8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Amendment No. 1 on

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

February 27, 2012 (December 28, 2011)

Date of report (Date of earliest event reported)

STONE ENERGY CORPORATION

(Exact Name of Registrant as Specified in Charter)

Delaware	1-12074	72-1235413
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
625 E. Kaliste Saloom Road Lafayette, Louisiana		70508
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (337) 237-0410

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e 4(c))

This Amendment No. 1 amends the Current Report on Form 8-K that Stone Energy Corporation (“Stone” or the “Company”) filed with the Securities and Exchange Commission on December 28, 2011, concerning the completion of its acquisition of BP Exploration & Production Inc.’s (“BP”) 75% working interest in the five block deep water Pompano field in Mississippi Canyon, a 51% operating working interest in the adjacent Mississippi Canyon block 29, a 50% non-operated working interest in the Mica field which ties back to the Pompano platform, and interests in 23 deep water exploration leases located in the vicinity of the Pompano field, referred to herein as the “Acquired Properties,” pursuant to a Purchase and Sale Agreement dated as of November 18, 2011. This Current Report on Form 8-K/A amends the Current Report on Form 8-K that Stone filed on December 28, 2011 to include the financial statements and pro forma financial information required by Items 9.01(a) and 9.01(b) and to include exhibits under Item 9.01(d).

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

Audited statement of revenues and direct operating expenses of the Acquired Properties for the year ended December 31, 2010 and related notes; and the unaudited statement of revenue and direct operating expenses of the Acquired Properties for the nine months ended September 30, 2011 and 2010 and related notes are attached as Exhibit 99.1 hereto.

(b) Pro Forma Financial Information.

Unaudited pro forma condensed financial statements and explanatory notes relating to Stone’s acquisition of the Acquired Properties are attached as Exhibit 99.2 hereto.

(d) Exhibits.

23.1 Consent of Ernst & Young LLP

99.1 Audited statement of revenues and direct operating expenses of the Acquired Properties for the year ended December 31, 2010 and related notes; and the unaudited statements of revenues and direct operating expenses of the Acquired Properties for the nine months ended September 30, 2011 and 2010 and related notes.

99.2 Unaudited pro forma condensed financial statements and explanatory notes as of September 30, 2011 or as of December 31, 2010.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, Stone Energy Corporation has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		STONE ENERGY CORPORATION
Date: February 27, 2012	By:	/s/ J. Kent Pierret
		J. Kent Pierret Senior Vice President, Chief Accounting Officer and Treasurer

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EXHIBIT INDEX

Exhibit Number	Description
23.1	Consent of Ernst & Young LLP
99.1	Audited statement of revenues and direct operating expenses of the Acquired Properties for the year ended December 31, 2010 and related notes; and the unaudited statements of revenues and direct operating expenses of the Acquired Properties for the nine months ended September 30, 2011 and 2010 and related notes.
99.2	Unaudited pro forma condensed financial statements and explanatory notes as of September 30, 2011 or as of December 31, 2010.

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EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statements (Form S-8 Nos. 33-67332, 333-51968, 333-64448, 333-87849, 333-107440, 333-160424 and 333-174992) of Stone Energy Corporation and in the related Prospectuses, and

(2) Registration Statements (Form S-3 Nos. 333-158998 and 333-161391) of Stone Energy Corporation and in the related Prospectuses;

of our report dated February 27, 2012, with respect to the statement of revenues and direct operating expenses of the oil and gas properties acquired by Stone Energy Corporation from BP Exploration & Production Inc., included in this Current Report

(Form 8-K/A) dated February 27, 2012.

/s/ Ernst & Young LLP

Houston, Texas

February 27, 2012

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EX-99.1

Exhibit 99.1

ACQUIRED PROPERTIES

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

AND ACCOMPANYING NOTES

YEAR ENDED DECEMBER 31, 2010 AND

NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

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REPORT OF INDEPENDENT AUDITORS

The Stockholders and Board of Directors

Stone Energy Corporation

We have audited the accompanying statement of revenues and direct operating expenses of the oil and gas properties acquired by Stone Energy Corporation from BP Exploration & Production Inc. (the Acquired Properties), as described in Note 1, for the year ended December 31, 2010. This financial statement is the responsibility of Stone Energy Corporation and BP Exploration & Production Inc.’s management. Our responsibility is to express an opinion on this financial statement based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the basis of accounting used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.

