UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-12074
STONE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 72-1235413
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
625 E. Kaliste Saloom Road 70508
Lafayette, Louisiana (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (337) 237-0410
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
As of August 9, 2000, there were 18,473,125 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet
as of June 30, 2000 and December 31, 1999................. 1
Condensed Consolidated Statement of Operations
for the Three and Six Months Ended June 30, 2000 and 1999.. 2
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended June 30, 2000 and 1999............ 3
Notes to Condensed Consolidated Financial Statements........ 4
Auditors' Review Report..................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 7
PART II
Item 4. Submission of Matters to a Vote of Security Holders......... 11
Item 6. Exhibits and Reports on Form 8-K............................ 11
-2-
<PAGE>
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
--------------- ----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $44,202 $13,874
Marketable securities, at market............................. 300 34,906
Accounts receivable.......................................... 45,047 29,729
Other current assets......................................... 286 297
--------------- ----------------
Total current assets....................................... 89,835 78,806
Oil and gas properties, net:
Proved....................................................... 379,175 335,959
Unevaluated.................................................. 16,916 17,182
Building and land, net........................................... 4,404 3,864
Fixed assets, net................................................ 2,956 2,850
Other assets, net................................................ 3,345 3,077
--------------- ----------------
Total assets............................................... $496,631 $441,738
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - accounts payable and
accrued liabilities.......................................... $66,433 $55,919
Long-term debt................................................... 100,000 100,000
Production payments.............................................. 14,302 17,284
Deferred tax liability........................................... 15,327 746
Other long-term liabilities...................................... 1,172 2,202
--------------- ----------------
Total liabilities.......................................... 197,234 176,151
--------------- ----------------
Common stock..................................................... 184 183
Additional paid in capital....................................... 256,753 252,941
Retained earnings................................................ 42,460 12,463
--------------- ----------------
Total stockholders' equity................................. 299,397 265,587
--------------- ----------------
Total liabilities and stockholders' equity................. $496,631 $441,738
=============== ================
</TABLE>
<PAGE>
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas production..................... $58,806 $35,864 $106,032 $66,354
Overhead reimbursements
and management fees..................... 180 188 361 349
Other income............................... 649 221 1,382 492
----------- ----------- ------------ -----------
Total revenues...................... 59,635 36,273 107,775 67,195
----------- ----------- ------------ -----------
EXPENSES
Normal lease operating expenses............ 6,406 5,231 12,669 10,059
Major maintenance expenses................. 1,667 81 2,215 181
Production taxes........................... 1,494 670 2,714 1,185
Depreciation, depletion and
amortization............................. 18,985 16,831 36,164 34,519
Interest................................... 1,973 3,895 4,395 7,709
Salaries, general and administrative....... 1,410 1,122 2,881 2,199
Incentive compensation plan................ 336 211 588 421
----------- ----------- ------------ -----------
Total expenses...................... 32,271 28,041 61,626 56,273
----------- ----------- ------------ -----------
Net income before income taxes............... 27,364 8,232 46,149 10,922
----------- ----------- ------------ -----------
Provision for income taxes:
Current.................................... 67 5 67 5
Deferred................................... 9,510 2,882 16,085 3,826
----------- ----------- ------------ -----------
9,577 2,887 16,152 3,831
----------- ----------- ------------ -----------
Net income................................... $17,787 $5,345 $29,997 $7,091
=========== =========== ============ ===========
Earnings per common share:
Basic earnings per share ................. $0.97 $0.35 $1.63 $0.47
=========== =========== ============ ===========
Diluted earnings per share................ $0.94 $0.35 $1.60 $0.46
=========== =========== ============ ===========
Average shares outstanding................ 18,430 15,088 18,390 15,083
=========== =========== ============ ===========
Average shares outstanding assuming
