Stone Energy's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Stone Energy Corporation (SGY)

Q2 2012 Earnings Call

August 2, 2012 11:00 AM ET

Executives

David Welch – Chairman and CEO

Ken Beer – EVP and CFO

Analysts

Michael Greco – Johnson Rice

Brian Lively – Tudor Pickering Holt

Dave Kistler – Simmons & Company

Presentation

Operator

Good morning. My name is Denise, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2012 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you Mr. David Welch, Chairman and CEO, you may begin your conference.

David Welch

Okay. Thank you very much, Denise, and welcome everyone to our earnings conference call. Joining us this morning is Ken Beer, our Executive Vice President and Chief Financial Officer, and Ken is going to review the highlights of our financial results and then turn it back over to me for some commentary on our operational results and the progress in executing our strategy to invest in margin-advantaged natural gas basins and world-class oil basins. Then we’ll be happy to take your questions.

So, with that, I’ll turn it to you, Ken.

Ken Beer

Well, thank you, Dave. Let me go ahead and being with the forward-looking statement. In this conference call, we may make forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 34. These forward-looking statements are subject to all the risks, uncertainties normally incident to the exploration for and development, production and sales of oil and natural gas. We urge you to read our 2011 Annual Report on Form 10-K and most recent 10-Q for a discussion of the risks that could cause our actual results to differ materially from those in any forward-looking statements we may make today.

In addition, in this call, we may refer to financial measures that may be deemed non-GAAP financial measures, as defined under the Exchange Act. Please refer to the press release we issued yesterday, which is posted on our website for a reconciliation of the differences between the financial measures, and the most directly comparable GAAP financial measures.

And with that, I won’t go into all the financials in detail. I’ll focus on a few items. Starting off, earnings for the quarter were $30.5 million, or $0.62 per share, under the First Call estimate of $0.81, with some of the variants due to higher non-cash interest expense and non-cash DD&A expense.

Our discretionary cash flow for the quarter was $147 million or right around $3 per share, which is pretty close to the First Call average of $3.06. Production for the quarter came in at 40,500 Boe per day or 243 MMcfe per day. This was at the lower end of our range for the second quarter guidance, primarily driven by greater than expected third party pipeline downtime and maintenance projects.

Shut-ins due to tropical storm Debby, especially at Pompano where the Destin pipeline that produces into was shut in for a few extra days, and even had some tornado interruptions in West Virginia in late June. Debby probably impacted us by about 5 million cubic feet a day for the quarter. A lot of the third-party pipeline downtime and maintenance was roughly 10 million cubic feet a day equivalence.

It is important to highlight that the lower than expected quarterly volumes does not reduce reserve figures or estimated recovery. It is simply a slight deferral of revenue due to third-party pipelines and weather.

For July, we were back up to about 42,500 barrels equivalents per day or around 255 million cubic feet equivalents per day. For the second quarter the production mix continue to have an attractive oil and liquids rating with about 46% oil and 7% NGLs. and 47% natural gas. We would expect a similar mix in the third quarter and then a slight shift towards gas in the fourth quarter as incremental volumes from Appalachia and La Cantera number one will become more gas oriented.

Our production guidance for the third quarter is 41,000 to 43,000 Boe per day or 245 to 256 million cubic feet per day. We have also narrowed our annual guidance to about 41,000 to 43,000 Boe and the same 245 to 260 equivalents per day. Really, to account for the second quarter actual that the math pull this down. So this second quarter math – I mean second quarter actual and some additional projected pipeline downtime.

The higher weighting towards oil and NGLs continues to bolster our overall price realization which was around $57 per Boe or $9.50 per Mcfe for the quarter. It includes a continued uplift in LLS versus WTI in oil prices which we continue to see – which we see continuing throughout 2012 and really into 2013.

Regarding our gas price, note that we are now separating NGLs from the gas volumes. So our gas price realization is expected to track just under Henry Hub by really, $0.05 to $0.10. This is more than offset by the relatively higher NGL pricing on a Btu basis although the overall NGL pricing has been under pressure for much of the year.

On the cost side, our LOE was about $51.5 million for the quarter, which is right in line at least with our estimates, although, the lower volumes pushed up the LOE per Boe. We will expect this figure to stay within the $51 million or $55 million range for the remaining two quarters and we will maintain our LOE guidance at the year for 195 million to 210 million which had been reduced from the original guidance of 200 million to 215 million.

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