The accompanying financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Stone Energy Corporation’s Form 8-K, and is not intended to be a complete financial presentation of the Acquired Properties’ revenues and expenses.

In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues and direct operating expenses, as described in Note 1, of the Acquired Properties for the year ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Houston, Texas

February 27, 2012

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ACQUIRED PROPERTIES

STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES

(in thousands)

	Year Ended December 31, 2010
Revenues	$	139,277
Direct operating expenses		23,487
Excess of revenues over direct operating expenses	$	115,790

See accompanying notes.

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ACQUIRED PROPERTIES

NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES

Note 1 – The Properties

On December 28, 2011, Stone Energy Corporation (the “Company”) acquired BP Exploration & Production Inc.’s (“BP”) 75% working interest in the five block deep water Pompano field in Mississippi Canyon, a 51% operating working interest in the adjacent Mississippi Canyon block 29, a 50% non-operated working interest in the Mica field which ties back to the Pompano platform, and interests in 23 deep water exploration leases located in the vicinity of the Pompano field, referred to herein as the “Acquired Properties”. All preferential rights relating to the properties were waived or unexercised by the holders thereof. The stated purchase price of $204 million was adjusted under the agreement to $167.6 million, after adjusting for the effective date of July 1, 2011. The acquisition was consummated in accordance with the Purchase and Sale Agreement dated as of November 18, 2011, between the Company and BP.

Note 2 – Basis of Presentation

The accompanying audited statement of revenues and direct operating expenses relates to the operations of the Acquired Properties and has been derived from BP’s historical financial records. The Acquired Properties were not accounted for as a separate subsidiary or division of BP. Complete financial statements under U.S. Generally Accepted Accounting Principles and the full cost method, the basis for accounting for oil and gas properties for the Company, are not available for the Acquired Properties. Certain costs such as depreciation, depletion and amortization, accretion of asset retirement obligations, general and administrative expenses, interest, and corporate income taxes are omitted. As such, this financial statement is not intended to be a complete presentation of the revenues and expenses of the Acquired Properties and may not be representative of future operations. The historical statement of revenues and direct operating expenses of the Acquired Properties is presented in lieu of the full financial statements required under Item 3-05 of the Securities and Exchange Commission (“SEC”) Regulation S-X.

Note 3 – Summary of Significant Accounting Policies

Revenues and direct operating expenses included in the accompanying statement are presented on the accrual basis of accounting. The preparation of a statement of revenues and direct operating expenses requires our management to make estimates and assumptions that affect the reported amounts of revenues and operating expenses during the reporting period. Actual results could differ from those estimates.

The entitlements method of accounting for oil and natural gas revenues was used to prepare this statement. Under the entitlements method, revenues are based on the volumes of sales to which the Company is entitled by its ownership interest. There were no significant imbalances with other revenue interest owners during the year ended December 31, 2010.

Note 4 – Sales to Affiliates

Sales prices are based on current market prices at the time of sale. Total sales to BP affiliates were $135 million for the year ended December 31, 2010.

Note 5 – Cash Flows

Cash flows from operating activities for the Acquired Properties are not materially different from the excess of revenues over direct operating expenses.

Note 6 – Subsequent Events

Subsequent events have been evaluated for recognition and disclosure through February 27, 2012. As of this date, no subsequent events have occurred.

