Stone Swings to Q2 Profit, Updates Guidance
Stone Energy announced net income of $72.0 million, or $2.60 per share, on operating revenue of $200.3 million for the second quarter of 2007 compared to a net loss of $1.5 million, or a $0.05 loss per share, on operating revenue of $169.2 million in the second quarter of 2006.
The second quarter 2007 results included an after-tax gain of $36.3 million associated with the sale of substantially all of Stone's Rocky Mountain properties, which was completed on June 29, 2007. Net income (loss) for the three and six-month periods ended June 30, 2006, included a net $16.4 million after-tax charge to earnings associated with the then proposed merger with Energy Partners, Ltd.
For the six months ended June 30, 2007, net income totaled $82.5 million, or $2.98 per share, on operating revenue of $373.2 million compared to net income of $22.6 million, or $0.83 per share, on operating revenue of $327.6 million during the comparable 2006 period. All per share amounts are on a diluted basis.
Discretionary cash flow was $140.4 million during the three months ended June 30, 2007, compared to $115.9 million generated during the second quarter of 2006 and $102.1 million during the first quarter of 2007. For the first six months of 2007, discretionary cash flow totaled $242.5 million compared to $223.1 million for the comparable 2006 period.
Net daily production volumes during the second quarter of 2007 averaged approximately 244 million cubic feet of gas equivalent (MMcfe) per day, which represented an 18% increase over average daily production for the comparable quarter in 2006 and a 3% increase over average daily production for the first quarter of 2007.
For the six months ended June 30, 2007, net average daily production volumes were approximately 241 MMcfe, or 21% higher than average daily production for the six months ended June 30, 2006.
CEO David Welch stated: "This marks the sixth straight quarter of increased quarterly production as our volumes once again came in slightly above our previous guidance. Our successful exploitation program at East Cameron 64 provided much of the added production in the second quarter. Furthermore, with almost half of our overall volumes being oil, our blended price realizations were boosted by strong oil prices."
"The biggest event of the quarter was the sale of our Rocky Mountain properties for $578 million. The sale price received for our Rocky Mountain properties demonstrated our success in building a value-added resource play. Our balance sheet was significantly enhanced as we reduced our bank borrowings to zero and redeemed our $225 million Floating Rate Notes on August 1, 2007. As of August 7, 2007, we still had a cash balance of approximately $327 million compared to our debt position of $400 million maturing one-half in each of 2011 and 2014. With this financial flexibility, we can now focus on attractive, value-added opportunities."
Prices realized during the second quarter of 2007 averaged $64.41 per barrel (Bbl) of oil and $7.50 per thousand cubic feet (Mcf) of natural gas, which represents a 1% increase, on an Mcfe basis, over second quarter 2006 average realized prices of $67.27 per Bbl of oil and $7.30 per Mcf of natural gas.
Average realized prices during the first six months of 2007 were $60.63 per Bbl of oil and $7.23 per Mcf of natural gas representing a 5% decrease on an Mcfe basis compared to $63.74 per Bbl of oil and $7.96 per Mcf of natural gas realized during the first six months of 2006. All unit pricing amounts include the cash settlement of effective hedging contracts. Hedging transactions in the second quarter of 2007 increased the average realized price of natural gas by $0.01 per Mcf, compared to an increase in average realized prices of $0.90 per Mcf of natural gas during the second quarter of 2006. Hedging transactions did not impact realized oil prices during the second quarter of 2007 and 2006.
Lease operating expenses (LOE) incurred during the second quarter of 2007 totaled $40.5 million compared to $32.5 million for the comparable quarter in 2006, and $51.1 million in the first quarter 2007. The increase in lease operating expenses versus last year was partially attributed to the Amberjack acquisition completed in July 2006 and previously shut-in properties coming back on line during late 2006, while the decrease from the first quarter 2007 was primarily due to the previously disclosed $9.9 million replacement well at South Marsh Island Block 108 expensed in the first quarter.
On a per unit basis, LOE was $1.83 per Mcfe in the second quarter of 2007 versus $1.74 per Mcfe in the second quarter of 2006 and $2.39 per Mcfe in the first quarter of 2007. For the six months ended June 30, 2007 and 2006, lease operating expenses were $91.6 million and $67.4 million, respectively.
Depreciation, depletion and amortization (DD&A) on oil and gas properties for the second quarter of 2007 totaled $80.4 million compared to $74.7 million for the second quarter of 2006. DD&A expense on oil and gas properties for the six months ended June 30, 2007, totaled $158.2 compared to $139.3 million during the same year-to-date period of 2006.
Salaries, general and administrative (SG&A) expenses (exclusive of incentive compensation) for the second quarter of 2007 were $9.4 million compared to $8.6 million in the second quarter of 2006. For the six months ended June 30, 2007, and 2006, SG&A totaled $17.6 million and $17.1 million, respectively.
Borrowings outstanding under our bank credit facility were fully paid down at June 30, 2007. Additionally, we had letters of credit totaling $52.8 million, resulting in $32.6 million of availability on our $85.4 million borrowing base at June 30, 2007. The borrowing base under the credit facility is re-determined periodically based on the bank group's evaluation of our proved oil and gas reserves, coverage ratios, and the group's oil and gas pricing outlook. On August 1, 2007, our $225 million Floating Rate Notes Due 2010 were fully redeemed at face value. The $200 million 8 1/4% Senior Subordinated Notes due 2011 and the $200 million 6 3/4% Senior Subordinated Notes due 2014 remain outstanding.
Capital expenditures before capitalized salaries, general and administrative (SG&A) expenses (inclusive of incentive compensation) and interest during the second quarter of 2007 totaled $91.0 million, including $0.9 million of acquisition costs. Additionally, $4.6 million of capitalized SG&A expenses (inclusive of incentive compensation) and $5.0 million of capitalized interest were capitalized during the quarter. Year-to-date 2007 capital expenditures before capitalized SG&A and interest were $132.3 million, including $8.4 million of acquisition costs. Year-to-date capitalized SG&A and interest totaled $9.7 million and $9.4 million, respectively.
East Cameron Block 64. Stone successfully drilled and completed four development wells in the East Cameron 64 and 45 blocks. A fifth well on the adjacent West Cameron 176 block was drilled and is currently being evaluated. Current net production from the four wells is approximately 10 MMcfe per day. Stone has a 100% working interest (WI) and an 85.5% revenue interest (NRI) in these wells.
Bohai Bay, China. As was previously discussed, during the first quarter of 2007, Stone drilled the third well in the program on the 09/18 concession. The CFD 22-4-1 well was plugged and abandoned. Stone expects to drill a fourth well on the 9/18 concession before the end of the year.
Rocky Mountain Region, as was previously disclosed, Stone completed the sale of Rocky Mountain properties on June 29, 2007, for $578 million. The production associated with the Rocky Mountains was approximately 34 MMcfe per day in the second quarter.
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