Stone Energy has announced its 2009 capital budget of $300 million. Approximately $170 million is projected to be for Gulf of Mexico (GOM) exploitation/development projects, $40 million is estimated for GOM exploration, $70 million is budgeted for GOM facilities and plug and abandonment projects, and $20 million is budgeted for Appalachian activity.
Stone expects its capital expenditure program to be fully funded by cash flow from operations.CEO David Welch stated, "With the unprecedented drop in oil and gas prices, and the tight credit market, we have adjusted our 2009 capital program to focus on financial flexibility and balance sheet strength rather than on production and/or reserve growth.
"In 2008, we added significant reserves and production through our Bois d'Arc acquisition; now our top objective for 2009 is to maintain financial flexibility, which includes debt reduction. Because of the Bois d'Arc acquisition, we expect to show production growth in 2009, but now at a lower level. Additionally, we would expect reserves to show a downward trend during the year unless additional capital is employed."
With this reduced capital budget, Stone expects 2009 production to be in the 225-250 million cubic feet equivalent (Mmcfe) per day range. This estimate assumes a reduced production rate from the Amberjack field (Mississippi Canyon 109) where barging operations were employed during October and November due to a severed pipeline caused by Hurricane Ike.
The low price of oil and the expected high downtime caused by winter weather has resulted in a decision to suspend the barging operations until early spring when it will be re-evaluated. The timing on the repair of the third party pipeline is difficult to predict, although the operator has indicated the pipeline should be operational in the second quarter 2009.
Stone continues to wait on other third party pipelines for other shut-in properties, including volumes from the Ship Shoal, Vermilion, East Cameron and Eugene Island areas and now is unable to project a year end exit rate for production. The 2008 fourth quarter average production volume is expected to be in the 180-195 Mmcfe per day range. Stone expects substantially all of these shut-in properties to come back on line during the first quarter 2009.
Stone's year end estimated proved reserves are currently being evaluated and engineered by its third party engineering firm, and will include the reserves acquired in the Bois d'Arc transaction. Although this process is not yet completed, Stone projects its preliminary year end estimated proved reserves will be slightly under 600 Bcfe. The projected increase in estimated reserves from 403 Bcfe reported at year end 2007 was primarily driven by the Bois d'Arc acquisition, but was offset by production, a small divestiture package in the first quarter, a reduced combined capital expenditure program, and several dry holes whereby production was not replaced via the drill bit. Lower oil and gas prices also reduced projected estimated proved reserves.
If oil and gas prices remain at current levels through year end, Stone expects to report significant non-cash ceiling test write-down to its full cost pool. In addition, the impairment of goodwill is also possible, although this calculation will be determined after the ceiling test is performed. These possible non-cash charges would not have an impact on Stone's bank covenants.
In early December, Stone had its borrowing base affirmed at $625 million, down from the previous $700 million borrowing base. Stone currently has $425 million drawn on the facility and another $46 million in letters of credit, leading to availability of $154 million. In addition, on December 1, 2008, Stone had $135 million in cash.Stone expects to provide its 2008 year end results in late February 2009, although it may provide additional updates as needed.
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