We are upgraded our recommendation on
Stone Energy Corporation
) to Outperform from Neutral on Oct 3, 2013. The company's
strategy of offloading its non-core upstream properties will
prove beneficial over time while creating a portfolio with
stronger growth from a smaller base.
Stone Energy holds an opportune place in the industry with
widespread high yielding inventory. The company has an extensive
capital project inventory. Although Stone Energy aims to
apportion the capital across its portfolio, the focus will be on
the GoM shelf as well as the Marcellus region.
Recently, the company inked a joint venture deal with
) for the exploration of four deepwater prospects in the GoM.
This minimizes Stone Energy's burden in these capital intensive
prospects and provides the company with an experienced partner
boasting technical expertise in the GoM.
Stone Energy's Gulf operations are back on track and its U.S.
land activities (additional Marcellus results, deep onshore
exploration results, and Alberta Bakken results) are also
significant tailwinds. Importantly, year-end reserves are
expected to grow with success in the Pompano field, Appalachia
and the Marcellus Shale programs.
A number of opportunities in new well production (like Parmer
well in Wideberth prospect) and continued activity in the La
Cantera prospect, including drilling commencement at the
Taildancer prospect in Ship Shoal 113, the Taggart prospect in
Mississippi Canyon 816 and San Marcos prospect at Mississippi
Canyon 983 could significantly improve revenues.
Further, permits for the Phinisi, and Floyd prospects along
with the interests purchased in Pompano and Mica fields in the
) and Anadarko Petroleum Corp. are expected to place the company
In view of the several bullish prospects, Stone Energy raised
the production guidance for both the third quarter and full year
2013. Third quarter production guidance was raised from 42-45
Mboe per day (252-270 MMcfe per day) to 46-49 Mboe per day
(276-294 MMcfe per day). The full-year guidance has been
increased from 41-44 Mboe per day (246-264 MMcfe per day) to
43.5-45.0 Mboe per day (261-270 MMcfe per day).
Other Stocks to Consider
A better-placed company in the oil & gas sector with a
Zacks Rank #1 (Strong Buy) is
TransGlobe Energy Corp.
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