dilution............................... 18,832 15,403 18,757 15,351
=========== =========== ============ ===========
</TABLE>
<PAGE>
-12-
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $29,997 $7,091
Adjustments to reconcile net income to net cash
provided by operating activities:
DD&A and other non-cash expenses...................... 36,279 34,519
Provision for deferred income taxes................... 16,085 3,826
Non-cash effect of production payments................ (2,752) -
---------------- ----------------
79,609 45,436
Decrease in marketable securities..................... 34,606 8,235
Increase in accounts receivable....................... (15,318) (349)
(Increase) decrease in other current assets........... 11 (364)
Increase in accrued liabilities....................... 3,025 1,767
Other................................................. (55) 17
---------------- ----------------
Net cash provided by operating activities....................... 101,878 54,742
---------------- ----------------
Cash flows from investing activities:
Investment in oil and gas properties....................... (72,330) (56,109)
Building additions and renovations......................... (591) (311)
Increase in other assets .................................. (508) (1,450)
---------------- ----------------
Net cash used in investing activities........................... (73,429) (57,870)
---------------- ----------------
Cash flows from financing activities:
Proceeds from borrowings..................................... - 13,000
Repayment of debt............................................ - (3,024)
Production payments.......................................... (230) -
Deferred financing costs..................................... (200) -
Expenses for stock offering.................................. - (87)
Proceeds from the exercise of stock options.................. 2,309 454
---------------- ----------------
Net cash provided by financing activities....................... 1,879 10,343
---------------- ----------------
Net increase in cash and cash equivalents....................... 30,328 7,215
Cash and cash equivalents, beginning of period.................. 13,874 10,550
---------------- ----------------
Cash and cash equivalents, end of period........................ $44,202 $17,765
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)...................... $4,067 $9,602
Income taxes.............................................. 67 5
</TABLE>
<PAGE>
STONE ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements of Stone Energy Corporation
at June 30, 2000 and for the three- and six-month periods then ended are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
period. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in our Annual Report on Form 10-K for the year
ended December 31, 1999. The results of operations for the three- and six-month
periods ended June 30, 2000 are not necessarily indicative of future financial
results. Certain prior period amounts have been reclassified to conform to
current period presentation.
NOTE 2 - EARNINGS PER SHARE
Basic net income per share of common stock was calculated by dividing net
income applicable to common stock by the weighted-average number of common
shares outstanding during the period. Diluted net income per share of common
stock was calculated by dividing net income applicable to common stock by the
weighted-average number of common shares outstanding during the period plus the
weighted-average number of dilutive stock options granted to outside directors
and employees. There were approximately 402,000 dilutive shares and 315,000
dilutive shares for the second quarters of 2000 and 1999, respectively, and
367,000 dilutive shares and 268,000 dilutive shares for the first six months of
2000 and 1999, respectively.
Options which were considered antidilutive because the exercise price of
the option exceeded the average price of our stock for the applicable period
totaled 7,647 shares and 16 shares in the second quarters of 2000 and 1999,
respectively, and 13,336 shares and 3,388 shares in the first six months of 2000
and 1999, respectively.
NOTE 3 - HEDGING ACTIVITIES
In order to reduce our exposure to the possibility of declining oil and gas
prices, from time to time we hedge with third parties certain of our crude oil
and natural gas production. We currently utilize two forms of hedging contracts:
fixed price swaps and collars. Fixed price swaps typically provide for monthly
payments by us (if prices rise) or to us (if prices fall) based on the
difference between the strike price and the agreed-upon average of NYMEX prices.
For collars, monthly payments are made by us if NYMEX prices rise above the
ceiling price and to us if NYMEX prices fall below the floor price. Oil
contracts typically settle using the average of the daily closing prices for a
calendar month. Natural gas contracts typically settle using the average closing
prices of near month NYMEX futures contracts for the three days prior to the
settlement date. Because our properties are located in the Gulf Coast Basin, we
believe that fluctuations in NYMEX prices will closely match changes in market
prices for our production.
