 46 Field for $15.4 million. The Company
acquired this interest in the property from a major oil company and became
operator of the block at that time. In a separate transaction with a different
company, in 1993 the Company purchased a 37.5% working interest in this field
for $3.7 million. Pursuant to prior contractual obligations, the Company
assigned a portion of the acquired interests to two partnerships it manages in
consideration for a pro rata portion of the purchase price, and the Company
retained a 76% working interest with an approximate 65% net revenue interest in
the field.
Vermilion Block 46 Field is located approximately 10 miles offshore
Louisiana in 30 feet of water. Production was established on the block in 1956,
and cumulative production from the field is approximately 120 Bcf of gas and 1.1
MMBbls of oil. The interests acquired in Vermilion Block 46 consist of
approximately 2,500 acres in the northern half of the block. Productive
reservoirs have historically been encountered between 3,000 and 15,500 feet.
Since the initial 1993 acquisition, development activities conducted by the
prior operator were limited to the recompletion of one well.
In 1997, the Company plans to drill three new wells and workover two
existing wells. The proposed 1997 capital expenditures budget of $12.4 million
includes a new production platform which is dependent upon development results.
In the second quarter of 1996, which was prior to the 1996 Acquisition, the
Company's share of average daily production was 0.7 MMcf.
VERMILION BLOCK 131. On September 27, 1996, the Company acquired a 50%
working interest with a 41% net revenue interest in the Vermilion Block 131
Field from a major oil company for $5.1 million. In addition to the purchase
price, a letter of credit in the amount of $1.8 million was established to
secure the Company's obligation to abandon the property. The Company is the
operator of the property, and the remaining 50% interest is owned by a major oil
company. The effective date of the purchase is August 11, 1996, and the
acquisition includes interests in six producing wells and six shut-in wells.
The Vermilion Block 131 Field is located approximately 30 miles offshore
Louisiana in 60 feet of water. The field was discovered in 1960 and placed on
production in 1963. Field development has consisted of 19 productive wells and
seven dry holes. A total of 65 commercial completions have been established in
27 sandstone reservoirs between 4,800 and 14,300 feet. At the date of
acquisition, daily production from the field was approximately 9.6 MMcf of gas.
A new evaluation of the property is currently in progress utilizing the
Company's recently acquired 3-D seismic data.
Cumulative production from the property is 482 Bcf of gas and 8.5 MMBbls of
oil. The Company's first development operations for the property are planned for
1997, and total capital expenditures of $8.6 million have been budgeted for the
drilling of three new wells and the recompletion of four existing wells.
CUT OFF. The Cut Off Field is located in Lafourche Parish, Louisiana. The
Company owns a 98% working interest in this field, which was purchased from two
major and two independent oil companies in August 1991. A portion of the
Company's interest in this field is burdened by net profits interests granted in
connection with the financing of the purchase price of the Company's interest
and by net profits interests, held by certain current and former employees of
the Company, of up to approximately 7% in the aggregate, determined on a
well-by-well basis. The former of these
26
<PAGE> 28
net profits interests are subject to reduction upon reaching certain thresholds.
The Company currently has an approximate 61% to 65% net revenue interest in the
field. The Company's investments in the property total $22.1 million, including
the acquisition cost of $9.0 million and development costs, 3-D seismic and
facilities improvements of $13.1 million. Cumulative net cash flow from the
property through September 1996 was $21.5 million.
The Cut Off Field is a major oil and gas field discovered in 1953 and is
covered by both land and inland water. Cumulative production from the field at
the time of the acquisition was 110 Bcf and 39 MMBbls. Since the Company assumed
operations of the field in 1991, it has produced approximately 1.5 MMBbls of oil
and 7.0 Bcf of gas. The average daily production from this property net to the
Company was 460 Bbls of oil and 0.4 MMcf of gas during the first nine months of
1996.
To date, the Company has performed 13 workovers or recompletions and
drilled four new wells. In addition, water injection has commenced on two
waterflood projects which are expected to increase total oil recovery.
Commercial production has been established to date in 25 distinct sandstone
reservoirs within this complexly faulted field.
The Cut Off Field is located approximately two miles from the Clovelly
Field, one of the Company's other significant properties which is described
below. Each field is dominated geologically by a prominent salt dome structure.
Although significant development drilling has been conducted at each property
near the salt, a substantial portion of the surrounding acreage has received
little exploration attention.
In order to attempt to better understand the complex fault patterns near
the salt and to evaluate other potential drilling opportunities in this region,
the Company recently completed a $4.5 million 3-D seismic survey of a
61-square-mile area which includes the Cut Off Field, the Clovelly Field and a
significant amount of contiguous acreage. The Company owns or controls through
lease options approximately 70% of the survey area, and the processed data was
received by the Company in September 1996.
Although the future development of the Cut Off Field will be guided by the
interpretation of the new 3-D data, one purpose of the survey was the
confirmation of pre-existing development plans derived from more traditional
methods. The Company has budgeted a total of $7.0 million for the 1997
development of the property, which includes three new wells and four
workover/recompletion operations.
CLOVELLY. In July 1995, the Company acquired for $4.5 million a 100%
working interest and an 89.5% net revenue interest in the Clovelly Field from a
major oil company. The field, located onshore in Lafourche Parish, Louisiana, is
comprised of approximately 3,200 acres on the north and east flanks of a salt
dome structure that has produced in excess of 32 MMBbls of oil and 165 Bcf of
gas since its discovery in 1950. The purchase included interests in seven oil
and two gas producing wells which are operated by the Company. In August 1996,
the Company acquired a 40% working interest in 2,840 acres on the south and west
flanks of the salt dome structure in exchange for 3-D seismic data.
Historically, field production has been derived from wells which developed
multiple sandstone reservoirs trapped against the salt. Since the acquisition,
the Company has conducted eight workover/recompletion operations in the field.
In the first nine months of 1996, the average daily production from the property
net to the Company was 325 Bbls of oil and 2.1 MMcf of gas.
As described in the above discussion of the Cut Off Field, a 3-D seismic
survey was recently acquired over the Cut Off Field, the Clovelly Field and
surrounding acreage. Development plans for 1997 consist of three new development
wells and two workovers/recompletions, with a total budget of $6.1 million.
EUGENE ISLAND BLOCK 243. Eugene Island Block 243 consists of two federal
lease blocks located offshore Louisiana in the Gulf of Mexico in approximately
150 feet of water. The Company owns an
27
<PAGE> 29
approximate 58% working interest in this field, which it acquired for $10
million from a major oil company in December 1994. The acquisition included a
production platform and five producing wells.
Prior to its acquisition by Stone Energy, the field had produced 65 Bcf of
gas from nine sandstone reservoirs between 3,300 feet and 12,500 feet. At the
time of purchase, five wells were producing intermittently at a rate of
approximately 4 MMcf/d of gas. During the first nine months of 1996, average
daily production from the field net to the Company's interest was 240 Bbls of
oil and 12.2 MMcf of gas.
Prior to acquiring the property, the Company mapped the entire field area
utilizing 3-D seismic data. The interpretation indicated the presence of
additional reserves and prospective drilling locations. The Company's initial
well, the C-1, was drilled and placed on production in 1995. The well logged gas
pay in three sands thought to be previously depleted and found gas pay in a
deeper sand, which is the currently producing interval.
In 1996, two exploratory wells were drilled on an untested portion of the
leaseblock. These wells found gas in one of three objective sands, but did not
test the deepest section found productive in the C-1 well. During 1997, two
wells are planned to test the deepest sand section in the area of the 1996
drilling. The objective sands produce gas and oil from wells to the north on a
major company's lease and are interpreted, based on 3-D seismic data, to be
prospective beneath the Company's leaseblock. The results of the 1997 drilling
will determine the size and location of production and drilling facilities
necessary to produce new reserves if any are discovered in the exploratory area.
Total investments for 1997 are budgeted to be $14.2 million.
SOUTH PELTO BLOCK 23. South Pelto Block 23 is located in federal waters in
the Gulf of Mexico, approximately 80 miles southwest of New Orleans. The Company
owns an approximate 97% working interest in this field, which was purchased from
a major oil company in June 1990. A portion of the Company's interest in this
property is burdened by a production payment granted in connection with the
financing of the purchase price of the Company's interest and by net profits
interests, held by certain current and former employees of the Company, similar
to those with respect to the Cut Off Field. The Company's net revenue interest
in the field currently ranges from approximately 65% to 78%. The Company's
investment in the property through September 30, 1996 was approximately $27.7
million, including $1.6 million of acquisition and bonding costs and $26.1
million of costs for field development, facilities enhancements and
modifications.
The field was discovered in 1962 and subsequently developed by a major oil
company. Cumulative production from eight sands and ten wells is over 11 MMBbls
of oil and 10 Bcf of gas since going onstream in 1963. Subsequent to the
acquisition by the Company, the initial phase of development included three
workovers and the drilling of two new wells. In the first nine months of 1996,
the field produced at the average daily rate net to the Company of 325 Bbls of
oil and 3.2 MMcf of gas.
The Company's 1996 development activity is based on the interpretation of a
proprietary 3-D seismic survey obtained during 1994. This interpretation
indicates the presence of multiple potential reservoirs beneath the depth of
previously established production on the leaseblock. In May of 1996, the Company
spudded the first test well, the No. 22, which encountered a total of 90 feet of
pay in five sands. A second 1996 development well, the No. 24, is currently
being drilled directionally to a planned total depth beneath 17,000 feet from a
separate surface location to test a series of seismic amplitude bright spots.
First production from the No. 22 well is scheduled for January 1997 following
the installation of a monopod platform and facilities from which up to three
wells can be drilled. The results from the No. 24 well will determine the size
of the production facilities. A third well is planned for 1996 to further
delineate the structure.
Total investments for the last quarter of 1996 at South Pelto Block 23 are
expected to approximate $18.1 million, with $13.7 million budgeted for 1997
development. Investments for 1997 may increase pending the results of the No. 24
well.
28
<PAGE> 30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of the directors
and executive officers of the Company. Each of the following persons was
recently elected to the positions indicated.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James H. Stone........................... 70 Chairman of the Board and Chief
Executive Officer
Joe R. Klutts............................ 62 Vice Chairman of the Board
D. Peter Canty........................... 49 President, Chief Operating Officer
and Director
Michael L. Finch......................... 41 Executive Vice President, Chief
Financial Officer and Director
Phillip T. Lalande....................... 47 Vice President -- Engineering
James H. Prince.......................... 54 Vice President, Chief Accounting
Officer and Controller
Andrew L. Gates, III..................... 49 Secretary and General Counsel
E. J. Louviere........................... 47 Vice President -- Land
Craig L. Glassinger...................... 48 Vice President -- Acquisitions
David R. Voelker......................... 43 Director
John P. Laborde.......................... 73 Director
Robert A. Bernhard....................... 68 Director
Raymond B. Gary.......................... 68 Director
B. J. Duplantis.......................... 57 Director
</TABLE>
The following biographies describe the business experience of the directors
and executive officers of the Company.
James H. Stone has served as Chairman of the Board and Chief Executive
Officer of the Company since March 1993, and as Chairman of the Board of TSPC
since 1981 and served as President of TSPC from September 1992 to July 1993. Mr.
Stone is currently a director of Hibernia Corporation and Newpark Resources,
Inc., and is a member of the Advisory Committee of the St. Louis Rams Football
Company.
Joe R. Klutts has served as Vice Chairman of the Board since March 1994 and
as a Director since March 1993. He has also served as a Director of TSPC since
1981. He served as President of the Company from March 1993 to February 1994,
and as Executive Vice President-Exploration and President of TSPC from 1981 to
1993 and from July 1993 to May 1994, respectively.
D. Peter Canty served as an Executive Vice President of the Company from
March 1993 to March 1994, when he was named President of the Company. He has
also served as Chief Operating Officer and as a Director of the Company since
March 1993. Mr. Canty was a Vice President and the Chief Geologist of TSPC from
1987 to May 1994, when he was named President of TSPC.
Michael L. Finch has served as Executive Vice President, Chief Financial
Officer and Director since March 1993. From 1988 through July 1993, he was a
partner in the firm of Finch & Pierret, CPAs, which performed a substantial
amount of financial reporting, tax compliance and financial advisory services
for TSPC and its affiliates.
Phillip T. Lalande has served as Vice President -- Engineering of the
Company since March 1995. He served as the Company's Operations Manager from
July 1993 to March 1995, and as a consulting engineer to TSPC from 1988 to July
1993.
29
<PAGE> 31
James H. Prince has served as Vice President, Chief Accounting Officer and
Controller of the Company since March 1993 and as Vice President and Controller
of TSPC since 1981, as Treasurer since 1989, as Secretary from 1989 to 1991 and
as Assistant Secretary since 1992.
Andrew L. Gates, III has served as Vice President -- Legal, Secretary and
General Counsel of the Company since August 1995. Prior to joining Stone Energy
in 1995, he was a partner in the law firm of Ottinger, Gates, Hebert & Sikes
from 1987 to August 1995.
E. J. Louviere has served as Vice President -- Land since June 1995. He
served as the Land Manager of TSPC and the Company from July 1981 to June 1995.
Craig L. Glassinger has served as Vice President -- Acquisitions of the
Company since December 1995. He served TSPC and Stone Energy from October 1992
to December 1995 as Acquisitions Manager. Prior to joining TSPC, he was a
division geologist for Forest Oil Corporation for approximately ten years.
David R. Voelker has served as a Director of the Company since March 1993
and as a Director of TSPC since 1991. He is currently engaged in private
investments. He was a partner of Johnson Rice & Company from 1989 to February
1994.
John P. Laborde has served as a Director of the Company since May 1993. He
is currently a consultant to Tidewater Inc. He served as Chief Executive Officer
and Chairman of the Board of Tidewater Inc. from 1956 and 1968, respectively, to
his retirement in October 1994. Mr. Laborde also served as President of
Tidewater Inc. from 1958 to 1981 and from 1988 to his retirement. Mr. Laborde is
currently a director of Tidewater Inc., American Bureau of Shipping and Stolt
Comex Seaway, S.A.
Robert A. Bernhard has served as a Director of the Company since May 1993.
He has also served as Co-chairman of Munn, Bernhard & Associates, Inc., an
investment advisory firm, since 1990. Mr. Bernhard was formerly Chairman of
Ichor Technology, Inc., a privately-held company that filed for bankruptcy under
Chapter 7 of the U.S. Bankruptcy Code in February 1993.
Raymond B. Gary has served as a Director of the Company since May 1993. He
has also served as an advisory director of Morgan Stanley & Co. Inc. since his
retirement as a managing director and partner of Morgan Stanley in 1983.
B. J. Duplantis has served as a Director of the Company since May 1993. He
is a senior partner of the law firm Gordon, Arata, McCollam & Duplantis.
30
<PAGE> 32
SELLING STOCKHOLDERS
The following table sets forth as of November 1, 1996 certain information
regarding the shares of Common Stock beneficially owned by each of the Selling
Stockholders before the Offering, the number of shares of Common Stock to be
sold by each of the Selling Stockholders in the Offering, the number of shares
of Common Stock that will be beneficially owned by each of the Selling
Stockholders after the Offering and the percentage of the outstanding shares of
Common Stock that such shares represent.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP SHARES BENEFICIAL OWNERSHIP
BEFORE OFFERING TO BE SOLD AFTER OFFERING
---------------------- IN ----------------------
NAME OF SELLING STOCKHOLDER NUMBER(1) PERCENT OFFERING NUMBER(1) PERCENT
--------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
D. Peter Canty.................... 476,770(2) 4.0% 100,000 376,770(2) 2.6%
Michael L. Finch.................. 548,111(3) 4.6 100,000 448,111(3) 3.1
James H. Prince................... 344,522 2.9 75,000 269,522 1.9
Robert A. Bernhard................ 215,174(4) 1.8 20,000(5) 151,333(4) 1.0
Joan M. Bernhard.................. 18,566 * 6,566 12,000 *
Bernhard Trust "B"................ 48,914 * 18,914 30,000 *
Robert A. Bernhard Charitable
Remainder Trust................. 18,361 * 18,361 -- *
David R. Voelker.................. 1,488,246(6) 12.6 20,000(5) 1,368,246(6) 9.4
KGB Trust......................... 875,547 7.4 50,000 825,547 5.7
Frantzen/Voelker Investments,
L.L.C........................... 529,570 4.5 50,000 479,570 3.3
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares underlying options exercisable within 60 days of 15,000,
15,000, 9,000, 9,333 and 9,333 for Messrs. Canty, Finch, Prince, Bernhard
and Voelker, respectively.
