Stone Energy Corporation (SGY)

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Stone Energy Corp. (SGY)

Q4 2013 Results Earnings Conference Call

February 25, 2014 10:00 AM ET


David Welch - Chairman and CEO

Ken Beer - Chief Financial Officer


Dave Kistler - Simmons & Company

Michael Glick - Johnson Rice

Jeb Bachmann - Howard Weil

Matt Portillo - TPH

Chad Mabry - MLV & Co.

Richard Tullis - Capital One

Curtis Trimble - Global Hunter

Brian Kuzma - Sitcom

Dave Kistler - Simmons & Company



Good morning. My name is Kim, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2013 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. Chairman and CEO of Stone Energy’s Mr. David Welch, you may begin your conference.

David Welch

Okay. Thank you, Kim. And welcome everyone to our year end conference call. Ken Beer, our CFO will begin the meeting this morning with our Safe Harbor and review of our recent financial performance. He will then turn it back over to me for additional comments and we’ll then have a Q&A. Ken?

Ken Beer

Thank you, Dave. 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 and development, and production and sales of oil and natural gas.

We urge you to read our soon to be file our 2013 10-K for discussion of the risks that could cause our actual results to differ materially from those and any forward-looking statements we make today.

In addition, in this call, we may refer to financial measures that maybe 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 -- these financial measures and the most directly comparable GAAP financial measures.

Again, rather then go through the year end results in detail, I will assume everyone have seen the press release and the attached financial, so accordingly I will just focus on some selected items on this call.

First, our discretionary cash flow for the quarter was $142.5 million or about $2.85 per share and adjusted earnings for the quarter were $27 million or $0.60 or $0.56 per share both pretty much around the first call estimate.

The fourth quarter and year end results had two previously disclosed one-time items, which did impact the final net income figure. First, the $27 million expense related to the early extinguishment of debt tied to the tender and redemption of our 2017 senior notes in November.

This was part of the refinancing strategy of retiring the $375 million 8.625% notes due 2017 and issuing $475 million an add-on 7.5% notes due in 2022. The $27 million charge was due to the premium paid to retire the notes and some future accretion charges.

But this was substantially offset by the premium we did received when we issued the add-on notes and the lower interest rate associated with the new notes, which actually were booked under other assets. So really this early extinguishment of debt charge seems to be more of a balance sheet adjustment that did just go through the income statement.

The second one-time item was a franchised tax settlement expense of $12.6 million. This settlement was reached as part of the state amnesty program and eliminated potentially greater lingering liability and exposure to the company. We do not foresee either one-time charge recurring in the future.

Finally, in the fourth quarter results were impacted by a high 59% tax rate, all of that was deferred in non-cash and it was a small number but it did -- small absolute number but it did impact the reported earnings figure.

Production for the quarter was pre-announced in January and came in just under the 50,000 barrel a day equivalents or just under the 300 million cubic feet a day equivalents which was above the upper end of our updated guidance before January.

Once again our Marcellus volumes were strong contributors as we had assumed some weather-related restrictions which did not occur in the fourth quarter. In the Gulf of Mexico our uptime remains at a high level with minimal pipeline or facilities downtime and project -- flatter than projected decline curve.

We also benefited from two positive adjustments in the fourth quarter, really one-time adjustments totaling just over 10 million cubic feet equivalents per day. First, we recaptured previously paid royalties which qualified for royalty relief from some of our deepwater production, and second, we benefited from some upward adjustments to our working interest in the Mary Field and Appalachia, and some units were actually finalized. Again, all this was taking as a one-time uplift in the fourth quarter adding just over 10 million cubic feet equivalent for the period.

The production spilt for the fourth quarter was approximately 36% oil, 12% NGLs and 52% natural gas as much of the volume growth was in Appalachia.

For the first quarter of 2014, we are projecting 43.5 to 45,000 Boe per day range or 261 to 270 million cubic feet a day. These numbers were adjust -- there are number of adjustments that needed to be made from the fourth quarter volumes. First, we have adjusted the previously divested property volumes of about 2,500 barrels a day or about 15 million cubic feet a day.

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