Guarantor Financial Statements

Our Guarantor Subsidiaries, including Stone Offshore, SEO A LLC and SEO B LLC, are unconditional guarantors of the 2017 Convertible Notes and the 2022 Notes. Our other subsidiaries (the “Non-Guarantor Subsidiaries”) have not provided guarantees. The following presents unaudited condensed consolidating financial information as of September 30, 2015 and December 31, 2014 and for the three and nine month periods ended September 30, 2015 and 2014 on an issuer (parent company), Guarantor Subsidiaries, Non-Guarantor Subsidiaries and consolidated basis. Elimination entries presented are necessary to combine the entities.

CONDENSED CONSOLIDATING BALANCE SHEET

SEPTEMBER 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	63,322		$	10,042		$	1,110		$	—		$	74,474
Accounts receivable	25,445			88,193			13			(55,792		)	57,859
Fair value of derivative contracts	—			65,700			—			—			65,700
Inventory	3,426			283			—			—			3,709
Other current assets	9,162			—			41			—			9,203
Total current assets	101,355			164,218			1,164			(55,792		)	210,945
Oil and gas properties, full cost method:
Proved	1,821,870			7,341,224			41,599			—			9,204,693
Less: accumulated DD&A	(2,046,465		)	(6,111,909		)	(41,599		)	—			(8,199,973		)
Net proved oil and gas properties	(224,595		)	1,229,315			—			—			1,004,720
Unevaluated	301,501			215,085			2,377			—			518,963
Other property and equipment, net	30,327			—			—			—			30,327
Fair value of derivative contracts	—			5,734			—			—			5,734
Other assets, net	24,217			1,191			215			—			25,623
Investment in subsidiary	1,280,184			—			3,590			(1,283,774		)	—
Total assets	$	1,512,989		$	1,615,543		$	7,346		$	(1,339,566	)	$	1,796,312
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	66,623		$	45,487		$	9,736		$	(55,792	)	$	66,054
Undistributed oil and gas proceeds	9,644			817			—			—			10,461
Accrued interest	22,241			—			—			—			22,241
Asset retirement obligations	—			42,624			—			—			42,624
Other current liabilities	41,575			559			—			—			42,134
Total current liabilities	140,083			89,487			9,736			(55,792		)	183,514
Long-term debt	1,052,183			—			—			—			1,052,183
Asset retirement obligations	3,847			239,720			—			—			243,567
Fair value of derivative contracts	—			172			—			—			172
Other long-term liabilities	25,347			—			—			—			25,347
Total liabilities	1,221,460			329,379			9,736			(55,792		)	1,504,783
Commitments and contingencies
Stockholders’ equity:
Common stock	553			—			—			—			553
Treasury stock	(860		)	—			—			—			(860		)
Additional paid-in capital	1,643,746			1,367,434			100,047			(1,467,481		)	1,643,746
Accumulated deficit	(1,386,967		)	(122,362		)	(90,368		)	212,730			(1,386,967		)
Accumulated other comprehensive income (loss)	35,057			41,092			(12,069		)	(29,023		)	35,057
Total stockholders’ equity	291,529			1,286,164			(2,390		)	(1,283,774		)	291,529
Total liabilities and stockholders’ equity	$	1,512,989		$	1,615,543		$	7,346		$	(1,339,566	)	$	1,796,312