(2) Includes 200 shares owned by Mr. Canty's wife.
(3) Includes 31,519 shares owned by the James Rader Stone Trust and 40,921
shares owned by the Elizabeth Houston Stone Trust. Mr. Finch is a trustee of
each of such trusts and disclaims any pecuniary interest with respect to
such shares.
(4) Includes (a) 48,914 shares before the Offering and 30,000 shares after the
Offering held by the Bernhard Trust "B" of which Mr. Bernhard is the trustee
and a potential beneficiary, (b) 18,566 shares before the Offering and
12,000 shares after the Offering held by Mr. Bernhard's wife, Joan M.
Bernhard and (c) 18,361 shares before the Offering and zero shares after the
Offering held by the Robert A. Bernhard Charitable Remainder Trust of which
Mr. Bernhard is the trustee.
(5) Only includes shares held directly by the indicated person.
(6) Includes (a) 875,547 shares before the Offering and 825,547 shares after the
Offering held by the KGB Trust of which Mr. Voelker is the sole trustee and
(b) 529,570 shares before the Offering and 479,570 shares after the Offering
held by Frantzen/Voelker Investments, L.L.C. ("Frantzen/Voelker") of which
Mr. Voelker is a member. Mr. Voelker disclaims any pecuniary interest with
respect to the shares owned by the KGB Trust, 423,656 of the shares held by
Frantzen/Voelker before the Offering and 383,656 of the shares held by
Frantzen/Voelker after the Offering.
31
<PAGE> 33
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below, for whom Salomon Brothers Inc, Johnson Rice & Company L.L.C. and
Morgan Keegan & Company, Inc. are serving as Representatives, have severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to them, the respective number of shares of Common Stock set forth opposite
the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Salomon Brothers Inc........................................
Johnson Rice & Company L.L.C................................
Morgan Keegan & Company, Inc................................
---------
Total.................................................. 3,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
shares covered by the over-allotment option described below) if any such shares
are taken.
The Underwriters initially propose to offer part of the Common Stock
directly to the public at the price to public set forth on the cover page hereof
and to certain dealers at a price which represents a concession not in excess of
$ a share under the public offering price. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ a share to other
Underwriters or to certain dealers. After the offering of the Common Stock, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable at any time for 30 days from the date of the
Underwriting Agreement, to purchase up to 480,000 additional shares of Common
Stock at the price to public set forth on the cover page hereof, less
underwriting discounts and commissions. The Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
incurred in the sale of the shares of Common Stock offered hereby. To the extent
such option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares of Common Stock offered by
the Underwriters hereby.
The Company has agreed that it will not, for a period of 120 days following
the date of this Prospectus, without the prior written consent of the
Representatives, (a) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise dispose of, directly or indirectly, or
announce the offering of any other shares of Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Common Stock;
provided, however, that the Company may issue and sell Common Stock pursuant to
any employee stock option plan, stock ownership plan or dividend reinvestment
plan of the Company in effect at the time of the execution of the Underwriting
32
<PAGE> 34
Agreement and the Company may issue Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding at the date of this
Prospectus, or (b) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (a) or (b) of this
sentence is to be settled by delivery of such Common Stock or such other
securities, in cash or otherwise. In addition, the executive officers and
directors and certain other shareholders of the Company have agreed that each of
them will not, for a period of 120 days following the date of this Prospectus,
without the prior written consent of the Representatives, (a) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise dispose of, directly or indirectly, or announce the offering of, any
other shares of Common Stock beneficially owned by such person, or any
securities convertible into or exchangeable for Common Stock, other than shares
of Common Stock disposed of as bona fide gifts, or (b) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (a) or (b) of this sentence is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
The Underwriters are reserving an aggregate of 100,000 shares of Common
Stock to be offered to James H. Stone, Chairman of the Board and Chief Executive
Officer of the Company, at the public offering price set forth on the cover page
of this Prospectus. No underwriting discount will be payable by the Company with
respect to the shares to be purchased from the Company by the Underwriters and
sold to Mr. Stone.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company and the Selling Stockholders by
Vinson & Elkins L.L.P., Houston, Texas. Certain legal matters in connection with
the sale of the Common Stock will be passed upon for the Underwriters by Andrews
& Kurth L.L.P., Houston, Texas.
EXPERTS
Except as noted otherwise, information appearing in this Prospectus
regarding the gross quantities of reserves of the oil and gas properties owned
by the Company and the future cash flows and the present values thereof from
such reserves is based on estimates of such reserves and present values prepared
by Atwater Consultants, Ltd. and Cawley, Gillespie & Associates, Inc., both
independent petroleum engineers.
The consolidated financial statements of the Company as of December 31,
1995 and 1994, and for the three years in the period ended December 31, 1995,
included elsewhere and incorporated by reference in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports. With respect to the unaudited interim financial information for the
three and nine months ended September 30, 1996 and 1995 and the three and six
months ended June 30, 1996 and 1995 and the three months ended March 31, 1996
and 1995, Arthur Andersen LLP has applied limited procedures in accordance with
professional standards for a review of that information. However, their separate
reports thereon state that they did not audit and they do not express an opinion
on that interim financial information. Accordingly, the degree of reliance on
their report on that information should be restricted in light of the limited
nature of the review procedures applied. In addition, the
33
<PAGE> 35
accountants are not subject to the liability provisions of Section 11 of the
Securities Act for their report on the unaudited interim financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and 11
of the Securities Act.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by the Company
may be inspected and copied at the public reference facility maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington,
D.C. 20549; and at the regional offices of the Commission located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material may be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy statements and other information may also be obtained
from the web site that the Commission maintains at http://www.sec.gov. In
addition, such material may also be inspected and copied at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
Reports, proxy statements and other information concerning the Company may
also be obtained electronically through a variety of databases, including, among
others, the Commission's Electronic Data Gathering and Retrieval ("EDGAR")
program, Knight-Ridder Information Inc., Federal Filing/Dow Jones and
Lexis/Nexis.
As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained in the Registration Statement on
Form S-3 (the "Registration Statement") of which this Prospectus is a part. For
such information, reference is made to the Registration Statement and the
exhibits thereto. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete; with respect
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement or incorporated by reference herein, reference is made to
such contract, agreement or other document for a more complete description of
the matter involved, and each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
following documents previously filed with the Commission pursuant to the
Exchange Act (File No. 1-12074): (i) the Company's Annual Report on Form 10-K
for the year ended December 31, 1995; (ii) the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30,
1996; (iii) the Company's Current Report on Form 8-K dated October 16, 1996; and
(iv) the description of the Common Stock contained in the Registration Statement
on Form 8-A declared effective by the Commission on July 8, 1993.
Each document filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of filing
of such document.
Any statement contained in this Prospectus or in a document incorporated or
deemed to be incorporated by reference in this Prospectus shall be deemed to be
modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that a statement contained in this Prospectus or in any
subsequently filed document that also is or is deemed to be
34
<PAGE> 36
incorporated by reference in this Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement or this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents that are incorporated by reference in this
Prospectus, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to Investor Relations, Stone Energy Corporation, 625 E. Kaliste Saloom
Road, Lafayette, Louisiana 70508, telephone (318) 237-0410.
35
<PAGE> 37
GLOSSARY OF CERTAIN INDUSTRY TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
Bcf. Billion cubic feet of gas.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
BOE. Barrels of oil equivalent, determined using the ratio of six Mcf of
natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
Exploratory well. A well drilled to find and produce oil or gas reserves
not classified as proved, to find a new reservoir in a field previously found to
be productive of oil or gas in another reservoir or to extend a known reservoir.
Farmin or farmout. An agreement whereunder the owner of a working interest
in an oil and gas lease assigns the working interest or a portion thereof to
another party who desires to drill on the leased acreage. Generally, the
assignee is required to drill one or more wells in order to earn its interest in
the acreage. The assignor usually retains a royalty or reversionary interest in
the lease. The interest received by an assignee is a "farmin" while the interest
transferred by the assignor is a "farmout."
Finding costs. Costs associated with acquiring and developing proved oil
and gas reserves which are capitalized by the Company pursuant to generally
accepted accounting principles, excluding any capitalized general and
administrative expenses.
Gross acreage or gross wells. The total acres or wells, as the case may
be, in which a working interest is owned.
MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.
MBbls/d. One thousand barrels of crude oil or other liquid hydrocarbons
per day.
MBOE. One thousand barrels of oil equivalent.
MBOE/d. One thousand barrels of oil equivalent per day.
Mcf. One thousand cubic feet of gas.
Mcf/d. One thousand cubic feet of gas per day.
MMBbls. One million barrels of crude oil or other liquid hydrocarbons.
MMBOE. One million barrels of oil equivalent.
MMBtu. One million Btus.
MMcf. One million cubic feet of gas.
MMcf/d. One million cubic feet of gas per day.
Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells.
36
<PAGE> 38
Present value. When used with respect to oil and gas reserves, present
value means the estimated future gross revenue to be generated from the
production of proved reserves, net of estimated production and future
development costs, using prices and costs in effect as of the date of the report
or estimate, without giving effect to non-property related expenses such as
general and administrative expenses, debt service and future income tax expense
or to depreciation, depletion and amortization, discounted using an annual
discount rate of 10%.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Proved developed reserves. Proved reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.
Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved undeveloped reserves. Reserves that are expected to be recovered
from new wells on developed acreage where the subject reserves cannot be
recovered without drilling additional wells.
Royalty interest. An interest in an oil and gas property entitling the
owner to a share of oil or gas production free of costs of production.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
Working interest. The operating interest which gives the owner the right
to drill, produce and conduct operating activities on the property and a share
of production.
37
<PAGE> 39
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
Pro Forma Consolidated Statement of Operations of Stone Energy Corporation for the
year ended December 31, 1995.................................................... F-2
Pro Forma Consolidated Statement of Operations of Stone Energy Corporation for the
nine months ended September 30, 1996............................................ F-3
Notes to Pro Forma Consolidated Financial Statements............................... F-4
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants........................................... F-5
Consolidated Balance Sheet of Stone Energy Corporation as of September 30, 1996 and
December 31, 1995 and 1994...................................................... F-6
Consolidated Statement of Operations of Stone Energy Corporation for the nine
months ended September 30, 1996 and 1995 and the years ended December 31, 1995,
1994 and 1993................................................................... F-7
Consolidated Statement of Cash Flows of Stone Energy Corporation for the nine
months ended September 30, 1996 and 1995 and the years ended December 31, 1995,
1994 and 1993................................................................... F-8
Consolidated Statement of Changes in Equity of Stone Energy Corporation for the
nine months ended September 30, 1996 and the years ended December 31, 1995, 1994
and 1993........................................................................ F-9
Notes to Consolidated Financial Statements......................................... F-10
</TABLE>
F-1
<PAGE> 40
STONE ENERGY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
COMPANY ACQUISITIONS ADJUSTMENTS PRO FORMA
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas production................... $ 38,693 $ 3,997 $ (577)(b) $ 42,113
Overhead reimbursements and management
fees.................................. 522 94 616
Other income............................. 1,336 1,336
------- ------ -------
Total revenues................... 40,551 4,091 44,065
------- ------ -------
Expenses:
Normal lease operating expenses.......... 6,294 1,097 (188)(b) 7,203
Major maintenance expenses............... 446 446
Production taxes......................... 3,057 55 (14)(b) 3,098
Depreciation, depletion, and
amortization.......................... 15,719 392 (c) 16,111
Interest................................. 2,191 1,565 (a) 3,756
General and administrative costs......... 3,298 3,298
Incentive compensation plan.............. 85 85
------- ------ -------
Total expenses................... 31,090 1,152 33,997
------- ------ -------
Income before income tax expense........... 9,461 2,939 10,068
------- ------ -------
Provision for income taxes:
Current.................................. 131 131
Deferred................................. 3,514 234 (d) 3,748
------- -------
3,645 3,879
------- -------
Net income................................. $ 5,816 $ 6,189
======= =======
Primary and fully diluted earnings per
share:
Net income per share..................... $ 0.49 $ 0.52
======= =======
Average shares outstanding............... 11,818 11,818
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE> 41
STONE ENERGY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA COMBINED
COMPANY ACQUISITIONS ADJUSTMENTS PRO FORMA
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas production................... $ 41,248 $ 4,654 $ (495)(b) $ 45,407
Overhead reimbursements and management
fees.................................. 561 74 635
Other income............................. 938 938
------- ------ -------
Total revenues................... 42,747 4,728 46,980
------- ------ -------
Expenses:
Normal lease operating expenses.......... 6,115 741 (108)(b) 6,748
Major maintenance expenses............... 271 271
Production taxes......................... 2,403 43 (11)(b) 2,435
Depreciation, depletion, and
amortization.......................... 15,497 (132)(c) 15,365
Interest................................. 2,496 1,119 (a) 3,615
General and administrative costs......... 2,456 2,456
Incentive compensation plan.............. 278 278
------- ------ -------
Total expenses................... 29,516 784 31,168
------- ------ -------
Income before income tax expense........... 13,231 3,944 15,812
------- ------ -------
Provision for income taxes:
Current.................................. 173 173
Deferred................................. 4,920 994 (d) 5,914
------- -------
5,093 6,087
------- -------
Net income................................. $ 8,138 $ 9,725
======= =======
Primary and fully diluted earnings per
share:
Net income per share..................... $ 0.68 $ 0.81
======= =======
Average shares outstanding............... 11,933 11,933
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 42
STONE ENERGY CORPORATION
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
Stone Energy Corporation (the "Company") acquired three properties in 1996
(the "1996 Acquisitions"). On August 1, 1996, the Company acquired a 100%
working interest in the Lake Hermitage Field for $6.5 million. In January 1994,
the Company acquired the right to drill wells in designated areas of the field
in a farmout transaction with the previous owner. Pursuant to prior contractual
obligations, the Company assigned a portion of the acquired interest to two
partnerships it manages for a proportionate share of the purchase price. The
Company retained a 76% working interest with an approximate 60% net revenue
interest in the field.
The Company acquired a 62.5% working interest in Vermilion Block 46 Field
for $15.4 million on September 27, 1996. In a separate transaction with a
different company, in 1993 the Company purchased an approximate 28% working
interest in this field for $2.8 million. Pursuant to prior contractual
obligations, the Company assigned a portion of the acquired interest to two
partnerships it manages for a proportionate share of the purchase price. The
Company retained a 76% working interest with an approximate 65% net revenue
interest in the field.
On September 27, 1996, the Company acquired a 50% working interest with a
41% net revenue interest in the Vermilion Block 131 Field for $5.1 million. In
addition to the purchase price, a letter of credit in the amount of $1.8 million
was established to secure the Company's obligation to abandon the property. The
Company is the operator of the property.
The pro forma consolidated statement of operations for the year ended
December 31, 1995 and the nine months ended September 30, 1996 have been
prepared assuming that the three 1996 Acquisitions were consummated on January
1, 1995. The preparation of the combined pro forma consolidated statement of
operations is based on certain adjustments to the historical financial
statements of the Company and are not necessarily indicative of the financial
position or results of operations had the above described property acquisitions
occurred on the assumed date. These pro forma consolidated statement of
operations should be read in conjunction with the consolidated financial
statements of the Company included in this Prospectus.
NOTE 2 -- PRO FORMA ADJUSTMENTS
Pro forma entries necessary to adjust the historical financial statements
are as follows:
(a) To record interest expense of the 1996 Acquisitions at the rate
prescribed under Company's credit facility.
(b) To record assignment to two partnerships managed by the Company of
a portion of the Company's acquired interest in two of the 1996
Acquisitions as described in Note 1.
(c) To adjust depreciation, depletion and amortization amounts on a
historical basis to amounts that would have been recorded if the 1996
Acquisitions had been included in the financial statements effective
January 1, 1995.
(d) To record a provision for federal and state income taxes at a
combined rate of 38.5%.
