-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uu49A2KqW0DdJrJIBVaToFKA+Fn0rgUleTlnDEkvYBOMXPXJIPXGA+Z2sK94LXOq 8q6+Tu3YlTRExyj1xmT+Nw== /in/edgar/work/20001103/0000904080-00-000013/0000904080-00-000013.txt : 20001106 0000904080-00-000013.hdr.sgml : 20001106 ACCESSION NUMBER: 0000904080-00-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STONE ENERGY CORP CENTRAL INDEX KEY: 0000904080 STANDARD INDUSTRIAL CLASSIFICATION: [1311 ] IRS NUMBER: 721235413 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12074 FILM NUMBER: 753263 BUSINESS ADDRESS: STREET 1: 625 E KALISTE SALOOM RD CITY: LAFAYETTE STATE: LA ZIP: 70508 BUSINESS PHONE: 3182370410 MAIL ADDRESS: STREET 1: 625 E KALISTLE SALOOM RD CITY: LAFAYETTE STATE: LA ZIP: 70508 10-Q 1 0001.txt FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-12074 STONE ENERGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 72-1235413 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 625 E. Kaliste Saloom Road 70508 Lafayette, Louisiana (Zip code) (Address of principal executive offices) Registrant's telephone number, including area code: (337) 237-0410 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ As of November 3, 2000, there were 18,531,725 shares of the Registrant's Common Stock, par value $.01 per share, outstanding. TABLE OF CONTENTS Page PART I Item 1. Financial Statements: Condensed Consolidated Balance Sheet as of September 30, 2000 and December 31, 1999...... 1 Condensed Consolidated Statement of Operations for the Three and Nine Months Ended September 30, 2000 and 1999......................... 2 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2000 and 1999......................... 3 Notes to Condensed Consolidated Financial Statements 4 Auditors' Review Report............................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 8 PART II Item 6. Exhibits and Reports on Form 8-K...................... 12 STONE ENERGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (In thousands)
September 30, Assets 2000 December 31, 1999 --------------------- -------------------- (Unaudited) Current assets: Cash and cash equivalents.................................... $64,379 $13,874 Marketable securities, at market............................. 300 34,906 Accounts receivable.......................................... 53,916 29,729 Other current assets......................................... 130 297 --------------------- -------------------- Total current assets....................................... 118,725 78,806 Oil and gas properties, net: Proved....................................................... 395,508 335,959 Unevaluated.................................................. 19,617 17,182 Building and land, net........................................... 4,792 3,864 Fixed assets, net................................................ 2,952 2,850 Other assets, net................................................ 3,388 3,077 --------------------- -------------------- Total assets............................................... $544,982 $441,738 ===================== ==================== Liabilities and Stockholders' Equity Current liabilities - accounts payable and accrued liabilities.......................................... $78,693 $55,919 Long-term debt................................................... 100,000 100,000 Production payments.............................................. 12,549 17,284 Deferred tax liability........................................... 27,679 746 Other long-term liabilities...................................... 1,196 2,202 --------------------- -------------------- Total liabilities.......................................... 220,117 176,151 --------------------- -------------------- Common stock..................................................... 185 183 Additional paid in capital....................................... 257,951 252,941 Retained earnings................................................ 66,729 12,463 --------------------- -------------------- Total stockholders' equity................................. 324,865 265,587 --------------------- -------------------- Total liabilities and stockholders' equity $544,982 $441,738 ===================== ====================
