Stone Energy Corporation (SGY)

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Stone Energy Corp. (SGY)

Barclays Capital Energy-Power Conference

September 12, 2013 11:45 am ET

Executives

David Welch - Chairman & CEO

Analyst

Jeff Robertson - Barclays Capital

Presentation

Jeff Robertson - Barclays Capital

We'd like to start our next presentation. It's pleasure to welcome Stone Energy to our conference this year. With us from the company for the presentation is Dave Welch, Stone's Chairman and CEO.

And I'll turn it over to Dave.

Dave Welch

Thank you very much, Jeff. It's pleasure to be here with you and welcome everyone to our presentation on Stone Energy. As you can see on our first slide just to kind of reiterate what our mission is. We try to deliver returns to our shareholders and we always want to try to be in the top quartile of our peer group and I think I'll show you later that we finally achieved that.

This first slide shows you the statistics on Stone. We're a balance growing diversified E&P company. Our market cap is about $1.4 billion, $2.2 billion enterprise value $635 million of trailing EBITDA. On the finance side, we have about $225 million in cash, $400 million undrawn credit facility, and we've also hedged forward about little over $1 billion of production for the next three years. We've got a little under $975 million of debt and the first due date is not until 2017 on our debt.

You can see that we are focused in really four areas. The Marcellus Shale in West Virginia, the Gulf of Mexico Shelf is our legacy asset-base shallow water Gulf of Mexico, Gulf Coast, deep gas with liquids is our third pillar, and our biggest growth area the deep water Gulf of Mexico. So our strategy has been to explore in areas where we could add material oil production growth to invest in price advantaged condensate rich gas basins and to limit reinvestments in the legacy business to only oil development.

If you look back about three or four years ago to 2009 we ended the year with about 69 million barrels of oil equipment reserves, almost 80% of which was in the conventional Shelf. And we were -- that's balanced roughly 50/50 oil and gas. If you fast forward to the end of 2012, you see a very different picture our reserves are now only 18% in our legacy businesses of the conventional Shelf. We're -- significant growth both in the Marcellus and in the deep water Gulf of Mexico. Our total reserves have grown from 69 million barrels to 129 million barrels, which is about 23% compound annual growth rate and we're still balanced with about 49% oil and NGLs, 51% gas.

Just looking at our share price performance if you look at it on a one year, three year, and a five year basis we have been in the top quartile. I think there is only one another company in our peer group that has been able to achieve that over the last one, three, and five year period and we think that the future actually looks better than the past for Stone.

This is our capital program. What we're trying to do with our capital is allocate to in such a way that maximizes the future value of our share price, which pretty much means maximizing the net present value of our investments. The side issues are we want to try to grow cash flow. We're also a little bit liquids driven given that this great disparity between oil and natural gas prices and we have a combination of low risk projects in the Marcellus where it's just repeatable well after well that looks pretty much the same and high potential exploration in the deep water Gulf of Mexico. So we have a balance there between those two areas and then also geographic and product diversification.

In aggregate, we're going to spend about $710 million this year as the budget approved by our Board of Directors. About 24% of that's going to be spent on our legacy businesses in the conventional Shelf and a fair amount of that 31% is going to be spent in Appalachia on the Marcellus. We are also testing the upper Devonian shale, which is just above the Marcellus shale and then the lion share of our investment this year will go into the deep water Gulf of Mexico 39%. We also have the deep Shelf business, deep gas business, which is liquids rich again and that's about 3% or 4% of our budget right there.

Then we have a small amount of business development and then there is really nothing to speak off in business development. But I would like to walk you through each of the other businesses starting with deep water and show you what we're doing in those areas and what that capital is being deployed and the results that we believe we'll be able to extract from that capital.

So before getting into each one of those businesses let me just discuss a little bit our financing options and statistics. We've generally lived within our cash flow for the last decade or more. During 2014 we're actually going to outspend cash flow a little bit for the first time and that's to do some deep water development. I'll show you what that is momentarily but if you look at our finances, we have a number of ways that we can meet the obligations that we see coming forward we still have about $225 million of cash on hand. Our credit facilities undrawn at $400 million and then also we are selling off about half of our non-core Gulf of Mexico legacy Shelf business -- Shelf assets this year at least we're testing the market we expect that we'll sell those that will give us another tranche of cash.

Read the rest of this transcript for free on seekingalpha.com