F-4
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Stone Energy Corporation:
We have audited the accompanying consolidated balance sheets of Stone
Energy Corporation (a Delaware corporation) and subsidiary as of December 31,
1995 and 1994, and the related consolidated statements of operations, changes in
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Stone Energy Corporation and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
March 6, 1996
F-5
<PAGE> 44
STONE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
SEPTEMBER 30, -------- --------
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 6,686 $ 6,286 $ 5,130
Marketable securities, at market.................... 20,124 10,232 15,196
Accounts receivable................................. 10,440 7,247 7,673
Unbilled accounts receivable........................ 181 89 89
Other current assets................................ 236 612 242
-------- -------- --------
Total current assets........................ 37,667 24,466 28,330
Oil and gas properties -- full cost method of
accounting:
Proved, net of accumulated depreciation, depletion
and amortization of $121,583, $106,277 and
$90,726, respectively............................ 154,009 108,820 72,315
Unevaluated......................................... 4,798 2,428 8,976
Building and land, net of accumulated depreciation of
$58 and $0, respectively............................ 3,229 3,284 --
Other assets, net of accumulated depreciation and
amortization of $1,961, $4,177 and $4,660,
respectively........................................ 1,334 462 335
-------- -------- --------
Total assets................................ $ 201,037 $139,460 $109,956
======== ======== ========
LIABILITIES AND STOCKHOLDERS' ACCOUNTS
Current liabilities:
Current portion of long-term loans.................. $ 74 $ 69 $ --
Advance payments.................................... 420 373 1,180
Accounts payable to vendors......................... 19,275 10,980 13,595
Undistributed oil and gas proceeds.................. 5,364 5,228 3,969
Other accrued liabilities........................... 2,514 2,437 5,149
-------- -------- --------
Total current liabilities................... 27,647 19,087 23,893
Long-term loans....................................... 87,698 47,754 22,725
Deferred tax liability................................ 10,334 5,413 1,899
Other long-term liabilities........................... 259 279 394
-------- -------- --------
Total liabilities........................... 125,938 72,533 48,911
-------- -------- --------
Commitments and Contingencies (see Note 8)
Common Stock, $.01 par value; authorized 25,000,000
shares; issued and outstanding 11,794,249,
11,792,349 and 11,787,549 shares, respectively...... 118 118 118
Paid-in capital....................................... 52,191 52,157 52,091
Retained earnings..................................... 22,790 14,652 8,836
-------- -------- --------
Total equity................................ 75,099 66,927 61,045
-------- -------- --------
Total liabilities and equity................ $ 201,037 $139,460 $109,956
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-6
<PAGE> 45
STONE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Oil and gas production...................... $41,248 $28,024 $38,693 $31,179 $28,470
Overhead reimbursements and management
fees..................................... 561 348 522 444 433
Other income................................ 938 738 1,336 1,264 819
------- ------- ------- ------- -------
Total revenues...................... 42,747 29,110 40,551 32,887 29,722
------- ------- ------- ------- -------
Expenses:
Normal lease operating expenses............. 6,115 4,052 6,294 5,312 4,326
Major maintenance expenses.................. 271 106 446 1,834 822
Production taxes............................ 2,403 2,276 3,057 2,303 2,000
Depreciation, depletion and amortization.... 15,497 11,786 15,719 11,569 8,028
Interest.................................... 2,496 1,485 2,191 982 1,499
Lease maintenance expense................... -- -- -- -- 245
Salaries and other employee costs........... 1,437 1,159 1,663 1,566 1,024
Incentive compensation plan................. 278 281 85 1,358 --
General and administrative costs............ 1,019 1,435 1,635 1,533 1,224
Exchange offer expenses..................... -- -- -- -- 780
------- ------- ------- ------- -------
Total expenses...................... 29,516 22,580 31,090 26,457 19,948
------- ------- ------- ------- -------
Net income before income taxes................ 13,231 6,530 9,461 6,430 9,774
------- ------- ------- ------- -------
Provision for income taxes
Current..................................... 173 108 131 -- --
Deferred.................................... 4,920 2,405 3,514 2,410 943
------- ------- ------- ------- -------
Total income taxes.................. 5,093 2,513 3,645 2,410 943
------- ------- ------- ------- -------
Net income.................................... 8,138 4,017 5,816 4,020 8,831
Preferred dividends and amortization of
preferred stock offering costs.............. -- -- -- -- 292
------- ------- ------- ------- -------
Net income available to common stockholders... $ 8,138 $ 4,017 $ 5,816 $ 4,020 $ 8,539
======= ======= ======= ======= =======
Primary and fully diluted earnings per share
(see Note 1):
Net income per share........................ $ 0.68 $ 0.34 $ 0.49 $ 0.34 $ 0.88
======= ======= ======= ======= =======
Average shares outstanding.................... 11,933 11,819 11,818 11,801 10,087
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-7
<PAGE> 46
STONE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income....................................... $ 8,138 $ 4,017 $ 5,816 $ 4,020 $ 8,831
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization...... 15,497 11,787 15,719 11,569 8,028
Provision for deferred income taxes........... 4,920 2,405 3,514 2,410 943
Restricted stock plan......................... -- -- -- -- 50
Gain on sale of other assets.................. -- -- -- (88) --
-------- -------- -------- -------- --------
28,555 18,208 25,049 17,911 17,852
(Increase) decrease in marketable
securities.................................. (9,892) 6,101 4,964 (15,196) --
(Increase) decrease in accounts receivable.... (3,285) 837 426 850 (2,549)
(Increase) decrease in other current assets... 376 (263) (370) 904 (1,080)
Increase (decrease) in accounts payable and
accrued liabilities......................... 260 (3,599) (2,260) 5,586 123
Deferred financing costs...................... (653) -- (151) (128) --
Other......................................... (21) (47) (159) (318) (489)
-------- -------- -------- -------- --------
Net cash provided by operating activities.......... 15,340 21,237 27,499 9,609 13,857
-------- -------- -------- -------- --------
Cash flows from investing activities:
Investment in oil and gas properties............. (54,569) (36,830) (48,122) (41,174) (18,167)
Sale of reserves in place........................ -- -- -- 2,011 53
Proceeds from sale of other assets............... -- -- -- 179 --
Purchase of building and land.................... -- -- (3,284) -- --
Other asset additions............................ (354) (94) (101) (148) --
-------- -------- -------- -------- --------
Net cash used in investing activities.............. (54,923) (36,924) (51,507) (39,132) (18,114)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings......................... 44,000 20,600 30,098 22,725 7,064
Repayment of debt................................ (4,051) (5,000) (5,000) (16,223) (12,764)
Partner contributions............................ -- -- -- -- 606
Partner distributions............................ -- -- -- -- (3,554)
Issuance of common stock......................... -- -- -- -- 39,815
Exercise of stock options........................ 34 66 66 28 --
Preferred stock cash dividends................... -- -- -- -- (801)
Redemption of preferred stock.................... -- -- -- -- (5,200)
-------- -------- -------- -------- --------
Net cash provided by financing activities.......... 39,983 15,666 25,164 6,530 25,166
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 400 (21) 1,156 (22,993) 20,909
Cash and cash equivalents, beginning of year....... 6,286 5,130 5,130 28,123 7,214
-------- -------- -------- -------- --------
Cash and cash equivalents, end of year............. $ 6,686 $ 5,109 $ 6,286 $ 5,130 $ 28,123
======== ======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)............. $ 2,343 $ 1,338 $ 1,927 $ 1,053 $ 1,525
Income taxes..................................... 95 108 216 -- --
-------- -------- -------- -------- --------
$ 2,438 $ 1,446 $ 2,143 $ 1,053 $ 1,525
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-8
<PAGE> 47
STONE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
REDEEMABLE
PREFERRED CAPITAL COMMON PAID-IN RETAINED
STOCKS ACCOUNTS STOCK CAPITAL EARNINGS
---------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992.............. $ 15,203 $ 2,046 $ -- $ -- $ --
Net income pre-exchange offer........... -- 4,015 -- -- --
Partner contributions................... -- 606 -- -- --
Partner distributions................... -- (3,554) -- -- --
Preferred stock dividends............... 292 (292) -- -- --
Amortization of preferred stock offering
costs................................. 17 (17) -- -- --
Exchange offer.......................... (9,511) (2,804) 81 12,234 --
Initial public offering................. -- -- 36 39,779 --
Purchase of preferred stock............. (5,200) -- -- -- --
Payment of preferred stock dividends.... (801) -- -- -- --
Other stock issuances................... -- -- 1 50 --
Net income post-exchange offer.......... -- -- -- -- 4,816
------- ------- ---- ------- -------
Balance, December 31, 1993.............. -- -- 118 52,063 4,816
Net income.............................. -- -- -- -- 4,020
Exercise of stock options............... -- -- 28 --
------- ------- ---- ------- -------
Balance, December 31, 1994.............. -- -- 118 52,091 8,836
Net income.............................. -- -- -- -- 5,816
Exercise of stock options............... -- -- 66 --
------- ------- ---- ------- -------
Balance, December 31, 1995.............. -- -- 118 52,157 14,652
Net income.............................. -- -- -- -- 8,138
Exercise of stock options............... -- -- 34 --
------- ------- ---- ------- -------
Balance, September 30, 1996
(unaudited)........................... $ -- $ -- $118 $52,191 $ 22,790
======= ======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-9
<PAGE> 48
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION SUBSEQUENT TO MARCH 6, 1996 IS UNAUDITED)
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Stone Energy Corporation (the "Company" or "Stone Energy") is an
independent oil and gas company primarily engaged in the acquisition,
exploitation and operation of producing oil and gas properties located in the
Gulf Coast Basin. The Company's business strategy is focused on the acquisition
of mature properties with established production history that have significant
exploitation and development potential. Since implementing its present business
strategy in 1989, Stone Energy has acquired 14 properties that comprise its
asset base -- seven offshore and seven onshore Louisiana. The Company is
headquartered in Lafayette, Louisiana, with additional offices in New Orleans
and Houston.
The Company was organized under the laws of the State of Delaware in March
1993 to become a holding company for The Stone Petroleum Corporation ("TSPC")
and its subsidiaries and certain partnership interests in The Stone Petroleum
Oil and Gas Program Series A-I Ltd., The Stone Petroleum Oil and Gas Program
Series A-II Ltd. and The Stone Petroleum Weeks Island Program Ltd.
(collectively, the "Acquisition Partnerships"), of which TSPC is the managing
general partner. On April 30, 1993, the Company completed its offer to exchange
(the "Exchange Offer") shares of its common stock, par value $.01 per share
("Common Stock"), for all of the outstanding common stock and certain series of
preferred stock of TSPC (collectively, the "TSPC Stock") and the special general
and limited partnership interests in the Acquisition Partnerships, subject to
completion of the Initial Public Offering.
A total of 8,126,444 shares of Common Stock were issued on July 15, 1993,
pursuant to the Exchange Offer. All of the TSPC Stock was acquired in the
Exchange Offer, and the remaining series of preferred stock of TSPC not included
in the Exchange Offer were purchased by the Company with a portion of the net
proceeds of the Initial Public Offering (the "Preferred Stock Purchase").
Accordingly, after the consummation of the Exchange Offer and the Preferred
Stock Purchase, the Company owned all of the outstanding capital stock of TSPC.
A summary of significant accounting policies followed in the preparation of
the accompanying consolidated financial statements is set forth below:
BASIS OF PRESENTATION:
The accompanying consolidated financial statements for periods prior to the
Company's Initial Public Offering are presented on the basis of a reorganization
of entities under common control and represent a combination of the Company,
TSPC and interests in the Acquisition Partnerships on a historical cost basis.
Other than for purposes of determining pro forma earnings per share, the
mandatorily redeemable preferred stocks of TSPC that the Company acquired
pursuant to the Exchange Offer and the Preferred Stock Purchase are presented as
outstanding preferred stock until their acquisition on July 15, 1993.
CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its share of the Acquisition Partnerships; TSPC, a wholly-owned subsidiary
organized in June 1981 and TSPC's share of managed limited partnerships. In
December 1994, Cut Off Corporation ("Cut Off"), a wholly-owned subsidiary of
TSPC organized in May 1991, was merged into TSPC. The accounts of Cut Off were
included in the consolidated financial statements prior to the merger. In
December 1993, The Stone Programs Corporation ("Programs"), a wholly-owned
subsidiary of TSPC
F-10
<PAGE> 49
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
organized in March 1976 as a broker dealer, was liquidated and The Stone
Properties Corporation ("Properties"), a wholly-owned subsidiary of TSPC
organized in August 1990, was merged into TSPC. Prior to such merger, the
accounts of both Programs and Properties were included in the consolidated
financial statements. Both Properties and Cut Off were organized for the purpose
of purchasing certain oil and gas properties and conducting related development
and operational activities. All intercompany balances and transactions are
eliminated.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
are used when accounting for depreciation, depletion and amortization, taxes and
contingencies.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Fair value of cash, cash equivalents, accounts receivable, accounts payable
and debt approximates book value at December 31, 1995.
OIL AND GAS PROPERTIES:
The Company follows the full cost method of accounting for oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including certain related employee costs and general and administrative
costs (less any reimbursements for such costs), incurred for the purpose of
finding oil and gas are capitalized. Such amounts include the cost of drilling
and equipping productive wells, dry hole costs, lease acquisition costs, delay
rentals and other costs related to such activities. Employee, general and
administrative costs which are capitalized include salaries and all related
fringe benefits paid to employees directly engaged in the acquisition,
exploration and development of oil and gas properties, as well as all other
directly identifiable general and administrative costs associated with such
activities such as rentals, utilities and insurance. Fees received from managed
partnerships for providing such services are accounted for as a reduction of
capitalized costs. Employee, general and administrative costs associated with
production operations and general corporate activities are expensed in the
period incurred.
The Company amortizes its investment in oil and gas properties using the
future gross revenue method, a unit of production method, whereby the annual
provision for depreciation, depletion and amortization is computed by dividing
revenue produced during the period by future gross revenues at the beginning of
the period, and applying the resulting rate to the cost of oil and gas
properties, including estimated future development, restoration, dismantlement
and abandonment costs. Additionally, the capitalized costs of oil and gas
properties cannot exceed the present value of the estimated net cash flow from
its proved reserves, together with the lower of cost or estimated fair value of
its unevaluated properties (the full cost ceiling). Transactions involving sales
of reserves in place, unless extraordinarily large portions of reserves are
involved, are recorded as adjustments to the reserves for accumulated
depreciation, depletion and amortization.
Oil and gas properties include $2,428 and $8,976 of unevaluated properties
and related costs which are not being amortized at December 31, 1995 and 1994,
respectively. These costs are associated with the acquisition and evaluation of
unproved properties and major development projects expected to entail
significant costs to ascertain quantities of proved reserves. The Company
currently believes that the unevaluated properties at December 31, 1995 will be
evaluated
F-11
<PAGE> 50
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
within one to twenty-four months. The excluded costs and related proved reserves
will be included in the amortization base as the properties are evaluated and
proved reserves are established or impairment is determined. Interest
capitalized on unevaluated properties during the year ended December 31, 1995
was $246.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
"Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to
be Disposed of." The Company is required to adopt SFAS No. 121 in 1996. In
management's opinion, the effect of adopting SFAS No. 121 will not be material.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments in overnight securities
through its commercial bank accounts, which result in available funds on the
next business day, to be cash and cash equivalents.
MARKETABLE SECURITIES:
The Company has retained a third-party investment firm to manage its
portfolio of short-term marketable securities which are actively and frequently
bought and sold with the primary objective of generating profits on the
short-term differences in prices. Thus, the related security investments are
classified as trading securities, which are marked to market in accordance with
SFAS No. 115. All realized and unrealized gains and losses are included in
current operating results. The securities included in the portfolio are
primarily U.S. Treasury obligations and mortgage-backed securities with an
average maturity of not more than 180 days.
INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109.
Provisions for income taxes include deferred taxes resulting primarily from
temporary differences due to different reporting methods for oil and gas
properties for financial reporting purposes and income tax purposes. For
financial reporting purposes, all exploratory and development expenditures are
capitalized and depreciated, depleted and amortized on the future gross revenue
method. For income tax purposes, only the equipment and leasehold costs relative
to successful wells are capitalized and recovered through depreciation or
depletion. Generally, most other exploratory and development costs are charged
to expense as incurred; however, the Company uses certain provisions of the
Internal Revenue Code which allow capitalization of intangible drilling costs
where management deems appropriate. Other financial and income tax reporting
differences occur as a result of statutory depletion, different reporting
methods for sales of oil and gas reserves in place, and different reporting
periods used in accounting for income and costs arising from oil and gas
operations conducted through tax partnerships.
