NOTE 20 – 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 consolidating financial information as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012 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

DECEMBER 31, 2014

(In thousands)


	Parent		Guarantor Subsidiary		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Assets
Current assets:
Cash and cash equivalents		$72,886		$1,450		$152		$ -		$74,488
Restricted cash		177,647		-		-		-		177,647
Accounts receivable		73,711		46,615		33		-		120,359
Fair value of derivative contracts		-		139,179		-		-		139,179
Current income tax receivable		7,212		-		-		-		7,212
Deferred taxes *		4,095		-		-		(4,095)		-
Inventory		1,011		2,698		-		-		3,709
Other current assets		8,112		-		6		-		8,118

Total current assets		344,674		189,942		191		(4,095)		530,712
Oil and gas properties, full cost method:
Proved		1,689,802		7,127,466		-		-		8,817,268
Less: accumulated DD&A		(970,387)		(6,000,244)		-		-		(6,970,631)

Net proved oil and gas properties		719,415		1,127,222		-		-		1,846,637
Unevaluated		289,556		241,230		36,579		-		567,365
Other property and equipment, net		32,340		-		-		-		32,340
Fair value of derivative contracts		-		14,333		-		-		14,333
Other assets, net		20,857		1,360		5,007		-		27,224
Investment in subsidiary		1,050,546		-		41,638		(1,092,184)		-

Total assets		$2,457,388		$1,574,087		$83,415		($1,096,279)		$3,018,611

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors		$74,756		$57,873		$ -		$ -		$132,629
Undistributed oil and gas proceeds		22,158		1,074		-		-		23,232
Accrued interest		9,022		-		-		-		9,022
Deferred taxes *		-		24,214		-		(4,095)		20,119
Asset retirement obligations		-		69,400		-		-		69,400
Other current liabilities		49,306		199		-		-		49,505

Total current liabilities		155,242		152,760		-		(4,095)		303,907
Long-term debt		1,041,035		-		-		-		1,041,035
Deferred taxes *		117,206		169,137		-		-		286,343
Asset retirement obligations		3,588		243,421		-		-		247,009
Other long-term liabilities		38,714		-		-		-		38,714

Total liabilities		1,355,785		565,318		-		(4,095)		1,917,008

Commitments and contingencies
Stockholders’ equity:
Common stock		549		-		-		-		549
Treasury stock		(860)		-		-		-		(860)
Additional paid-in capital		1,633,307		1,362,684		90,339		(1,453,023)		1,633,307
Accumulated earnings (deficit)		(614,708)		(440,699)		12		440,687		(614,708)
Accumulated other comprehensive income (loss)		83,315		86,784		(6,936)		(79,848)		83,315

Total stockholders’ equity		1,101,603		1,008,769		83,415		(1,092,184)		1,101,603

Total liabilities and stockholders’ equity		$2,457,388		$1,574,087		$83,415		($1,096,279)		$3,018,611

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2014

(In thousands)


	Parent		Guarantor Subsidiary		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Operating revenue:
Oil production		$29,701		$486,403		$ -		$ -		$516,104
Natural gas production		86,812		79,682		-		-		166,494
Natural gas liquids production		61,200		24,442		-		-		85,642
Other operational income		7,551		400		-		-		7,951
Derivative income, net		-		19,351		-		-		19,351

Total operating revenue		185,264		610,278		-		-		795,542


Operating expenses:
Lease operating expenses		18,719		157,776		-		-		176,495
Transportation, processing, and gathering expenses		53,028		11,923		-		-		64,951
Production taxes		8,324		3,827		-		-		12,151
Depreciation, depletion, amortization		138,313		201,693		-		-		340,006
Write-down of oil and gas properties		351,192		-		-		-		351,192
Accretion expense		230		28,181		-		-		28,411
Salaries, general and administrative		66,430		4		17		-		66,451
Incentive compensation expense		10,361		-		-		-		10,361
Other operational expenses		669		193		-		-		862

Total operating expenses		647,266		403,597		17		-		1,050,880


Income (loss) from operations		(462,002)		206,681		(17)		-		(255,338)


Other (income) expenses:
Interest expense		38,810		45		-		-		38,855
Interest income		(333)		(192)		(49)		-		(574)
Other income		(836)		(1,496)		-		-		(2,332)
Other expense		274		-		-		-		274
Income from investment in subsidiaries		(133,336)		-		(32)		133,368		-

