Stone Energy Corporation Q1 2010 Earnings Call Transcript

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Stone Energy Corporation (SGY)

Q1 2010 Earnings Call Transcript

May 5, 2010 11:00 am ET

Executives

David Welch – President and CEO

Ken Beer – SVP and CFO

Analysts

Brian Lively – Tudor Pickering Holt

David Kistler – Simmons & Co.

Richard Tullis – Capital One South

Presentation

Operator

Good morning. My name is Beth, and I will be your conference operator today. At this time, I would like to welcome everyone to the first-quarter 2010 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. Mr. David Welch, President and CEO of Stone Energy, you may begin your conference.

David Welch

Okay, thank you very much, and good morning, everyone; and welcome to the Stone Energy first quarter 2010 earnings conference call. Joining me this morning is Ken Beer, who is our Senior Vice President and Chief Financial Officer.

Before beginning our call, it feels appropriate to acknowledge the families of those who have lost their lives or have been injured in the recent BP Transocean Horizon blowout in the Gulf of Mexico. This was and is a terrible tragedy that may have as yet unknown consequences. In the best of outcomes, the industry may learn something to make future operations safer and more reliable. The last significant U.S. Gulf of Mexico blowout happened in 1971, and some surface safety bowels came out of that incident. We will all be doing forensic work on the current event to try to ensure that it doesn't happen again. A unified command, comprising the multiple government agencies and the operator seems to be working well in dealing with the aftermath. Processes and protocols that are being deployed and practiced – are practiced and drilled often in our industry, and the organized approach feels to be an excellent job in managing the spill and trying to protect our precious coast and wildlife. As of now, the event has not had any material impact on Stone Energy's operations. We continue to produce and conduct our drilling programs with a watchful eye to events going on around us. We have activated our Incident Command Center to monitor the situation on a daily basis, and to respond accordingly to changing conditions. If anything material occurs, we would plan to provide you with an operational update.

With that, let us now turn to our earnings call. Ken will first go over the financial highlights, and then he will turn the call back over to me for some additional general comments, and then we will be happy to take your questions. Ken?

Ken Beer

Yes, thanks, David. Let me first 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 the risks and uncertainties normally incident to the exploration for and the development, production, and sale of oil and natural gas. We urge you to read our 2009 Annual Report on Form 10-K for a discussion of the risks that could cause our actual results to differ materially from those in any forward-looking statements we may make today.

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

Rather than go through the financials in great detail, we will assume that everyone has seen the press release and the attached financials. From a financial reporting standpoint, there were no significant unusual items this quarter. So my comments should be brief.

Our discretionary cash flow for the quarter was about $115 million or about $2.40 per share, slightly above the First Call estimate. Our earnings of $26.6 million or $0.55 per share were in line with the First Call estimates.

Production for the quarter came in at 213 million cubic feet equivalents per day, down from the 220 million cubic feet equivalents for the fourth quarter of 2009, but on the upper end of our previous guidance for the quarter. The decline versus the fourth quarter was primarily due to aid the late in the repair of two third-party gas pipelines, which did come back on in late January, and some greater than normal weather restriction, which delayed a number of recompletion projects. Additionally, production from the Amberjack platform was down for a little bit during the first quarter due to the skidding of the platform rig to commence drilling of the Ibix well, and finally, there has been a normal decline curve for us to fight.

Our oil and gas split was about 45:55 for the quarter, as most of the recompletion projects were gas-oriented. Production for the second quarter is expected to be in the 210 to 225 million cubic feet equivalents range, and we are off with a good start in April. Oil and gas price realizations after hedging came in at about $70.72 per barrel and right around $6 per Mcf, or a blended price of over $8.50 per Mcfe. Oil still represents over 60% of our revenues.

Our hedge position reduced our oil prices by about $6 per barrel for the quarter, but boosted gas prices by over $0.50 per Mcf, which settled in to an overall net loss on hedging of about a little over $2.5 million. Since our last release, we have added a couple of oil hedges and our hedge schedule is in the press release.

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