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2014

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	72,886		$	1,450		$	152		$	—		$	74,488
Restricted cash	177,647			—			—			—			177,647
Accounts receivable	73,711			46,615			33			—			120,359
Fair value of derivative contracts	—			139,179			—			—			139,179
Current income tax receivable	7,212			—			—			—			7,212
Deferred taxes *	4,095			—			—			(4,095		)	—
Inventory	1,011			2,698			—			—			3,709
Other current assets	8,112			—			6			—			8,118
Total current assets	344,674			189,942			191			(4,095		)	530,712
Oil and gas properties, full cost method:
Proved	1,689,802			7,127,466			—			—			8,817,268
Less: accumulated DD&A	(970,387		)	(6,000,244		)	—			—			(6,970,631		)
Net proved oil and gas properties	719,415			1,127,222			—			—			1,846,637
Unevaluated	289,556			241,230			36,579			—			567,365
Other property and equipment, net	32,340			—			—			—			32,340
Fair value of derivative contracts	—			14,333			—			—			14,333
Other assets, net	20,857			1,360			5,007			—			27,224
Investment in subsidiary	1,050,546			—			41,638			(1,092,184		)	—
Total assets	$	2,457,388		$	1,574,087		$	83,415		$	(1,096,279	)	$	3,018,611
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	74,756		$	57,873		$	—		$	—		$	132,629
Undistributed oil and gas proceeds	22,158			1,074			—			—			23,232
Accrued interest	9,022			—			—			—			9,022
Deferred taxes *	—			24,214			—			(4,095		)	20,119
Asset retirement obligations	—			69,400			—			—			69,400
Other current liabilities	49,306			199			—			—			49,505
Total current liabilities	155,242			152,760			—			(4,095		)	303,907
Long-term debt	1,041,035			—			—			—			1,041,035
Deferred taxes *	117,206			169,137			—			—			286,343
Asset retirement obligations	3,588			243,421			—			—			247,009
Other long-term liabilities	38,714			—			—			—			38,714
Total liabilities	1,355,785			565,318			—			(4,095		)	1,917,008
Commitments and contingencies
Stockholders’ equity:
Common stock	549			—			—			—			549
Treasury stock	(860		)	—			—			—			(860		)
Additional paid-in capital	1,633,307			1,362,684			90,339			(1,453,023		)	1,633,307
Accumulated earnings (deficit)	(614,708		)	(440,699		)	12			440,687			(614,708		)
Accumulated other comprehensive income (loss)	83,315			86,784			(6,936		)	(79,848		)	83,315
Total stockholders’ equity	1,101,603			1,008,769			83,415			(1,092,184		)	1,101,603
Total liabilities and stockholders’ equity	$	2,457,388		$	1,574,087		$	83,415		$	(1,096,279	)	$	3,018,611

* Deferred income taxes have been allocated to our Guarantor Subsidiaries where related oil and gas properties reside.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	1,633		$	103,380		$	—		$	—		$	105,013
Natural gas production	7,111			10,256			—			—			17,367
Natural gas liquids production	3,502			2,478			—			—			5,980
Other operational income	1,392			—			—			—			1,392
Derivative income, net	—			2,444			—			—			2,444
Total operating revenue	13,638			118,558			—			—			132,196
Operating expenses:
Lease operating expenses	2,680			21,562			2			—			24,244
Transportation, processing and gathering expenses	13,697			4,511			—			—			18,208
Production taxes	1,777			275			—			—			2,052
Depreciation, depletion and amortization	27,518			34,418			—			—			61,936
Write-down of oil and gas properties	295,679			—			—			—			295,679
Accretion expense	92			6,406			—			—			6,498
Salaries, general and administrative expenses	19,348			200			4			—			19,552
Incentive compensation expense	794			—			—			—			794
Other operational expenses	142			300			—			—			442
Total operating expenses	361,727			67,672			6			—			429,405
Income (loss) from operations	(348,089		)	50,886			(6		)	—			(297,209		)
Other (income) expenses:
Interest expense	10,871			1			—			—			10,872
Interest income	(39		)	(7		)	(1		)	—			(47		)
Other income	(117		)	(294		)	—			—			(411		)
Other expense	148			—			—			—			148
(Income) loss from investment in subsidiaries	(227,973		)	—			16,272			211,701			—
Total other (income) expenses	(217,110		)	(300		)	16,271			211,701			10,562
Income (loss) before taxes	(130,979		)	51,186			(16,277		)	(211,701		)	(307,771		)
Provision (benefit) for income taxes:
Deferred	160,986			(193,059		)	16,267			—			(15,806		)
Total income taxes	160,986			(193,059		)	16,267			—			(15,806		)
Net income (loss)	$	(291,965	)	$	244,245		$	(32,544	)	$	(211,701	)	$	(291,965	)
Comprehensive income (loss)	$	(297,564	)	$	244,245		$	(32,544	)	$	(211,701	)	$	(297,564	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2014

