<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1996
REGISTRATION NO. 33-93486
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 2
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
OCTOBER 24, 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 October 22, 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>
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(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 $258,057 $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>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)..................................... 663 641 1,400 1,113 1,016 745 540
Gas (MMcf)...................................... 6,128 3,901 8,399 6,629 4,953 2,941 1,522
Oil and gas (MBOE).............................. 1,684 1,291 2,800 2,218 1,842 1,235 794
Average sales prices (inclusive of hedging
activities):
Oil (per Bbl)................................... $ 19.75 $ 17.93 $ 17.70 $ 16.61 $ 17.47 $ 19.54 $ 20.47
Gas (per Mcf)................................... 2.50 1.60 1.66 1.92 2.16 1.96 1.94
Per BOE......................................... 16.86 13.73 13.82 14.06 15.46 16.47 17.64
Average costs (per BOE):
Normal lease operating costs.................... $2.36 $2.02 $2.25 $2.39 $2.35 $3.37 $4.05
General and administrative...................... 0.99 1.40 1.18 1.40 1.22 1.47 1.98
Depreciation, depletion and amortization........ 6.06 5.64 5.57 5.15 4.20 3.83 5.55
</TABLE>
5
<PAGE> 7
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 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...................... $13,091 $11,493 $24,775 $18,482 $17,752 $14,557 $11,055
Gas production revenue...................... 15,300 6,229 13,918 12,697 10,718 5,778 2,949
Other revenue............................... 1,105 732 1,858 1,708 1,252 616 1,019
------- ------- ------- ------- ------- ------- -------
Total revenue........................... 29,496 18,454 40,551 32,887 29,722 20,951 15,023
------- ------- ------- ------- ------- ------- -------
Expenses:
Operating costs and production taxes........ 5,739 4,148 9,797 9,449 7,148 5,869 4,364
Depreciation, depletion and amortization.... 10,334 7,378 15,719 11,569 8,028 5,019 4,743
Interest expense............................ 1,537 909 2,191 982 1,499 1,743 1,698
Other expense............................... -- -- -- -- 1,025 365 2,003
General and administrative.................. 1,662 1,802 3,298 3,099 2,248 1,818 1,570
Incentive compensation plan................. 278 281 85 1,358 -- -- --
------- ------- ------- ------- ------- ------- -------
Total expenses.......................... 19,550 14,518 31,090 26,457 19,948 14,814 14,378
------- ------- ------- ------- ------- ------- -------
Net income before income taxes and cumulative
effect of change in accounting principle.... 9,946 3,936 9,461 6,430 9,774 6,137 645
Provision for income taxes.................... 3,829 1,515 3,645 2,410 943 -- --
------- ------- ------- ------- ------- ------- -------
Net income before cumulative effect of change
in accounting principle..................... 6,117 2,421 5,816 4,020 8,831 6,137 645
Cumulative effect of change in accounting
principle(1)................................ -- -- -- -- -- 1,377 --
------- ------- ------- ------- ------- ------- -------
Net income.................................... $ 6,117 $ 2,421 $ 5,816 $ 4,020 $ 8,831 $ 7,514 $ 645
======= ======= ======= ======= ======= ======= =======
Earnings per common share:
Net income per share before accounting
principle change.......................... $ 0.51 $ 0.20 $ 0.49 $ 0.34 $ 0.88 $ 0.71 $ 0.07
Cumulative effect of accounting principle
change(1)................................. -- -- -- -- -- 0.16 --
------- ------- ------- ------- ------- ------- -------
Net income per common share................. $ 0.51 $ 0.20 $ 0.49 $ 0.34 $ 0.88 $ 0.87 $ 0.07
======= ======= ======= ======= ======= ======= =======
Average shares outstanding.................. 11,954 11,830 11,818 11,801 10,087 8,664 8,664
======= ======= ======= ======= ======= ======= =======
CASH FLOW DATA:
Net cash provided by operating activities
(excluding working capital changes)......... $20,158 $11,314 $25,049 $17,911 $17,852 $11,156 $ 5,388
Investment in oil and gas properties.......... 16,321 19,716 48,122 41,174 18,167 9,366 22,119
Net cash provided by (used in) financing
activities.................................. 5,000 10,641 25,164 6,530 25,166 (4,049) 12,197
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(2) ADJUSTED(3)
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $ 6,283 $ 6,283 $ 6,283
Oil and gas properties, net............ 125,082 146,607 146,607
Total assets........................... 162,294 183,819 183,819
Long-term debt, less current portion... 52,717 74,242 17,744
Stockholders' equity................... 73,078 73,078 129,576
</TABLE>
- ---------------
(1) Represents the adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," effective January 1, 1992.
