Guarantor Financial Statements

6 Months Ended

Jun. 30, 2012

Guarantor Financial Statements [Abstract]

Guarantor Financial Statements

Note 9 – Guarantor Financial Statements

Stone Offshore is an unconditional guarantor (the “Guarantor Subsidiary”) of our 2017 Convertible Notes, our 8 ⁵/₈ % Senior Notes due 2017 and our 6 ³/ ₄% Senior Subordinated Notes due 2014. Our remaining subsidiaries (the “Non-Guarantor Subsidiaries”) have not provided guarantees. The following presents unaudited condensed consolidating financial information as of June 30, 2012 and December 31, 2011 and for the three and six-month periods ended June 30, 2012 and 2011 on an issuer (parent company), guarantor subsidiary, non-guarantor subsidiaries and consolidated basis. Elimination entries presented are necessary to combine the entities.

CONDENSED CONSOLIDATING BALANCE SHEET

JUNE 30, 2012

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	192,755		$	30,958		$	136		$	—		$	223,849
Accounts receivable		73,168			218,282			1,578			(144,094	)		148,934
Fair value of hedging contracts		—			61,203			—			—			61,203
Current income tax receivable		24,353			—			—			—			24,353
Deferred taxes *		2,031			5,443			—			—			7,474
Inventory		4,324			283			—			—			4,607
Other current assets		914			—			—			—			914
Total current assets		297,545			316,169			1,714			(144,094	)		471,334
Oil and gas properties, full cost method:
Proved		815,886			6,106,980			5,051			—			6,927,917
Less: accumulated DD&A		(335,378	)		(5,001,323	)		(2,550	)		—			(5,339,251	)
Net proved oil and gas properties		480,508			1,105,657			2,501			—			1,588,666
Unevaluated		290,751			144,633			—			—			435,384
Other property and equipment, net		11,910			—			—			—			11,910
Fair value of hedging contracts		—			41,981			—			—			41,981
Other assets, net		32,387			1,568			—			—			33,955
Investment in subsidiary		893,122			(374	)		—			(892,748	)		—
Total assets	$	2,006,223		$	1,609,634		$	4,215			($1,036,842	)	$	2,583,230
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	263,942		$	23,541		$	—			($144,094	)	$	143,389
Undistributed oil and gas proceeds		25,566			1,682			—			—			27,248
Accrued interest		15,735			—			—			—			15,735
Asset retirement obligations		—			75,493			—			—			75,493
Other current liabilities		8,844			626			—			—			9,470
Total current liabilities		314,087			101,342			—			(144,094	)		271,335
Long-term debt		808,050			—			—			—			808,050
Deferred taxes *		30,278			268,273			—			—			298,551
Asset retirement obligations		7,377			339,821			4,587			—			351,785
Fair value of hedging contracts		—			366			—			—			366
Other long-term liabilities		13,939			6,712			—			—			20,651
Total liabilities		1,173,731			716,514			4,587			(144,094	)		1,750,738
Commitments and contingencies Stockholders’ equity:
Common stock		483			—			—			—			483
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,380,568			1,724,232			1,639			(1,725,871	)		1,380,568
Accumulated earnings (deficit)		(610,704	)		(894,117	)		(2,011	)		896,128			(610,704	)
Accumulated other comprehensive income (loss)		63,005			63,005			—			(63,005	)		63,005
Total stockholders’ equity		832,492			893,120			(372	)		(892,748	)		832,492
Total liabilities and stockholders’ equity	$	2,006,223		$	1,609,634		$	4,215			($1,036,842	)	$	2,583,230

* Deferred income taxes have been allocated to the guarantor subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2011