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	11,692		$	112,103		$	—		$	—		$	123,795
Natural gas production	16,001			14,153			—			—			30,154
Natural gas liquids production	15,820			5,194			—			—			21,014
Other operational income	2,417			51			—			—			2,468
Derivative income, net	—			5,782			—			—			5,782
Total operating revenue	45,930			137,283			—			—			183,213
Operating expenses:
Lease operating expenses	5,619			37,942			—			—			43,561
Transportation, processing and gathering expenses	14,379			2,342			—			—			16,721
Production taxes	2,936			715			—			—			3,651
Depreciation, depletion and amortization	36,598			43,693			—			—			80,291
Write-down of oil and gas properties	47,130			—			—			—			47,130
Accretion expense	56			6,483			—			—			6,539
Salaries, general and administrative expenses	16,273			1			12			—			16,286
Incentive compensation expense	3,092			—			—			—			3,092
Other operational expenses	294			4			—			—			298
Total operating expenses	126,377			91,180			12			—			217,569
Income (loss) from operations	(80,447		)	46,103			(12		)	—			(34,356		)
Other (income) expenses:
Interest expense	10,316			7			—			—			10,323
Interest income	(76		)	(82		)	(11		)	—			(169		)
Other income	(164		)	(531		)	—			—			(695		)
Other expense	95			—			—			—			95
(Income) loss from investment in subsidiaries	(29,894		)	—			2			29,892			—
Total other (income) expenses	(19,723		)	(606		)	(9		)	29,892			9,554
Income (loss) before taxes	(60,724		)	46,709			(3		)	(29,892		)	(43,910		)
Provision (benefit) for income taxes:
Deferred	(31,309		)	16,814			—			—			(14,495		)
Total income taxes	(31,309		)	16,814			—			—			(14,495		)
Net income (loss)	$	(29,415	)	$	29,895		$	(3	)	$	(29,892	)	$	(29,415	)
Comprehensive income (loss)	$	(65	)	$	29,895		$	(3	)	$	(29,892	)	$	(65	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	12,487		$	311,618		$	—		$	—		$	324,105
Natural gas production	39,375			33,236			—			—			72,611
Natural gas liquids production	21,458			7,921			—			—			29,379
Other operational income	3,184			—			—			—			3,184
Derivative income, net	—			4,871			—			—			4,871
Total operating revenue	76,504			357,646			—			—			434,150
Operating expenses:
Lease operating expenses	12,767			66,481			2			—			79,250
Transportation, processing and gathering expenses	47,779			8,072			—			—			55,851
Production taxes	5,411			983			—			—			6,394
Depreciation, depletion and amortization	113,682			112,627			—			—			226,309
Write-down of oil and gas properties	966,216			—			45,169			—			1,011,385
Accretion expense	274			19,041			—			—			19,315
Salaries, general and administrative expenses	52,747			201			29			—			52,977
Incentive compensation expense	3,621			—			—			—			3,621
Other operational expenses	1,312			300			—			—			1,612
Total operating expenses	1,203,809			207,705			45,200			—			1,456,714
Income (loss) from operations	(1,127,305		)	149,941			(45,200		)	—			(1,022,564		)
Other (income) expenses:
Interest expense	31,687			22			—			—			31,709
Interest income	(186		)	(42		)	(7		)	—			(235		)
Other income	(437		)	(727		)	(3		)	—			(1,167		)
Other expense	148			—			—			—			148
(Income) loss from investment in subsidiaries	(273,147		)	—			45,190			227,957			—
Total other (income) expenses	(241,935		)	(747		)	45,180			227,957			30,455
Income (loss) before taxes	(885,370		)	150,688			(90,380		)	(227,957		)	(1,053,019		)
Provision (benefit) for income taxes:
Deferred	(113,111		)	(167,649		)	—			—			(280,760		)
Total income taxes	(113,111		)	(167,649		)	—			—			(280,760		)
Net income (loss)	$	(772,259	)	$	318,337		$	(90,380	)	$	(227,957	)	$	(772,259	)
Comprehensive income (loss)	$	(820,517	)	$	318,337		$	(90,380	)	$	(227,957	)	$	(820,517	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	24,182		$	380,295		$	—		$	—		$	404,477
Natural gas production	65,640			67,543			—			—			133,183
Natural gas liquids production	44,293			20,627			—			—			64,920
Other operational income	5,121			394			—			—			5,515
Derivative income, net	—			2,667			—			—			2,667
Total operating revenue	139,236			471,526			—			—			610,762
Operating expenses:
Lease operating expenses	14,678			125,240			—			—			139,918
Transportation, processing and gathering expenses	35,152			10,293			—			—			45,445
Production taxes	6,520			3,450			—			—			9,970
Depreciation, depletion and amortization	95,038			160,734			—			—			255,772
Write-down of oil and gas properties	47,130			—			—			—			47,130
Accretion expense	185			21,642			—			—			21,827
Salaries, general and administrative expenses	49,237			3			12			—			49,252
Incentive compensation expense	10,129			—			—			—			10,129
Other operational expenses	470			40			—			—			510
Total operating expenses	258,539			321,402			12			—			579,953
Income (loss) from operations	(119,303		)	150,124			(12		)	—			30,809
Other (income) expenses:
Interest expense	28,549			44			—			—			28,593
Interest income	(301		)	(181		)	(23		)	—			(505		)
Other income	(537		)	(1,587		)	—			—			(2,124		)
Other expense	274			—			—			—			274
Income from investment in subsidiaries	(97,186		)	—			(10		)	97,196			—
Total other (income) expenses	(69,201		)	(1,724		)	(33		)	97,196			26,238
Income (loss) before taxes	(50,102		)	151,848			21			(97,196		)	4,571
Provision (benefit) for income taxes:
Deferred	(51,074		)	54,673			—			—			3,599
Total income taxes	(51,074		)	54,673			—			—			3,599
Net income	$	972		$	97,175		$	21		$	(97,196	)	$	972
Comprehensive income	$	14,223		$	97,175		$	21		$	(97,196	)	$	14,223