STONE ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------- ------------------------------------ 2000 1999 2000 1999 ---------------- ---------------- --------------- ----------- Revenues Oil and gas production..................... $71,807 $40,504 $177,839 $106,858 Overhead reimbursements and management fees..................... 179 161 540 510 Other income............................... 783 359 2,165 851 ---------------- ---------------- --------------- ----------- Total revenues...................... 72,769 41,024 180,544 108,219 ---------------- ---------------- --------------- ----------- Expenses Normal lease operating expenses 6,894 5,967 19,563 16,026 Major maintenance expenses 2,831 437 5,046 618 Production taxes........................... 1,587 983 4,301 2,168 Depreciation, depletion and amortization............................. 20,364 16,189 56,528 50,708 Interest................................... 1,868 2,968 6,263 10,677 Salaries, general and administrative 1,384 1,083 4,265 3,282 Incentive compensation plan 504 632 1,092 1,053 ---------------- ---------------- --------------- ----------- Total expenses...................... 35,432 28,259 97,058 84,532 ---------------- ---------------- --------------- ----------- Net income before income taxes 37,337 12,765 83,486 23,687 ---------------- ---------------- --------------- ----------- Provision for income taxes: Current.................................... 205 - 272 5 Deferred.................................. 12,863 4,477 28,948 8,303 ---------------- ---------------- --------------- ----------- 13,068 4,477 29,220 8,308 ---------------- ---------------- --------------- ----------- Net income................................... $24,269 $8,288 $54,266 $15,379 =============== =============== =============== =========== Earnings per common share: Basic earnings per share $1.31 $0.48 $2.95 $0.97 ================ =============== =============== =========== Diluted earnings per share $1.29 $0.47 $2.89 $0.95 ================ =============== =============== =========== Average shares outstanding 18,484 17,332 18,421 15,841 ================ =============== =============== =========== Average shares outstanding assuming dilution............................... 18,869 17,711 18,796 16,157 ================ ============== =============== ===========
STONE ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------------------------ 2000 1999 --------------------- --------------------- Cash flows from operating activities: Net income...................................................... $54,266 $15,379 Adjustments to reconcile net income to net cash provided by operating activities: DD&A and other non-cash expenses 56,702 50,708 Provision for deferred income taxes 28,948 8,303 Non-cash effect of production payments (4,279) (1,443) --------------------- --------------------- 135,637 72,947 (Increase) Decrease in marketable securities 34,606 (2,469) Increase in accounts receivable (24,187) (3,308) (Increase) Decrease in other current assets 167 (273) Increase (Decrease) in accrued liabilities 11,443 (341) Other................................................. (48) 45 --------------------- --------------------- Net cash provided by operating activities 157,618 66,601 --------------------- --------------------- Cash flows from investing activities: Investment in oil and gas properties (107,614) (74,306) Building additions and renovations (1,007) (367) Increase in other assets .................................. (833) (2,062) --------------------- --------------------- Net cash used in investing activities (109,454) (76,735) --------------------- --------------------- Cash flows from financing activities: Proceeds from borrowings..................................... - 13,000 Repayment of debt............................................ - (123,024) Production payments.......................................... (456) - Deferred financing costs..................................... (200) - Proceeds from stock offering................................. - 131,139 Expenses for stock offering.................................. - (373) Proceeds from the exercise of stock options 2,997 1,353 --------------------- --------------------- Net cash provided by financing activities 2,341 22,095 --------------------- --------------------- Net increase in cash and cash equivalents 50,505 11,961 Cash and cash equivalents, beginning of period 13,874 10,550 --------------------- --------------------- Cash and cash equivalents, end of period $64,379 $22,511 ==================== ===================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $8,085 $13,041 Income taxes.............................................. 272 5
STONE ENERGY CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - INTERIM FINANCIAL STATEMENTS The condensed consolidated financial statements of Stone Energy Corporation at September 30, 2000 and for the three- and nine-month periods then ended are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-K for the year ended December 31, 1999. The results of operations for the three- and nine-month periods ended September 30, 2000 are not necessarily indicative of future financial results. Certain prior period amounts have been reclassified to conform to current period presentation. Note 2 - EARNINGS PER SHARE Basic net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period plus the weighted-average number of dilutive stock options granted to outside directors and employees. There were approximately 385,000 dilutive shares and 379,000 dilutive shares for the third quarters of 2000 and 1999, respectively, and 