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	37,389		$	926		$	136		$	—		$	38,451
Accounts receivable		36,463			81,452			1,353			(1,129	)		118,139
Fair value of hedging contracts		—			25,177			—			—			25,177
Current income tax receivable		19,946			—			—			—			19,946
Deferred taxes *		8,269			17,803			—			—			26,072
Inventory		4,360			283			—			—			4,643
Other current assets		791			—			—			—			791
Total current assets		107,218			125,641			1,489			(1,129	)		233,219
Oil and gas properties, full cost method:
Proved		696,975			5,946,141			5,052			—			6,648,168
Less: accumulated DD&A		(309,421	)		(4,862,949	)		(2,359	)		—			(5,174,729	)
Net proved oil and gas properties		387,554			1,083,192			2,693			—			1,473,439
Unevaluated		246,269			155,340			—			—			401,609
Other property and equipment, net		11,172			—			—			—			11,172
Fair value of hedging contracts		—			22,543			—			—			22,543
Other assets, net		20,873			2,896			—			—			23,769
Investment in subsidiary		733,533			(273	)		—			(733,260	)		—
Total assets	$	1,506,619		$	1,389,339		$	4,182			($734,389	)	$	2,165,751
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	78,170		$	25,866		$	39			($1,129	)	$	102,946
Undistributed oil and gas proceeds		26,036			1,292			—			—			27,328
Accrued interest		14,059			—			—			—			14,059
Fair value of hedging contracts		—			11,122			—			—			11,122
Asset retirement obligations		—			62,676			—			—			62,676
Other current liabilities		22,974			5,396			—			—			28,370
Total current liabilities		141,239			106,352			39			(1,129	)		246,501
Long-term debt		620,000			—			—			—			620,000
Deferred taxes *		56,970			190,865			—			—			247,835
Asset retirement obligations		7,626			351,061			4,416			—			363,103
Fair value of hedging contracts		—			815			—			—			815
Other long-term liabilities		12,955			6,713			—			—			19,668
Total liabilities		838,790			655,806			4,455			(1,129	)		1,497,922
Commitments and contingencies Stockholders’ equity:
Common stock		481			—			—			—			481
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,338,565			1,724,232			1,639			(1,725,871	)		1,338,565
Accumulated earnings (deficit)		(692,225	)		(1,012,567	)		(1,912	)		1,014,479			(692,225	)
Accumulated other comprehensive income (loss)		21,868			21,868			—			(21,868	)		21,868
Total stockholders’ equity		667,829			733,533			(273	)		(733,260	)		667,829
Total liabilities and stockholders’ equity	$	1,506,619		$	1,389,339		$	4,182			($734,389	)	$	2,165,751

* Deferred income taxes have been allocated to the guarantor subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2012

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	6,813		$	175,368		$	—		$	—		$	182,181
Gas production		5,865			22,281			—			—			28,146
Natural gas liquids production		1,710			8,156			—			—			9,866
Other operational income		762			77			113			—			952
Derivative income, net		—			5,416			—			—			5,416
Total operating revenue		15,150			211,298			113			—			226,561
Operating expenses:
Lease operating expenses		6,318			45,443			(206	)		—			51,555
Transportation, processing and gathering expenses		1,710			3,782			—			—			5,492
Other operational expenses		47			24			—			—			71
Production taxes		507			1,851			—			—			2,358
Depreciation, depletion, amortization		15,071			71,969			93			—			87,133
Accretion expense		137			8,033			85			—			8,255
Salaries, general and administrative		14,190			(1,047	)		—			—			13,143
Incentive compensation expense		2,398			—			—			—			2,398
Total operating expenses		40,378			130,055			(28	)		—			170,405
Income (loss) from operations		(25,228	)		81,243			141			—			56,156
Other (income) expenses:
Interest expense		7,672			12			—			—			7,684
Interest income		(74	)		(5	)		—			—			(79	)
Other income		(4	)		(362	)		—			—			(366	)
(Income) loss from investment in subsidiaries		(52,313	)		(140	)		—			52,453			—
Total other (income) expenses		(44,719	)		(495	)		—			52,453			7,239
Income (loss) before taxes		19,491			81,738			141			(52,453	)		48,917
Provision (benefit) for income taxes:
Current		(665	)		—			—			—			(665	)
Deferred		(10,391	)		29,426			—			—			19,035
Total income taxes		(11,056	)		29,426			—			—			18,370
Net income (loss)	$	30,547		$	52,312		$	141			($52,453	)	$	30,547
Comprehensive income (loss)	$	93,749		$	52,312		$	141			($52,453	)	$	93,749

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2011

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	732		$	174,625		$	—		$	—		$	175,357
Gas production		4,303			43,581			—			—			47,884
Natural gas liquids production		—			10,231			—			—			10,231
Other operational income		587			104			173			—			864
Derivative income, net		—			1,398			—			—			1,398
Total operating revenue		5,622			229,939			173			—			235,734
Operating expenses:
Lease operating expenses		390			45,218			—			—			45,608
Transportation, processing and gathering expenses		—			2,728			—			—			2,728
Other operational expenses		93			40			3			—			136
Production taxes		245			1,556			—			—			1,801
Depreciation, depletion, amortization		(24	)		72,426			244			—			72,646
Accretion expense		4			7,622			91			—			7,717
Salaries, general and administrative		10,562			48			—			—			10,610
Incentive compensation expense		2,333			—			—			—			2,333
Total operating expenses		13,603			129,638			338			—			143,579
Income (loss) from operations		(7,981	)		100,301			(165	)		—			92,155
Other (income) expenses:
Interest expense		1,979			1			—			—			1,980
Interest income		(53	)		—			—			—			(53	)
Other income		(13	)		(547	)		(3	)		—			(563	)
Other expense		69			—			—			—			69
Loss on early extinguishment of debt		607			—			—			—			607
(Income) loss from investment in subsidiaries		(63,621	)		162			—			63,459			—
Total other (income) expenses		(61,032	)		(384	)		(3	)		63,459			2,040
Income (loss) before taxes		53,051			100,685			(162	)		(63,459	)		90,115
Provision (benefit) for income taxes:
Current		(9	)		(2,353	)		—			—			(2,362	)
Deferred		(4,136	)		39,417			—			—			35,281
Total income taxes		(4,145	)		37,064			—			—			32,919
Net income (loss)	$	57,196		$	63,621			($162	)		($63,459	)	$	57,196
Comprehensive income (loss)	$	93,308		$	63,621			($162	)		($63,459	)	$	93,308