(2) Pro forma amounts reflect the effects of the 1996 Acquisitions. See the
Company's pro forma consolidated financial statements and the notes thereto.
(3) Pro forma amounts reflect the effects of the 1996 Acquisitions 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 $56.5 million ($66.4 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, assuming a public offering
price of $21 3/4 per share, the reported last sales price of the Common Stock on
the New York Stock Exchange Composite Tape on October 22, 1996. 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 $53.4 million (as of September 30, 1996) to $28.1 million ($18.2 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 June
30, 1996, pro forma to give effect to the 1996 Acquisitions, and pro forma as
adjusted to give effect to the application of the estimated $56.5 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 JUNE 30, 1996
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term loans................................... $ 52,717 $ 74,242 $ 17,744
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................................. 118 118 145
Additional paid-in capital...................... 52,191 52,191 108,662
Retained earnings............................... 20,769 20,769 20,769
--------- --------- ---------
Total stockholders' equity.............. 73,078 73,078 129,576
--------- --------- ---------
Total capitalization.................... $ 125,795 $ 147,320 $ 147,320
========= ========= =========
</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 October 22, 1996)....................... 21 3/4 18 1/8
</TABLE>
On October 22, 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 six months ended June 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 six-month periods ended June 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 six-month period ended June
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>
SIX MONTHS
ENDED
JUNE 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...................... $13,091 $11,493 $ 24,775 $18,482 $17,752 $14,557 $11,055
Gas production revenue...................... 15,300 6,229 13,918 12,697 10,718 5,778 2,949
Other revenue............................... 1,105 732 1,858 1,708 1,252 616 1,019
------- ------- ------- ------- ------- ------- -------
Total revenue........................... 29,496 18,454 40,551 32,887 29,722 20,951 15,023
------- ------- ------- ------- ------- ------- -------
Expenses:
Normal lease operating expenses............. 3,968 2,614 6,294 5,312 4,326 4,164 3,213
Major maintenance expenses.................. 260 72 446 1,834 822 148 311
Production taxes............................ 1,511 1,462 3,057 2,303 2,000 1,557 840
Depreciation, depletion and amortization.... 10,334 7,378 15,719 11,569 8,028 5,019 4,743
Interest.................................... 1,537 909 2,191 982 1,499 1,743 1,698
Other expense............................... -- -- -- -- 245 365 2,003
General and administrative.................. 1,662 1,802 3,298 3,099 2,248 1,818 1,570
Incentive compensation plan................. 278 281 85 1,358 -- -- --
Exchange offer expenses..................... -- -- -- -- 780 -- --
------- ------- ------- ------- ------- ------- -------
Total expenses.......................... 19,550 14,518 31,090 26,457 19,948 14,814 14,378
------- ------- ------- ------- ------- ------- -------
Net income before income taxes and cumulative
effect of change in accounting principle.... 9,946 3,936 9,461 6,430 9,774 6,137 645
Provision for income taxes.................... 3,829 1,515 3,645 2,410 943 -- --
------- ------- ------- ------- ------- ------- -------
Net income before cumulative effect of change
in accounting principle..................... 6,117 2,421 5,816 4,020 8,831 6,137 645
Cumulative effect of change in accounting
principle(1)................................ -- -- -- -- -- 1,377 --
------- ------- ------- ------- ------- ------- -------
Net income.................................... $ 6,117 $ 2,421 $ 5,816 $ 4,020 $ 8,831 $ 7,514 $ 645
======= ======= ======= ======= ======= ======= =======
Earnings per common share:
Net income per share before accounting
principle change.......................... $ 0.51 $ 0.20 $ 0.49 $ 0.34 $ 0.88 $ 0.71 $ 0.07
Cumulative effect of accounting principle
change(1)................................. -- -- -- -- -- 0.16 --
------- ------- ------- ------- ------- ------- -------
Net income per common share................. $ 0.51 $ 0.20 $ 0.49 $ 0.34 $ 0.88 $ 0.87 $ 0.07
======= ======= ======= ======= ======= ======= =======
Average shares outstanding.................. 11,954 11,830 11,818 11,801 10,087 8,664 8,664