375,000 dilutive shares and 316,000 dilutive shares for the first nine months of 2000 and 1999, respectively. Options which were considered antidilutive because the exercise price of the option exceeded the average price of our stock for the applicable period totaled 12,635 shares and 274 shares in the third quarters of 2000 and 1999, respectively, and 18,499 shares and 1,445 shares in the first nine months of 2000 and 1999, respectively. Note 3 - HEDGING ACTIVITIES In order to reduce our exposure to the possibility of declining oil and gas prices, from time to time we hedge with third parties certain of our crude oil and natural gas production. We currently utilize two forms of hedging contracts: fixed price swaps and collars. Fixed price swaps typically provide for monthly payments by us (if prices rise) or to us (if prices fall) based on the difference between the strike price and the agreed-upon average of NYMEX prices. For collars, monthly payments are made by us if NYMEX prices rise above the ceiling price and to us if NYMEX prices fall below the floor price. Oil contracts typically settle using the average of the daily closing prices for a calendar month. Natural gas contracts typically settle using the average closing prices of near month NYMEX futures contracts for the three days prior to the settlement date. Because our properties are located in the Gulf Coast Basin, we believe that fluctuations in NYMEX prices will closely match changes in market prices for our production. Our current forward positions are summarized as follows: Fixed Price Swaps ----------------------------------------------------- Gas Oil ----------------------- -------------------------- Volume Volume (BBtus) Price (Bbls) Price --------- --------- --------- ------------ Fourth Quarter, 2000 1,840 $2.518 230,000 $19.21 Collars ---------------------------------------------------------- Gas Oil ---------------------------- -------------------------- Volume Volume (BBtus) Floor Ceiling (Bbls) Floor Ceiling --------- --------- -------- -------- ------- -------- Fourth Quarter, 2000 3,680 $2.60 $3.50 230,000 $21.00 $27.53 During the third quarters of 2000 and 1999, we realized net decreases in oil and gas revenues related to hedging transactions of $10 million and $3.8 million, respectively. Nine-month 2000 and 1999 oil and gas revenues included net decreases of $19.9 million and $1.2 million, respectively. Note 4 - LONG-TERM DEBT Our borrowing base at September 30, 2000 was $200 million with outstanding letters of credit totaling $7.5 million and no outstanding borrowings. Note 5 - PRODUCTION PAYMENTS In 1999, we acquired a 51% working interest in the Lafitte Field by executing an agreement that included a dollar-denominated production payment to be satisfied through the sale of production from the purchased property. Based on the quarterly revaluation of this transaction, at September 30, 2000, the production payment associated with this purchase totaled $2.1 million. In July 1999, we acquired an additional working interest in East Cameron Block 64 and a 100% working interest in West Cameron Block 176 in exchange for a volumetric production payment. This agreement requires that 7.3 MMcf of gas per day be delivered to the seller from South Pelto Block 23 until 8 Bcf of gas have been distributed. We amortize the volumetric production payment as specified deliveries of gas are made to the seller and recognize non-cash revenue in the form of gas production revenues. At September 30, 2000, the volumetric production payment was $10.4 million and we recognized gas revenues of $1.5 million and $4.5 million during the third quarter and nine-month 2000 periods, respectively. For the comparable periods of 1999, we recognized gas revenues of $1.5 million. Note 6 - NEW ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards that require every derivative instrument (including certain derivative instruments embedded in other contracts) to be recorded in the balance sheet as either an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. If those criteria are met, the instruments are treated as cash flow hedges under SFAS No. 133 creating volatility in equity through changes in other comprehensive income due to the marking to market of the hedging contracts. We will adopt SFAS No. 133 on January 1, 2001. We are currently not obligated to any derivative instrument or hedging contract past December 31, 2000 and therefore would not be subject to SFAS No. 133 disclosure requirements. However, in connection with the recent announcement of a pending merger with Basin Exploration, Inc., we indicated that we would enter into two-year hedging contracts for approximately 25%-30% of the combined company's estimated production. Depending on the nature of our future hedging contracts and the fluctuation of oil and gas prices over the term of the hedges, the adoption of SFAS No. 133 may create volatility