Total other (income) expenses		(95,421)		(1,643)		(81)		133,368		36,223


Income (loss) before taxes		(366,581)		208,324		64		(133,368)		(291,561)


Provision (benefit) for income taxes:
Current		159		-		-		-		159
Deferred		(177,197)		75,020		-		-		(102,177)

Total income taxes		(177,038)		75,020		-		-		(102,018)

Net income (loss)		($189,543)		$133,304		$ 64		($133,368)		($189,543)


Comprehensive income (loss)		($104,166)		$133,304		$ 64		($133,368)		($104,166)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2013

(In thousands)


	Parent		Guarantor Subsidiary		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Operating revenue:
Oil production		$30,475		$684,629		$ -		$ -		$715,104
Natural gas production		68,895		121,685		-		-		190,580
Natural gas liquids production		32,293		28,394		-		-		60,687
Other operational income		7,163		645		-		-		7,808

Total operating revenue		138,826		835,353		-		-		974,179


Operating expenses:
Lease operating expenses		14,680		186,473		-		-		201,153
Transportation, processing, and gathering expenses		28,322		13,850		-		-		42,172
Production taxes		6,229		8,800		-		-		15,029
Depreciation, depletion, amortization		93,579		256,995		-		-		350,574
Accretion expense		372		33,203		-		-		33,575
Salaries, general and administrative		59,473		5		46		-		59,524
Franchise tax settlement		12,590		-		-		-		12,590
Incentive compensation expense		15,340		-		-		-		15,340
Other operational expenses		38		113		-		-		151
Derivative expense, net		-		2,090		-		-		2,090

Total operating expenses		230,623		501,529		46		-		732,198


Income (loss) from operations		(91,797)		333,824		(46)		-		241,981


Other (income) expenses:
Interest expense		32,816		21		-		-		32,837
Interest income		(1,480)		(195)		(20)		-		(1,695)
Other income		(875)		(1,924)		-		-		(2,799)
Loss on early extinguishment of debt		27,279		-		-		-		27,279
(Income) loss from investment in subsidiaries		(214,983)		-		26		214,957		-

Total other (income) expenses		(157,243)		(2,098)		6		214,957		55,622


Income (loss) before taxes		65,446		335,922		(52)		(214,957)		186,359


Provision (benefit) for income taxes:
Current		(10,904)		-		-		-		(10,904)
Deferred		(41,284)		120,913		-		-		79,629

Total income taxes		(52,188)		120,913		-		-		68,725

Net income (loss)		$117,634		$215,009		($52)		($214,957)		$117,634


Comprehensive income (loss)		$86,739		$215,009		($52)		($214,957)		$86,739

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2012

(In thousands)


	Parent		Guarantor Subsidiary		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Operating revenue:
Oil production		$26,149		$735,155		$ -		$ -		$761,304
Natural gas production		34,331		100,408		-		-		134,739
Natural gas liquids production		15,264		33,234		-		-		48,498
Other operational income		2,766		397		357		-		3,520
Derivative income, net		-		3,428		-		-		3,428

Total operating revenue		78,510		872,622		357		-		951,489


Operating expenses:
Lease operating expenses		19,914		195,105		(16)		-		215,003
Transportation, processing and gathering expenses		12,049		9,733		-		-		21,782
Production taxes		3,330		6,685		-		-		10,015
Depreciation, depletion, amortization		63,022		281,152		191		-		344,365
Accretion expense		561		32,513		257		-		33,331
Salaries, general and administrative		54,641		7		-		-		54,648
Incentive compensation expense		8,113		-		-		-		8,113
Other operational expenses		173		94		-		-		267

Total operating expenses		161,803		525,289		432		-		687,524


Income (loss) from operations		(83,293)		347,333		(75)		-		263,965


Other (income) expenses:
Interest expense		30,446		(71)		-		-		30,375
Interest income		(285)		(315)		-		-		(600)
Other income		(144)		(1,661)		-		-		(1,805)
Loss on early extinguishment of debt		1,972		-		-		-		1,972
(Income) loss from investment in subsidiaries		(223,555)		75		-		223,480		-