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Note 7 – Supplemental Oil and Gas Disclosures (unaudited)

The following tables set forth an analysis of the estimated proved reserves and the standardized measure of discounted future net cash flows related to the proved reserves for the Acquired Properties. The reserve disclosures are based on reserve studies prepared as of December 31, 2011 and adjusted backward for production; consequently there are no revisions of previous estimates. The estimated net proved oil and gas reserves for the Acquired Properties at December 31, 2010 have been prepared in accordance with guidelines established by the SEC. There are numerous uncertainties inherent in estimating quantities of proved reserves and in providing the future rates of production and timing of development expenditures The following reserve data represents estimates only and should not be construed as being exact.

Proved Reserves

The following table sets forth an analysis of the estimated quantities of net proved and proved developed oil (including condensate) and natural gas reserves of the Acquired Properties, all of which are located offshore the continental United States.

	Crude Oil (MBbls)*			Natural Gas (MMcf)**			Oil and Natural Gas (MMcfe)
Proved reserves as of December 31, 2009		16,900			30,267			131,667
Production		(1,557	)		(2,566	)		(11,908	)
Proved reserves as of December 31, 2010		15,343			27,701			119,759
Estimated proved developed reserves:
December 31, 2010		9,942			22,662			82,312

* Oil includes condensates

** Natural gas includes natural gas liquids

Standardized Measures of Discounted Future Net Cash Flows

The following tables present the standardized measure of future net cash flows related to the estimated proved oil and gas reserves of the Acquired Properties together with changes therein. You should not assume that the future net cash flows or the discounted future net cash flows, referred to in the tables below, represent the fair value of the estimated oil and gas reserves of the Acquired Properties.

	Year Ended December 31, 2010
	(in thousands)
Future cash inflows	$	1,352,145
Less related future costs:
Production costs		(526,287	)
Development costs		(295,689	)
Income taxes (1)		(185,559	)
Future net cash inflows before 10% discount		344,610
10% annual discount for estimated timing of cash flows		(116,859	)
Standardized measure of discounted future net cash flows	$	227,751

(1) Income taxes were calculated by applying the statutory federal income tax rate to the pre-tax future net cash flows.

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	Year Ended December 31, 2010
	(in thousands)
Standardized measure at beginning of year	$	137,264
Sales and transfers of oil and gas produced, net of production costs		(115,790	)
Changes in price, net of future production costs		237,763
Net change in income taxes		(48,724	)
Accretion of discount		17,238
Net increase in standardized measure		90,487
Standardized measure at end of year	$	227,751

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ACQUIRED PROPERTIES

UNAUDITIED INTERIM STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES

(in thousands)

	Nine Months Ended September 30,
	2011		2010
Revenues	$	101,806	$	108,788
Direct operating expenses		23,683		14,870
Excess of revenues over direct operating expenses	$	78,123	$	93,918

See accompanying notes.

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ACQUIRED PROPERTIES

NOTES TO UNAUDITED INTERIM STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES

Note 1 – The Properties

On December 28, 2011, Stone Energy Corporation (the “Company”) acquired BP Exploration & Production Inc.’s (“BP”) 75% working interest in the five block deep water Pompano field in Mississippi Canyon, a 51% operating working interest in the adjacent Mississippi Canyon block 29, a 50% non-operated working interest in the Mica field which ties back to the Pompano platform, and interests in 23 deep water exploration leases located in the vicinity of the Pompano field, referred to herein as the “Acquired Properties”. All preferential rights relating to the properties were waived or unexercised by the holders thereof. The stated purchase price of $204 million was adjusted under the agreement to $167.6 million, after adjusting for the effective date of July 1, 2011. The acquisition was consummated in accordance with the Purchase and Sale Agreement dated as of November 18, 2011, between the Company and BP.

Note 2 – Basis of Presentation

The accompanying unaudited statement of revenues and direct operating expenses relates to the operations of the Acquired Properties and has been derived from BP’s historical financial records. The Acquired Properties were not accounted for as a separate subsidiary or division of BP. Complete financial statements under U.S. Generally Accepted Accounting Principles and the full cost method, the basis for accounting for oil and gas properties for the Company, are not available for the Acquired Properties. Certain costs such as depreciation, depletion and amortization, accretion of asset retirement obligations, general and administrative expenses, interest, and corporate income taxes are omitted. As such, this financial statement is not intended to be a complete presentation of the revenues and expenses of the Acquired Properties and may not be representative of future operations. The historical statement of revenues and direct operating expenses of the Acquired Properties is presented in lieu of the full financial statements required under Item 3-05 of the Securities and Exchange Commission Regulation S-X.