in our results of operations and/or stockholders' equity. Note 7 - SUBSEQUENT EVENTS In an agreement dated October 28, 2000, Stone and Basin Exploration, Inc. have agreed to combine the two companies in a tax-free, stock-for-stock merger. Under the merger agreement, Basin Exploration stockholders will receive 0.3974 of a Stone Energy common share for each share of common stock they own, which translates into the issuance of approximately 7.6 million shares of Stone stock. Our stockholders will own approximately 71% of the combined company and Basin's stockholders will own approximately 29%. The combination is expected to be accounted for as a pooling of interests. This transaction is subject to approval by the stockholders of both companies, customary regulatory approvals and other customary conditions. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS OF STONE ENERGY CORPORATION: We have reviewed the accompanying condensed consolidated balance sheet of Stone Energy Corporation (a Delaware corporation) as of September 30, 2000, and the related condensed consolidated statements of operations for the three-month and nine-month periods ended September 30, 2000 and 1999, and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the balance sheet of Stone Energy Corporation as of December 31, 1999 (not presented herein), and, in our report dated March 6, 2000, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. ARTHUR ANDERSEN LLP New Orleans, Louisiana October 28, 2000 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Throughout this document we make statements that are classified as "forward-looking". Please refer to the "Forward-Looking Statements" section on page 12 of this document for an explanation of these types of assertions. We use the terms "Stone", "Stone Energy", "Company", "we", "us" and "our" to refer to Stone Energy Corporation. We also use the terms "Basin" and "Basin Exploration" to refer to Basin Exploration, Inc. OVERVIEW Stone Energy Corporation is an independent oil and gas company engaged in the acquisition, exploration, development and operation of oil and gas properties onshore and in shallow waters offshore Louisiana. We have been active in the Gulf Coast Basin since 1973 and have established extensive geophysical, technical and operational expertise in this area. Our business strategy is to increase production, cash flow and reserves through the acquisition and development of mature properties located in the Gulf Coast Basin. Since implementing our business strategy in 1990, we have acquired interests in 21 fields in the Gulf Coast Basin from major and large independent oil and gas companies. At September 30, 2000, we served as operator on all of our properties, which enables us to better control the timing and cost of rejuvenation activities. We believe that there will continue to be numerous attractive opportunities to acquire properties in the Gulf Coast Basin due to the increased focus by major and large independent companies on projects away from the onshore and shallow water shelf regions of the Gulf. RESULTS OF OPERATIONS The following table sets forth certain information with respect to our oil and gas operations. Three Months Ended Nine Months Ended September 30, September 30, ----------------------------------- --------------------------------------- 2000 1999 2000 1999 --------------- ------------- ----------------- -------------- PRODUCTION: Oil (MBbls) 855 925 2,494 2,631 Gas (MMcf): Produced excluding volumetric production payment 11,605 8,970 32,353 28,463 Volumetric production payment 667 667 2,000 667 --------------- ------------- ----------------- ------------- Total gas volumes produced 12,272 9,637 34,353 29,130 Oil and gas (MMcfe): Produced excluding volumetric production payment 16,735 14,520 47,317 44,249 Volumetric production payment 667 667 2,000 667 -------------- -------------- ---------------- ------------- Total oil and gas volumes produced 17,402 15,187 49,317 44,916 SALES DATA (in thousands) (a): Oil $23,684 $16,042 $62,638 $39,396 Gas: Gas sales excluding volumetric production payment 46,629 22,968 110,719 65,968 Volumetric production payment 1,494 1,494 4,482 1,494 --------------- -------------- -------------- ------------- Total gas sales 48,123 24,462 115,201 67,462
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------------- --------------------------------------- 2000 1999 2000 1999 --------------- ------------- ----------------- -------------- AVERAGE SALES PRICES (a): Oil (per Bbl) $27.70 $17.34 $25.12 $14.97 Gas (per Mcf): Price excluding volumetric production payment 4.02 2.56 3.42 2.32 Volumetric production payment 2.24 2.24 2.24 2.24 Net average price 3.92 2.54 3.35 2.32 Oil and gas (per Mcfe): Price excluding volumetric production payment 4.20 2.69 3.66 2.38 Volumetric production payment 2.24 2.24 2.24 2.24 Net average price 4.13 2.67 3.61 2.38 EXPENSES (per Mcfe): Normal lease operating expenses (b) $0.40 $0.39 $0.40 $0.36 Salaries, general and administrative 0.08 0.07 0.09 0.07 DD&A on oil and gas properties 1.15 1.05 1.13 1.11