======= ======= ======= ======= ======= ======= =======
CASH FLOW DATA:
Net cash provided by operating activities
(excluding working capital changes)......... $20,158 $11,314 $ 25,049 $17,911 $17,852 $11,156 $ 5,388
Net cash provided by operating activities..... 12,819 8,428 27,499 9,609 13,857 14,417 6,853
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)..................... $ 6,283 $ 6,532 $ 5,379 $ 4,437 $18,421 $(6,655) $(5,343)
Oil and gas properties, net................... 125,082 93,732 111,248 81,291 60,097 49,722 44,534
Total assets.................................. 162,294 119,811 139,460 109,956 98,770 65,117 57,536
Long-term debt, less current portion.......... 52,717 33,325 47,754 22,725 21,620 26,659 27,776
Stockholders' equity (deficit)(2)............. 73,078 63,507 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>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRODUCTION:
Oil (MBbls)......................... 663 641 1,400 1,113 1,016
Gas (MMcf).......................... 6,128 3,901 8,399 6,629 4,953
Oil and gas (MBOE).................. 1,684 1,291 2,800 2,218 1,842
SALES DATA (IN THOUSANDS):
Total oil sales..................... $ 13,091 $ 11,493 $ 24,775 $ 18,482 $ 17,752
Total gas sales..................... 15,300 6,229 13,918 12,697 10,718
AVERAGE SALES PRICES (INCLUSIVE OF
HEDGING ACTIVITIES):
Oil (per Bbl)....................... $19.75 $17.93 $17.70 $16.61 $17.47
Gas (per Mcf)....................... 2.50 1.60 1.66 1.92 2.16
Per BOE............................. 16.86 13.73 13.82 14.06 15.46
AVERAGE COSTS (PER BOE):
Normal lease operating
expenses(1)...................... $2.36 $2.02 $2.25 $2.39 $2.35
General and administrative.......... 0.99 1.40 1.18 1.40 1.22
Depreciation, depletion and
amortization..................... 6.06 5.64 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
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995.
Net income for the first six months of 1996 was $6.1 million or $0.51 per share,
which represents an increase of 153% over the comparable period of 1995.
Total oil and gas revenues for the six months ended June 30, 1996 were
$28.4 million, an increase of 60% over the same period in 1995. Compared to the
first half of 1995, gas production volumes for 1996's first six months increased
57% due to higher production levels at Eugene Island Block 243 and South Pelto
Block 23, while oil production increased 3%. Average oil and gas prices realized
increased 10% and 56%, respectively, in the six months ended June 30, 1996 from
the comparable 1995 period.
Operating expenses per BOE for the six months ended June 30, 1996 were
$2.36. 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 six
months of 1996, general and administrative expenses decreased slightly in total
and declined 29% per BOE to $0.99 from $1.40 for the first half of 1995.
Interest expense increased to $1.5 million for the six months ended June
30, 1996 from $0.9 million for the comparable 1995 period due to higher levels
of long-term debt. Depreciation, depletion and amortization expense increased
$3.0 million in the first half of 1996 from the same period in 1995 primarily
due to increased production rates, higher unit revenues and higher finding
costs.
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 June 30, 1996 was $6.3
million. Net cash flow from operations before working capital changes for the
second quarter of 1996 was $9.9 million or $0.83 per share, an improvement of
52% from the comparable amounts reported for the quarter ended June 30, 1995 of
$6.5 million or $0.55 per share. For the first six months of 1996, net cash flow
from operations before working capital changes was $20.2 million, an increase of
78% from the first half of 1995.
In the first half of 1996, the Company invested $24.0 million in its oil
and gas properties, which includes $1.2 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 six months
of 1996 was $1.8 million. Swap contracts totalled 179.3 MBbls of oil and 2,275
MMbtu of gas which represented 27% and 37%, respectively, of the Company's oil
and gas production for such period. Additionally, the Company has hedged oil and
gas prices for certain future periods, and the applicable periods, quantities
and average prices are as follows:
<TABLE>
<CAPTION>
OIL GAS
------------------ --------------------
VOLUMES PRICE VOLUMES PRICE
PERIOD (MBBLS) ($/BBL) (MMBTU) ($MMBTU)
------------------------------------------ ------- ------ ------- --------
<S> <C> <C> <C> <C>
Third quarter 1996........................ 138.0 $19.35 1,225 $ 2.09
Fourth quarter 1996....................... 179.5 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.