GAS PRODUCTION REVENUES:
The Company records as revenue only that portion of gas production sold and
allocable to its ownership interest in the related well. Any gas production
proceeds received in excess of its ownership interest are reflected as a
liability in the accompanying consolidated financial statements. Revenues
relating to gas production which the Company is entitled to but which has not
been sold are not recorded in the consolidated financial statements until
compensation is received for the under-delivered volumes.
F-12
<PAGE> 51
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company assumed a gas balancing liability in conjunction with the
purchase of South Marsh Island Block 249 which at December 31, 1993, amounted to
$238. At December 31, 1994, the liability was fully satisfied. Remaining net
underbalanced positions at December 31, 1995 and 1994 were immaterial.
EARNINGS PER COMMON SHARE:
Earnings per share includes actual and pro forma earnings per share. In
order to provide a more meaningful presentation of historical earnings of the
combined interests acquired in the Exchange Offer, earnings per share for the
period prior to the Initial Public Offering has been presented on a pro forma
basis. Pro forma earnings per share were computed by dividing net income by the
sum of 8,126,444 shares of Common Stock issued pursuant to the Exchange Offer,
which includes shares issued for mandatorily redeemable preferred stock of TSPC,
plus an additional 537,706 shares of Common Stock sold to generate sufficient
net proceeds (before payment of offering expenses) to pay preferred stock
dividends in arrears of $801 and to purchase the remaining outstanding preferred
stock of TSPC not acquired in the Exchange Offer for $5,200.
Pro forma earnings per share for the year ended December 31, 1993, includes
the weighted average effect of 3,140,005 shares and 515,000 shares sold on July
15 and August 11, 1993, respectively, and options granted to purchase 195,000
shares (see Note 9). Earnings per share for the years ended December 31, 1995
and 1994 and for the nine months ended September 30, 1996 and 1995, was computed
by dividing net earnings by the sum of the outstanding shares of Common Stock of
the Company, plus common stock equivalents which reflect the dilutive effect of
stock options granted to outside directors and certain employees on various
dates through December 31, 1995 (see Note 9).
BUILDING AND LAND:
The Company records building and land at cost. The building is being
depreciated for financial statement purposes on the straight-line method over
its estimated useful life.
HEDGING ACTIVITIES:
The Company manages exposure to changes in energy related product prices by
engaging in futures and hedging activities in order to reduce the effect of
price volatility. The resulting gains or losses on hedging contracts are
accounted for as revenues from oil and gas production in the financial
statements.
F-13
<PAGE> 52
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- ACCOUNTS RECEIVABLE AND ADVANCE PAYMENTS:
In its capacity as operator, manager and/or sponsor for its partners and
other co-venturers, the Company incurs drilling and other costs and receives
payment for advance billings for drilling, all of which are billed to the
respective parties. Accounts receivable and advance payments were comprised of
the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
<S> <C> <C>
Accounts Receivable --
Managed partnerships........................................... $ 447 $ 466
Other co-venturers............................................. 1,364 3,103
Trade.......................................................... 5,432 4,027
Officers and employees......................................... 4 77
------ ------
$7,247 $7,673
====== ======
Advance Payments --
Managed partnerships........................................... $ 216 $ 870
Other co-venturers............................................. 56 90
Trade.......................................................... 101 220
------ ------
$ 373 $1,180
====== ======
</TABLE>
Costs incurred but not yet billed to the managed partnerships and other
co-venturers at December 31, 1995 and 1994 amounted to $89.
NOTE 3 -- INVESTMENT IN OIL AND GAS PROPERTIES:
The following table discloses certain financial data relative to the
Company's oil and gas producing activities, which are located onshore and
offshore the continental United States:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Costs incurred during year:
Capitalized --
Acquisition costs:
Proved..................................... $ 8,104 $ 6,711 $ 4,106
Unevaluated................................ -- 5,080 --
Investments posted as performance bonds...... (30) (326) --
Exploratory drilling......................... 8,261 4,719 140
Development drilling:
Proved..................................... 27,383 18,345 12,368
Unevaluated................................ -- 3,896 --
General and administrative costs............. 2,743 3,708 1,901
Less: overhead reimbursements, management
fees and repromotion income................ (953) (959) (348)
--------- -------- --------
$ 45,508 $ 41,174 $ 18,167
========= ======== ========
</TABLE>
F-14
<PAGE> 53
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Charged to expenses --
Operating costs:
Normal lease operating expenses............ $ 6,294 $ 5,312 $ 4,326
Major maintenance expenses................. 446 1,834 822
--------- -------- --------
Total operating costs........................ 6,740 7,146 5,148
Production taxes............................. 3,057 2,303 2,000
--------- -------- --------
$ 9,797 $ 9,449 $ 7,148
========= ======== ========
Depreciation, depletion and amortization.......... $ 15,551 $ 11,420 $ 7,739
========= ======== ========
Oil and gas properties --
Balance, beginning of year...................... $ 172,017 $130,843 $112,676
Additions....................................... 45,508 41,174 18,167
--------- -------- --------
Balance, end of year............................ 217,525 172,017 130,843
--------- -------- --------
Accumulated depreciation, depletion and
amortization -- Balance, beginning of year...... (90,726) (70,746) (62,954)
Provision for depreciation, depletion and
amortization................................. (15,551) (11,420) (7,739)
Sale of reserves................................ -- (2,011) (53)
Cancellation of loan............................ -- (1,126) --
Cancellation of production payment loan......... -- (5,423) --
--------- -------- --------
Balance, end of year............................ $(106,277) $(90,726) $(70,746)
========= ======== ========
Net capitalized costs (proved and unevaluated).... $ 111,248 $ 81,291 $ 60,097
========= ======== ========
</TABLE>
In November 1994, the Company sold to Nuevo Energy Company ("Nuevo") all of
the interests in eleven oil and gas fields located in Louisiana, Mississippi and
Oklahoma owned by the Company and certain of its affiliates. The Company
received $2,011 of the total of $9,480 of sales proceeds, the balance of which
was attributable to the interests of other participants in limited partnerships
and joint ventures formed during the period of 1980 through 1985. The proved
reserves of the properties sold comprised approximately 3% of the Company's
total estimated proved reserves as of December 31, 1994. Therefore, the sale was
recorded as an adjustment to the reserve for accumulated depreciation, depletion
and amortization.
In addition to the cash received, the Company's obligation of $5,423 with
respect to a production payment owed to Energy Assets International Corporation
("EAI"), an affiliate of Nuevo, was terminated. The transaction was recorded as
an adjustment to the reserve for accumulated depreciation, depletion and
amortization.
F-15
<PAGE> 54
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INCOME TAXES:
The Company follows the provisions of SFAS No. 109, "Accounting For Income
Taxes", which provides for recognition of a deferred tax asset for deductible
temporary timing differences, operating loss carryforwards, statutory depletion
carryforwards and tax credit carryforwards net of a "valuation allowance." An
analysis of the Company's deferred tax liability follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Net operating loss carryforwards............................. $ 5,335 $ 6,416
Statutory depletion carryforward............................. 3,857 3,946
Investment tax credit carryforward........................... 1,967 1,967
Alternative minimum tax credit............................... 239 --
Temporary differences:
Oil and gas properties -- full cost........................ (15,223) (12,844)
Other...................................................... (487) (304)
-------- --------
(4,312) (819)
Valuation allowance.......................................... (1,101) (1,080)
-------- --------
$ (5,413) $ (1,899)
======== ========
</TABLE>
For tax reporting purposes, the Company had operating loss carryforwards of
$13,857 and investment tax credit carryforwards of $1,967 at December 31, 1995.
If not utilized, such carryforwards would begin expiring in 1996 and would
completely expire by the year 2007. Because of tax rules relating to changes in
corporate ownership and computations required to be made on a separate entity
basis, the utilization by the Company of these benefit carryforwards in reducing
its tax liability is restricted. Additionally, the Company had available for tax
reporting purposes $10,017 in statutory depletion deductions which may be
carried forward indefinitely. Recognition of a deferred tax asset associated
with these carryforwards is dependent upon the Company's evaluation that it is
more likely than not that the asset will ultimately be realized. As of December
31, 1995, the valuation allowance was increased due to revised estimates of
investment tax credits which the Company believes that, more likely than not,
will expire prior to their utilization.
Reconciliations between the statutory federal income tax expense (benefit)
rate and the Company's effective income tax expense rate as a percentage of
income before income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income taxes computed at the statutory federal income tax
rate......................................................... 35% 35% 35%
Changes in valuation allowance................................. -- 9 (48)
Income taxes associated with partnership interests included in
the exchange offer........................................... -- -- 22
Other.......................................................... 4 (7) 1
--- --- ---
Effective income tax rate...................................... 39% 37% 10%
=== === ===
</TABLE>
Prior to the consummation of the Exchange Offer, no income taxes had been
provided with respect to the Acquisition Partnerships because they are
non-taxable entities. The tax effect of the cumulative temporary differences
related to assets acquired by the Company in the Exchange Offer
F-16
<PAGE> 55
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(primarily oil and gas properties), and was recognized upon the consummation of
the Exchange Offer.
NOTE 5 -- LONG-TERM LOANS:
Long-term loans consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
1996 1995 1994
------------- ------- -------
<S> <C> <C> <C>
Unsecured credit facility with NationsBank of
Texas, N.A. ("NationsBank") (described below)... $84,573 $44,573 $22,725
Term Loan Agreement with First National Bank of
Commerce ("FNBC") with interest at 7.45%........ 3,199 3,250 --
Less: portion due within one year................. (74) (69) --
-------- -------- -------
Total long-term loans................... $87,698 $47,754 $22,725
======== ======== =======
</TABLE>
Aggregate minimum principal payments at December 31, 1995 for the next five
years are as follows: 1996-$69, 1997-$75, 1998-$44,654, 1999-$88, 2000-$94 and
thereafter-$2,843.
On September 30, 1994, the Company entered into a revolving credit facility
with NationsBank of Texas, N.A., as agent for a group of banks. The facility was
amended on October 2, 1995, on March 28, 1996 and on September 26, 1996. Total
availability under the facility was $60,000 on December 31, 1995. Interest is
payable quarterly and the principal balance of each of two tranches, represented
by Revolving A Borrowings and Revolving B Borrowings, is due at their
maturities.
The Revolving A Borrowings of the amended facility provide for a limitation
on total outstanding borrowings based on a borrowing base amount established by
the banks for the Company's oil and gas properties, which was $48,000 on
December 31, 1995. At the option of the Company, the outstanding balance of the
Revolving A Borrowings will bear interest at the NationsBank base rate, or at
LIBOR plus 1% or 1.25%, depending upon total outstanding borrowings. At December
31, 1995, the outstanding principal balance of the Revolving A Borrowings was
$44,573 which had a weighted average annual interest rate of 7.27%, and letters
of credit totaling $3,427 had been issued pursuant to the facility.
The Revolving B Borrowings of the amended facility have a borrowing
availability of $12,000. Utilization of this tranche would allow the bank group
to receive a mortgage on the Company's properties comprising at least 80% of its
total reserve value. Drawdown fees ranging from 1.5% to 4.5% would apply to such
borrowings. The interest rate applicable to the outstanding balance of the
Revolving B Borrowings, at the Company's option and depending upon the total
borrowings outstanding, would range from the NationsBank base rate plus 0.75% to
base rate plus 3.75%, or from LIBOR plus 2% to LIBOR plus 5%. At December 31,
1995, no borrowings had been made pursuant to this facility.
The March 28, 1996 amendment to the NationsBank credit agreement increased
the total facility availability to $80,000 from $60,000. The amount available
under Tranche A, which matures on April 1, 1999, continues to be subject to the
borrowing base limitation, which was increased to $60,000 as of March 28, 1996,
from the prior amount of $48,000. The amount available pursuant to Tranche B
remains at $12,000, and the maturity date of this portion of the facility is
October 1, 1997.
On September 26, 1996 the Company amended its credit facility to a total
facility amount of $125,000 which is comprised of a three-year revolving credit
loan and a one-year term loan. Current availability of the facility is $105,000,
and the current weighted average interest rate of the facility is
F-17
<PAGE> 56
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7.9% per annum. As of September 30, 1996 the total outstanding principal balance
was $84,600 and letters of credit totaling $6,600 had been issued pursuant to
the facility.
The revolver provides for total availability of $80,000 with a limitation
on total outstanding borrowings which currently is $60,000. The term loan of
$45,000 was established to finance the closing of the recent acquisitions and
certain development costs incurred during the third quarter of 1996. If the term
loan is outstanding on January 1, 1997, the banks have the right to redetermine
the borrowing base of the facility. Although a redetermination could result in
an acceleration of the payments due under the term loan, management believes the
reserves will be sufficient to support the current availability under the
facility.
On November 30, 1995, the Company executed a Term Loan Agreement with First
National Bank of Commerce ("FNBC") in the original principal amount of $3,250 to
facilitate the purchase of a building (see Note 6). The loan has a five year
term bearing interest at a rate of 7.45% over the entire term of the loan.
Payments of $26 are due monthly and are based upon a 20 year amortization
period. The indebtedness under the agreement is collateralized by the building.
The terms of the NationsBank and FNBC agreements contain, among other
provisions, requirements for maintaining defined levels of working capital and
tangible net worth. The NationsBank debt is guaranteed by TSPC.
NOTE 6 -- TRANSACTIONS WITH RELATED PARTIES:
The Company receives certain fees as a result of its function as managing
partner of certain partnerships. For the years ended December 31, 1995, 1994 and
1993, the Company generated management fees and overhead reimbursements from
partnerships amounting to $851, $637 and $556, respectively, the majority of
which was treated as a reduction of the investment in oil and gas properties.
The Company collects and distributes production revenues as managing
partner for the partnerships' interests in oil and gas properties. At December
31, 1995 and 1994, $858 and $721, respectively, was included in undistributed
oil and gas proceeds identified as distributable to partners in the
partnerships.
TSPC leased office space in a building owned by RiverStone Associates, an
affiliate, from 1982 through November 30, 1995, on which date the building and
related land were purchased by the Company. The entire purchase price of $3,250
was paid to the holder of the first mortgage on the property. RiverStone
Associates and its partners did not receive any of the sales proceeds, nor were
any such parties relieved of any personal liability as a result of the sale.
James H. Stone and Joe R. Klutts, each an officer and director of the Company,
are partners in RiverStone Associates.
The sale was approved by the disinterested members of the Board of
Directors. The Company and TSPC incurred net rent expense of $633, $702 and
$657, respectively, during the years ended December 31, 1995, 1994 and 1993.
The Company has a contract with a certified public accounting firm in which
an executive officer and stockholder of the Company had an interest through July
15, 1993. During the year ended December 31, 1993, the Company incurred $179 of
accounting, tax and consulting fees payable to the firm.
In December 1994, the Company sold a residential townhouse located in
Houston, Texas to Frantzen/Voelker Investments, L.L.C. ("Frantzen/Voelker") for
$77. David Voelker, a director of the Company, is a principal of
Frantzen/Voelker. The sales price was based upon an appraisal of
F-18
<PAGE> 57
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the property by an independent third party and the sale was approved by the
disinterested members of the Board of Directors.
The Company's interests in certain oil and gas properties are burdened by
various net profit interests granted at the time of acquisition to certain
officers and other employees of the Company. Such net profit interest owners do
not receive any cash distributions until the Company has recovered all of its
acquisition, development, financing and operating costs. Management believes the
estimated value of such interests at the time of acquisition is not material to
the Company's financial position or results of operations.
Certain officers and directors are working interest owners in properties
operated by the Company and are billed and pay their proportionate share of
drilling and operating costs in the normal course of business.
NOTE 7 -- HEDGING ACTIVITIES:
In order to reduce its exposure to the possibility of declining oil and gas
prices, the Company hedges with third parties certain of its crude oil and
natural gas production in various swap agreement contracts. The crude oil
contracts are tied to the price of NYMEX light sweet crude oil futures and are
settled monthly based on the differences between contract prices and the average
NYMEX prices for that month applied to the related contract volumes. Settlement
for gas swap contracts is based on the average of the last three (3) days of
trade on the NYMEX for each month of the swap.