Our current forward positions are summarized as follows:
Fixed Price Swaps
--------------------------------------------------
Gas Oil
---------------------- ------------------------
Volume Volume
(BBtus) Price (Bbls) Price
---------- ------- ---------- -------
Third Quarter, 2000 1,840 $2.518 230,000 $19.21
Fourth Quarter, 2000 1,840 $2.518 230,000 $19.21
<PAGE>
<TABLE>
<CAPTION>
Collars
----------------------------------------------------------------------------
Gas Oil
----------------------------------- -------------------------------------
Volume Volume
(BBtus) Floor Ceiling (Bbls) Floor Ceiling
---------- -------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Third Quarter, 2000 3,680 $2.60 $3.50 230,000 $21.00 $27.53
Fourth Quarter, 2000 3,680 $2.60 $3.50 230,000 $21.00 $27.53
</TABLE>
During the second quarters of 2000 and 1999, we realized net (decreases)
increases in oil and gas revenues related to hedging transactions of ($6.3)
million and $0.2 million, respectively. Six-month 2000 and 1999 oil and gas
revenues included net (decreases) increases of ($9.9) million and $2.6 million,
respectively.
NOTE 4 - LONG-TERM DEBT
Our borrowing base at June 30, 2000 was $200 million with outstanding
letters of credit totaling $7.5 million and no outstanding borrowings.
NOTE 5 - PRODUCTION PAYMENTS
In 1999, we acquired a 51% working interest in the Lafitte Field by
executing an agreement that included a dollar-denominated production payment to
be satisfied through the sale of production from the purchased property. Based
on the quarterly revaluation of this transaction, at June 30, 2000, the
production payment associated with this purchase totaled $2.4 million.
In July 1999, we acquired an additional working interest in East Cameron
Block 64 and a 100% working interest in West Cameron Block 176 in exchange for a
volumetric production payment. This agreement requires that 7.3 MMcf of gas per
day be delivered to the seller from South Pelto Block 23 until 8 Bcf of gas have
been distributed. We amortize the volumetric production payment as specified
deliveries of gas are made to the seller and recognize non-cash revenue in the
form of gas production revenues. At June 30, 2000, the volumetric production
payment was $11.9 million and gas revenues of $1.5 million and $3 million had
been recognized during the second quarter and six-month 2000 periods,
respectively.
NOTE 6 - NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards that require every derivative instrument (including certain
derivative instruments embedded in other contracts) to be recorded in the
balance sheet as either an asset or liability measured at its fair value and
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. We expect to adopt SFAS No.
133 on January 1, 2001. The adoption may create volatility in equity through
changes in other comprehensive income due to the marking to market of our
hedging contracts, however, we believe these instruments will be treated as cash
flow hedges under SFAS No. 133 and thus we do not anticipate that the standard
will have a material impact on our results of operations.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF
STONE ENERGY CORPORATION:
We have reviewed the accompanying condensed consolidated balance sheet of
Stone Energy Corporation (a Delaware corporation) as of June 30, 2000, and the
related condensed consolidated statements of operations for the three-month and
six-month periods ended June 30, 2000 and 1999, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 2000 and 1999.
These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the balance sheet of Stone Energy Corporation as
of December 31, 1999 (not presented herein), and, in our report dated March 6,
2000, we expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1999, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
July 28, 2000
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Throughout this document we make statements that are classified as
"forward-looking". Please refer to the "Forward-Looking Statements" section on
page 10 of this document for an explanation of these types of assertions. We
also use the terms "Stone", "Stone Energy", "Company", "we", "us" and "our" to
refer to Stone Energy Corporation.
OVERVIEW
Stone Energy Corporation is an independent oil and gas company engaged in
the acquisition, exploration, development and operation of oil and gas
properties onshore and in shallow waters offshore Louisiana. We have been active
in the Gulf Coast Basin since 1973 and have established extensive geophysical,
technical and operational expertise in this area.