In the opinion of management, the accompanying unaudited interim statement includes all adjustments considered necessary for a fair presentation. Interim period results are not necessarily indicative of the results of operations for a full year.

Note 3 – Summary of Significant Accounting Policies

Revenues and direct operating expenses included in the accompanying statement are presented on the accrual basis of accounting. The preparation of a statement of revenues and direct operating expenses requires our management to make estimates and assumptions that affect the reported amounts of revenues and operating expenses during the reporting period. Actual results could differ from those estimates.

The entitlements method of accounting for oil and natural gas revenues was used to prepare this statement. Under the entitlements method, revenues are based on the volumes of sales to which the Company is entitled by its ownership interest. There were no significant imbalances with other revenue interest owners during the nine month periods ended September 30, 2011 or 2010.

Note 4 – Sales to Affiliates

Sales prices are based on current market prices at the time of sale. Total sales to BP affiliates were $93 million and $105 million for the nine month periods ended September 30, 2011 and 2010, respectively.

Note 5 – Subsequent Events

Subsequent events have been evaluated for recognition and disclosure through February 27, 2012. As of this date, no subsequent events have occurred.

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EX-99.2

Exhibit 99.2

STONE ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On December 28, 2011, Stone Energy Corporation (“Stone” or the “Company”), acquired BP Exploration & Production Inc.’s (“BP”) 75% working interest in the five block deep water Pompano field in Mississippi Canyon, a 51% operating working interest in the adjacent Mississippi Canyon block 29, a 50% non-operated working interest in the Mica field which ties back to the Pompano platform, and interests in 23 deep water exploration leases located in the vicinity of the Pompano field, referred to herein as the “Acquired Properties”. Additional details of the acquisition are described in the notes to these financial statements.

The accompanying unaudited pro forma condensed consolidated financial statements and accompanying notes as of and for the nine months ended September 30, 2011 and for the year ended December 31, 2010 (the “Pro Forma Statements”), which have been prepared by Stone’s management, have been derived from (a) the unaudited consolidated financial statements of Stone as of and for the nine months ended September 30, 2011 included in its Quarterly Report on Form 10-Q; (b) the unaudited statement of revenues and direct operating expenses of the Acquired Properties for the nine months ended September 30, 2011; (c) the audited consolidated financial statements of Stone as of and for the year ended December 31, 2010 included in its Annual Report on Form 10-K; and (d) the audited statement of revenues and direct operating expenses of the Acquired Properties for the year ended December 31, 2010.

The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not indicate the results of operations or financial position of Stone had the transaction been in effect on the dates or for the periods indicated, or the results of operations or financial position of Stone for any future periods. The pro forma statements of operations are not necessarily indicative of Stone’s operations going forward because the presentation of operations of the Acquired Properties is limited to only revenues and direct operating expenses related thereto, while other operating expenses related to these properties have been excluded. The unaudited pro forma condensed balance sheet was prepared assuming the purchase of the Acquired Properties, including purchase price adjustments to date, and assumed related financing transactions occurred on September 30, 2011. The unaudited pro forma condensed statements of operations were prepared assuming the purchase of the Acquired Properties, including purchase price adjustments, and assumed related financing transactions occurred on January 1, 2010. These Pro Forma Statements should be read in conjunction with Stone’s Annual Report on Form 10-K for the year ended December 31, 2010, Stone’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 and the statements of revenues and direct operating expenses for the Acquired Properties listed as Exhibit 99.1 to this Current Report on Form 8-K/A.

