Guarantor Financial Statements

9 Months Ended

Sep. 30, 2014

Guarantees [Abstract]

Guarantor Financial Statements

Note 14 – Guarantor Financial Statements

Stone Offshore is an unconditional guarantor (the “Guarantor Subsidiary”) of the 2017 Convertible Notes and the 2022 Notes. Our other subsidiaries (the “Non-Guarantor Subsidiaries”) have not provided guarantees. The following presents unaudited condensed consolidating financial information as of September 30, 2014 and December 31, 2013 and for the three and nine month periods ended September 30, 2014 and 2013 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

SEPTEMBER 30, 2014

(In thousands)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	125,740		$	54,440		$	127		$	—		$	180,307
Restricted cash		177,647			—			—			—			177,647
Accounts receivable		153,685			224,491			34			(204,435	)		173,775
Fair value of derivative contracts		—			16,635			—			—			16,635
Current income tax receivable		7,373			—			—			—			7,373
Deferred taxes *		3,445			20,591			—			—			24,036
Inventory		3,426			283			—			—			3,709
Other current assets		1,876			—			8			—			1,884
Total current assets		473,192			316,440			169			(204,435	)		585,366
Oil and gas properties, full cost method:
Proved		1,563,596			7,128,421			—			—			8,692,017
Less: accumulated DD&A		(613,590	)		(5,954,961	)		—			—			(6,568,551	)
Net proved oil and gas properties		950,006			1,173,460			—			—			2,123,466
Unevaluated		299,225			245,754			25,679			—			570,658
Other property and equipment, net		32,118			—			—			—			32,118
Fair value of derivative contracts		—			6,481			—			—			6,481
Other assets, net		21,464			1,906			17,490			—			40,860
Investment in subsidiary		857,909			—			40,605			(898,514	)		—
Total assets	$	2,633,914		$	1,744,041		$	83,943		($	1,102,949	)	$	3,358,949
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors		245,870		$	48,661		$	31,389		($	204,435	)	$	121,485
Undistributed oil and gas proceeds		57,410			1,093			—			—			58,503
Accrued interest		22,240			—			—			—			22,240
Fair value of derivative contracts		—			156			—			—			156
Asset retirement obligations		—			73,451			—			—			73,451
Other current liabilities		57,131			499			—			—			57,630
Total current liabilities		382,651			123,860			31,389			(204,435	)		333,465
Long-term debt		1,037,440			—			—			—			1,037,440
Deferred taxes *		(46,057	)		440,903			—			—			394,846
Asset retirement obligations		2,903			333,294			—			—			336,197
Fair value of derivative contracts		—			24			—			—			24
Other long-term liabilities		41,350			—			—			—			41,350
Total liabilities		1,418,287			898,081			31,389			(204,435	)		2,143,322
Commitments and contingencies
Stockholders’ equity:
Common stock		549			—			—			—			549
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,628,942			1,309,562			56,657			(1,366,219	)		1,628,942
Accumulated deficit		(424,193	)		(476,828	)		(31	)		476,859			(424,193	)
Accumulated other comprehensive income (loss)		11,189			13,226			(4,072	)		(9,154	)		11,189
Total stockholders’ equity		1,215,627			845,960			52,554			(898,514	)		1,215,627
Total liabilities and stockholders’ equity	$	2,633,914		$	1,744,041		$	83,943		($	1,102,949	)	$	3,358,949

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

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2013

(In thousands)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	246,294		$	84,290		$	640		$	—		$	331,224
Accounts receivable		74,887			97,128			—			(44	)		171,971
Fair value of derivative contracts		—			4,549			—			—			4,549
Current income tax receivable		7,366			—			—			—			7,366
Deferred taxes *		8,659			23,051			—			—			31,710
Inventory		3,440			283			—			—			3,723
Other current assets		1,874			—			—			—			1,874
Total current assets		342,520			209,301			640			(44	)		552,417
Oil and gas properties, full cost method:
Proved		1,309,527			6,494,590			—			—			7,804,117
Less: accumulated DD&A		(459,932	)		(5,448,828	)		—			—			(5,908,760	)
Net proved oil and gas properties		849,595			1,045,762			—			—			1,895,357
Unevaluated		325,113			388,643			10,583			—			724,339
Other property and equipment, net		26,178			—			—			—			26,178
Fair value of derivative contracts		—			1,378			—			—			1,378
Other assets, net		45,410			1,349			2,128			—			48,887
Investment in subsidiary		747,472			—			12,711			(760,183	)		—
Total assets	$	2,336,288		$	1,646,433		$	26,062		($	760,227	)	$	3,248,556
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	173,147		$	22,530		$	44		($	44	)	$	195,677
Undistributed oil and gas proceeds		34,386			2,643			—			—			37,029
Accrued interest		9,022			—			—			—			9,022
Fair value of derivative contracts		—			7,753			—			—			7,753
Asset retirement obligations		—			67,161			—			—			67,161
Other current liabilities		53,682			838			—			—			54,520
Total current liabilities		270,237			100,925			44			(44	)		371,162
Long-term debt		1,027,084			—			—			—			1,027,084
Deferred taxes *		10,227			380,466			—			—			390,693
Asset retirement obligations		4,945			430,407			—			—			435,352
Fair value of derivative contracts		—			470			—			—			470
Other long-term liabilities		53,509			—			—			—			53,509
Total liabilities		1,366,002			912,268			44			(44	)		2,278,270
Commitments and contingencies
Stockholders’ equity:
Common stock		488			—			—			—			488
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,397,885			1,309,563			27,403			(1,336,966	)		1,397,885
Accumulated deficit		(425,165	)		(574,003	)		(52	)		574,055			(425,165	)
Accumulated other comprehensive loss		(2,062	)		(1,395	)		(1,333	)		2,728			(2,062	)
Total stockholders’ equity		970,286			734,165			26,018			(760,183	)		970,286
Total liabilities and stockholders’ equity	$	2,336,288		$	1,646,433		$	26,062		($	760,227	)	$	3,248,556