Our business strategy is to increase production, cash flow and reserves
through the acquisition and development of mature properties located in the Gulf
Coast Basin. Since implementing our business strategy in 1990, we have acquired
interests in 21 fields in the Gulf Coast Basin from major and large independent
oil and gas companies. At June 30, 2000, we served as operator on all of our
properties, which enables us to better control the timing and cost of
rejuvenation activities. We believe that there will continue to be numerous
attractive opportunities to acquire properties in the Gulf Coast Basin due to
the increased focus by major and large independent companies on projects away
from the onshore and shallow water shelf regions of the Gulf.
RESULTS OF OPERATIONS
The following table sets forth certain information with respect to our oil
and gas operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
PRODUCTION:
Oil (MBbls).............................................. 886 876 1,639 1,706
Gas (MMcf):
Produced excluding volumetric production payment....... 10,489 9,575 20,748 19,492
Volumetric production payment.......................... 666 - 1,333 -
---------- ---------- ---------- -----------
Total gas volumes produced............................ 11,155 9,575 22,081 19,492
Oil and gas (MMcfe):
Produced excluding volumetric production payment....... 15,805 14,831 30,582 29,728
Volumetric production payment.......................... 666 - 1,333 -
---------- ---------- ---------- -----------
Total oil and gas volumes produced..................... 16,471 14,831 31,915 29,728
SALES DATA (IN THOUSANDS) (A):
Oil...................................................... $20,817 $13,550 $38,954 $23,354
Gas:
Gas sales excluding volumetric production payment..... 36,495 22,314 64,090 43,000
Volumetric production payment......................... 1,494 - 2,988 -
---------- ---------- ---------- -----------
Total gas sales....................................... 37,989 22,314 67,078 43,000
AVERAGE SALES PRICES (A):
Oil (per Bbl)............................................ $23.50 $15.47 $23.77 $13.69
Gas (per Mcf):
Price excluding volumetric production payment......... 3.48 2.33 3.09 2.21
Volumetric production payment......................... 2.24 - 2.24 -
Net average price..................................... 3.41 2.33 3.04 2.21
Oil and gas (per Mcfe):
Price excluding volumetric production payment......... 3.63 2.42 3.37 2.23
Volumetric production payment......................... 2.24 - 2.24 -
Net average price .................................... 3.57 2.42 3.32 2.23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
EXPENSES (PER MCFE):
Normal lease operating expenses (B)...................... $0.39 $0.35 $0.40 $0.34
Salaries, general and administrative..................... 0.09 0.08 0.09 0.07
DD&A on oil and gas properties........................... 1.14 1.12 1.12 1.14
(A) Includes the effects of hedging
(B) Excludes major maintenance expenses
</TABLE>
For the second quarter of 2000, we reported net income totaling $17.8
million, or $0.94 per share, compared to net income reported for the second
quarter of 1999 of $5.3 million, or $0.35 per share. Net income for the first
six months of 2000 and 1999 totaled $30 million and $7.1 million, respectively.
The favorable results in net income were due to improvements in the following
components:
PRODUCTION. Oil production during the second quarter of 2000 increased to
approximately 886,000 barrels as compared to 876,000 barrels of oil produced
during the second quarter of 1999, while natural gas production during the
second quarter of 2000 increased to approximately 11.2 billion cubic feet as
compared to second quarter 1999 gas production of 9.6 billion cubic feet. Our
average daily production rate during the second quarter of 2000 totaled 181
MMcfe which was 12% and 7% greater than the average daily production rates for
1999 and the first quarter of 2000, respectively. Year-to-date 2000 production
totaled 1.6 million barrels of oil and 22.1 billion cubic feet of gas while
six-month 1999 production totaled 1.7 million barrels of oil and 19.5 billion
cubic feet of gas.