(a) Includes the effects of hedging (b) Excludes major maintenance expenses For the third quarter of 2000, we reported net income totaling $24.3 million, or $1.29 per share, compared to net income reported for the third quarter of 1999 of $8.3 million, or $0.47 per share. Net income for the first nine months of 2000 and 1999 totaled $54.3 million and $15.4 million, respectively. The favorable results in net income were due to improvements in the following components: PRODUCTION. Natural gas production during the third quarter of 2000 increased to approximately 12.3 billion cubic feet as compared to third quarter 1999 gas production of 9.6 billion cubic feet, while oil production during the third quarter of 2000 totaled approximately 855,000 barrels as compared to 925,000 barrels of oil produced during the third quarter of 1999. Year-to-date 2000 production totaled 2.5 million barrels of oil and 34.4 billion cubic feet of gas while nine-month 1999 production totaled 2.6 million barrels of oil and 29.1 billion cubic feet of gas. Our average daily production rate during the third quarter of 2000 was 189.2 MMcfe. This represented a 17% increase from our 1999 annual average daily production rate. Currently, our average daily production rate is approximately 200 MMcfe. Based on current production, we estimate that our average daily production rate for the fourth quarter of 2000 will be in the range of 196-204 MMcfe. The increase in 2000 production rates, as compared to 1999, was due primarily to increases at four of our fields. At the end of the second quarter of 1999, we acquired a 51% working interest in the Lafitte Field. Since then, we have successfully completed one exploratory well, two workovers and improved the capacity of the facilities to accommodate additional production at that field. In July 1999, we increased our interest, and therefore our share of production, at East Cameron Block 64 through the acquisition of an additional 62.5% working interest in the block. Since acquisition, we have successfully completed four workovers that boosted production volumes at that field. Pursuant to a joint exploration agreement at the Iberia Prospect, we participated in the successful drilling and completion of three exploratory wells at Weeks Island Field. Since the fourth quarter of 1999, we have successfully completed and placed on production one exploratory well and two development wells at Eugene Island Block 243. PRICES. Prices realized during the third quarter of 2000 averaged $27.70 per barrel of oil and $3.92 per Mcf of gas. This represents a 55% increase, on a thousand cubic feet of gas equivalent (Mcfe) basis, over third quarter 1999 average realized prices of $17.34 per barrel of oil and $2.54 per Mcf of gas. Average realized prices during the first nine months of 2000 were $25.12 per barrel of oil and $3.35 per Mcf of gas as compared to $14.97 per barrel of oil and $2.32 per Mcf of gas realized during the 1999 period. All unit pricing amounts include the effects of hedging. From time to time, we enter into various hedging contracts in order to reduce our exposure to the possibility of declining oil and gas prices. During the third quarter of 2000, hedging transactions reduced the average price we received for oil by $4.40 per barrel and for gas by $0.54 per Mcf as compared to net decreases of $2.85 per barrel and $0.12 per Mcf for the third quarter of 1999. Hedging transactions for the first nine months of 2000 reduced the average price we received for oil by $4.59 per barrel and for gas by $0.26 per Mcf as compared to a net decrease of $1.15 per barrel and a net increase of $0.06 per Mcf for the comparable 1999 period. We are currently not obligated to any derivative instrument or hedging contract past December 31, 2000. However, in connection with the recent announcement of a pending merger with Basin Exploration, Inc., we indicated that we would enter into two-year hedging contracts for approximately 25%-30% of the combined company's estimated production. We may experience volatility in our results of operations and/or stockholder's equity depending on the nature of our future hedging contracts and the fluctuation of oil and gas prices over the term of the hedges. OIL AND GAS REVENUES. As a result of higher production rates and realized prices, third quarter 2000 oil and gas revenues increased 77% to $71.8 million, compared to third quarter 1999 oil and gas revenues of $40.5 million. Oil and gas revenues for the first nine months of 2000 increased to $177.8 million as compared to $106.9 million during the comparable 1999 period. EXPENSES. Normal operating costs, on a unit of production basis, for the third quarter of 2000 were $0.40 per Mcfe as compared to $0.39 per Mcfe for the third quarter of 