LAFAYETTE, La., July 30 /PRNewswire-FirstCall/ -- Stone Energy Corporation (NYSE: SGY) today announced net income of $27.2 million, or $0.65 per share, on operating revenue of $170.3 million for the second quarter of 2009 compared to net income of $82.8 million, or $2.88 per share, on operating revenue of $263.0 million in the second quarter of 2008. For the six months ended June 30, 2009, a net loss of $198.7 million, or $4.92 per share, on operating revenue of $312.5 million compared to net income of $145.1 million, or $5.08 per share, on operating revenue of $466.2 million during the comparable 2008 period. All per share amounts are on a diluted basis.
Discretionary cash flow was $113.7 million during the second quarter of 2009 compared to $180.5 million generated during the second quarter of 2008 and $68.5 million during the first quarter of 2009. For the first six months of 2009, discretionary cash flow totaled $182.1 million compared to $330.8 million for the comparable 2008 period. Please see "Non-GAAP Financial Measure" and the accompanying financial statements for a reconciliation of discretionary cash flow, a non-GAAP financial measure, to net cash flow provided by operating activities.
Net daily production volumes during the second quarter of 2009 averaged 209 million cubic feet of gas equivalent (MMcfe) per day, representing an 8% increase over average daily production of 194 MMcfe per day for the first quarter of 2009. For the six months ended June 30, 2009, net average daily production volumes were 201 MMcfe per day compared to 190 MMcfe per day for the six months ended June 30, 2008.
CEO David Welch stated, "The second quarter appears to be a positive inflection point for Stone. Production continued to increase as we completed our development program at Ewing Bank 305 and oil and gas volumes tied to damaged third party pipelines came back on line late in the quarter. The rerouted oil pipeline from Amberjack, our top field, has been completed on schedule and below budget and we anticipate it to be operational in the third quarter. Operating expenses declined as we substantially completed our hurricane related repairs, captured merger synergies and rebid supplier and service contracts. We also accelerated our Gulf of Mexico shelf hurricane risk mitigation plan to improve the structural integrity of our offshore facilities and to proactively plug targeted idle wells. We have approved a four to five well drilling program to commence in the fourth quarter at Amberjack and have begun modification of a rig to fit on the platform."
"In June, we announced our first deep water discovery at Pyrenees and are currently drilling the first appraisal well. Importantly, we also raised over $60 million from a secondary stock offering which, along with insurance settlement proceeds relating to Hurricane Ike received in July, significantly improved our liquidity and cash position. This allowed us to pay down some bank debt and focus on the business of finding and producing reserves. We are looking forward to the drilling of our portfolio of prospects we have captured on the GOM shelf, in the deep water Gulf of Mexico and the Marcellus Shale of Appalachia."
Prices realized during the second quarter of 2009 averaged $69.93 per barrel (Bbl) of oil and $6.41 per thousand cubic feet (Mcf) of natural gas, which represents a 39% decrease, on an Mcfe basis, over second quarter 2008 average realized prices of $110.10 per Bbl of oil and $11.46 per Mcf of natural gas. Average realized prices during the first six months of 2009 were $63.01per Bbl of oil and $6.73 per Mcf of natural gas, representing a 37% decrease on a Mcfe basis compared to $103.28 per Bbl of oil and $10.15 per Mcf of natural gas realized during the first six months of 2008. All unit pricing amounts include the cash settlement of effective hedging contracts as well as a portion of the unwound hedges that were unwound in March 2009. Hedging transactions in the second quarter of 2009 added $44.9 million to oil and gas revenues, which included $37.3 million ($24.2 million after-tax) from the accounting recognition of the hedges that were unwound in March 2009.
In the second quarter of 2009, hedging increased the average realized price of natural gas by $2.62 per Mcf, compared to a decrease in average realized prices of $0.03 per Mcf of natural gas during the second quarter of 2008. Hedging transactions in the second quarter of 2009 increased the realized oil prices by $12.57 per Bbl, compared to a decrease in realized oil prices by $14.63 per Bbl during the second quarter of 2008.
Lease operating expenses (LOE) incurred during the second quarter of 2009 totaled $41.1 million compared to $34.9 million for the comparable quarter in 2008, and $58.2 million in the first quarter of 2009. The first quarter 2009 included $13.0 million in hurricane related repair expenses while the second quarter of 2009 had only $3.6 million in hurricane related expenses and a lower base LOE due to cost savings. On a per unit basis, LOE was $2.17 per Mcfe in the second quarter of 2009 versus $1.96 per Mcfe in the second quarter of 2008 and $3.34 per Mcfe in the first quarter of 2009. For the six months ended June 30, 2009 and 2008, lease operating expenses were $99.3 million and $65.2 million, respectively. In the second quarter 2009, there was an other operational charge of $2.4 million which related to the early cancellation of a rig contract.
