Stone Energy Corporation (SGY)

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Stone Energy Corporation (SGY)

Q3 2013 Earnings Conference Call

November 5, 2013 10:00 AM ET


David Welch - Chairman and CEO

Ken Beer - EVP and CFO


Michael Glick - Johnson Rice & Co.

Jeb Bachmann - Howard Weil



Good morning and my name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Stone Energy Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the call over to Chairman and CEO, David Welch; you may begin your conference.

David Welch

Thank you very much, Stephanie. And welcome everyone to our third quarter call; joining us this morning is Ken Beer, who is our Executive Vice President, Chief Financial Officer. Ken is going to discuss the quarterly financial results and then I’ll give you an update on the progress of our strategic plan. So with this, we’ll follow this with your questions. And now, I will turn over to Ken.

Ken Beer

Thank you, Dave. And let me start with the forward-looking statements. In this conference call, we may make forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.

These forward-looking statements are subject to all of the risks and uncertainties normally incident to the exploration for and the development, production and sales of oil and natural gas. We urge you to read our 2012 annual report on Form 10-K and our most recent 10-Q, which have a discussion of the risks that could cause our actual results to differ materially from those that any forward-looking statements we may make today.

In addition, in this call, we may refer to financial measures that may be deemed non-GAAP financial measures, as defined under the Exchange Act. Please refer to the press release we issued yesterday, which is posted on our website for a reconciliation of the differences between the financial measures and the most directly comparable GAAP financial measures.

And with that rather than go through the third quarter results in detail, we will assume that people have seen the release and the attached financials, and we will just focus on some selective financial items. Our discretionary cash flow for the quarter was $166 million or around $3.30 per share, which was above the analyst first call cash flow estimates of just over $3 per share, and the earnings for the quarter was $36 million or about $0.72 per share.

Production for the quarter came in at just under 50,000 Boe per day or just under 300 million cubic feet equivalents per day, which was above the upper end of the recently updated guidance for production.

Once again, our Marcellus volumes were strong contributor as we experienced minimal pipeline downtime during the quarter, and in the Gulf of Mexico, we also saw up count or up time rate at a very high level with minimal pipeline or facilities downtime. And finally and thankfully in the third quarter, we had no Hurricane downtime. So everything was clicking during the quarter; however, in October we did have Hurricane downtime from Tropical Storm Karen.

We also experienced some unplanned downtime at Ship Shoal 113 for a few weeks and we’re restricted in Appalachia for a portion of October due to a pipeline outage there. We also closed on the divestiture of our Weeks island field on October 1st which reduced volumes by about 1200 Boe per day.

Unfortunately, our volumes in November have rebounded particularly in Appalachia where we did hit the 100 million cubic feet of equivalents per day mark after bringing online another pad (Ph) in our Mary Field. However, due to the slow start in October the Weeks Island assets sale and projective weather related volume curtailments in Appalachia during November and December as the cold weather causes the liquids to drop out of the gas line, we expect our fourth quarter volumes to be in the 42,500 to 45,500 Boe per day or 255 million to 273 million cubic feet equivalents per day in that range. And yet because of the strong third quarter we’re still able to slightly raise our full year guidance to the 44,500 to 45,500 Boe or 267 million to 273 million cubic feet a day again for the year.

The production split for the quarter was approximately 40% oil, 9% NGLs and 51% natural gas as much of the volume growth was in Appalachia. And once again, our quarterly oil price realizations remained above $100 per barrel; however, the narrowing of the Louisiana Sweet premium continued during the quarter and is now around $5 per barrel premium versus WTI although still very attractive price.

Our NGL pricing averaged just under $39 per barrel, a bit higher than expected due to some positive adjustments from last quarter sub $30 per barrel price. We would expect NGL pricing to remain in the mid 30s per barrel range for the remainder of the year. Overall, gas prices weakened during the quarter especially in Appalachia, dropping to under $3.50 per Mcf.

For our gas hedge position helped keep our realize price at about $3.80 per Mcf. On the cost side our LOE was around $54 million for the quarter with our unit LOE per Mcfe dipping under $2 per Mcfe or under $12 Boe which is very good, very strong. Operations guys are clearly doing a good job of keeping LOE cost down and we have lowered LOE guidance for the year.

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