The increase in 2000 production rates, as compared to 1999, was due
primarily to increases at four of our fields. At the end of the second quarter
of 1999, we acquired a 51% working interest in the Lafitte Field. Since then, we
have successfully completed one exploratory well, two workovers and improved the
capacity of the facilities to accommodate additional production at that field.
In July 1999, we increased our interest, and therefore our share of production,
at East Cameron Block 64 through the acquisition of an additional 62.5% working
interest in the block. Since acquisition, we have successfully completed four
workovers that boosted production volumes at that field. Pursuant to a joint
exploration agreement at the Iberia Prospect, during the third and fourth
quarters of 1999, we participated in the successful drilling and completion of
two exploratory wells at Weeks Island Field. Since the fourth quarter of 1999,
we have successfully completed and placed on production one well per quarter at
Eugene Island Block 243.
This growth in production was achieved while we contended with the net loss
of 12.3 MMcfe per day for 43 days during the second quarter of 2000 as a result
of the shut-in of the E-2 Well at South Pelto Block 23. After a downhole
mechanical failure, the well was recompleted to the Z-1 sand and returned to
production on July 30, 2000 at a net daily rate of 15.5 MMcfe. Including the
recently restored production from the E-2 Well, we estimate that our average net
daily production rate at the beginning of August was 202 MMcfe or 12% higher
than the average net daily rate for the second quarter of 2000 and 25% higher
than the average net daily rate for 1999.
PRICES. Prices realized during the second quarter of 2000 averaged $23.50
per barrel of oil and $3.41 per Mcf of gas. This represents a 48% increase, on a
thousand cubic feet of gas equivalent (Mcfe) basis, over second quarter 1999
average realized prices of $15.47 per barrel of oil and $2.33 per Mcf of gas.
Average realized prices during the first half of 2000 were $23.77 per barrel of
oil and $3.04 per Mcf of gas as compared to $13.69 per barrel of oil and $2.21
per Mcf of gas realized during the first half of 1999. All unit pricing amounts
include the effects of hedging.
From time to time, we enter into various hedging contracts in order to
reduce our exposure to the possibility of declining oil and gas prices. During
the second quarter of 2000, hedging transactions reduced the average price we
received for oil by $4.31 per barrel and for gas by $0.23 per Mcf as compared to
a net decrease of $0.44 per barrel and a net increase of $0.05 per Mcf for the
second quarter of 1999. Hedging transactions for the first half of 2000 reduced
the average price we received for oil by $4.68 per barrel and for gas by $0.10
per Mcf as compared to a net decrease of $0.23 per barrel and a net increase of
$0.15 per Mcf for the comparable 1999 period.
OIL AND GAS REVENUES. Second quarter 2000 oil and gas revenues increased
64% to $58.8 million, compared to second quarter 1999 oil and gas revenues of
$35.9 million. Year-to-date 2000 oil and gas revenues increased to $106 million
as compared to $66.4 million during the comparable 1999 period.
EXPENSES. Normal operating costs during the second quarter of 2000
increased to $6.4 million, compared to $5.2 million for the comparable quarter
in 1999. On a unit of production basis, second quarter 2000 operating costs were
$0.39 per Mcfe as compared to $0.35 per Mcfe for the second quarter of 1999. The
increase in operating costs was due primarily to a 45% increase in the number of
producing wells that we operate as a result of property acquisitions and
discoveries at many of our fields including Vermilion Block 131, Eugene Island
Block 243, Lake Hermitage Field, South Timbalier Block 8 and Weeks Island Field.
Normal operating costs were also impacted by increases in working interests at
several fields in addition to an overall increase in the cost of services.
During the second quarter of 2000, we performed workover operations on
three wells at Clovelly Field and two wells at South Pelto Block 23. As a
result, workover costs for the quarter totaled $1.7 million compared to $0.1
million for the comparable period of 1999. Production taxes for the second
quarter of 2000 increased to $1.5 million, compared to $0.7 million for the
second quarter of 1999, due to higher oil prices and increased onshore
production volumes.
