Stone Energy touts progress in improving balance sheet, liquidity

By Paul Deckelman

New York, April 12 - Stone Energy Corp. "has made some significant progress over the last year and a half," the company's president and chief executive officer declared at an investment conference on Tuesday, including increasing its market capitalization and enterprise value, growing its oil and natural gas reserves, maintaining EBITDA levels despite fluctuations in market conditions and improving its balance sheet.

CEO David H. Welch told participants at the Oil & Gas Investment Symposium held annually in New York by the Independent Petroleum Association of America, an industry trade group, that Stone pushed out the maturity of one of its bond issues and paid off its bank debt to the point where it currently has no outstanding borrowings on its $400 million revolving credit line.

He said that with cash on hand at the beginning of the year of a little over $100 million and with the borrowing-base availability on the revolver, the company's liquidity stands in excess of $400 million, "so we are positioned to take advantage of any successes that we may achieve on the exploration or acquisition front."

A key transaction was Stone's sale of $275 million of 8 5/8% notes due 2017 in January 2010. The Lafayette, La.-based oil and gas exploration and production company used most of the proceeds of that offering to fund a successful tender offer for its then-outstanding $200 million of 8¼% senior subordinated notes that would have come due in December of this year, pushing the maturity out by more than five years.

In November, Stone priced a $100 million add-on to the new 2017 notes, bringing the total amount outstanding to $375 million. "We upsized that note a little bit - and paid off our bank debt," Welch noted. Outstanding bank debt borrowings dropped to zero at the end of 2010 from $175 million at the end of 2009.

Besides the $375 million of 2017 notes, the only other debt on the balance sheet at year-end was $200 million of 6¾% senior subordinated notes due 2014 that the company sold in 2004. That $575 million total was unchanged in size from a year earlier, although some of the maturities had been pushed out, but it was well down from $825 million at the end of 2008.

During that timeframe, Stone also increased its total liquidity from $222 million at year-end 2008 to $256 million at the end of 2009 to $415 million at the end of 2010.

At the end of 2009, with $175 million borrowed on the revolver and $63 million in outstanding letters of credit against a $395 million borrowing base, availability stood at $157 million, and the company had $69 million of cash on hand.

Fast-forward a year to the end of 2010: While the borrowing base was reduced by $30 million under the terms of the credit agreement to $365 million and the letters of credit remained outstanding, the company's repayment of the $175 million balance during the year lifted its year-end availability to $302 million, and Stone had $113 million of cash on hand as well.

Through exploration and acquisitions, Stone - which drills for oil in several Rocky Mountain states in the western United States, drills for natural gas in the Marcellus Shale formation in Pennsylvania and West Virginia and drills for both oil and gas onshore in coastal Louisiana and out in the nearby Gulf of Mexico - raised its estimated proved energy reserves to 79 million barrels of oil equivalent at year-end 2010 from 68.5 million at the end of 2009. With debt steady year over year, that allowed the company to lower its ratio of net debt per proven barrel of oil equivalent, a key energy industry financial performance measure, to $6.00 at the end of 2010 from $7.38 a year earlier.

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