As of March 1, 1996, the Company's forward position was as follows:
<TABLE>
<CAPTION>
OIL GAS
---------------- ----------------
AVERAGE AVERAGE
MBBLS PRICE MMBTU PRICE
----- ------- ----- -------
<S> <C> <C> <C> <C>
1996............................................... 92 $18.11 4,115 $1.932
1997............................................... -- $ -- 295 $1.990
--- -----
Total.................................... 92 $18.11 4,410 $1.936
=== =====
</TABLE>
The fair market value of the hedging contracts is $730 at December 31,
1995. For the nine months ended September 30, 1996 and the year ended December
31, 1995, net oil and gas hedging losses of $2,495 and $11, respectively, were
treated as a reduction of revenues from oil and gas production.
As of November 4, 1996, the Company's forward position was 345,000 barrels
and 3,795 MMBtu through 1997 at an average price of $21.20 per barrel and $2.269
per MMBtu, respectively.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities in New Orleans, Louisiana under the
terms of a long-term non-cancelable lease expiring on March 15, 1998. Office
facilities in Lafayette, Louisiana were leased through November 30, 1995, on
which date the Company purchased the building (see Note 6). Additionally, the
Company leases automobiles under terms of non-cancelable leases expiring at
various dates through 1998. The minimum net annual commitments under all leases,
subleases and contracts noted above at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996................................................ $89
1997................................................ 75
1998................................................ 23
</TABLE>
F-19
<PAGE> 58
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
approximately $727, $793 and $741, respectively.
The Company is the managing general partner of eight partnerships and is
contingently liable for any recourse debts and other liabilities which might
result from their operations. Management currently is not aware of the existence
of any such liabilities that would have a material impact on the future
operations of the Company.
In August 1989, the EPA advised the Company that it believed the Company to
be a potentially responsible party (a "PRP") for the cleanup of an oil field
waste disposal facility located near Abbeville, Louisiana, which was included on
CERCLA's National Priority List (the "Superfund List") by the EPA in March 1989.
In March 1994, the Company accepted an offer made by the EPA to terminate the
Company's CERCLA liability and provide the Company a statutory shield from
claims for indemnity or contribution by other PRPs. In December 1995, the
Company finalized this settlement with the EPA and paid $62 as a de minimis PRP.
In August 1989, the Company was advised by the EPA that it believed the
Company to be a PRP for the cleanup of another oil field waste disposal facility
also located near Abbeville, Louisiana, which was included on the Superfund List
by the EPA in March 1989. In addition to the Company, approximately 370 other
companies have been named as being potentially responsible for the cleanup of
the site. While the Company's records do not indicate that any drilling wastes
generated by the Company were disposed of at this site, it is possible that one
or more waste haulers contracted by the Company may have disposed of wastes at
this site. Given the extremely large number of PRPs at this site, management
does not believe that any liability for this site would materially adversely
affect the financial condition of the Company.
In August 1989, the Company was advised by the EPA that it believed the
Company to be a PRP for the cleanup of an oil field waste disposal facility
located adjacent to the site described above. This site is presently owned by a
subsidiary of Dow Chemical Corporation that performed remediation activities at
this site in 1987 before it was placed on the Superfund List by the EPA in
October 1989. The EPA conducted testing and studies at this site in 1991 and is
currently evaluating whether additional remediation will be required. While the
Company's records do not indicate that any drilling wastes generated by the
Company were disposed of at this site, it is possible that one or more waste
haulers contracted by the Company may have disposed of wastes at this site.
Because a substantial remediation program has already been performed at this
site by the site's owner, management does not presently believe that any
liability for this site would materially adversely affect the financial
condition of the Company.
In December 1995, Goodrich Leasehold L.L.C. and Goodrich Drillers L.L.C.
filed a civil action in the 333rd Judicial District Court, Harris County, Texas,
against the Company in an attempt to set aside a Farmout Agreement affecting
portions of the West Flank of the Weeks Island field in Iberia Parish,
Louisiana. Management believes that this claim is without merit and intends to
vigorously defend this action.
In May 1994, First South Production Credit Association filed a class action
suit against TSPC, alleging that the royalty owners of the Topeka field,
Lawrence County, Mississippi, were entitled to a royalty share of a settlement
received by TSPC in 1988 in compromise of various disputes with the purchaser of
gas from the field. This lawsuit was settled on November 3, 1995 and did not
have a material impact on the financial condition of the Company.
The Company is also named as a defendant in certain lawsuits and is a party
to certain regulatory proceedings arising in the ordinary course of business.
Management does not expect
F-20
<PAGE> 59
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these matters, individually or in the aggregate, to have a material adverse
effect on the financial condition of the Company.
OPA 90 imposes ongoing requirements on a responsible party, including proof
of financial responsibility to cover environmental cleanup and restoration costs
that could be incurred by governmental entities in connection with an oil spill.
In August 1993, the MMS published an advance notice of its intention to adopt a
rule under OPA 90 that would require owners and operators of offshore oil and
gas facilities to establish $150,000 in financial responsibility to cover oil
spill related liabilities. The MMS has not taken further action on the proposed
rule, and in May 1995 the U.S. House of Representatives passed a bill that would
reduce the level of financial responsibility under OPA 90 to $35,000. In
November 1995 the U.S. Senate adopted similar but slightly different legislation
that must be reconciled with the House of Representatives bill before either
bill can be submitted to President Clinton for approval. The Company cannot
predict the final form of any rule that may be adopted, but such a rule has the
potential to result in the imposition of substantial additional annual costs on
the Company or otherwise materially adversely affect the Company. The impact of
the rule should not be any more adverse to the Company than it will be to other
similarly situated or less capitalized owners or operators in the Gulf of
Mexico.
NOTE 9 -- EMPLOYEE BENEFIT PLANS:
The Company entered into deferred compensation and disability agreements
with certain of its employees whereby the Company has purchased split-dollar
life insurance policies to provide certain retirement and death benefits for the
employees and death benefits payable to the Company. The aggregate death benefit
of the policies is $3,341 at December 31, 1995, of which $2,400 is payable to
employees or their beneficiaries and $941 is payable to the Company. Total cash
surrender value of the policies, net of related surrender charges at December
31, 1995, was approximately $656. Additionally, the benefits under the deferred
compensation agreements vest after certain periods of employment, and at
December 31, 1995, the liability for such vested benefits was approximately
$757. The difference between the actuarial determined liability for retirement
benefits or the vested amounts, where applicable, and the net cash surrender
value has been recorded as an other long-term liability and is being amortized
over the remaining term of the various deferred compensation agreements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," effective in 1996 for the Company. Under SFAS No. 123, companies
can either record expense based on the fair value of stock-based compensation
upon issuance or elect to remain under the current Accounting Principles Board
Opinion No. 25 ("APB25") method whereby no compensation cost is recognized upon
grant if certain requirements are met. The Company intends to continue to
account for its stock-based compensation under APB 25.
The Company has adopted a series of incentive compensation plans designed
to align the interests of the executives and employees with those of its
stockholders. The following is a brief description of each of the plans.
i. The Annual Incentive Compensation Plan provides for an annual
incentive bonus which ties incentives to the annual return on the
Company's Common Stock as compared to the average annual return on the
shares of stock of a peer group of companies with which the Company
competes. The incentive bonus will be awarded to participants based
upon a combination of group and individual performance factors.
F-21
<PAGE> 60
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ii. The Nonemployee Directors' Stock Option Plan provides for 250,000
shares of Common Stock to be reserved for issuance pursuant to such
plan. Under the Nonemployee Directors' Stock Option Plan, the
exercise price shall be equal to the fair market value of the Common
Stock on date of grant. Activities in 1993, 1994 and 1995 are shown
below:
<TABLE>
<CAPTION>
OPTION PRICE
STOCK OPTIONS SHARES (PER SHARE)
------------- ------ -------------
<S> <C> <C>
Granted........................................... 5,000 $12.00
------
Outstanding at December 31, 1993.................. 5,000 $12.00
Granted........................................... 50,000 $11.25-$12.00
------
Outstanding at December 31, 1994.................. 55,000 $11.25-$12.00
Granted........................................... 25,000 $13.75
------
Outstanding at December 31, 1995.................. 80,000 $11.25-$13.75
======
Exercisable at December 31, 1995.................. 19,997 $11.25-$12.00
======
</TABLE>
iii. The Restricted Stock Plan provided for the granting of 100 shares of
Common Stock to each employee, other than executive officers, who was
employed for at least one year as of the date of the Initial Public
Offering. Sales of such shares of stock are restricted. On July 15,
1993, the Company issued 4,200 shares of Common Stock pursuant to the
Restricted Stock Plan.
iv. The Company's Stock Option Plan provides for 850,000 shares of Common
Stock to be reserved for issuance pursuant to such plan. Under this
plan, the Company may grant both incentive stock options qualifying
under Section 422 of the Internal Revenue Code and options that are
not qualified as incentive stock options. All such options must have
an exercise price of not less than the fair market value of the Common
Stock on the date of grant. Activities in 1993, 1994 and 1995 are
shown below:
<TABLE>
<CAPTION>
OPTION PRICE
STOCK OPTIONS SHARES (PER SHARE)
------------- ------- -------------
<S> <C> <C>
Granted.......................................... 190,000 $12.38
-------
Outstanding at December 31, 1993................. 190,000 $12.38
Granted.......................................... 5,000 $13.56
Exercised........................................ (2,000) $12.38
-------
Outstanding at December 31, 1994................. 193,000 $12.38-$13.56
Granted.......................................... 170,000 $11.56-$13.44
Exercised........................................ (5,000) $12.38
Expired.......................................... (18,000) $12.38
-------
Outstanding at December 31, 1995................. 340,000 $11.56-$13.56
=======
Exercisable at December 31, 1995................. 67,000 $12.38-$13.56
=======
</TABLE>
v. The 401(k) Profit Sharing Plan provides eligible employees with the
option to defer receipt of a portion of their compensation and the
Company may, at its discretion, match a portion or all of the
employee's deferral. The amounts held under the plan are invested in
various investment funds maintained by a third party in accordance
with the directions of each employee. An employee is 20% vested in the
Company's matching contributions (if any) for each year of service and
is fully vested upon five years of service with the Company. For the
years ended December 1995, 1994 and 1993, the Company contributed
$168, $134 and $20, respectively, to the plan.
F-22
<PAGE> 61
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- OIL AND GAS RESERVE INFORMATION -- UNAUDITED:
A majority of the Company's net proved oil and gas reserves at December 31,
1995 have been estimated by independent petroleum consultants in accordance with
guidelines established by the Securities and Exchange Commission ("SEC").
Accordingly, the following reserve estimates are based upon existing economic
and operating conditions at the respective dates.
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 represent estimates only
and should not be construed as being exact. In addition, the present values
should not be construed as the current market value of the Company's oil and gas
properties or the cost that would be incurred to obtain equivalent reserves.
The following table sets forth an analysis of the Company's estimated
quantities of net proved and proved developed oil (including condensate) and
gas, all located onshore and offshore the continental United States:
ESTIMATED RESERVES
<TABLE>
<CAPTION>
NATURAL
OIL IN GAS
MBBLS IN MMCF
------ -------
<S> <C> <C>
Proved reserves as of December 31, 1992.......................... 7,284 45,706
Revisions of previous estimates................................ (505) (43)
Extensions, discoveries and other additions.................... 149 75
Purchase of producing properties............................... 168 17,706
Production..................................................... (1,016) (4,953)
------ ------
Proved reserves as of December 31, 1993.......................... 6,080 58,491
Revisions of previous estimates................................ (50) (7,579)
Extensions, discoveries and other additions.................... 1,454 14,877
Purchase of producing properties............................... 235 11,304
Sale of reserves............................................... (151) (2,179)
Production..................................................... (1,113) (6,629)
------ ------
Proved reserves as of December 31, 1994.......................... 6,455 68,285
Revisions of previous estimates................................ 476 1,208
Extensions, discoveries and other additions.................... 399 13,478
Purchase of producing properties............................... 2,054 6,607
Production..................................................... (1,399) (8,399)
------ ------
Proved reserves as of December 31, 1995.......................... 7,985 81,179
====== ======
Proved developed reserves:
as of December 31, 1993........................................ 6,035 48,448
====== ======
as of December 31, 1994........................................ 5,840 52,215
====== ======
as of December 31, 1995........................................ 7,055 67,797
====== ======
</TABLE>
F-23
<PAGE> 62
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND
CHANGES THEREIN RELATING TO PROVED OIL AND GAS RESERVES
The following tables present the standardized measure of future net cash
flows related to proved oil and gas reserves together with changes therein, as
defined by the FASB. The oil, condensate and gas price structure utilized to
project future net cash flows reflects current prices at each year end and has
been escalated only where known and determinable price changes are provided by
contracts and law. Future production and development costs are based on current
costs with no escalations. Estimated future cash flows net of future income
taxes have been discounted to their present values based on a 10% annual
discount rate.
<TABLE>
<CAPTION>
STANDARDIZED MEASURE
DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Future cash flows.................................. $347,796 $225,345 $229,217
Future production and development costs............ (89,739) (80,339) (64,272)
Future income taxes................................ (56,146) (26,629) (38,385)
-------- -------- --------
Future net cash flows.............................. 201,911 118,377 126,560
10% annual discount................................ (57,121) (35,309) (42,156)
-------- -------- --------
Standardized measure of discounted future net cash
flows............................................ $144,790 $ 83,068 $ 84,404
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CHANGES IN STANDARDIZED MEASURE
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Standardized measure at beginning of year.......... $ 83,068 $ 84,404 $ 94,081
Sales and transfers of oil and gas produced, net of
production costs................................. (28,897) (21,730) (21,322)
Changes in price, net of future production costs... 39,592 (15,388) (21,373)
Extensions and discoveries, net of future
production and development costs................. 25,927 24,318 1,741
Changes in estimated future development costs, net
of development costs incurred during the
period........................................... 6,717 (95) 2,885
Revisions of quantity estimates.................... 5,867 (7,745) (3,374)
Accretion of discount.............................. 9,739 10,471 12,283
Net change in income taxes......................... (19,257) 5,986 8,441
Purchase of reserves in place...................... 22,039 8,382 20,385
Sale of reserves in place.......................... -- (4,994) --
Changes in production rates (timing) and other..... (5) (541) (9,343)
-------- -------- --------
Standardized measure at end of year................ $144,790 $ 83,068 $ 84,404
======== ======== ========
</TABLE>
F-24
<PAGE> 63
STONE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SUMMARIZED QUARTERLY FINANCIAL INFORMATION -- UNAUDITED:
<TABLE>
<CAPTION>
NET EARNINGS
REVENUES EXPENSES INCOME PER SHARE
-------- -------- ------ ---------
<S> <C> <C> <C> <C>
1995
First Quarter............................. $ 8,176 $ 7,340 $ 836 $0.07
Second Quarter............................ 10,278 8,693 1,585 0.13
Third Quarter............................. 10,656 9,060 1,596 0.14
Fourth Quarter............................ 11,441 9,642 1,799 0.15
------- ------- ------ -----
$40,551 $34,735 $5,816 $0.49
======= ======= ====== =====
1994
First Quarter............................. $ 7,691 $ 6,396 $1,295 $0.11
Second Quarter............................ 8,157 7,134 1,023 0.09
Third Quarter............................. 8,587 7,698 889 0.07
Fourth Quarter............................ 8,452 7,639 813 0.07
------- ------- ------ -----
$32,887 $28,867 $4,020 $0.34
======= ======= ====== =====
</TABLE>
NOTE 12 -- SUBSEQUENT EVENTS:
The Company purchased a 100% working interest in the Lake Hermitage Field,
located in Plaquemines Parish, Louisiana, on August 1, 1996, which is also the
effective date of the transaction. A portion of the acquired interest has been
assigned to two partnerships managed by the Company. The total purchase price
was $6,500.
The Company acquired a 62.5% working interest in Vermilion Block 46 Field
for $15,400 on September 27, 1996. In a separate transaction with a different
company, in 1993 the Company purchased an approximate 28% working interest in
this field for $2,800. Pursuant to prior contractual obligations, the Company
assigned a portion of the acquired interest to two partnerships it manages, and
retained a 76% working interest with an approximate 65% net revenue interest in
the field.
On September 27, 1996, the Company acquired a 50% working interest with a
41% net revenue interest in the Vermilion Block 131 Field for $5,100. In
addition to the purchase price, a letter of credit in the amount of $1,800 was
established to secure the Company's obligation to abandon the property. The
Company is the operator of the property.
The Company intends to pursue an underwritten public equity offering during
the fourth quarter of 1996 to retire the term loan (see Note 5) and to provide
capital for the future development of its property base.