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2012

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	13,047		$	370,892		$	—		$	—		$	383,939
Gas production		11,496			45,507			—			—			57,003
Natural gas liquids production		5,574			17,744			—			—			23,318
Other operational income		1,456			140			246			—			1,842
Derivative income, net		—			4,931			—			—			4,931
Total operating revenue		31,573			439,214			246			—			471,033
Operating expenses:
Lease operating expenses		11,222			84,830			(17	)		—			96,035
Transportation, processing and gathering expenses		4,198			4,951			—			—			9,149
Other operational expenses		89			24			—			—			113
Production taxes		1,670			4,066			—			—			5,736
Depreciation, depletion, amortization		26,548			144,969			191			—			171,708
Accretion expense		285			16,065			171			—			16,521
Salaries, general and administrative		26,844			4			—			—			26,848
Incentive compensation expense		3,840			—			—			—			3,840
Total operating expenses		74,696			254,909			345			—			329,950
Income (loss) from operations		(43,123	)		184,305			(99	)		—			141,083
Other (income) expenses:
Interest expense		13,518			(103	)		—			—			13,415
Interest income		(104	)		(6	)		—			—			(110	)
Other income		(23	)		(763	)		—			—			(786	)
(Income) loss from investment in subsidiaries		(118,450	)		99			—			118,351			—
Total other (income) expenses		(105,059	)		(773	)		—			118,351			12,519
Income (loss) before taxes		61,936			185,078			(99	)		(118,351	)		128,564
Provision (benefit) for income taxes:
Current		569			—			—			—			569
Deferred		(20,154	)		66,628			—			—			46,474
Total income taxes		(19,585	)		66,628			—			—			47,043
Net income (loss)	$	81,521		$	118,450			($99	)		($118,351	)	$	81,521
Comprehensive income (loss)	$	122,658		$	118,450			($99	)		($118,351	)	$	122,658

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2011

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	1,518		$	325,834		$	—		$	—		$	327,352
Gas production		5,583			83,461			—			—			89,044
Natural gas liquids production		—			16,230			—			—			16.230
Other operational income		1,309			85			355			—			1,749
Total operating revenue		8,410			425,610			355			—			434,375
Operating expenses:
Lease operating expenses		746			83,149			—			—			83,895
Transportation, processing and gathering expenses		—			4,548			—			—			4,548
Other operational expenses		93			702			3			—			798
Production taxes		392			3,944			—			—			4,336
Depreciation, depletion, amortization		5,918			133,936			461			—			140,315
Accretion expense		8			15,244			182			—			15,434
Salaries, general and administrative		22,293			50			—			—			22,343
Incentive compensation expense		5,017			—			—			—			5,017
Derivative expense, net		—			782			—			—			782
Total operating expenses		34,467			242,355			646			—			277,468
Income (loss) from operations		(26,057	)		183,255			(291	)		—			156,907
Other (income) expenses:
Interest expense		5,010			81			—			—			5,091
Interest income		(141	)		(6	)		—			—			(147	)
Other income		(13	)		(1,114	)		—			—			(1,127	)
Other expense		192			1			—			—			193
Loss on early extinguishment of debt		607			—			—			—			607
(Income) loss from investment in subsidiaries		(116,944	)		291			—			116,653			—
Total other (income) expenses		(111,289	)		(747	)		—			116,653			4,617
Income (loss) before taxes		85,232			184,002			(291	)		(116,653	)		152,290
Provision (benefit) for income taxes:
Current		(9	)		(2,353	)		—			—			(2,362	)
Deferred		(11,747	)		69,411			—			—			57,664
Total income taxes		(11,756	)		67,058			—			—			55,302
Net income (loss)	$	96,988		$	116,944			($291	)		($116,653	)	$	96,988
Comprehensive income (loss)	$	100,626		$	116,944			($291	)		($116,653	)	$	100,626