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(772,259	)	$	318,337		$	(90,380	)	$	(227,957	)	$	(772,259	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	113,682			112,627			—			—			226,309
Write-down of oil and gas properties	966,216			—			45,169			—			1,011,385
Accretion expense	274			19,041			—			—			19,315
Deferred income tax benefit	(113,111		)	(167,649		)	—			—			(280,760		)
Settlement of asset retirement obligations	(15		)	(59,811		)	—			—			(59,826		)
Non-cash stock compensation expense	9,163			—			—			—			9,163
Non-cash derivative expense	—			10,854			—			—			10,854
Non-cash interest expense	13,210			—			—			—			13,210
Change in current income taxes	7,211			—			—			—			7,211
Non-cash (income) expense from investment in subsidiaries	(273,147		)	—			45,190			227,957			—
Change in intercompany receivables/payables	31,320			(41,056		)	9,736			—			—
Decrease in accounts receivable	29,561			4,317			17			—			33,895
Increase in other current assets	(1,050		)	—			(40		)	—			(1,090		)
(Increase) decrease in inventory	(2,415		)	2,415			—			—			—
Decrease in accounts payable	(7,562		)	(4,030		)	—			—			(11,592		)
Increase (decrease) in other current liabilities	(6,855		)	102			—			—			(6,753		)
Other	645			(727		)							(82		)
Net cash (used in) provided by operating activities	(5,132		)	194,420			9,692			—			198,980
Cash flows from investing activities:
Investment in oil and gas properties	(177,497		)	(197,471		)	(10,560		)	—			(385,528		)
Proceeds from sale of oil and gas properties, net of expenses	—			11,643			—			—			11,643
Investment in fixed and other assets	(1,455		)	—			—			—			(1,455		)
Change in restricted funds	177,647			—			1,828			—			179,475
Investment in subsidiaries	—			—			(9,708		)	9,708			—
Net cash used in investing activities	(1,305		)	(185,828		)	(18,440		)	9,708			(195,865		)
Cash flows from financing activities:
Proceeds from bank borrowings	5,000			—			—			—			5,000
Repayments of bank borrowings	(5,000		)	—			—			—			(5,000		)
Equity proceeds from parent	—			—			9,708			(9,708		)	—
Net payments for share-based compensation	(3,127		)	—			—			—			(3,127		)
Net cash (used in) provided by financing activities	(3,127		)	—			9,708			(9,708		)	(3,127		)
Effect of exchange rate changes on cash	—			—			(2		)	—			(2		)
Net change in cash and cash equivalents	(9,564		)	8,592			958			—			(14		)
Cash and cash equivalents, beginning of period	72,886			1,450			152			—			74,488
Cash and cash equivalents, end of period	$	63,322		$	10,042		$	1,110		$	—		$	74,474