1999. This variance primarily relates to an overall increase in the costs of oil field services in addition to normal platform painting expenditures made during the quarter. During the third quarter of 2000, we performed significant workover operations on two wells at Clovelly Field and one well at Cut Off Field. As a result, major maintenance expenses for the quarter totaled $2.8 million compared to $0.4 million for the comparable period of 1999. We currently expect major maintenance expenses to approximate $1 million during the fourth quarter of 2000. Production taxes for the third quarter of 2000 increased to $1.6 million compared to $1 million for the third quarter of 1999, due to higher oil prices and increased onshore production volumes. General and administrative expenses for the third quarter of 2000 increased in total to $1.4 million, or $0.08 per Mcfe, from $1.1 million, or $0.07 per Mcfe, for the third quarter of 1999. General and administrative expenses for the third quarter of 2000 were affected by a 14% increase in our staff level over the third quarter of 1999. We currently estimate that our general and administrative expenses in the fourth quarter of 2000 will be comparable to expenses reported for the preceding quarter, except for non-recurring expenses incurred in connection with the recently announced pending merger with Basin Exploration, Inc. Depreciation, depletion and amortization (DD&A) expense on our oil and gas properties increased to $20.1 million or $1.15 per Mcfe during the third quarter of 2000, compared to $15.9 million or $1.05 per Mcfe for the third quarter of 1999. As a result of the repayment of the borrowings under our bank credit facility in August 1999, interest expense for the three-month period ended September 30, 2000 decreased to $1.9 million, compared to $3 million for the 1999 period. LIQUIDITY AND CAPITAL RESOURCES CASH FLOW AND WORKING CAPITAL. Net cash flow from operations before working capital changes for the third quarter and first nine months of 2000 was $56 million and $135.6 million, compared to $27.5 million and $72.9 million reported for the respective periods of 1999. Working capital at September 30, 2000 totaled $40 million. CAPITAL EXPENDITURES. Capital expenditures during the third quarter of 2000 totaled $39.1 million and included $2.2 million of capitalized general and administrative costs and $0.4 million of capitalized interest. This brought capital expenditures for the first nine months of 2000 to a total of $117.7 million including $6.1 million of capitalized general and administrative costs and $0.9 million of capitalized interest. These investments were financed by a combination of cash flow from operations and working capital. DEVELOPMENT COSTS. During the third quarter of 2000, we completed numerous development drilling, workover and recompletion operations and facilities installations in an effort to develop our property base and to increase cash flow from proved reserves. Our workover/recompletion program continued to generate positive results with the successful completion of seven projects during the third quarter. The most significant of these operations included the recompletions of the E-2 Well at South Pelto Block 23 and the No. 4 Well at South Marsh Island Block 249 and the workovers of the Clovelly No. 37 and Clovelly No. 40 wells at Clovelly Field. Our development drilling program experienced its first dry hole of the year with the evaluation of the LLDSB No. 1 Sidetrack 3 Well on the Post Oak Prospect at Lake Hermitage Field. Including this well, our 2000 development drilling program has achieved an 80% success rate. EXPLORATORY COSTS. In an effort to provide additions to our existing oil and gas reserve base, during the third quarter of 2000, we completed drilling operations on five exploratory wells, two of which were successful. These two wells include the OCS-G 0089 No. 13 Well at East Cameron Block 64's Phogbound Prospect and the Myles Salt No. 47 Well (formerly the Myles Salt No. 2 Well) at Weeks Island Field's Andrew Prospect. Although drilling was not completed during the quarter, we encountered two pay sands that were deemed commercially productive in the J-3 Well at Vermilion Block 255 Field's Aetna Prospect. In addition to these wells, we spudded the OCS-G 2899 No. D-2 Well at Eugene Island Block 243's Narwhal Prospect where we announced on October 16, 2000 the discovery of 155 net feet of pay in two sands. BUDGETED CAPITAL EXPENDITURES AND LONG-TERM FINANCING. For the year 2000, we expect to drill and evaluate 31 wells, which is an annual record for our drilling program. We have currently budgeted $165.1 million for our 2000 exploration and development plans of which approximately 54% has been allocated for activities at the Vermilion Block 255, Eugene Island Block 243, South Timbalier Block 8, East Cameron Block 64, Vermilion Block 131 and Lake Hermitage Fields. We are