* 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 SEPTEMBER 30, 2014

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	11,692		$	112,103		$	—		$	—		$	123,795
Gas production		16,001			14,153			—			—			30,154
Natural gas liquids production		15,820			5,194			—			—			21,014
Other operational income		2,417			51			—			—			2,468
Derivative income, net		—			5,782			—			—			5,782
Total operating revenue		45,930			137,283			—			—			183,213
Operating expenses:
Lease operating expenses		5,619			37,942			—			—			43,561
Transportation, processing and gathering expenses		14,379			2,342			—			—			16,721
Production taxes		2,936			715			—			—			3,651
Depreciation, depletion, amortization		36,598			43,693			—			—			80,291
Write-down of oil and gas properties		47,130			—			—			—			47,130
Accretion expense		56			6,483			—			—			6,539
Salaries, general and administrative		16,273			1			12			—			16,286
Incentive compensation expense		3,092			—			—			—			3,092
Other operational expense		294			4			—			—			298
Total operating expenses		126,377			91,180			12			—			217,569
Income (loss) from operations		(80,447	)		46,103			(12	)		—			(34,356	)
Other (income) expenses:
Interest expense		10,316			7			—			—			10,323
Interest income		(76	)		(82	)		(11	)		—			(169	)
Other income		(164	)		(531	)		—			—			(695	)
Other expense		95			—			—			—			95
(Income) loss from investment in subsidiaries		(29,894	)		—			2			29,892			—
Total other (income) expenses		(19,723	)		(606	)		(9	)		29,892			9,554
Income (loss) before taxes		(60,724	)		46,709			(3	)		(29,892	)		(43,910	)
Provision (benefit) for income taxes:
Current		—			—			—			—			—
Deferred		(31,309	)		16,814			—			—			(14,495	)
Total income taxes		(31,309	)		16,814			—			—			(14,495	)
Net income (loss)	($	29,415	)	$	29,895		($	3	)	($	29,892	)	($	29,415	)
Comprehensive income (loss)	($	65	)	$	29,895		($	3	)	($	29,892	)	($	65	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2013

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	6,904		$	179,704		$	—		$	—		$	186,608
Gas production		19,971			32,757			—			—			52,728
Natural gas liquids production		9,224			7,252			—			—			16,476
Other operational income		711			162			—			—			873
Total operating revenue		36,810			219,875			—			—			256,685
Operating expenses:
Lease operating expenses		3,895			50,091			—			—			53,986
Transportation, processing and gathering expenses		10,072			3,009			—			—			13,081
Production taxes		1,773			3,451			—			—			5,224
Depreciation, depletion, amortization		26,728			66,125			—			—			92,853
Accretion expense		93			8,338			—			—			8,431
Salaries, general and administrative		14,202			—			(1	)		—			14,201
Incentive compensation expense		4,566			—			—			—			4,566
Other operational expenses		194			43			—			—			237
Derivative expense, net		—			1,684			—			—			1,684
Total operating expenses		61,523			132,741			(1	)		—			194,263
Income (loss) from operations		(24,713	)		87,134			1			—			62,422
Other (income) expenses:
Interest expense		7,922			—			—			—			7,922
Interest income		(1,234	)		(69	)		(8	)		—			(1,311	)
Other income		(230	)		(552	)		—			—			(782	)
Income from investment in subsidiaries		(56,166	)		—			(7	)		56,173			—
Total other (income) expenses		(49,708	)		(621	)		(15	)		56,173			5,829
Income before taxes		24,995			87,755			16			(56,173	)		56,593
Provision (benefit) for income taxes:
Current		(88	)		—			—			—			(88	)
Deferred		(11,019	)		31,598			—			—			20,579
Total income taxes		(11,107	)		31,598			—			—			20,491
Net income	$	36,102		$	56,157		$	16		($	56,173	)	$	36,102
Comprehensive income	$	17,985		$	56,157		$	16		($	56,173	)	$	17,985