18
<PAGE> 20
Since the Company's Initial Public Offering in July 1993, the Company has
financed its activities with 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 September 30, 1996, the Revolver
had been fully utilized with an outstanding principal balance of $53.4 million,
and letters of credit totaling $6.6 million which 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 September 30, 1996, the weighted
average interest rate of the facility was 7.9% 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.
19
<PAGE> 21
LONG-TERM FINANCING. The Company's development budget for all of its
properties is $43 million for the second half of 1996 and $78 million for 1997.
Initially, this budget has been allocated to 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 9.3 MBOE in the first six 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 June 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 5.0
1994..................................... 3.0 18.2 6.1
1995..................................... 3.8 23.0 7.7
First six months of 1996................. 3.6 33.7 9.3
</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 $258,057 $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 purchased a 100% working
interest in approximately 6,400 acres in the Lake Hermitage Field for $6.5
million. The effective date of the transaction is also August 1, 1996, and the
previous owner is a privately-held company. 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. Since execution of the farmout agreement,
the Company has drilled six successful wells, four of which are dually
completed. 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 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.
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
25
<PAGE> 27
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 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. In
August 1991, the Company purchased a 98% working interest in the field from two
major and two independent oil companies. The Company's investments in the
property total $21.3 million, including the acquisition cost of $9.0 million and
development costs, 3-D seismic and facilities improvements of $12.3 million.
Cumulative net cash flow from the property through June 1996 was $20.8 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
26
<PAGE> 28
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 six 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 six months of 1996, the average daily production from the property
net to the Company was 320 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 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 six months of 1996, average
daily production from the field net to the Company's interest was 290 Bbls of
oil and 12.9 MMcf of gas.
27
<PAGE> 29
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. The Company's investment in the property
through June 30, 1996 was approximately $21.1 million, including $1.6 million of
acquisition and bonding costs and $19.5 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 six months of 1996,
the field produced at the average daily rate net to the Company of 330 Bbls of
oil and 3.5 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 second half of 1996 at South Pelto Block 23 are
expected to approximate $24.7 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............................ 61 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....................... 46 Vice President -- Engineering
James H. Prince.......................... 53 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...................... 47 Vice President -- Acquisitions
David R. Voelker......................... 42 Director
John P. Laborde.......................... 72 Director
Robert A. Bernhard....................... 67 Director
Raymond B. Gary.......................... 67 Director
B. J. Duplantis.......................... 56 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 is currently a director of
Western Publishing Group, Inc.
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 September 30, 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, without the prior written consent of Salomon
Brothers Inc, it will not (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 transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or (b) enter into any swap
or similar agreement that transfers, in whole or in part, the economic risk 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, for a period of 120 days after the
32
<PAGE> 34
date of this Prospectus, other than (i) the shares of Common Stock offered
hereby, or (ii) any shares of Common Stock sold by the Company upon the exercise
of any options outstanding on the date of the Offering granted under the stock
option plans of the Company existing at the closing of the Offering. In
addition, the executive officers and directors and certain other shareholders of
the Company have agreed not to (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, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or (b) enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk 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, for a period of 120 days after the date
of this Prospectus without the prior written consent of Salomon Brothers Inc,
other than (i) bona fide pledges of shares of Common Stock by such persons in
connection with a loan from a financial institution and (ii) certain transfers
of shares of Common Stock to family members or charitable foundations.