NOTE 13 -- UNAUDITED INTERIM FINANCIAL STATEMENTS:
The unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Rule 10.01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operation results for the nine
months ended September 30, 1996 are not necessarily indicative of results for
the full year.
F-25
<PAGE> 64
NO DEALER, SALESPERSON OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH QUALIFIED SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Uncertainty of Forward-Looking
Information......................... 7
Risk Factors.......................... 7
Use of Proceeds....................... 10
Capitalization........................ 11
Price Range of Common Stock and
Dividend Policy..................... 12
Selected Historical Financial
Information......................... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 21
Management............................ 29
Selling Stockholders.................. 31
Underwriting.......................... 32
Legal Matters......................... 33
Experts............................... 33
Available Information................. 34
Incorporation of Certain Documents by
Reference........................... 34
Glossary of Certain Industry Terms.... 36
Index to Financial Statements......... F-1
</TABLE>
3,200,000 SHARES
STONE ENERGY
CORPORATION
COMMON STOCK
($.01 PAR VALUE)
STONE LOGO
SALOMON BROTHERS INC
JOHNSON RICE & COMPANY L.L.C.
MORGAN KEEGAN & COMPANY, INC.
PROSPECTUS
DATED , 1996
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the registration of the shares of Common Stock hereunder
will be paid by the Company and are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 23,179
NASD Filing Fee.................................................. 7,222
NYSE Listing Fee................................................. 14,000
Legal Fees and Expenses.......................................... 70,000
Accounting Fees and Expenses..................................... 20,000
Blue Sky Fees and Expenses (including legal fees)................ 15,000
Printing Expenses................................................ 85,000
Transfer Agent and Registrar Fees................................ 10,000
Miscellaneous.................................................... 5,599
---------
Total....................................................... $ 250,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Section 145 of the General Corporation
Law of the State of Delaware to indemnify its officers, directors, employees and
agents to the extent provided in such statute. Article VI of the Registrant's
Bylaws, referenced as Exhibit 3.2 hereto, provides for indemnification of the
Registrant's officers, directors, employees and agents.
Section 102 of the Delaware General Corporation Law permits the limitation
of directors' personal liability to the Registrant or its stockholders for
monetary damages for breach of fiduciary duties as a director except in certain
situations including the breach of a director's duty of loyalty or acts or
omissions not made in good faith. Article Ninth of the Registrant's Certificate
of Incorporation limits directors' personal liability to the extent permitted by
Section 102.
Article VI of the Registrant's Bylaws provides that the Registrant may
maintain insurance, at its expense, to protect itself and any of its directors,
officers, employees or agents or any person serving at the request of the
Registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any expense,
liability or loss, whether or not the Registrant would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
II-1
<PAGE> 66
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<S> <C> <C>
*1.1 -- Underwriting Agreement.
3.1 -- Certificate of Incorporation of Registrant, as amended (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-62362)).
3.2 -- Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-1 (Registration No. 33-62362)).
4.1 -- Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1 to
the Registrant's Registration Statement on Form S-1 (Registration No.
33-62362)).
**5.1 -- Opinion of Vinson & Elkins L.L.P.
*15.1 -- Letter from Arthur Andersen LLP regarding unaudited interim financial
information.
*23.1 -- Consent of Arthur Andersen LLP
**23.2 -- Consent of Atwater Consultants, Ltd.
**23.3 -- Consent of Cawley Gillespie & Associates.
**23.4 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1)
**24.1 -- Powers of Attorney.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
II-2
<PAGE> 67
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE> 68
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF LAFAYETTE, STATE OF LOUISIANA, ON THE 12TH DAY OF
NOVEMBER, 1996.
STONE ENERGY CORPORATION
By: /s/ MICHAEL L. FINCH
-------------------------------------
Michael L. Finch
Executive Vice President,
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE 12TH DAY OF NOVEMBER 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- ------
<S> <C>
* Chief Executive Officer and Chairman of the Board
- ------------------------------------------ (Principal Executive Officer)
James H. Stone
* Vice Chairman of the Board
- ------------------------------------------
Joe R. Klutts
* President, Chief Operating Officer and Director
- ------------------------------------------
D. Peter Canty
/s/ MICHAEL L. FINCH Executive Vice President, Chief Financial Officer and
- ------------------------------------------ Director (Principal Financial Officer)
Michael L. Finch
* Vice President, Chief Accounting Officer and Controller
- ------------------------------------------ (Principal Accounting Officer)
James H. Prince
* Director
- ------------------------------------------
David R. Voelker
* Director
- ------------------------------------------
John P. Laborde
* Director
- ------------------------------------------
Robert A. Bernhard
* Director
- ------------------------------------------
Raymond B. Gary
* Director
- ------------------------------------------
B. J. Duplantis
</TABLE>
*By: /s/ MICHAEL L. FINCH
- ----------------------------------
Michael L. Finch, Attorney-in-Fact
II-4
<PAGE> 69
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- ------------
<S> <C> <C> <C>
*1.1 -- Underwriting Agreement.
3.1 -- Certificate of Incorporation of Registrant, as amended (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-62362)).
3.2 -- Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form S-1 (Registration No. 33-62362)).
4.1 -- Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1
to the Registrant's Registration Statement on Form S-1 (Registration No.
33-62362)).
**5.1 -- Opinion of Vinson & Elkins L.L.P.
*15.1 -- Letter from Arthur Andersen LLP regarding unaudited interim financial
information.
*23.1 -- Consent of Arthur Andersen LLP
**23.2 -- Consent of Atwater Consultants, Ltd.
**23.3 -- Consent of Cawley Gillespie & Associates.
**23.4 -- Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1)
**24.1 -- Powers of Attorney.
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
Stone Energy Corporation
3,200,000 Shares*
Common Stock
($0.01 par value)
Underwriting Agreement
, New Jersey
November , 1996
Salomon Brothers Inc
Johnson Rice & Company L.L.C.
Morgan Keegan & Company, Inc.
As Representatives of the several Underwriters
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Stone Energy Corporation, a Delaware corporation (the
"Company"), proposes to sell to the underwriters named in Schedule I hereto
(the "Underwriters"), for whom you (the "Representatives") are acting as
representatives, 2,741,159 shares of Common Stock, $0.01 par value ("Common
Stock") of the Company, and the persons named in Schedule II hereto (the
"Selling Stockholders") propose to sell to the Underwriters 458,841 shares of
Common Stock (said shares to be issued and sold by the Company and shares to be
sold by the Selling Stockholders collectively being hereinafter called the
"Underwritten Securities"). The Company also proposes to grant to the
Underwriters an option to purchase up to 480,000 additional shares of Common
Stock (the "Option Securities"; the Option Securities, together with the
Underwritten Securities, being hereinafter called the "Securities").
__________________________________
* Plus an option to purchase from Stone Energy Corporation up to
480,000 additional shares to cover over-allotments.
<PAGE> 2
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with,
each Underwriter as set forth below in this Section 1. Certain terms used in
this Section 1 are defined in paragraph (xxvi) hereof.
(i) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement
(Registration No. 33-93486) on Form S-3, including a related
preliminary prospectus, for the registration under the Securities Act
of 1933, as amended (the "Act"), of the offering and sale of the
Securities. The Company may have filed one or more amendments
thereto, including the related preliminary prospectus, each of which
has previously been furnished to you. The Company will next file with
the Commission either (A) prior to effectiveness of such registration
statement, a further amendment to such registration statement
(including the form of final prospectus), (B) after effectiveness of
such registration statement, a final prospectus in accordance with
Rules 430A and 424(b)(1) or (4) or (C) an abbreviated registration
statement to register additional shares of Common Stock pursuant to
Rule 462(b) under the Act ("Rule 462 Registration Statement"). In the
case of clause (B), the Company has included in such registration
statement, as amended at the Effective Date, all information (other
than Rule 430A Information) required by the Act and the rules
thereunder to be included in the Prospectus with respect to the
Securities and the offering thereof. As filed, such amendment and
form of final prospectus, or such final prospectus, shall contain all
Rule 430A Information, together with all other such required
information, with respect to the Securities and the offering thereof
and, except to the extent the Representatives shall agree in writing
to a modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior
to the Execution Time, will be included or made therein.
(ii) On the Effective Date, the Registration Statement did
or will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date, the Prospectus
(and any supplements thereto) will, comply in all material respects
with the applicable requirements of the Act and the rules and
regulations of the Commission thereunder (the "Rules and
Regulations"); on the Effective Date, the Registration Statement did
not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and,
on the Effective Date, the Prospectus, if not filed pursuant to Rule
424(b), did not or will not, and on the date of any filing pursuant to
Rule 424(b) and on the Closing Date, the Prospectus (together with any
supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representations or warranties
-2-
<PAGE> 3
as to the information contained in or omitted from the Registration
Statement, or the Prospectus (or any supplement thereto) in reliance
upon and in conformity with information furnished in writing to the
Company (A) by or on behalf of any Underwriter through the
Representatives specifically for inclusion in the Registration
Statement or the Prospectus (or any supplement thereto) or (B) by any
Selling Stockholder who is not an officer or director of the Company
for inclusion in the Registration Statement or the Prospectus (or any
supplement thereto).
(iii) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(iv) Each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole.
(v) All of the outstanding shares of capital stock of
each subsidiary that is a corporation and all of the limited
partnership interests of each subsidiary that is a partnership are
validly issued and outstanding, fully paid and non-assessable, with no
personal liability attaching to the ownership thereof, and, except as
may be disclosed in the Prospectus, all of the shares or limited
partnership interests, as the case may be, of each subsidiary of the
Company are owned, directly or indirectly, by the Company, free and
clear of any liens, charges or encumbrances or any other claim of any
third party.
(vi) This Agreement has been duly authorized, executed and
delivered by the Company.
(vii) The authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the
Prospectus.
(viii) The shares of Common Stock (including the shares to
be sold by the Selling Shareholders) outstanding prior to the issuance
of the Securities to be sold by the Company have been duly authorized
and are validly issued, fully paid and non-assessable.
-3-
<PAGE> 4
(ix) The Securities to be sold by the Company have been
duly authorized and, when issued and delivered in accordance with the
terms of this Agreement, will be validly issued, fully paid and non
assessable, and the issuance of such Securities will not be subject to
any preemptive or similar rights.
(x) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of the certificate of incorporation
or by-laws of the Company or any agreement or other instrument binding
upon the Company or any of its subsidiaries or any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over the Company or any subsidiary, in each case that is material to
the Company and its subsidiaries, taken as a whole, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Securities.
(xi) The financial statements included in the Registration
Statement and the Prospectus present fairly the financial position,
results of operations and, if applicable, cash flows of the Company
and its subsidiaries, in each case at the dates and for the periods
presented, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods presented; and the pro forma financial
information and notes thereto included in the Registration Statement
and the Prospectus were prepared in accordance with the applicable
requirements of the Act and the Rules and Regulations, include all
adjustments necessary to present fairly the pro forma financial
condition and results of operations of the Company and its
subsidiaries at the respective dates and for the periods indicated,
and all assumptions used in preparing such pro forma financial
information were reasonable. Since the respective dates of such
financial statements, there has been no material adverse change in the
condition or general affairs, financial or otherwise, of the Company
and its subsidiaries taken as a whole, other than as described in the
Prospectus.
(xii) Arthur Andersen L.L.P., whose reports appear in the
Registration Statement and the Prospectus, were, as of the date of
each respective report, and are, as of the date hereof, independent
public accountants with respect to the Company and its subsidiaries,
as required by the Act and the Rules and Regulations.
(xiii) Except as described in the Registration Statement and
the Prospectus, the Company and each of its subsidiaries owns, or has
valid rights to use, all items of real and personal property (other
than oil and gas properties) which are material to the business as
currently conducted of the Company and its subsidiaries taken as a
whole, free and clear of all liens, encumbrances and claims which may
materially interfere with the business, properties, financial
condition, results of operations or prospects of the Company and its
subsidiaries taken as a whole.
-4-
<PAGE> 5
(xiv) Each of the Company and its subsidiaries has good and
defensible title to its oil and gas properties, free and clear of all
liens, encumbrances, security interests, and claims, except (i) as
specified in the Registration Statement and the Prospectus; (ii) liens
for taxes not yet due; (iii) liens, claims and encumbrances under gas
sales contracts, operating agreements, unitization and pooling
agreements and such other agreements as are customarily found in
connection with comparable drilling and producing operations; and (iv)
other liens, claims, encumbrances and title defects that are, singly
and in the aggregate, not material in amount and do not materially
interfere with the Company's or any of its subsidiaries' use or
enjoyment of their respective oil and gas properties.
(xv) Cawley, Gillespie & Associates, Inc. ("Cawley,
Gillespie") and Atwater Consultants, Ltd. ("Atwater"), petroleum
engineers from whose reserve reports information is set forth or
incorporated by reference in the Registration Statement and the
Prospectus, were, as of the date of each respective report, and are,
as of the date hereof, independent petroleum engineers with respect to
the Company and its subsidiaries. The information underlying the
estimates of the reserves of the Company and the subsidiaries,
supplied by the Company to Cawley, Gillespie and Atwater for purposes
of preparing such reserve reports (including, without limitation,
production, costs of operation and development, current prices for
production, agreements relating to current and future operations and
sales of production) was true and correct in all material respects on
the dates such information was supplied and such reserve reports were
prepared.
(xvi) There has not occurred any material adverse change,
or any development involving a prospective material adverse change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(xvii) There are no legal or governmental proceedings
pending or, to the knowledge of the Company, threatened to which the
Company or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required.
(xviii) Each Preliminary Prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the Act and the applicable Rules
and Regulations.
(xix) The Company is not and, after giving effect to the
offering and sale of the Securities and the application of the
proceeds thereof as described in the Prospectus, will not
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<PAGE> 6
be an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended.
(xx) The Company and its subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(xxi) In the ordinary course of its business, the Company
conducts a periodic review of the effect of Environmental Laws on the
business, operations and properties of the Company and its
subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean up, closure of
properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities
and any potential liabilities to third parties). On the basis of such
review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as
a whole.
(xxii) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company or to require the
Company to include such securities with the Securities registered
pursuant to the Registration Statement.
(xxiii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxiv) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
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<PAGE> 7
(xxv) The Company has not taken and shall not take,
directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the
Securities.
(xxvi) The terms which follow, when used in this Agreement,
shall have the meanings indicated. The term "Effective Date" shall
mean each date that the Registration Statement and any post-effective
amendment or amendments thereto became or become effective.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto. "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in
paragraph (i) above and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A
Information. "Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph (i) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto becomes
effective prior to the Closing Date (as hereinafter defined), shall
also mean such registration statement as so amended. Such term shall
include any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A. Such term shall also include
any Rule 462 Registration Statement. "Rule 424" and "Rule 430A" refer
to such rules under the Act. "Rule 430A Information" means
information with respect to the Securities and the offering thereof
permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A.
(b) Each Selling Stockholder represents and warrants to,
and agrees with, each Underwriter that:
(i) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder.
(ii) Such Selling Stockholder is, and on the Closing Date
will be, the lawful owner of the Securities to be sold by such Selling
Stockholder hereunder, and has, and on the Closing Date will have, the
legal right and power, and all authorization and approval required by
law, to enter into this Agreement, the Custody Agreement (as
hereinafter defined) and the Power of Attorney (as hereinafter
defined) and to sell, transfer and deliver the Securities to be sold
by such Selling Stockholders. Upon sale and delivery of, and payment
for, such Securities, as provided herein, such Selling Stockholder
will convey good and marketable title to such Securities, free and
clear of all liens, encumbrances, equities and claims whatsoever.
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<PAGE> 8
(iii) The Custody Agreement and the Power of Attorney have
been duly authorized, executed and delivered by such Selling
Stockholder and are valid and binding agreements of such Selling
Stockholder.
(iv) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result,
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise, in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the
Securities and has not effected any sales of shares of Common Stock
which, if effected by the issuer, would be required to be disclosed in
response to Item 701 of Regulation S-K.