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	24,182		$	380,295		$	—		$	—		$	404,477
Gas production		65,640			67,543			—			—			133,183
Natural gas liquids production		44,293			20,627			—			—			64,920
Other operational income		5,121			394			—			—			5,515
Derivative income, net		—			2,667			—			—			2,667
Total operating revenue		139,236			471,526			—			—			610,762
Operating expenses:
Lease operating expenses		14,678			125,240			—			—			139,918
Transportation, processing and gathering expenses		35,152			10,293			—			—			45,445
Production taxes		6,520			3,450			—			—			9,970
Depreciation, depletion, amortization		95,038			160,734			—			—			255,772
Write-down of oil and gas properties		47,130			—			—			—			47,130
Accretion expense		185			21,642			—			—			21,827
Salaries, general and administrative		49,237			3			12			—			49,252
Incentive compensation expense		10,129			—			—			—			10,129
Other operational expenses		470			40			—			—			510
Total operating expenses		258,539			321,402			12			—			579,953
Income (loss) from operations		(119,303	)		150,124			(12	)		—			30,809
Other (income) expenses:
Interest expense		28,549			44			—			—			28,593
Interest income		(301	)		(181	)		(23	)		—			(505	)
Other income		(537	)		(1,587	)		—			—			(2,124	)
Other expense		274			—			—			—			274
Income from investment in subsidiaries		(97,186	)		—			(10	)		97,196			—
Total other (income) expenses		(69,201	)		(1,724	)		(33	)		97,196			26,238
Income (loss) before taxes		(50,102	)		151,848			21			(97,196	)		4,571
Provision (benefit) for income taxes:
Current		—			—			—			—			—
Deferred		(51,074	)		54,673			—			—			3,599
Total income taxes		(51,074	)		54,673			—			—			3,599
Net income	$	972		$	97,175		$	21		($	97,196	)	$	972
Comprehensive income	$	14,223		$	97,175		$	21		($	97,196	)	$	14,223

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2013

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	20,625		$	537,406		$	—		$	—		$	558,031
Gas production		47,240			90,142			—			—			137,382
Natural gas liquids production		17,901			18,953			—			—			36,854
Other operational income		2,150			509			—			—			2,659
Total operating revenue		87,916			647,010			—			—			734,926
Operating expenses:
Lease operating expenses		9,611			147,936			—			—			157,547
Transportation, processing and gathering expenses		17,853			9,521			—			—			27,374
Production taxes		3,960			7,444			—			—			11,404
Depreciation, depletion, amortization		62,007			193,490			—			—			255,497
Accretion expense		279			24,733			—			—			25,012
Salaries, general and administrative		43,300			4			47			—			43,351
Incentive compensation expense		8,047			—			—			—			8,047
Other operational expense		295			87			—			—			382
Derivative expense, net		—			1,537			—						1,537
Total operating expenses		145,352			384,752			47			—			530,151
Income (loss) from operations		(57,436	)		262,258			(47	)		—			204,775
Other (income) expenses:
Interest expense		26,431			21			—			—			26,452
Interest income		(1,384	)		(144	)		(15	)		—			(1,543	)
Other income		(671	)		(1,519	)		—			—			(2,190	)
(Income) loss from investment in subsidiaries		(168,887	)		—			32			168,855			—
Total other (income) expenses		(144,511	)		(1,642	)		17			168,855			22,719
Income (loss) before taxes		87,075			263,900			(64	)		(168,855	)		182,056
Provision (benefit) for income taxes:
Current		(10,827	)		—			—			—			(10,827	)
Deferred		(17,980	)		94,981			—			—			77,001
Total income taxes		(28,807	)		94,981			—			—			66,174
Net income (loss)	$	115,882		$	168,919		($	64	)	($	168,855	)	$	115,882
Comprehensive income (loss)	$	93,462		$	168,919		($	64	)	($	168,855	)	$	93,462