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 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 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
33
<PAGE> 35
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 and June 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 incorporated by
reference in this Prospectus modifies or supersedes such statement. Any such
34
<PAGE> 36
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 Balance Sheet of Stone Energy Corporation as of June 30,
1996............................................................................ F-2
Pro Forma Consolidated Statement of Operations of Stone Energy Corporation for the
year ended December 31, 1995.................................................... F-3
Pro Forma Consolidated Statement of Operations of Stone Energy Corporation for the
six months ended June 30, 1996.................................................. F-4
Notes to Pro Forma Consolidated Financial Statements............................... F-5
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants........................................... F-6
Consolidated Balance Sheet of Stone Energy Corporation as of June 30, 1996 and
December 31, 1995 and 1994...................................................... F-7
Consolidated Statement of Operations of Stone Energy Corporation for the six months
ended June 30, 1996 and 1995 and the years ended December 31, 1995, 1994 and
1993............................................................................ F-8
Consolidated Statement of Cash Flows of Stone Energy Corporation for the six months
ended June 30, 1996 and 1995 and the years ended December 31, 1995, 1994 and
1993............................................................................ F-9
Consolidated Statement of Changes in Equity of Stone Energy Corporation for the six
months ended June 30, 1996 and the years ended December 31, 1995, 1994
and 1993........................................................................ F-10
Notes to Consolidated Financial Statements......................................... F-11
</TABLE>
F-1
<PAGE> 40
STONE ENERGY CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA COMBINED
COMPANY ADJUSTMENTS PRO FORMA
--------- ----------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 7,593 $ 7,593
Marketable securities............................... 15,992 15,992
Accounts receivable................................. 9,171 9,171
Other current assets................................ 640 640
-------- -------
Total current assets........................ 33,396 33,396
Oil and gas properties, net
Proved.............................................. 115,997 25,215(a)
(5,475)(b) 135,737
Unevaluated......................................... 9,085 1,785(a) 10,870
Building and land, net................................ 3,248 3,248
Other assets, net..................................... 568 568
-------- -------
Total assets................................ $ 162,294 $ 183,819
======== =======
LIABILITIES AND STOCKHOLDERS' ACCOUNTS
Current liabilities:
Current portion of notes payable.................... $ 72 $ 72
Advance payments.................................... 420 420
Accounts payable.................................... 18,703 18,703
Undistributed oil and gas proceeds.................. 5,354 5,354
Other accrued liabilities........................... 2,564 2,564
-------- -------
Total current liabilities................... 27,113 27,113
Long-term loans....................................... 52,717 27,000(a)
(5,475)(b) 74,242
Deferred tax liability................................ 9,120 9,120
Other long-term liabilities........................... 266 266
-------- -------
Total liabilities........................... 89,216 110,741
-------- -------
Common stock.......................................... 118 118
Additional paid in capital............................ 52,191 52,191
Retained earnings..................................... 20,769 20,769
-------- -------
Total equity................................ 73,078 73,078
-------- -------
Total liabilities and equity................ $ 162,294 $ 183,819
======== =======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-2
<PAGE> 41
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-3
<PAGE> 42
STONE ENERGY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 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................... $ 28,391 $ 3,063 $ (373)(b) $ 31,081
Overhead reimbursements and management
fees.................................. 365 52 417
Other income............................. 740 740
------- ------ -------
Total revenues................... 29,496 3,115 32,238
------- ------ -------
Expenses:
Normal lease operating expenses.......... 3,968 502 (68)(b) 4,402
Major maintenance expenses............... 260 260
Production taxes......................... 1,511 39 (10)(b) 1,540
Depreciation, depletion, and
amortization.......................... 10,334 (125)(c) 10,209
Interest................................. 1,537 738(a) 2,275
General and administrative costs......... 1,662 1,662
Incentive compensation plan.............. 278 278
------- ------ -------
Total expenses................... 19,550 541 20,626
------- ------ -------
Income before income tax expense........... 9,946 2,574 11,612
------- ------ -------
Provision for income taxes:
Current.................................. 122 122
Deferred................................. 3,707 641(d) 4,348
------- -------
3,829 4,470
------- -------
Net income................................. $ 6,117 $ 7,142
======= =======
Primary and fully diluted earnings per
share:
Net income per share..................... $ 0.51 $ 0.60
======= =======
Average shares outstanding............... 11,954 11,954
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 43
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 balance sheet at June 30, 1996 has been prepared
assuming the three 1996 Acquisitions were consummated on June 30, 1996 and the
related pro forma consolidated statement of operations for the year ended
December 31, 1995 and the six months ended June 30, 1996 have been prepared
assuming that the three 1996 Acquisitions were consummated on January 1, 1995.