General and administrative expenses for the second quarter of 2000
increased in total to $1.4 million, or $0.09 per Mcfe, from $1.1 million, or
$0.08 per Mcfe, for the second quarter of 1999. Both general and administrative
and incentive compensation expenses for the second quarter of 2000 were affected
by a 22% increase in our staff level over the second quarter of 1999.
Depreciation, depletion and amortization (DD&A) expense on our oil and gas
properties increased to $18.7 million or $1.14 per Mcfe during the second
quarter of 2000, compared to $16.6 million or $1.12 per Mcfe for the second
quarter of 1999.
As a result of the repayment of the borrowings under our bank credit
facility in August 1999, interest expense for the three-month period ended June
30, 2000 decreased to $2 million, compared to $3.9 million for the 1999 period.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW AND WORKING CAPITAL. Net cash flow from operations before working
capital changes for the second quarter and first six months of 2000 was $44.9
million and $79.6 million, compared to $25.1 million and $45.4 million reported
for the respective periods of 1999. Working capital at June 30, 2000 totaled
$23.4 million.
CAPITAL EXPENDITURES. Capital expenditures during the second quarter of
2000 totaled $41.2 million and included $1.9 million of capitalized general and
administrative costs and $0.4 million of capitalized interest. This brought
capital expenditures for the first half of 2000 to a total of $78.6 million
including $3.9 million of capitalized general and administrative costs and $0.4
million of capitalized interest. These investments were financed by a
combination of cash flow from operations and working capital.
ACQUISITION COSTS. During the second quarter of 2000, we acquired a 50%
working interest and control of operations in South Marsh Island Block 275 for
$2.7 million and two primary term leases at West Cameron Block 177 and Vermilion
Block 276 for $1 million.
DEVELOPMENT COSTS. During the second quarter of 2000, we completed numerous
development drilling, workover and recompletion operations and facilities
installations in an effort to develop our property base and to increase cash
flow from proved reserves. Currently, our 2000 development drilling program has
achieved a 100% success rate including the State Lease 4238 No. 14 STK Well at
South Timbalier Block 8 and the Eugene Island Block 243 No. B-1 Well which were
completed this quarter. The most significant workover/recompletion projects
during the quarter included East Cameron Block 64's No.'s A-7 and A-8 wells,
both of which were successful. We also began the recompletion of the E-2 Well at
South Pelto Block 23.
EXPLORATORY COSTS. In an effort to provide additions to our existing oil
and gas reserve base, during the second quarter of 2000, we completed drilling
operations on six exploratory wells, four of which were successful. These four
wells include the OCS-G 0775 No. 21 Well at Vermilion Block 131's Whiptail
Prospect, the OCS-G 1238 No. 29 Well at South Pelto Block 23's Wahoo Prospect,
the LLDSB No. 10 Well at Lake Hermitage's Magnolia Prospect and the State Lease
743 No. 1 Well at West Weeks Island's Agate Prospect. In addition to completed
wells, we spudded the LLDSB No. 1 STK 3 Well at Lake Hermitage's Post Oak
Prospect and the Myles Salt No. 2, the Meridian State Lease 500 No. 2 and the
Continental Weeks Gall Unit No. 1 wells at Weeks Island Field.
BUDGETED CAPITAL EXPENDITURES AND LONG-TERM FINANCING. For the year 2000,
we have budgeted what would be a record year for drilling wells with 34 new
wells scheduled. We have currently budgeted $140 million for our 2000
exploration and development plans of which approximately 57% has been allocated
for activities at the Vermilion Block 255, Eugene Island Block 243, South
Timbalier Block 8, East Cameron Block 64, Vermilion Block 131 and Lake Hermitage
Fields.
