Stone Energy Corporation (SGY)

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Stone Energy Corp. (SGY)

Q2 2010 Earnings Conference Call

August 4, 2010 11:00 am ET

Executives

David Welch - President & CEO

Ken Beer - SVP & CFO

Analysts

Oliver Doolin - Tudor Pickering Holt

Richard Tullis - Capital One Southcoast

Jeffrey Robertson - Barclays Capital

Kelly Krenger - Bank of America

David Kistler - Simmons & Company

James Sivigny - Deutsche Asset Management

Presentation

Operator

Good morning. My name is Mason and I'll be your conference operator today. At this time I would like to welcome everyone to the Stone Energy's second quarter 2010 earnings 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 Mr. David Welch. You may now begin.

David Welch

Thank you very much, Mason, and good morning everyone. Welcome to our second quarter earnings call. Joining me this morning is our CFO, Chief Financial Officer Ken Beer who will discuss the final highlights of the quarter. Then I will provide few general comments followed by your questions. Ken?

Ken Beer

Thanks, Dave. I'll start up, just reading 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 development, production and sale of oil and natural gas. We urge you to read our 2009 annual report on Form 10-K and our soon to be file second quarter 10-Q 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, in this call, we 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 is posted on our website for a reconciliation of the differences between these financial measures and the most directly comparable GAAP financial measures.

With that, let me move forward. Rather than going through the financials in great detail, we'll assume everyone has indeed seen the press release and the attached financials. From the financial reporting standpoint, there were no significant unusual items this quarter, so my comments should be pretty brief.

As you can see, the discretionary cash flow for the quarter was $116 million or about $2.40 per share, well above our first call estimate, and earnings of just over $29 million or $0.60 per share were also above the first call estimates.

Production for the quarter came in at 217 million cubic feet equivalents a day, up lightly from the first quarter 213. Our oil and gas split remained around 44% and 56% for the quarter, as most of the recompletion projects tended to be gas oriented.

Production for the third quarter is expected to be down a little in the 200 to 210 range, assuming minimal hurricane down time. We'll talk on this more later, but the decline is primarily due to delay in drilling at our Amberjack platform, as well as in the timing of receiving MMS approval on many normal operations, which included our recompletion and work over projects, and obviously that will affect third quarter volumes.

Permits or approvals, which typically might have had a one day turnaround was stretched to a week and a typical one week turnaround at the MMS, were taking a month or longer. However, we are seeing good signs of this paralysis abating, but the delays have indeed impacted our production outlook for the third quarter.

In terms of oil and gas prices, the price realization after hedging came in at just over $72 per barrel and around $5.50 per Mcf, our blended price of $8.31 per Mcfe with oil still representing over 60% of our revenues.

Our hedge position reduced oil prices by about $4 per barrel, but boosted gas prices by about $0.95 per Mcf, so a net gain on hedging of about $7 million when we include the ineffective portion of the hedges. So a small plus on the hedge side for the quarter.

On the cost side our LOE was reported at $37 million, certainly on the lower side of our annual guidance. We continue to keep expenses in check. However, we do expect a little bit of an increase in major maintenance expenditures in the second half of the year.

Note also that we had separately from LOE we had a $2.4 million operational expense related to the cost but we won't stack in the H&P Amberjack platform rig during the moratorium for the quarter and also a small loss from tubular sales out of our inventory. In the third quarter we would also expect roughly another $2 million operational expense that would be recorded in the quarter.

D&A came in at 316 per Mcfe which was in line with guidance. And then our quarterly estimated tax rate included a small negative current tax as we made a few positive adjustments on our estimate of the current tax being due. So again, a little adjustment there.

We also noted in the release our total debt at quarter end was down to $525 million and was split between the $200 million in sub notes due September 2014 to $275 million of our 2017 senior notes and then bank debt at $50 million which is down from the $100 million outstanding at the end of the first quarter.

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