Stone Beats On Higher Volumes

Stone Energy Corporation (SGY: 18.06 0.00 0.00%) reported fourth-quarter 2009 earnings of 89 cents per share, beating the Zacks Consensus Estimate of 83 cents and the year-earlier loss of 1 cent. The robust results were driven by increased production volumes and oil prices as well as reduced costs.

 

Estimate Revisions Trend

 

We did not notice any movements in the estimate revisions in the last 7 days and 30 days. The company’s earnings surprise for the preceding four quarters varies between negative 133.3% and positive 550.0%, with the average being positive 144.5%.

 

Operational Performance

 

Production during the quarter averaged 220 million cubic feet of gas equivalent per day (MMcfe/d), up more than 16% from the year-earlier level. Prices realized during the quarter averaged $77.01 per barrel of oil (up more than 20% year-over-year) and $7.08 per Mcf of natural gas (down nearly 17% year-over-year). Overall realization, on a per Mcfe basis, was up in excess of 4% year-over-year to $9.86.

 

On the costs front, unit lease operating expenses (LOE) were down significantly to $1.45 per Mcfe. DD&A was down nearly 39% year-over-year to $3.56 per Mcfe and SG&A expenses were down 23% year-over-year to 51 cents per Mcfe.

 

At the end of the quarter, the company had approximately $69 million in cash and $575 million in long-term debt. Current debt-to-capitalization ratio is 62.7%. Discretionary cash flow was $125.7 million during the quarter, up approximately 52% year over year.

 

Year-end 2009 Reserves

 

As of December 31, 2009, Stone had 411 Bcfe of proved reserves, decreased nearly 21% from the year-end 2008. Of the total reserves, 53% was natural gas and 78% was in the proved developed category.

 

Outlook

 

Stone’s capex guidance for 2010 is $400 million, excluding acquisitions, capitalized interest and G&A. For the first quarter and full year 2010, the company expects net daily production of 205−215 MMcfe and 205−225 MMcfe, respectively.

 

The company intends to deploy 55% of this year’s capital budget to the Gulf of Mexico (GoM) regions. In the recent past, Stone has increased its position in this region through the acquisition of Bois d’Arc Energy, a pure-play GoM player. While we like the company’s oil development drilling in this area, we believe that lack of meaningful exposure to the emerging shale plays are competitive disadvantages.