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STONE ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2011

(In thousands of dollars)

	Stone Historical			Acquired Properties				Pro Forma
Assets
Current assets:
Cash and cash equivalents	$	65,454		$	—			$	65,454
Accounts receivable		113,547			—				113,547
Fair value of hedging contracts		56,767			—				56,767
Current income tax receivable		22,149			—				22,149
Deferred taxes		4,713			—				4,713
Inventory		4,802			—				4,802
Other current assets		933			—				933
Total current assets		268,365			—				268,365
Oil and gas properties, full cost method of accounting:
Net proved oil and gas properties		1,092,165			208,680	(a	)		1,300,845
Unevaluated		511,574			17,314	(a	)		528,888
Other property and equipment, net		11,191			—				11,191
Fair value of hedging contracts		50,171			—				50,171
Other assets, net		23,795			—				23,795
Total assets	$	1,957,261		$	225,994			$	2,183,255
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	90,659		$	—			$	90,659
Undistributed oil and gas proceeds		16,924			—				16,924
Accrued interest		9,358			—				9,358
Fair value of hedging contracts		951			—				951
Asset retirement obligations		55,068			—				55,068
Other current liabilities		17,496			—				17,496
Total current liabilities		190,456			—				190,456
Long-term debt		575,000			167,631	(a	)		742,631
Deferred taxes		219,393			—				219,393
Asset retirement obligations		289,604			58,363	(a	)		347,967
Other long-term liabilities		19,034			—				19,034
Total liabilities		1,293,487			225,994				1,519,481
Commitments and contingencies
Stockholders’ equity:
Common stock		481			—				481
Treasury stock		(860	)		—				(860	)
Additional paid-in capital		1,336,460			—				1,336,460
Accumulated deficit		(737,748	)		—				(737,748	)
Accumulated other comprehensive income		65,441			—				65,441
Total stockholders’ equity		663,774			—				663,774
Total liabilities and stockholders’ equity	$	1,957,261		$	225,994			$	2,183,255

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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STONE ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

(In thousands, except per share amounts)

	Stone Historical			Acquired Properties				Pro Forma Adjustments					Pro Forma
Operating revenue:
Oil and gas production	$	651,003		$	139,277	(b	)	$	—				$	790,280
Other operational income		5,916			—				—					5,916
Derivative income, net		3,265			—				—					3,265
Total operating revenue		660,184			139,277				—					799,461
Operating expenses:
Lease operating expenses		152,326			23,487	(b	)		—					175,813
Other operational expenses		5,579			—				—					5,579
Production taxes		5,808			—				—					5,808
Depreciation, depletion and amortization		248,201			—				33,034		(c	)		281,235
Accretion expense		34,469			—				4,523		(d	)		38,992
Salaries, general and administrative expenses		42,759			—				—					42,759
Incentive compensation expense		5,888			—				—					5,888
Total operating expenses		495,030			23,487				37,557					556,074
Income from operations		165,154			115,790				(37,557	)				243,387
Other (income) expenses:
Interest expense		12,192			—				6,388		(e	)		18,580
Interest income		(1,464	)		—				—					(1,464	)
Other income		(776	)		—				—					(776	)
Loss on early extinguishment of debt		1,820			—				—					1,820
Other expense		671			—				—					671
Total other expenses		12,443			—				6,388					18,831
Net income before income taxes		152,711			115,790				(43,945	)				224,556
Provision for income taxes:
Current		5,808			—				—					5,808
Deferred		50,474			—				26,511		(f	)		76,985
Total income taxes		56,282			—				26,511					82,793
Net income	$	96,429		$	115,790			($	70,456	)			$	141,763
Basic earnings per share	$	1.99											$	2.93
Diluted earnings per share	$	1.99											$	2.92
Average shares outstanding		47,681												47,681
Average shares outstanding assuming dilution		47,706												47,706

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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STONE ENERGY CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 31, 2011

(In thousands, except per share amounts)