The preparation of the combined pro forma financial statements 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 financial statements 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 purchase of the 1996 Acquisitions and related borrowings
under Company's credit facility and interest expense at the rate prescribed
in the 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-5
<PAGE> 44
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-6
<PAGE> 45
STONE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 7,593 $ 6,286 $ 5,130
Marketable securities, at market....................... 15,992 10,232 15,196
Accounts receivable.................................... 9,078 7,247 7,673
Unbilled accounts receivable........................... 93 89 89
Other current assets................................... 640 612 242
-------- -------- --------
Total current assets........................... 33,396 24,466 28,330
Oil and gas properties -- full cost method of accounting:
Proved, net of accumulated depreciation, depletion and
amortization of $116,487, $106,277 and $90,726,
respectively........................................ 115,997 108,820 72,315
Unevaluated............................................ 9,085 2,428 8,976
Building and land, net of accumulated depreciation of $39
and $0, respectively................................... 3,248 3,284 --
Other assets, net of accumulated depreciation and
amortization of $4,261, $4,177 and $4,660,
respectively........................................... 568 462 335
-------- -------- --------
Total assets................................... $ 162,294 $139,460 $109,956
======== ======== ========
LIABILITIES AND STOCKHOLDERS' ACCOUNTS
Current liabilities:
Current portion of long-term loans..................... $ 72 $ 69 $ --
Advance payments....................................... 420 373 1,180
Accounts payable to vendors............................ 18,703 10,980 13,595
Undistributed oil and gas proceeds..................... 5,354 5,228 3,969
Other accrued liabilities.............................. 2,564 2,437 5,149
-------- -------- --------
Total current liabilities...................... 27,113 19,087 23,893
Long-term loans.......................................... 52,717 47,754 22,725
Deferred tax liability................................... 9,120 5,413 1,899
Other long-term liabilities.............................. 266 279 394
-------- -------- --------
Total liabilities.............................. 89,216 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........................................ 20,769 14,652 8,836
-------- -------- --------
Total equity................................... 73,078 66,927 61,045
-------- -------- --------
Total liabilities and equity................... $ 162,294 $139,460 $109,956
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-7
<PAGE> 46
STONE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Oil and gas production...................... $28,391 $17,722 $38,693 $31,179 $28,470
Overhead reimbursements and management
fees..................................... 365 211 522 444 433
Other income................................ 740 521 1,336 1,264 819
-------- -------- -------- -------- --------
Total revenues...................... 29,496 18,454 40,551 32,887 29,722
-------- -------- -------- -------- --------
Expenses:
Normal lease operating expenses............. 3,968 2,614 6,294 5,312 4,326
Major maintenance expenses.................. 260 72 446 1,834 822
Production taxes............................ 1,511 1,462 3,057 2,303 2,000
Depreciation, depletion and amortization.... 10,334 7,378 15,719 11,569 8,028
Interest.................................... 1,537 909 2,191 982 1,499
Lease maintenance expense................... -- -- -- -- 245
Salaries and other employee costs........... 951 780 1,663 1,566 1,024
Incentive compensation plan................. 278 281 85 1,358 --
General and administrative costs............ 711 1,022 1,635 1,533 1,224
Exchange offer expenses..................... -- -- -- -- 780
-------- -------- -------- -------- --------
Total expenses...................... 19,550 14,518 31,090 26,457 19,948
-------- -------- -------- -------- --------
Net income before income taxes................ 9,946 3,936 9,461 6,430 9,774
-------- -------- -------- --------
Provision for income taxes
Current..................................... 122 -- 131 -- --
Deferred.................................... 3,707 1,515 3,514 2,410 943
-------- -------- -------- -------- --------
Total income taxes.................. 3,829 1,515 3,645 2,410 943
-------- -------- -------- -------- --------
Net income.................................... 6,117 2,421 5,816 4,020 8,831
Preferred dividends and amortization of
preferred stock offering costs.............. -- -- -- -- 292
-------- -------- -------- -------- --------
Net income available to common stockholders... $ 6,117 $ 2,421 $ 5,816 $ 4,020 $ 8,539
======== ======== ======== ======== ========
Primary and fully diluted earnings per share
(see Note 1):
Net income per share........................ $ 0.51 $ 0.20 $ 0.49 $ 0.34 $ 0.88
======== ======== ======== ======== ========
Average shares outstanding.................... 11,954 11,830 11,818 11,801 10,087
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-8
<PAGE> 47
STONE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income....................................... $ 6,117 $ 2,421 $ 5,816 $ 4,020 $ 8,831
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization...... 10,334 7,378 15,719 11,569 8,028
Provision for deferred income taxes........... 3,707 1,515 3,514 2,410 943