currently evaluating a capital expenditures budget for 2001 in light of the proposed Basin merger. We anticipate the combined company's 2001 capital expenditure budget would be in the range of $240 million. However, the ultimate 2001 capital expenditure budget for the combined company is subject to management review and approval upon consummation of the merger. Based upon our outlook of oil and gas prices and production rates, we believe that our cash flow from operations and existing working capital will be sufficient to fund the current 2000 and 2001 capital expenditures budgets. If oil and gas prices or production rates fall below our current expectations, we believe that the available borrowings under our bank credit facility will be sufficient to fund the capital expenditures in excess of operating cash flow. Our borrowing base is currently $200 million with outstanding letters of credit totaling $7.5 million and no outstanding borrowings. MERGER WITH BASIN EXPLORATION, INC. In an agreement dated October 28, 2000, Stone and Basin Exploration have agreed to combine the two companies in a tax-free, stock-for-stock merger. Under the merger agreement, Basin Exploration stockholders will receive 0.3974 of a Stone Energy common share for each share of common stock they own, which translates into the issuance of approximately 7.6 million shares of Stone stock. Our stockholders will own approximately 71% of the combined company and Basin's stockholders will own approximately 29%. The combination is expected to be accounted for as a pooling of interests and is anticipated to be immediately accretive on a per share basis to cash flow, earnings and reserves. This transaction is subject to approval by the stockholders of both companies, customary regulatory approvals and other customary conditions. FORWARD-LOOKING STATEMENTS. This Form 10-Q and the information incorporated by reference contain statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The words "expect", "project", "estimate", "believe", "anticipate", "intend", "budget", "plan", "forecast", "predict" and other similar expressions are intended to identify forward-looking statements. These statements appear in a number of places and include statements regarding our plans, beliefs or current expectations, including the plans, beliefs and expectations of our officers and directors. When considering any forward-looking statement, you should keep in mind the risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include the timing and extent of changes in commodity prices for oil and gas, the risk of completing the Basin merger, operating risks and other risk factors as described in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Furthermore, the assumptions that support our forward-looking statements are based upon information that is currently available and is subject to change. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages. All forward-looking statements attributable to Stone Energy Corporation are expressly qualified in their entirety by this cautionary statement. PART II Item 6. Exhibits and Reports on Form 8-K (a) Exhibits *15.1 - Letter from Arthur Andersen LLP dated November 3, 2000, regarding unaudited interim financial information. *27.1 - Financial Data Schedule * Filed herewith (b) The following report on Form 8-K was filed after September 30, 2000: Date of Report Item Reported ---------------- ------------------ October 31, 2000 Item 5 and Item 7 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STONE ENERGY CORPORATION Date: November 3, 2000 By: /s/ James H. Prince ------------------------------ James H. Prince Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) EX-15 2 0002.txt EXHIBIT 15.1 EXHIBIT 15.1 November 3, 2000 Stone Energy Corporation Post Office Box 52807 Lafayette, LA 70505 Gentlemen: We are aware that Stone Energy Corporation has incorporated by reference in its registration statements (File Nos. 33-62362, 33-72236, 33-67332, 33-93486, 333-38425) its Form 10-Q for the quarter ended September 30, 2000, which includes our report dated October 28, 2000, covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the Act), this report is not considered a "part" of the registration statements prepared or certified by our firm or a "report" prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP EX-27.1 3 0003.txt FDS 9/30/00
5 This schedule contains summary financial information extracted from the consolidated balance sheet of Stone Energy Corporation as of September 30, 2000 and the related statement of operations for the nine months ended September 30, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 9-mos Dec-31-2000 Jan-01-2000 Sep-30-2000 64,379 300 53,916 0 0 118,725 14,839 3,707 544,982 78,693 100,000 0 0 185 324,680 544,982 177,839 180,544 0 85,438 5,357 0 6,263 83,486 29,220 54,266 0 0 0 54,266 2.95 2.89
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