	Stone Historical			Acquired Properties				Pro Forma Adjustments					Pro Forma
Operating revenue:
Oil and gas production	$	637,403		$	101,806	(b	)	$	—				$	739,209
Other operational income		2,994			—				—					2,994
Derivative income, net		3,300			—				—					3,300
Total operating revenue		643,697			101,806				—					745,503
Operating expenses:
Lease operating expenses		133,307			23,683	(b	)		—					156,990
Other operational expenses		1,452			—				—					1,452
Production taxes		6,828			—				—					6,828
Depreciation, depletion and amortization		204,777			—				19,205		(c	)		223,982
Accretion expense		23,134			—				3,392		(d	)		26,526
Salaries, general and administrative expenses		29,494			—				—					29,494
Incentive compensation expense		7,104			—				—					7,104
Total operating expenses		406,096			23,683				22,597					452,376
Income from operations		237,601			78,123				(22,597	)				293,127
Other (income) expenses:
Interest expense		6,470			—				4,845		(e	)		11,315
Interest income		(170	)		—				—					(170	)
Other income		(1,499	)		—				—					(1,499	)
Loss on early extinguishment of debt		607			—				—					607
Other expense		501			—				—					501
Total other expenses		5,909			—				4,845					10,754
Net income before income taxes		231,692			78,123				(27,442	)				282,373
Provision (benefit) for income taxes:
Current		(15,043	)		—				—					(15,043	)
Deferred		97,926			—				18,144		(f	)		116,070
Total income taxes		82,883			—				18,144					101,027
Net income	$	148,809		$	78,123			($	45,586	)			$	181,346
Basic earnings per share	$	3.04											$	3.71
Diluted earnings per share	$	3.04											$	3.71
Average shares outstanding		47,963												47,963
Average shares outstanding assuming dilution		48,006												48,006

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

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STONE ENERGY CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

On December 28, 2011, Stone Energy Corporation (“Stone” or the “Company”) acquired BP Exploration & Production Inc.’s (“BP”) 75% working interest in the five block deep water Pompano field in Mississippi Canyon, a 51% operating working interest in the adjacent Mississippi Canyon block 29, a 50% non-operated working interest in the Mica field which ties back to the Pompano platform, and interests in 23 deep water exploration leases located in the vicinity of the Pompano field, referred to herein as the “Acquired Properties”. All preferential rights relating to the properties were waived or unexercised by the holders thereof. The stated purchase price of $204 million was adjusted under the agreement to $167.6 million, after adjusting for the effective date of July 1, 2011. The acquisition was consummated in accordance with the Purchase and Sale Agreement dated as of November 18, 2011, between the Company and BP.

The historical financial information is derived from the historical consolidated financial statements of Stone and the historical statements of revenues and direct operating expenses of the Acquired Properties (which were based on information provided by BP). The unaudited pro forma condensed consolidated balance sheet was prepared assuming the purchase of the Acquired Properties, including purchase price adjustments to date, and assumed related financing transaction occurred on September 30, 2011. The unaudited pro forma condensed consolidated statements of operations were prepared assuming the purchase of the Acquired Properties, including purchase price adjustments to date, and assumed related financing transaction occurred on January 1, 2010.

The pro forma adjustments were based on information and estimates by management. These unaudited pro forma condensed consolidated financial statements are provided for illustrative purposes only and may or may not provide an indication of results in the future.

Note 2 – Pro Forma Adjustments and Other Information

The unaudited pro forma condensed consolidated financial statements include the following pro forma adjustments:

(a) The value of the net assets acquired in the transaction was allocated to the assets acquired and liabilities assumed. The cash consideration was assumed to be funded from borrowings from the Company’s revolving credit facility with no amounts used from cash on hand.

(b) Revenues and direct operating expenses of the Acquired Properties were derived from the historical records of BP.

(c) Depreciation, depletion and amortization (“DD&A”) was estimated using the full-cost method of accounting and determined as the incremental DD&A expense due to adding the Acquired Properties costs, reserves and production into the computation. The purchase price allocation included $17.3 million allocated to unevaluated costs. No DD&A expense was estimated for the unevaluated properties.

(d) Asset retirement obligations and related accretion were estimated by the management of Stone.