(v) Certificates in negotiable form for such Selling
Stockholder's Securities have been placed in custody, for delivery
pursuant to the terms of this Agreement, under a Custody Agreement
executed and delivered by such Selling Stockholders, in the form
heretofore furnished to you (the "Custody Agreement") with Chase,
Mellon Shareholder Services, L.L.C., as custodian (the "Custodian")
and under the Power of Attorney executed and delivered by such Selling
Stockholder in the form furnished to you appointing certain
individuals as such Selling Stockholder's attorneys-in-fact to the
extent set forth therein, relating to the transactions contemplated
hereby and by the Registration Statement (the "Power of Attorney");
the Securities represented by the certificates so held in custody for
each Selling Stockholder are subject to the interests hereunder of the
Underwriters, the Company and the other Selling Stockholders; the
arrangements for custody and delivery of such certificates, made by
such Selling Stockholder hereunder and under the Custody Agreement and
the Power of Attorney, are not subject to termination by any acts of
such Selling Stockholder, or by operation of law, whether by the death
or incapacity of such Selling Stockholder or the occurrence of any
other event; and if any such death, incapacity or any other such event
shall occur before the delivery of such Securities hereunder,
certificates for the Securities will be delivered by the Custodian in
accordance with the terms and conditions of this Agreement, the
Custody Agreement and the Power of Attorney as if such death,
incapacity or other event had not occurred, regardless of whether or
not the Custodian shall have received notice of such death, incapacity
or other event.
(vi) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
by such Selling Stockholder of the transactions contemplated herein,
including, without limitation, except such as may have been obtained
under the Act and such as may be required under the Blue Sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters and such other approvals as have
been obtained.
(vii) Neither the sale of the Securities being sold by such
Selling Stockholder, the execution and delivery by such Selling
Stockholder of the Custody Agreement and the Power of Attorney, nor
the consummation of any other of the transactions herein contemplated
by
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<PAGE> 9
such Selling Stockholder or the fulfillment of the terms hereof by
such Selling Stockholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the charter or
by-laws of such Selling Stockholder (if such Selling Stockholder is a
corporation) or the terms of any indenture or other agreement or
instrument to which such Selling Stockholder (or, if such Selling
Stockholder is a corporation, any of its subsidiaries) is a party or
bound, or any judgement, order or decree applicable to such Selling
Stockholder (or, if such Selling Stockholder is a corporation, any of
its subsidiaries) of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Stockholder (or, if such Selling Stockholder is a corporation,
any of its subsidiaries).
In respect of any statements in or omissions from the Registration Statement or
the Prospectus or any supplements thereto made in reliance upon and in
conformity with information furnished in writing to the Company by any Selling
Stockholder specifically for use in connection with the preparation thereof,
such Selling Stockholder hereby makes the same representations and warranties
to each Underwriter as the Company makes to such Underwriter under paragraph
(a)(ii) of this Section.
2. Purchase and Sale. (a) Subject to the terms and
conditions and in reliance upon the representations and warranties herein set
forth, the Company and the Selling Stockholders agree, severally and not
jointly, to sell to each Underwriter, and each Underwriter agrees, severally
and not jointly, to purchase from the Company and the Selling Stockholders, at
a purchase price of $ per share, the amount of the Underwritten
Securities set forth opposite such Underwriter's name in Schedule I hereto;
provided that, with respect to the Underwritten Securities purchased from the
Company by the Underwriters, such amount shall be increased by an amount equal
to the quotient obtained by dividing (a) the product of (i) the number of
shares sold by the Underwriters to James H. Stone and (ii) the difference
between the price to the public and $ by (b) the total number of
Underwritten Securities purchased from the Company by the Underwriters.
(b) Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Company hereby
grants an option to the several Underwriters to purchase, severally and not
jointly, up to 480,000 shares of the Option Securities at the same purchase
price per share as the Underwriters shall pay for the Underwritten Securities.
Said option may be exercised only to cover over-allotments in the sale of the
Underwritten Securities by the Underwriters. Said option may be exercised in
whole or in part at any time (but not more than once) on or before the 30th day
after the date of the Prospectus upon written or telegraphic notice by the
Representatives to the Company setting forth the number of shares of the Option
Securities as to which the several Underwriters are exercising the option and
the settlement date. Delivery of certificates for the shares of Option
Securities by the Company, and payment therefor to the Company, shall be made
as provided in Section 3 hereof. The number of shares of the Option Securities
to be purchased by each Underwriter shall be the same percentage of the total
number of shares of the Option Securities to be purchased by the several
Underwriters as such Underwriter is
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<PAGE> 10
purchasing of the Underwritten Securities, subject to such adjustments as you
in your absolute discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third business
day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
, 1996, or such later date (not later than , 1996)
as the Representatives shall designate, which date and time may be postponed
by agreement among the Representatives, the Company and the Selling
Stockholders or as provided in Section 9 hereof (such date and time of
delivery and payment for the Securities being herein called the "Closing
Date"). Delivery of the Securities shall be made to the Representatives for
the respective accounts of the several Underwriters against payment by the
several Underwriters through the Representatives of the respective purchase
price of the Securities being sold by the Company and each of the Selling
Stockholders to or upon the order of the Company and the Selling Stockholders
by wire transfer in same-day funds. Delivery of the Underwritten Securities
and the Option Securities shall be made at such location as the
Representatives shall reasonably designate at least one business day in
advance of the Closing Date, and payment for such Securities shall be made at
the office of , , New Jersey. Certificates for
the Securities shall be registered in such names and in such denominations as
the Representatives may request not less than three full business days in
advance of the Closing Date.
The Company and the Selling Stockholders agree to have the
Securities available for inspection, checking and packaging by the
Representatives in New York, New York, not later than 1:00 PM on the business
day prior to the Closing Date.
Each Selling Stockholder will pay all applicable state
transfer taxes, if any, involved in the transfer to the several Underwriters of
the Securities to be purchased by them from such Selling Stockholder, and the
respective Underwriters will pay any additional stock transfer taxes involved
in further transfers.
If the option provided for in Section 2(b) hereof is exercised
after the third business day prior to the Closing Date, the Company will
deliver (at the expense of the Company) to the Representatives, at one New York
Plaza, New York, New York, on the date specified by the Representatives (which
shall be within three business days after exercise of said option),
certificates for the Option Securities in such names and denominations as the
Representatives shall have requested against payment of the purchase price
thereof to or upon the order of the Company by wire transfer in same-day funds.
If settlement for the Option Securities occurs after the Closing Date, the
Company will deliver to the Representatives on the settlement date for the
Option Securities, and the obligation of the Underwriters to purchase the
Option Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
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<PAGE> 11
4. Offering by Underwriters. It is understood that the
several Underwriters propose to offer the Securities for sale to the public as
set forth in the Prospectus.
5. Agreements.
(a) The Company agrees with the several Underwriters
that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and
any amendment thereof to become effective. Prior to the termination
of the offering of the Securities, the Company will not file any
amendment of the Registration Statement or supplement to the
Prospectus without your prior consent. Subject to the foregoing
sentence, if the Registration Statement has become or becomes
effective pursuant to Rule 430A, or filing of the Prospectus is
otherwise required under Rule 424(b), the Company will cause the
Prospectus, properly completed, and any supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule
424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The
Company will promptly advise the Representatives (A) when the
Registration Statement, if not effective at the Execution Time, and
any amendment thereto, shall have become effective, (B) when the
Prospectus, and any supplement thereto, shall have been filed (if
required) with the Commission pursuant to Rule 424(b), (C) when, prior
to termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (D)
of any request by the Commission for any amendment of the Registration
Statement or supplement to the Prospectus or for any additional
information, (E) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (F)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose. The Company will use its best efforts to prevent the
issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it
shall be necessary to amend the Registration Statement or supplement
the Prospectus to comply with the Act or the rules thereunder, the
Company promptly will prepare and file with the Commission, subject to
the second sentence of paragraph (a) of this Section 5, an amendment
or supplement which will correct such statement or omission or effect
such compliance.
(iii) As soon as practicable, the Company will make
generally available to its security holders and to the Representatives
an earnings statement or statements of the
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<PAGE> 12
Company and its subsidiaries which will satisfy the provisions of
Section 11(a) of the Act and Rule 158 under the Act.
(iv) The Company will furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without exhibits
thereto) and, so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of each Preliminary
Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request. The Company will pay the
expenses of printing or other production of all documents relating to
the offering.
(v) The Company will arrange for the qualification of the
Securities for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in
effect so long as required for the distribution of the Securities and
will pay the fee of the National Association of Securities Dealers,
Inc., in connection with its review of the offering.
(vi) The Company will not, for a period of 120 days following
the Execution Time, without the prior written consent of the
Representatives, (i) offer, sell, pledge, contract to sell, sell any
option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise
dispose of, directly or indirectly, or announce the offering of, any
other shares of Common Stock or any securities convertible into, or
exchangeable for, shares of Common Stock; provided, however, that the
Company may issue and sell Common Stock pursuant to any employee stock
option plan, stock ownership plan or dividend reinvestment plan of the
Company in effect at the Execution Time, and the Company may issue
Common Stock issuable upon the conversion of securities or the
exercise of warrants outstanding at the Execution Time or (ii) enter
into any swap or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities, in
cash or otherwise.
(b) Each Selling Stockholder agrees with the several
Underwriters that it will not, during the period of 120 days following the
Execution Time, without the prior written consent of the Representatives, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise dispose of, directly or indirectly, or announce the
offering of, any other shares of Common Stock beneficially owned by such
person, or any securities convertible into, or exchangeable for, shares of
Common Stock, other than shares of Common Stock disposed of as bona fide gifts
or (ii) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. In addition, each Selling Stockholder agrees that, without the
prior written consent of the
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<PAGE> 13
Representatives, it will not, for a period of 120 days following the Execution
Time, make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
6. Conditions to the Obligations of the Underwriters.
The obligations of the Underwriters to purchase the Underwritten Securities and
the Option Securities, as the case may be, shall be subject to the accuracy of
the representations and warranties on the part of the Company and the Selling
Stockholders contained herein as of the Execution Time, the Closing Date and
any settlement date pursuant to Section 3 hereof, to the accuracy of the
statements of the Company and the Selling Stockholders made in any certificates
pursuant to the provisions hereof, to the performance by the Company and the
Selling Stockholders of their respective obligations hereunder and to the
following additional conditions:
(a) If the Registration Statement has not become
effective prior to the Execution Time, unless the Representatives agree in
writing to a later time, the Registration Statement will become effective not
later than (i) 6:00 PM New York City time on the date of determination of the
public offering price, if such determination occurred at or prior to 3:00 PM
New York City time on such date or (ii) 12:00 Noon on the business day
following the day on which the public offering price was determined, if such
determination occurred after 3:00 PM New York City time on such date; if filing
of the Prospectus, or any supplement thereto, is required pursuant to Rule
424(b), the Prospectus, and any such supplement, will be filed in the manner
and within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
threatened.
(b) The Company shall have furnished to the
Representatives the opinion of Vinson & Elkins L.L.P., counsel for the Company,
dated the Closing Date, to the effect that:
(i) each of the Company and its subsidiaries
(individually a "Subsidiary" and collectively, the "Subsidiaries") has
been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction in which it is
chartered or organized, with full corporate power and authority to own
its properties and conduct its business as described in the
Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or
leases material properties or conducts material business, except to
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole;
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in
the Prospectus, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company either directly or through
wholly owned subsidiaries free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry, any
other security interests, claims, liens or encumbrances;
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<PAGE> 14
(iii) the Company's authorized equity capitalization is as
set forth in the Prospectus; the capital stock of the Company conforms
to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock (including the Securities being
sold hereunder by the Selling Stockholders) have been duly and validly
authorized and issued and are fully paid and nonassessable; the
Securities being sold hereunder by the Company have been duly and
validly authorized, and, when issued and delivered to and paid for by
the Underwriters pursuant to this Agreement, will be fully paid and
nonassessable; the Securities being sold by the Selling Stockholders
are duly listed and admitted for trading on the New York Stock
Exchange; the Securities being sold hereunder by the Company are duly
authorized for listing, subject to official notice of issuance on the
New York Stock Exchange; the certificates for the Securities are in
valid and sufficient form; and the holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or other
rights to subscribe for the Securities;
(iv) to the best knowledge of such counsel, there is no
pending or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries of a character required to be
disclosed in the Registration Statement which is not adequately
disclosed in the Prospectus, and there is no franchise, contract or
other document of a character required to be described in the
Registration Statement or Prospectus, or to be filed as an exhibit,
which is not described or filed as required;
(v) the Registration Statement has become effective under
the Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the best knowledge
of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and the Prospectus (other than the financial statements and
other financial and statistical information contained therein as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
rules thereunder; and such counsel has no reason to believe that at
the Effective Date the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus includes any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) no consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
of the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the Blue
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<PAGE> 15
Sky laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters and such other
approvals (specified in such opinion) as have been obtained; and
(viii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of, or constitute a default under any law or the
charter or by-laws of the Company or the terms of any indenture or
other agreement or instrument known to such counsel and to which the
Company or any of its subsidiaries is a party or bound or any
judgment, order or decree known to such counsel to be applicable to
the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over the Company or any of its subsidiaries.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the corporate laws of
the State of Delaware and the laws of the State of Texas or the United States,
to the extent they deem proper and specified in such opinion, upon the opinion
of other counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters and (B) as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Company and public officials. References to the Prospectus in this paragraph
(b) include any supplements thereto at the Closing Date.
(c) The Selling Stockholders shall have furnished to the
Representatives the opinion of Vinson & Elkins L.L.P., or such other counsel
for the Selling Stockholders that is acceptable to the Underwriters, dated the
Closing Date, to the effect that:
(i) this Agreement, the Custody Agreement and the Power
of Attorney have been duly authorized, executed and delivered by the
Selling Stockholders, and the Custody Agreement is valid and binding
on the Selling Stockholders;
(ii) immediately prior to the delivery by each Selling
Stockholder to the several Underwriters of certificates for the
Securities being sold hereunder by such Selling Stockholder, each
Selling Stockholder (A) had good and valid title to such Securities
and, to the knowledge of such counsel after due inquiry, such
Securities were at such time free and clear of all liens,
encumbrances, equities or claims, and (B) had full right, power and
authority to sell, assign, transfer and deliver such Securities;
(iii) upon delivery of certificates for the Securities
being sold hereunder by each Selling Stockholder to the Underwriters
against payment therefor as provided herein, good and valid title to
such Securities, free and clear of all liens, encumbrances, equities
and claims whatsoever will be transferred to each of the several
Underwriters who have purchased such Securities in good faith and
without notice of any such liens, encumbrance,
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<PAGE> 16
equity or claim or any other adverse claim within the meaning of the
Uniform Commercial Code;
(iv) no consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
by any Selling Stockholder of the transactions contemplated herein,
except such as may have been obtained under the Act and such as may be
required under the Blue Sky laws of any jurisdiction in connection
with the purchase and distribution of the Securities by the
Underwriters and such other approvals (specified in such opinion) as
have been obtained; and
(v) neither the sale of the Securities being sold by any
Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by any Selling Stockholder or the
fulfillment of the terms hereof by any Selling Stockholder will
conflict with, result in a breach or violation of, or constitute a
default under any law or the terms of any indenture or other agreement
or instrument known to such counsel and to which any Selling
Stockholder is a party or bound, or any judgment, order or decree
known to such counsel to be applicable to any Selling Stockholder of
any court, regulatory body, administrative agency, governmental body
or arbitrator having jurisdiction over any Selling Stockholder.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the corporate laws of
the State of Delaware and the laws of the State of Texas or the United States,
to the extent they deem proper and specified in such opinion, upon the opinion
of other counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters, and (B) as to matters of fact, to
the extent they deem proper, on certificates of the Selling Stockholders (or,
if a Selling Stockholder is a corporation, then responsible officers of such
Selling Stockholder) and public officials.
(d) The Representatives shall have received from Andrews
& Kurth L.L.P., counsel for the Underwriters, such opinion or opinions, dated
the Closing Date, with respect to the issuance and sale of the Securities, the
Registration Statement, the Prospectus (together with any supplement thereto)
and other related matters as the Representatives may reasonably require, and
the Company and each Selling Stockholder shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass upon
such matters.