Depreciation, depletion and amortization (DD&A) on oil and gas properties for the second quarter of 2009 totaled $55.6 million compared to $70.2 million for the second quarter of 2008. DD&A expense on oil and gas properties for the six months ended June 30, 2009 totaled $114.7 million compared to $132.9 million during the comparable period of 2008.
Salaries, general and administrative (SG&A) expenses for the second quarter of 2009 were $9.9 million compared to $11.3 million in the second quarter of 2008. For the six months ended June 30, 2009 and 2008, SG&A totaled $21.6 million and $21.5 million, respectively.
Stone had $325 million in borrowings outstanding at June 30, 2009 under its bank credit facility with a borrowing base of $425 million, and letters of credit totaling $69 million, resulting in $31 million of available borrowings at June 30, 2009. In July, bank borrowings were further reduced to $313 million, leaving $43 million in availability under the facility, and our projected cash position at July 31, 2009 is approximately $140 million. The next borrowing base redetermination is expected by November 1, 2009.
Capital expenditures before capitalized SG&A and interest during the second quarter of 2009 were approximately $59.4 million. The capital expenditure amount includes $21.8 million of plugging and abandonment expenditures. Additionally, $4.2 million of SG&A expenses and $6.5 million of interest were capitalized during the quarter.
Public Stock Offering
As previously announced on June 10, 2009, Stone sold 8,050,000 shares of its common stock in a public offering (including the overallotment) at a price of $8.00 per share resulting in net proceeds of approximately $60.5 million after deducting the underwriting discount and estimated offering expenses. The net proceeds are being used for general corporate purposes, including the repayment of borrowings under its bank credit facility.
Operational Update
Deepwater Gulf of Mexico, Pyrenees Discovery. In June 2009, Stone announced a discovery on its deepwater Pyrenees Prospect on Garden Banks Block 293. The discovery well encountered 125 feet of net hydrocarbon pay in three zones. Stone and its partners are currently drilling a well to delineate the discovery and expect to test both the shallow and deeper objectives. Stone has a 15% working interest in Pyrenees and Newfield Exploration is the operator.
Deepwater Gulf of Mexico, other Areas. Stone has a working interest in 64 deepwater leases and expects to participate in 4-6 wells in 2010. The Blacktail Prospect in Garden Banks Block 78 may begin drilling in late 2009 or early 2010. Stone has a 20% working interest in Blacktail and Anadarko Petroleum is the operator. Stone's current working interest ranges between 11% and 33% in the other prospects planned for 2010.
Appalachian Basin (Marcellus Shale Play). Stone currently has more than 30,000 net acres leased in the Marcellus Shale Play. Stone is producing from three vertical Marcellus wells in West Virginia and three additional vertical development wells in West Virginia have been drilled and expect to be completed, hydraulically fractured, and tested through existing gathering systems within the next few months. Stone expects to drill another 4 or 5 wells in West Virginia during the remainder of this year as well as 2 or 3 wells in Pennsylvania. Stone is permitting a number of additional wells in the Marcellus Shale Play and expects to ramp up drilling activity in 2010. The Company is also engaged in activities to enhance its current leasehold. Stone is designated operator on most of its leasehold and currently owns at least a 50% working interest in all leases.
Mississippi Canyon 109 - Amberjack Field. Daily oil production at Amberjack re-started during the second quarter as Stone began barging in April in advance of the damaged oil pipeline being rerouted. Net oil volumes averaged approximately 2,400 bbl per day for the quarter. Amberjack production is expected to begin flowing through the new pipeline later in the third quarter. Including gas volumes, the net production is expected to be approximately 30 MMcfe per day (80% oil, 20% gas split) once the pipeline is put into service. In the fourth quarter, Stone expects to begin drilling the first of 4 or 5 wells at Amberjack with a platform rig, which should continue into 2010. Stone operates Amberjack and owns 100% working interest.
Gulf of Mexico, Shelf Production. Production from a number of fields was restored in the second quarter as third-party pipeline systems damaged by last year's hurricanes were brought back into service. By the end of the quarter, Stone's net production increased approximately 30-40 MMcfe per day from these restored fields. Two more Stone-operated fields (Vermilion 255 and West Cameron 45) have been brought back onto production since the end of the second quarter and should contribute another 10-15 MMcfe per day of net production. Stone is also undertaking a workover program in several fields in an effort to boost production. For example, a proposed workover program at South Pass 38 is expected to add 10 MMcfe per day in production later this quarter.