(e) Interest expense was computed using interest rates that were in effect during the applicable time period. The weighted average assumed interest rate was 4.25%.

(f) The income tax effects of the pro forma adjustments were computed using our applicable estimated effective income tax rate.

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Note 3 – Supplemental Oil and Gas Disclosures

Pro Forma Reserve Quantity Information

The following table presents certain unaudited pro forma information regarding Stone’s proved oil and natural gas reserves as of December 31, 2010 assuming the acquisition of the Acquired Properties occurred on January 1, 2010. There are numerous uncertainties inherent in estimating quantities of proved reserves and in providing the future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact.

	Stone						Acquired Properties						Stone Pro Forma
	Oil (MBbls)			Natural Gas (MMcf)			Oil (MBbls)			Natural Gas (MMcf)			Oil (MBbls)			Natural Gas (MMcf)			Oil and Natural Gas (MMcfe)
Total estimated proved reserves:
Balance at December 31, 2009		32,336			216,694			16,900			30,267			49,236			246,961			542,378
Revisions of previous estimates		3,299			13,439			—			—			3,299			13,439			33,231
Extensions, discoveries and other additions		2,668			82,846			—			—			2,668			82,846			98,854
Purchase of producing properties		637			3,816			—			—			637			3,816			7,637
Sales of reserves in place		(23	)		(153	)		—			—			(23	)		(153	)		(289	)
Production		(5,714	)		(41,937	)		(1,557	)		(2,566	)		(7,271	)		(44,503	)		(88,129	)
Balance at December 31, 2010		33,203			274,705			15,343			27,701			48,546			302,406			593,682
Estimated proved developed reserves at December 31, 2010		25,000			174,876			9,942			22,662			34,942			197,538			407,190

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Pro Forma Standardized Measure of Discounted Future Net Cash Flows

The following tables present the standardized measure of future net cash flows related to the estimated proved oil and gas reserves of Stone, the Acquired Properties and on a pro forma combined basis as of December 31, 2010 together with changes therein. You should not assume that the future net cash flows or the discounted future net cash flows, referred to in the tables below, represent the fair value of our estimated oil and gas reserves or those of the Acquired Properties.

	Year Ended December 31, 2010
	Stone			Acquired Properties (1)			Pro Forma Combined
	(in thousands)
Future cash inflows	$	3,803,004		$	1,352,145		$	5,155,149
Less related future costs:
Production costs		(1,191,718	)		(526,287	)		(1,718,005	)
Development costs		(907,956	)		(295,689	)		(1,203,645	)
Income taxes		(330,651	)		(185,559	)		(516,210	)
Future net cash flows before 10% discount		1,372,679			344,610			1,717,289
10% annual discount for estimated timing of cash flows		(415,050	)		(116,859	)		(531,909	)
Standardized measure of discounted future net cash flows	$	957,629		$	227,751		$	1,185,380

(1) Income taxes were calculated by applying the statutory federal income tax rate to the pre-tax future net cash flows.

	Year Ended December 31, 2010
	Stone			Acquired Properties			Pro Forma Combined
	(in thousands)
Standardized measure at beginning of year	$	614,987		$	137,264		$	752,251
Sales and transfers of oil and gas produced, net of production costs		(487,418	)		(115,790	)		(603,208	)
Changes in price, net of future production costs		485,272			237,763			723,035
Extensions, discoveries, and improved recovery net of future production and development costs		270,629			—			270,629
Changes in estimated future development costs, net of development costs incurred during the period		119,986			—			119,986
Revisions of quantity estimates		147,509			—			147,509
Accretion of discount		64,836			17,238			82,074
Net change in income taxes		(196,219	)		(48,724	)		(244,943	)
Purchase of reserves in-place		21,264			—			21,264
Sales of reserves in-place		1,424			—			1,424
Changes in production rates due to timing and other		(84,641	)		—			(84,641	)
Net increase in standardized measure		342,642			90,487			433,129
Standardized measure at end of year	$	957,629		$	227,751		$	1,185,380

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