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(In thousands)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	972		$	97,175		$	21		($	97,196	)	$	972
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		95,038			160,734			—			—			255,772
Write-down of oil and gas properties		47,130			—			—			—			47,130
Accretion expense		185			21,642			—			—			21,827
Deferred income tax (benefit) provision		(51,074	)		54,673			—			—			3,599
Settlement of asset retirement obligations		(84	)		(47,133	)		—			—			(47,217	)
Non-cash stock compensation expense		8,409			—			—			—			8,409
Non-cash derivative income		—			(2,386	)		—			—			(2,386	)
Non-cash interest expense		12,393			—			—			—			12,393
Change in current income taxes		(6	)		—			—			—			(6	)
Non-cash income from investment in subsidiaries		(97,185	)		—			(11	)		97,196			—
Change in intercompany receivables/payables		(119,004	)		90,313			28,691			—			—
(Increase) decrease in accounts receivable		125,593			(127,363	)		(35	)		—			(1,805	)
Increase in other current assets		(2	)		—			(8	)		—			(10	)
Increase (decrease) in accounts payable		900			(4,447	)		—			—			(3,547	)
Increase (decrease) in other current liabilities		39,329			(1,888	)		—			—			37,441
Other		1,414			(1,586	)		—			—			(172	)
Net cash provided by operating activities		64,008			239,734			28,658			—			332,400
Cash flows from investing activities:
Investment in oil and gas properties		(225,831	)		(480,686	)		(20,971	)		—			(727,488	)
Proceeds from sale of oil and gas properties, net of expenses		12,197			211,102			—			—			223,299
Investment in fixed and other assets		(8,790	)		—			—			—			(8,790	)
Change in restricted funds		(177,647	)		—			(8,105	)		—			(185,752	)
Investment in subsidiaries		—			—			(29,253	)		29,253			—
Net cash used in investing activities		(400,071	)		(269,584	)		(58,329	)		29,253			(698,731	)
Cash flows from financing activities:
Net proceeds from issuance of common stock		225,999			—			—			—			225,999
Deferred financing costs		(3,329	)		—			—			—			(3,329	)
Equity proceeds from parent		—			—			29,253			(29,253	)		—
Net payments for share-based compensation		(7,161	)		—			—			—			(7,161	)
Net cash provided by financing activities		215,509			—			29,253			(29,253	)		215,509
Effect of exchange rate changes on cash		—			—			(95	)		—			(95	)
Net change in cash and cash equivalents		(120,554	)		(29,850	)		(513	)		—			(150,917	)
Cash and cash equivalents, beginning of period		246,294			84,290			640			—			331,224
Cash and cash equivalents, end of period	$	125,740		$	54,440		$	127		$	—		$	180,307

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2013

(In thousands)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	115,882		$	168,919		($	64	)	($	168,855	)	$	115,882
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		62,007			193,490			—			—			255,497
Accretion expense		279			24,733			—			—			25,012
Deferred income tax provision (benefit)		(17,980	)		94,981			—			—			77,001
Settlement of asset retirement obligations		—			(61,178	)		—			—			(61,178	)
Non-cash stock compensation expense		7,583			—			—			—			7,583
Excess tax benefits		(156	)		—			—			—			(156	)
Non-cash derivative expense		—			1,626			—			—			1,626
Non-cash interest expense		12,384			—			—			—			12,384
Non-cash (income) loss from investment in subsidiaries		(168,887	)		—			32			168,855			—
Change in current income taxes		(704	)		—			—			—			(704	)
Change in intercompany receivables/payables		207,267			(207,311	)		44			—			—
(Increase) decrease in accounts receivable		(24,053	)		1,776			—			—			(22,277	)
Decrease in other current assets		2,187			—			—			—			2,187
Decrease in inventory		158			—			—			—			158
Increase in accounts payable		2,610			5,425			—			—			8,035
Increase in other current liabilities		13,613			6,638			—			—			20,251
Other		499			(2,290	)		—			—			(1,791	)
Net cash provided by operating activities		212,689			226,809			12			—			439,510
Cash flows from investing activities:
Investment in oil and gas properties		(234,776	)		(226,695	)		(10,833	)		—			(472,304	)
Proceeds from sale of oil and gas properties, net of expenses		6,300			—			—			—			6,300
Investment in fixed and other assets		(3,830	)		—			—			—			(3,830	)
Change in restricted funds		—			—			(2,394	)		—			(2,394	)
Investment in subsidiaries		(14,000	)		—			(13,404	)		27,404			—
Net cash used in investing activities		(246,306	)		(226,695	)		(26,631	)		27,404			(472,228	)
Cash flows from financing activities:
Deferred financing costs		(11	)		—			—			—			(11	)
Excess tax benefits		156			—			—			—			156
Equity proceeds from parent		—			—			27,404			(27,404	)		—
Net payments for share-based compensation		(3,733	)		—			—			—			(3,733	)
Net cash (used in) provided by financing activities		(3,588	)		—			27,404			(27,404	)		(3,588	)
Effect of exchange rate on cash		—			—			(145	)		—			(145	)
Net change in cash and cash equivalents		(37,205	)		114			640			—			(36,451	)
Cash and cash equivalents, beginning of period		228,398			51,128			—			—			279,526
Cash and cash equivalents, end of period	$	191,193		$	51,242		$	640		$	—		$	243,075