(e) The Company shall have furnished to the
Representatives a certificate of the Company, signed by the Chairman of the
Board or the President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the Prospectus,
any supplements to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in
this Agreement are true and correct in all material respects on and as
of the Closing Date with the same effect as if
-16-
<PAGE> 17
made on the Closing Date and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial
statements included in the Prospectus (exclusive of any supplement
thereto), there has been no material adverse change in the condition
(financial or other), earnings, business or properties of the Company
and its subsidiaries, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
(f) Each Selling Stockholder shall have furnished to the
Representatives a certificate, signed by such Selling Stockholder (or, if such
Selling Stockholder is a corporation, signed by the Chairman of the Board or
the President and the principal financial or accounting officer of such Selling
Stockholder), dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the Prospectus,
any supplement to the Prospectus and this Agreement and that the
representations and warranties of such Selling Stockholder in this Agreement
are true and correct in all material respects on and as of the Closing Date to
the same effect as if made on the Closing Date.
(g) At the Execution Time and at the Closing Date, Arthur
Andersen L.L.P. shall have furnished to the Representatives a letter or
letters, dated respectively as of the Execution Time and as of the Closing
Date, in form and substance satisfactory to the Representatives, confirming
that they are independent accountants within the meaning of the Act and the
applicable published rules and regulations thereunder and stating in effect
that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma financial statements
included in the Registration Statement and the Prospectus and reported
by them comply in form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and its
subsidiaries; their limited review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited interim financial information for the three-month
period ended March 31, 1996, and as at March 31, 1996, for the
six-month period ended June 30, 1996 and as at June 30, 1996 and for
the nine-month period ended September 30, 1996 and as at September 30,
1996 as indicated in their reports relating to such unaudited interim
financial information; carrying out certain specified procedures (but
not an examination in accordance with generally
-17-
<PAGE> 18
accepted auditing standards) which would not necessarily reveal
matters of significance with respect to the comments set forth in such
letter; a reading of the minutes of the meetings of the stockholders,
directors and committees of the boards of directors of the Company and
the Subsidiaries; and inquiries of certain officials of the Company
who have responsibility for financial and accounting matters of the
Company and its subsidiaries as to transactions and events subsequent
to December 31, 1995, nothing came to their attention which caused
them to believe that:
(1) any unaudited financial statements included
in the Registration Statement and the Prospectus do not comply
in form in all material respects with applicable accounting
requirements of the Act and with the published rules and
regulations of the Commission with respect to registration
statements on Form S-3; and said unaudited financial
statements are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus; or
(2) with respect to the period subsequent to
September 30, 1996, there were any changes, at a specified
date not more than five business days prior to the date of the
letter, in the long-term loans of the Company and its
subsidiaries or Common Stock of the Company or decreases in
the stockholders' equity of the Company or increases in other
long-term liabilities of the Company and its subsidiaries as
compared with the amounts shown on the September 30, 1996
consolidated balance sheet included in the Registration
Statement and the Prospectus, or for the period from October
1, 1996 to such specified date there were any decreases, as
compared with the corresponding period in the preceding year,
in total revenues or net income before income taxes or in
total or per share amounts of net income of the Company and
its subsidiaries, except in all instances for changes or
decreases set forth in such letter, in which case the letter
shall be accompanied by an explanation by the Company as to
the significance thereof unless said explanation is not deemed
necessary by the Representatives;
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature (which
is limited to accounting, financial or statistical information derived
from the general accounting records of the Company and its
subsidiaries) set forth in the Registration Statement and the
Prospectus, including the information set forth under the captions
"Summary Financial Data," "Capitalization" and "Selected Historical
Financial Data" in the Prospectus, agrees with the accounting records
of the Company and its subsidiaries, excluding any questions of legal
interpretation;
(iv) On the basis of: a reading of the unaudited pro forma
financial statements included in the Registration Statement and the
Prospectus (the "pro forma financial
-18-
<PAGE> 19
statements"); carrying out certain specified procedures; inquiries of
certain officials of the Company who have responsibility for financial
and accounting matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
the pro forma financial statements, nothing came to their attention
which caused them to believe that the pro forma financial statements
do not comply in form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
References to the Prospectus in this paragraph (g) includes
any supplement thereto at the date of the letter.
(h) At the Execution Time and at the Closing Date,
Atwater and Cawley, Gillespie, independent petroleum engineers, shall have
furnished to the Representatives a letter with respect to reserve information
of the Company contained in the Registration Statement and the Prospectus in
form and substance satisfactory to the Representatives.
(i) Subsequent to the Execution Time or, if earlier, the
dates as of which information is given in the Registration Statement (exclusive
of any amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in the
letter or letters referred to in paragraph (g) of this Section 6 or (ii) any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company and its subsidiaries the effect of which,
in any case referred to in clause (i) or (ii) above, is, in the judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment thereof)
and the Prospectus (exclusive of any supplement thereto).
(j) The Securities shall have been approved for listing
on the New York Stock Exchange, subject only to official notice of issuance.
(k) At the Execution Time, the Company shall have
furnished to the Representatives a letter substantially in the form of Exhibit
A hereto from each officer and director of the Company addressed to the
Representatives, in which each such person agrees not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
an offering of, any shares of Common Stock beneficially owned by such person or
any securities convertible into, or exchangeable for, shares of Common Stock
for a period of 120 days following the Execution Time without the prior written
consent of the Representatives, other than shares of Common Stock disposed of
as bona fide gifts.
(l) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
-19-
<PAGE> 20
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company and
each Selling Stockholder in writing or by telephone or telegraph confirmed in
writing.
7. Reimbursement of Underwriters' Expenses. If the sale
of the Securities provided for herein is not consummated because any condition
to the obligations of the Underwriters set forth in Section 6 hereof is not
satisfied, because of any termination pursuant to Section 10 hereof or because
of any refusal, inability or failure on the part of the Company or any Selling
Stockholder to perform any agreement herein or comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities. If the Company is required to make any payments to the
Underwriters under this Section 7 because of any Selling Stockholder's refusal,
inability or failure to satisfy any condition to the obligations of the
Underwriters set forth in Section 6, the Selling Stockholders, pro rata in
proportion to the percentage of Securities to be sold by each, shall reimburse
the Company on demand for all amounts so paid.
8. Indemnification and Contribution. (a) The Company
agrees to indemnify and hold harmless each Underwriter, the directors,
officers, employees and agents of each Underwriter and each person who controls
any Underwriter within the meaning of either the Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several,
to which they or any of them may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement for the registration of the Securities as originally filed or in any
amendment thereof, or in any Preliminary Prospectus or the Prospectus, or in
any amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and agrees to reimburse each such indemnified party, as incurred, for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion therein. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
-20-
<PAGE> 21
(b) Each Selling Stockholder severally agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, each Underwriter, the directors,
officers, employees and agents of each Underwriter and each person who controls
the Company or any Underwriter within the meaning of either the Act or the
Exchange Act and each other Selling Stockholder to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to written information furnished to the Company by or on behalf of
such Selling Stockholder specifically for inclusion in the documents referred
to in the foregoing indemnity. This indemnity agreement will be in addition to
any liability which any Selling Stockholder may otherwise have.
(c) Each Underwriter severally agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who
signs the Registration Statement, and each person who controls the Company
within the meaning of either the Act or the Exchange Act and each Selling
Stockholder, to the same extent as the foregoing indemnity from the Company to
each Underwriter, but only with reference to written information relating to
such Underwriter furnished to the Company by or on behalf of such Underwriter
through the Representatives specifically for inclusion in the documents
referred to in the foregoing indemnity. This indemnity agreement will be in
addition to any liability which any Underwriter may otherwise have. The
Company and each Selling Stockholder acknowledge that the statements set forth
in the last paragraph of the cover page and under the heading "Underwriting" in
any Preliminary Prospectus and the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in any Preliminary Prospectus or the Prospectus, and you, as the
Representatives, confirm that such statements are correct.
(d) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof; but the failure so to notify the
indemnifying party (i) will not relieve it from liability under paragraph (a),
(b) or (c) above unless and to the extent it did not otherwise learn of such
action and such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a), (b) or (c) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the indemnifying
party's election to appoint counsel to represent the indemnified party in an
action, the indemnified party shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall bear the reasonable
fees, costs and expenses of such separate counsel if (i) the use of counsel
chosen by the indemnifying party to represent the indemnified party would
present such counsel with a conflict of interest, (ii) the actual or potential
defendants in, or targets of, any such action include both the
-21-
<PAGE> 22
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(e) In the event that the indemnity provided in paragraph
(a), (b) or (c) of this Section 8 is unavailable to or insufficient to hold
harmless an indemnified party for any reason, the Company, the Selling
Stockholders and the Underwriters agree to contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) (collectively
"Losses") to which the Company, one or more of the Selling Stockholders and one
or more of the Underwriters may be subject in such proportion as is appropriate
to reflect the relative benefits received by the Company, by the Selling
Stockholders and by the Underwriters from the offering of the Securities;
provided, however, that in no case shall any Underwriter (except as may be
provided in any agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such
Underwriter hereunder. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Company, the Selling Stockholders
and the Underwriters shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company, of the Selling Stockholders and of the Underwriters in connection with
the statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company and by the
Selling Stockholders shall be deemed to be equal to the total net proceeds from
the offering (before deducting expenses) received by each of them, and benefits
received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information
provided by the Company, the Selling Stockholders or the Underwriters. The
Company, the Selling Stockholders and the Underwriters agree that it would not
be just and equitable if contribution were determined by pro rata allocation or
any other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (e), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person who controls an Underwriter within the meaning
of either the Act or the Exchange Act and each director, officer, employee and
agent of an Underwriter shall
-22-
<PAGE> 23
have the same rights to contribution as such Underwriter, and each person who
controls the Company within the meaning of either the Act or the Exchange Act,
each officer of the Company who shall have signed the Registration Statement
and each director of the Company shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of
this paragraph (e).
9. Default by an Underwriter. If any one or more
Underwriters shall fail to purchase and pay for any of the Securities agreed to
be purchased by such Underwriter or Underwriters hereunder and such failure to
purchase shall constitute a default in the performance of its or their
obligations under this Agreement, the remaining Underwriters shall be obligated
severally to take up and pay for (in the respective proportions which the
amount of Securities set forth opposite their names in Schedule I hereto bears
to the aggregate amount of Securities set forth opposite the names of all the
remaining Underwriters) the Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase; provided, however, that in the
event that the aggregate amount of Securities which the defaulting Underwriter
or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate
amount of Securities set forth in Schedule I hereto, the remaining Underwriters
shall have the right to purchase all, but shall not be under any obligation to
purchase any, of the Securities, and if such nondefaulting Underwriters do not
purchase all the Securities, this Agreement will terminate without liability to
any nondefaulting Underwriter, the Selling Stockholders or the Company. In the
event of a default by any Underwriter as set forth in this Section 9, the
Closing Date shall be postponed for such period, not exceeding seven days, as
the Representatives shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall
relieve any defaulting Underwriter of its liability, if any, to the Company,
the Selling Stockholders and any nondefaulting Underwriter for damages
occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Securities, if prior to
such time (i) trading in the Company's Common Stock shall have been suspended
by the Commission or the New York Stock Exchange or trading in securities
generally on the New York Stock Exchange shall have been suspended or limited
or minimum prices shall have been established on such Exchange, (ii) a banking
moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Representatives, impracticable or inadvisable
to proceed with the offering or delivery of the Securities as contemplated by
the Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The
respective agreements, representations, warranties, indemnities and other
statements of the Company or its officers, of each Selling Stockholders and of
the Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
any
-23-
<PAGE> 24
Underwriter, any Selling Stockholder or the Company or any of the officers,
directors or controlling persons referred to in Section 8 hereof, and will
survive delivery of and payment for the Securities. The provisions of Sections
7 and 8 hereof shall survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in
writing and effective only on receipt, and, if sent to the Representatives,
will be mailed, delivered or telegraphed and confirmed to them, care of Salomon
Brothers Inc, at Seven World Trade Center, New York, New York, 10048; or, if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
it at 625 Kaliste Saloom Road, Lafayette, Louisiana 70508, attention: Andrew L.
Gates, III, of the legal department; or if sent to the Selling Stockholders,
will be mailed, delivered or telegraphed and confirmed to them at the addresses
set forth in Schedule II hereto.
13. Successors. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
the officers and directors and controlling persons referred to in Section 8
hereof, and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by
and construed in accordance with the laws of the State of New York.
-24-
<PAGE> 25
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several Underwriters.
Very truly yours,
STONE ENERGY CORPORATION
By:
-----------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
THE SELLING STOCKHOLDERS named in
Schedule II hereto, acting severally
By:
-----------------------------------------
Attorney-in-Fact
-25-
<PAGE> 26
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
Johnson Rice & Company L.L.C.
Morgan Keegan & Company, Inc.
By: Salomon Brothers Inc
By:
- -----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
For themselves and the other several
Underwriters named in Schedule I
to the foregoing Agreement.
-26-
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION>
Number of shares of
Underwritten Securities
Underwriters To Be Purchased
------------ ---------------
<S> <C>
Salomon Brothers Inc . . . . . . . . . . . . . . . . . .
Johnson Rice & Company L.L.C. . . . . . . . . . . . . . .
Morgan Keegan & Company, Inc. . . . . . . . . . . . . . .
---------------
Total
===============
</TABLE>
<PAGE> 28
SCHEDULE II
<TABLE>
<CAPTION>
Number of Shares of
Underwritten Securities
Selling Stockholders to Be Sold
-------------------- ----------
<S> <C>
D. Peter Canty (1) 100,000
Michael L. Finch (1) 100,000
James H. Prince (1) 75,000
Robert A. Bernhard (2) 20,000
Joan M. Bernhard (2) 6,566
Bernhard Trust "B" (2) 18,914
Robert A. Bernhard Charitable Remainder Trust (2) 18,361
David R. Voelker (3) 20,000
KGB Trust (3) 50,000
Frantzen/Voelker Investments, L.L.C. 50,000
-------
Total 458,841
=======
</TABLE>
________________
(1) The address for notice to each such Selling Stockholder is 625 Kaliste
Saloom Road, Lafayette, Louisiana 70508.
(2) The address for notice to each such Selling Stockholder is Munn, Bernhard
& Associates, 6 East 43rd
Street, 28th Floor, New York, New York 10017.
(3) The address for notice to each such Selling Stockholder is 1100 Poydras
Street, Suite 1910, New Orleans, Louisiana 70163.
<PAGE> 29
SCHEDULE III
<TABLE>
<CAPTION>
Maximum Number
of Shares of Option
Name Securities to be Sold
---- ---------------------
<S> <C>
Salomon Brothers Inc . . . . . . . . . . . . . . . . . .
Johnson Rice & Company L.L.C. . . . . . . . . . . . . . .
Morgan Keegan & Company, Inc. . . . . . . . . . . . . . .
-------------
Total . . . . . . . . . . . . . . . . . . . . .
=============
</TABLE>
<PAGE> 30
EXHIBIT A
[Letterhead of officer, director or major shareholder of
Stone Energy Corporation]
Stone Energy Corporation
Public Offering of Common Stock
Salomon Brothers Inc
Johnson Rice & Company L.L.C.
Morgan Keegan & Company, Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement"), between Stone
Energy Corporation, a Delaware corporation (the "Company"), certain Selling
Stockholders named therein and each of you as representatives of a group of
Underwriters named therein, relating to an underwritten public offering of
Common Stock, $0.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter
into the Underwriting Agreement, the undersigned agrees not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
an offering of, any shares of Common Stock beneficially owned by the
undersigned or any securities convertible into, or exchangeable for, shares of
Common Stock for a period of 120 days following the day on which the
Underwriting Agreement is executed without your prior written consent, other
than shares of Common Stock disposed of as bona fide gifts.
If for any reason the underwriting Agreement shall be
terminated prior to the Closing Date (as defined in the Underwriting
Agreement), the agreement set forth above shall likewise be terminated.
Yours very truly,
[Signature of officer,
director or major shareholder]
[Name and address of
officer, director or major shareholder]
<PAGE> 1
EXHIBIT 15.1
[ARTHUR ANDERSEN & CO. LETTERHEAD]
November 8, 1996
Stone Energy Corporation
625 East Kaliste Saloom Road
Lafayette, LA 70508
Gentlemen:
We are aware that Stone Energy Corporation has incorporated by reference in its
Registration Statement its Form 10-Q's for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996, which include our reports dated May 2,
1996, August 2, 1996 and October 24, 1996 covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933, those reports are not considered a part of the
registration statement prepared or certified by our firm or a report prepared or
certified by our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our reports dated March 6, 1996 included and
incorporated by reference herein and to all references to our Firm included in
this registration statement.
/s/ ARTHUR ANDERSEN LLP
November 11, 1996