Total other (income) expenses		(191,566)		(1,972)		-		223,480		29,942


Income (loss) before taxes		108,273		349,305		(75)		(223,480)		234,023


Provision (benefit) for income taxes:
Current		15,022		-		-		-		15,022
Deferred		(56,175)		125,750		-		-		69,575

Total income taxes		(41,153)		125,750		-		-		84,597

Net income (loss)		$149,426		$223,555		($75)		($223,480)		$149,426


Comprehensive income (loss)		$156,391		$223,555		($75)		($223,480)		$156,391

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2014

(In thousands)


	Parent		Guarantor Subsidiary		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities:
Net income (loss)		($189,543)		$133,304		$64		($133,368)		($189,543)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		138,313		201,693		-		-		340,006
Write-down of oil and gas properties		351,192		-		-		-		351,192
Accretion expense		230		28,181		-		-		28,411
Deferred income tax (benefit) provision		(177,197)		75,020		-		-		(102,177)
Settlement of asset retirement obligations		(201)		(56,208)		-		-		(56,409)
Non-cash stock compensation expense		11,325		-		-		-		11,325
Non-cash derivative income		-		(18,028)		-		-		(18,028)
Non-cash interest expense		16,661		-		-		-		16,661
Change in current income taxes		158		-		-		-		158
Non-cash income from investment in subsidiaries		(133,336)		-		(32)		133,368		-
Change in intercompany receivables/payables		114,056		(145,250)		31,194		-		-
(Increase) decrease in accounts receivable		1,131		50,514		(34)		-		51,611
Increase in other current assets		(6,238)		-		(6)		-		(6,244)
(Increase) decrease in inventory		2,415		(2,415)		-		-		-
Decrease in accounts payable		(662)		(2,757)		-		-		(3,419)
Decrease in other current liabilities		(16,946)		(2,206)		-		-		(19,152)
Other		(1,755)		(1,496)		-		-		(3,251)

Net cash provided by operating activities		109,603		260,352		31,186		-		401,141


Cash flows from investing activities:
Investment in oil and gas properties		(338,731)		(558,003)		(30,513)		-		(927,247)
Proceeds from sale of oil and gas properties, net of expenses		28,103		214,811		-		-		242,914
Investment in fixed and other assets		(10,182)		-		-		-		(10,182)
Change in restricted funds		(177,647)		-		(425)		-		(178,072)
Investment in subsidiaries		-		-		(31,696)		31,696		-

Net cash used in investing activities		(498,457)		(343,192)		(62,634)		31,696		(872,587)


Cash flows from financing activities:
Proceeds from issuance of common stock		225,999		-		-		-		225,999
Deferred financing costs		(3,371)		-		-		-		(3,371)
Equity proceeds from parent		-		-		31,696		(31,696)		-
Net payments for share-based compensation		(7,182)		-		-		-		(7,182)

Net cash provided by financing activities		215,446		-		31,696		(31,696)		215,446


Effect of exchange rate changes on cash		-		-		(736)		-		(736)


Net change in cash and cash equivalents		(173,408)		(82,840)		(488)		-		(256,736)
Cash and cash equivalents, beginning of period		246,294		84,290		640		-		331,224

Cash and cash equivalents, end of period		$72,886		$1,450		$152		$ -		$74,488

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2013

(In thousands)


	Parent		Guarantor Subsidiary		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities:
Net income (loss)		$117,634		$215,009		($52)		($214,957)		$117,634
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		93,579		256,995		-		-		350,574
Accretion expense		372		33,203		-		-		33,575
Deferred income tax provision (benefit)		(41,284)		120,913		-		-		79,629
Settlement of asset retirement obligations		-		(83,854)		-		-		(83,854)
Non-cash stock compensation expense		10,347		-		-		-		10,347
Excess tax benefits		(156)		-		-		-		(156)
Non-cash derivative expense		-		2,239		-		-		2,239
Loss on early extinguishment of debt		27,279		-		-		-		27,279
Non-cash interest expense		16,219		-		-		-		16,219
Non-cash (income) loss from investment in subsidiaries		(214,983)		-		26		214,957		-
Change in current income taxes		2,767		-		-		-		2,767
Change in intercompany receivables/payables		186,903		(186,947)		44		-		-
(Increase) decrease in accounts receivable		(15,630)		10,947		-		-		(4,683)
Decrease in other current assets		1,752		-		-		-		1,752
Decrease in inventory		583		-		-		-		583
Increase (decrease) in accounts payable		(1,052)		1,454		-		-		402
Increase in other current liabilities		40,543		1,908		-		-		42,451
Other		419		(2,972)		-		-		(2,553)

