Stone Energy Corporation (SGY): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


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We are maintaining our Neutral recommendation on Stone Energy following its third quarter 2014 results. The company has a multi-year inventory of drilling prospects, and is working on a strategy to fund its growth areas in Appalachia, the Rockies and the Deep Gas/Deepwater in the conventional shelf. It is actively engaged in horizontal well drilling in the Marcellus Shale and involved in various vertical tests in the Bakken Shale play. These are likely to add to revenues in the coming quarters. However, any delay in the operations of these wells will negatively impact the company's earnings. Furthermore, the company's results are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces.


Lafayette, Louisiana-based Stone Energy Corporation (SGY) is an independent oil and gas exploration and production company engaged in the acquisition and subsequent exploration, development, operation and production of oil and gas properties located primarily in the Gulf of Mexico (GoM). Stone also participated in an exploratory joint venture in Bohai Bay, China. While the company divested most of its Rockies assets in 2007, it still retains a working interest in several prospective resource plays. The company's current Rockies acreage totals nearly 92,000 net acres. Stone Energy is also in the process of building a position in Appalachia's highly prospective Marcellus Shale play through property acquisitions.

As of Dec 31, 2013, Stone had 863 billion cubic feet equivalent (Bcfe) of proved reserves, up approximately 11.6% from year-end 2012. The company had leasehold interests in approximately 94,000 net acres. During the year ended Dec 31, 2013, the company drilled a total of 30 horizontal Marcellus shale wells and 103 wells were put on production. The company expects to add leasehold interests and drill additional wells to further expand its interests in Appalachia. Appalachian properties accounted for approximately 55% of its estimated proved oil and natural gas reserves on a volume equivalent basis at year end. Deep shelf gas properties and Gulf Coast Basin conventional shelf accounted for approximately 16% of its estimated proved oil and natural gas reserves. Gulf of Mexico (GOM) conventional shelf properties accounted for approximately 29% of its estimated proved oil and natural gas reserves. Onshore oil properties accounted for less than 1% of its estimated proved oil and natural gas reserves. At the year end, the company reported estimated proved undeveloped reserves (PUDs) of 379.6 Bcfe, which accounted for 44% of its total estimated proved oil and gas reserves.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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