Based upon our outlook of oil and gas prices and production rates, we
believe that our cash flow from operations and existing working capital will be
sufficient to fund the current 2000 capital expenditures budget. If oil and gas
prices or production rates fall below our current expectations, we believe that
the available borrowings under our bank credit facility will be sufficient to
fund the capital expenditures in excess of operating cash flow.
Our borrowing base is currently $200 million with outstanding letters of
credit totaling $7.5 million and no outstanding borrowings.
We believe that the opportunity for acquisitions in our area of operations
remains strong due to the general exodus from the shallow water and shelf region
of the Gulf. Although we do not budget acquisitions, we are aggressively
evaluating properties and transaction alternatives to add to our existing
property base. One or a combination of certain of these possible transactions
could fully utilize our existing sources of capital. Although we have no
immediate plans to access the public markets for purposes of capital, if the
opportunity arose, we would consider such funding sources to provide capital in
excess of what is currently available to us. We would compare and contrast the
cost of debt financing with the potential dilution of equity offerings to
determine the appropriate financing vehicle to maximize stockholder value.
FORWARD-LOOKING STATEMENTS. This Form 10-Q and the information incorporated
by reference contain statements that constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The words "expect", "project", "estimate", "believe",
"anticipate", "intend", "budget", "plan", "forecast", "predict" and other
similar expressions are intended to identify forward-looking statements. These
statements appear in a number of places and include statements regarding our
plans, beliefs or current expectations, including the plans, beliefs and
expectations of our officers and directors.
When considering any forward-looking statement, you should keep in mind the
risk factors that could cause our actual results to differ materially from those
contained in any forward-looking statement. Important factors that could cause
actual results to differ materially from those in the forward-looking statements
herein include the timing and extent of changes in commodity prices for oil and
gas, operating risks and other risk factors as described in our Annual Report on
Form 10-K as filed with the Securities and Exchange Commission. Furthermore, the
assumptions that support our forward-looking statements are based upon
information that is currently available and is subject to change. We
specifically disclaim all responsibility to publicly update any information
contained in a forward-looking statement or any forward-looking statement in its
entirety and therefore disclaim any resulting liability for potentially related
damages.
All forward-looking statements attributable to Stone Energy Corporation are
expressly qualified in their entirety by this cautionary statement.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on May 18, 2000, four Class I
Directors, Peter K. Barker, D. Peter Canty, Raymond B. Gary and David R.
Voelker, were elected to serve as Directors until the 2003 annual meeting of
stockholders. Peter K. Barker received the vote of 15,985,905 shares with the
vote of 333,524 shares withheld, D. Peter Canty received the vote of 15,986,119
shares with the vote of 333,310 shares withheld, Raymond B. Gary received the
vote of 15,985,705 shares with the vote of 333,724 shares withheld and David R.
Voelker received the vote of 15,986,005 shares with the vote of 333,424 shares
withheld. No other Director was standing for election. B. J. Duplantis, John P.
Laborde and Richard A. Pattarozzi are Class II Directors whose terms expire at
the 2001 annual meeting of stockholders. James H. Stone, Joe R. Klutts and
Robert A. Bernhard are Class III Directors whose terms expire at the 2002 annual
meeting of stockholders.
Management's proposal to approve and adopt the 2000 Amended and Restated
Stock Option Plan was approved. The vote was 8,612,610 shares for, 5,906,534
shares against and 110,289 shares abstained.
Management's proposal to ratify the Board of Directors' appointment of
Arthur Andersen LLP as our independent auditors for the year 2000 was approved.
The vote was 16,313,098 shares for, 1,045 shares against and 5,286 shares
abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*15.1 - Letter from Arthur Andersen LLP dated August 8, 2000,
regarding unaudited interim financial information.
*27.1 - Financial Data Schedule
* Filed herewith
(b) There were no reports on Form 8-K filed for the three months ended
June 30, 2000.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONE ENERGY CORPORATION
Date: August 9, 2000 By: /s/James H. Prince
-------------------------------
James H. Prince
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