Net cash provided by operating activities		225,292		368,895		18		-		594,205


Cash flows from investing activities:
Investment in oil and gas properties		(273,474)		(378,254)		(11,571)		-		(663,299)
Proceeds from sale of oil and gas properties, net of expenses		6,300		42,521		-		-		48,821
Investment in fixed and other assets		(6,816)		-		-		-		(6,816)
Change in restricted funds		-		-		(1,742)		-		(1,742)
Investment in subsidiaries		(14,000)		-		(13,404)		27,404		-

Net cash used in investing activities		(287,990)		(335,733)		(26,717)		27,404		(623,036)


Cash flows from financing activities:
Proceeds from issuance of senior notes		489,250		-		-		-		489,250
Deferred financing costs		(9,065)		-		-		-		(9,065)
Redemption of senior notes		(396,014)		-		-		-		(396,014)
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 provided by financing activities		80,594		-		27,404		(27,404)		80,594


Effect of exchange rate changes on cash		-		-		(65)		-		(65)


Net change in cash and cash equivalents		17,896		33,162		640		-		51,698
Cash and cash equivalents, beginning of period		228,398		51,128		-		-		279,526

Cash and cash equivalents, end of period		$246,294		$84,290		$640		$ -		$331,224

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2012

(In thousands)


	Parent		Guarantor Subsidiary		Non- Guarantor Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities:
Net income (loss)		$149,426		$223,555		($75)		($223,480)		$149,426
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		63,022		281,152		191		-		344,365
Accretion expense		561		32,513		257		-		33,331
Deferred income tax provision (benefit)		(56,175)		125,750		-		-		69,575
Settlement of asset retirement obligations		-		(65,567)		-		-		(65,567)
Non-cash stock compensation expense		8,699		-		-		-		8,699
Excess tax benefits		(949)		-		-		-		(949)
Non-cash derivative income		-		(509)		-		-		(509)
Loss on early extinguishment of debt		1,972		-		-		-		1,972
Non-cash interest expense		13,085		-		-		-		13,085
Non-cash (income) loss from investment in subsidiaries		(223,555)		75		-		223,480		-
Change in current income taxes		10,618		-		-		-		10,618
Change in intercompany receivables/payables		275,819		(275,125)		(694)		-		-
(Increase) decrease in accounts receivable		(22,750)		(33,345)		224		-		(55,871)
Increase in other current assets		(2,836)		-		-		-		(2,836)
Decrease in inventory		436		-		-		-		436
Increase (decrease) in accounts payable		5,348		(208)		(39)		-		5,101
Decrease in other current liabilities		(5,311)		(5,115)		-		-		(10,426)
Other		10,960		(1,661)		-		-		9,299

Net cash provided by (used in) operating activities		228,370		281,515		(136)		-		509,749


Cash flows from investing activities:
Investment in oil and gas properties		(324,542)		(231,313)		-		-		(555,855)
Proceeds from sale of oil and gas properties, net of expenses		403		-		-		-		403
Sale of fixed assets		134		-		-		-		134
Investment in fixed and other assets		(13,370)		-		-		-		(13,370)

Net cash used in investing activities		(337,375)		(231,313)		-		-		(568,688)


Cash flows from financing activities:
Proceeds from bank borrowings		25,000		-		-		-		25,000
Repayment of bank borrowings		(70,000)		-		-		-		(70,000)
Proceeds from issuance of senior convertible notes		300,000		-		-		-		300,000
Deferred 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)
Proceeds from issuance of senior notes		300,000		-		-		-		300,000
Deferred financing costs		(11,966)		-		-		-		(11,966)
Redemption of senior subordinated notes		(200,681)		-		-		-		(200,681)
Excess tax benefits		949		-		-		-		949
Net payments for share-based compensation		(3,773)		-		-		-		(3,773)

Net cash provided by financing activities		300,014		-		-		-		300,014


Net change in cash and cash equivalents		191,009		50,202		(136)		-		241,075
Cash and cash equivalents, beginning of period		37,389		926		136		-		38,451

Cash and cash equivalents, end of period		$228,398		$51,128		$ -		$ -		$279,526