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2012

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	81,521		$	118,450		($	99	)	($	118,351	)	$	81,521
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		26,548			144,969			191			—			171,708
Accretion expense		285			16,065			171			—			16,521
Deferred income tax provision (benefit)		(20,154	)		66,628			—			—			46,474
Settlement of asset retirement obligations		—			(21,918	)		—			—			(21,918	)
Non-cash stock compensation expense		4,271			—			—			—			4,271
Excess tax benefits		(795	)		—			—			—			(795	)
Non-cash derivative income		—			(2,758	)		—			—			(2,758	)
Non-cash interest expense		5,278			—			—			—			5,278
Change in current income taxes		(3,921	)		—			—			—			(3,921	)
Change in intercompany receivables/payables		142,965			(142,720	)		(245	)		—			—
(Increase) decrease in accounts receivable		(36,705	)		(833	)		21			—			(37,517	)
Increase in other current assets		(124	)		—			—			—			(124	)
Decrease in inventory		36			—			—			—			36
Increase (decrease) in accounts payable		5,238			3,214			(39	)		—			8,413
Decrease in other current liabilities		(12,924	)		(4,380	)		—			—			(17,304	)
Other		(118,152	)		(663	)		(1	)		118,351			(465	)
Net cash provided by (used in) operating activities		73,367			176,054			(1	)		—			249,420
Cash flows from investing activities:
Investment in oil and gas properties		(129,792	)		(146,022	)		1			—			(275,813	)
Proceeds from sale of oil and gas properties, net of expenses		403			—			—			—			403
Sale of fixed assets		149			—			—			—			149
Investment in fixed and other assets		(1,900	)		—			—			—			(1,900	)
Net cash provided by (used in) investing activities		(131,140	)		(146,022	)		1			—			(277,161	)
Cash flows from financing activities:
Proceeds from bank borrowings		25,000			—			—			—			25,000
Repayments of bank borrowings		(70,000	)		—			—			—			(70,000	)
Proceeds from issuance of senior convertible notes		300,000			—			—			—			300,000
Financing costs of senior convertible notes		(8,855	)		—			—			—			(8,855	)
Proceeds from Sold Warrants		40,170			—			—			—			40,170
Payments for Purchased Call Options		(70,830	)		—			—			—			(70,830	)
Excess tax benefits		795			—			—			—			795
Net payments for share based compensation		(3,141	)		—			—			—			(3,141	)
Net cash provided by financing activities		213,139			—			—			—			213,139
Net change in cash and cash equivalents		155,366			30,032			—			—			185,398
Cash and cash equivalents, beginning of period		37,389			926			136			—			38,451
Cash and cash equivalents, end of period	$	192,755		$	30,958		$	136		$	—		$	223,849

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2011

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	96,988		$	116,944		($	291	)	($	116,653	)	$	96,988
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		5,918			133,936			461			—			140,315
Accretion expense		8			15,244			182			—			15,434
Deferred income tax provision (benefit)		(11,747	)		69,411			—			—			57,664
Settlement of asset retirement obligations		—			(33,568	)		—			—			(33,568	)
Non-cash stock compensation expense		3,138			—			—			—			3,138
Excess tax benefits		(1,060	)		—			—			—			(1,060	)
Non-cash derivative income		—			(118	)		—			—			(118	)
Loss on early extinguishment of debt		607			—			—			—			607
Non-cash (income) loss from investment in subsidiaries		(116,944	)		291			—			116,653			—
Non-cash interest expense		959			—			—			—			959
Change in current income taxes		(3,893	)		(2,352	)		—			—			(6,245	)
Change in intercompany receivables/payables		149,716			(149,290	)		(426	)		—			—
(Increase) decrease in accounts receivable		(15,198	)		(22,239	)		9			—			(37,428	)
(Increase) decrease in other current assets		(491	)		15			—			—			(476	)
Decrease in inventory		1,149			14			—			—			1,163
Increase in accounts payable		2,494			3,360			—			—			5,854
Increase (decrease) in other current liabilities		(224	)		4,664			—			—			4,440
Other		(21	)		(1,114	)		—			—			(1,135	)
Net cash provided by (used in) operating activities		111,399			135,198			(65	)		—			246,532
Cash flows from investing activities:
Investment in oil and gas properties		(134,792	)		(137,655	)		(4	)		—			(272,451	)
Proceeds from sale of oil and gas properties, net of expenses		5,575			1,117			—			—			6,692
Investment in fixed and other assets		(894	)		—			—			—			(894	)
Net cash used in investing activities		(130,111	)		(136,538	)		(4	)		—			(266,653	)
Cash flows from financing activities:
Deferred financing costs		(4,017	)		—			—			—			(4,017	)
Excess tax benefits		1,060			—			—			—			1,060
Net payments for share based compensation		(1,857	)		—			—			—			(1,857	)
Net cash used in financing activities		(4,814	)		—			—			—			(4,814	)
Net change in cash and cash equivalents		(23,526	)		(1,340	)		(69	)		—			(24,935	)
Cash and cash equivalents, beginning of period		105,115			1,659			182			—			106,956
Cash and cash equivalents, end of period	$	81,589		$	319		$	113		$	—		$	82,021