Restricted stock plan......................... -- -- -- -- 50
Gain on sale of other assets.................. -- -- -- (88) --
-------- -------- -------- -------- --------
20,158 11,314 25,049 17,911 17,852
(Increase) decrease in marketable
securities.................................. (5,760) 996 4,964 (15,196) --
(Increase) decrease in accounts receivable.... (1,835) 1,544 426 850 (2,549)
(Increase) decrease in other current assets... (28) (662) (370) 904 (1,080)
Increase (decrease) in accounts payable and
accrued liabilities......................... 300 (4,697) (2,260) 5,586 123
Deferred financing costs...................... -- -- (151) (128) --
Other......................................... (16) (67) (159) (318) (489)
-------- -------- -------- -------- --------
Net cash provided by operating activities.......... 12,819 8,428 27,499 9,609 13,857
-------- -------- -------- -------- --------
Cash flows from investing activities:
Investment in oil and gas properties............. (16,321) (19,716) (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............................ (191) (77) (101) (148) --
-------- -------- -------- -------- --------
Net cash used in investing activities.............. (16,512) (19,793) (51,507) (39,132) (18,114)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings......................... 9,000 15,600 30,098 22,725 7,064
Repayment of debt................................ (4,034) (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 41 66 28 --
Preferred stock cash dividends................... -- -- -- -- (801)
Redemption of preferred stock.................... -- -- -- -- (5,200)
-------- -------- -------- -------- --------
Net cash provided by financing activities.......... 5,000 10,641 25,164 6,530 25,166
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 1,307 (724) 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............. $ 7,593 $ 4,406 $ 6,286 $ 5,130 $ 28,123
======== ======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized)............. $ 1,496 $ 598 $ 1,927 $ 1,053 $ 1,525
Income taxes..................................... 44 27 216 -- --
-------- -------- -------- -------- --------
$ 1,540 $ 625 $ 2,143 $ 1,053 $ 1,525
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-9
<PAGE> 48
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.............................. -- -- -- -- 6,117
Exercise of stock options............... -- -- 34 --
------- -------- ------- ------- --------
Balance, June 30, 1996 (unaudited)...... $ -- $ -- $118 $52,191 $ 20,769
======= ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-10
<PAGE> 49
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-11
<PAGE> 50
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-12
<PAGE> 51
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-13
<PAGE> 52
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 six months ended June 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-14
<PAGE> 53
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-15
<PAGE> 54
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-16
<PAGE> 55
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-17
<PAGE> 56
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,
JUNE 30, -------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Unsecured revolving credit facility with NationsBank
of Texas, N.A. ("NationsBank") (described
below)............................................ $ 49,573 $44,573 $22,725
Term Loan Agreement with First National Bank of
Commerce ("FNBC") with interest at 7.45%.......... 3,216 3,250 --
Less: portion due within one year................... (72) (69) --
-------- -------- -------
Total long-term loans..................... $ 52,717 $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-18
<PAGE> 57
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-19
<PAGE> 58
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 six months ended June 30, 1996 and the year ended December 31,
1995, net oil and gas hedging losses of $1,781 and $11, respectively, were
treated as a reduction of revenues from oil and gas production.
As of August 21, 1996, the Company's forward position was 305,000 barrels
and 5,020 MMBtu through 1997 at an average price of $19.51 per barrel and $2.225
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-20
<PAGE> 59
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-21
<PAGE> 60
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-22
<PAGE> 61
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-23
<PAGE> 62
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-24
<PAGE> 63
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-25
<PAGE> 64
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 six months
ended June 30, 1996 are not necessarily indicative of results for the full year.
F-26
<PAGE> 65
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........ 15
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> 66
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> 67
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<C> <C> <S>
*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>
- ---------------
* To be filed by amendment.
** 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> 68
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> 69
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 23RD DAY OF
OCTOBER, 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 23RD DAY OF OCTOBER 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ----------------------------------------------------------
<C> <S>
* 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