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2014

(In thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	972		$	97,175		$	21		$	(97,196	)	$	972
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	95,038			160,734			—			—			255,772
Write-down of oil and gas properties	47,130			—			—			—			47,130
Accretion expense	185			21,642			—			—			21,827
Deferred income tax (benefit) provision	(51,074		)	54,673			—			—			3,599
Settlement of asset retirement obligations	(84		)	(47,133		)	—			—			(47,217		)
Non-cash stock compensation expense	8,409			—			—			—			8,409
Non-cash derivative income	—			(2,386		)	—			—			(2,386		)
Non-cash interest expense	12,393			—			—			—			12,393
Change in current income taxes	(6		)	—			—			—			(6		)
Non-cash income from investment in subsidiaries	(97,185		)	—			(11		)	97,196			—
Change in intercompany receivables/payables	(119,004		)	90,313			28,691			—			—
(Increase) decrease in accounts receivable	125,593			(127,363		)	(35		)	—			(1,805		)
Increase in other current assets	(2		)	—			(8		)	—			(10		)
Increase (decrease) in accounts payable	900			(4,447		)	—			—			(3,547		)
Increase (decrease) in other current liabilities	39,329			(1,888		)	—			—			37,441
Other	1,414			(1,586		)	—			—			(172		)
Net cash provided by operating activities	64,008			239,734			28,658			—			332,400
Cash flows from investing activities:
Investment in oil and gas properties	(225,831		)	(480,686		)	(20,971		)	—			(727,488		)
Proceeds from sale of oil and gas properties, net of expenses	12,197			211,102			—			—			223,299
Investment in fixed and other assets	(8,790		)	—			—			—			(8,790		)
Change in restricted funds	(177,647		)	—			(8,105		)	—			(185,752		)
Investment in subsidiaries	—			—			(29,253		)	29,253			—
Net cash used in investing activities	(400,071		)	(269,584		)	(58,329		)	29,253			(698,731		)
Cash flows from financing activities:
Net proceeds from issuance of common stock	225,999			—			—			—			225,999
Deferred financing costs	(3,329		)	—			—			—			(3,329		)
Equity proceeds from parent	—			—			29,253			(29,253		)	—
Net payments for share-based compensation	(7,161		)	—			—			—			(7,161		)
Net cash provided by financing activities	215,509			—			29,253			(29,253		)	215,509
Effect of exchange rate on cash	—			—			(95		)	—			(95		)
Net change in cash and cash equivalents	(120,554		)	(29,850		)	(513		)	—			(150,917		)
Cash and cash equivalents, beginning of period	246,294			84,290			640			—			331,224
Cash and cash equivalents, end of period	$	125,740		$	54,440		$	127		$	—		$	180,307