GUARANTOR FINANCIAL STATEMENTS

12 Months Ended

Dec. 31, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GUARANTOR FINANCIAL STATEMENTS

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 consolidating financial information as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 on an issuer (parent company), Guarantor Subsidiaries, Non-Guarantor Subsidiaries and consolidated basis. Elimination entries presented are necessary to combine the entities.

CCONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2015

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	9,681		$	2		$	1,076		$	—		$	10,759
Accounts receivable	10,597			39,190			—			(1,756		)	48,031
Fair value of derivative contracts	—			38,576			—			—			38,576
Current income tax receivable	46,174			—			—			—			46,174
Inventory	535			—			—			—			535
Other current assets	6,313			—			33			—			6,346
Total current assets	73,300			77,768			1,109			(1,756		)	150,421
Oil and gas properties, full cost method:
Proved	1,875,152			7,458,262			42,484			—			9,375,898
Less: accumulated DD&A	(1,874,622		)	(6,686,849		)	(42,484		)	—			(8,603,955		)
Net proved oil and gas properties	530			771,413			—			—			771,943
Unevaluated	253,308			186,735			—			—			440,043
Other property and equipment, net	29,289			—			—			—			29,289
Other assets, net	16,612			826			1,035			—			18,473
Investment in subsidiary	745,033			—			1,088			(746,121		)	—
Total assets	$	1,118,072		$	1,036,742		$	3,232		$	(747,877	)	$	1,410,169
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	16,063		$	67,901		$	—		$	(1,757	)	$	82,207
Undistributed oil and gas proceeds	5,216			776			—			—			5,992
Accrued interest	9,022			—			—			—			9,022
Asset retirement obligations	—			20,400			891			—			21,291
Other current liabilities	40,161			551			—			—			40,712
Total current liabilities	70,462			89,628			891			(1,757		)	159,224
Long-term debt	1,060,955			—			—			—			1,060,955
Asset retirement obligations	1,240			203,335			—			—			204,575
Other long-term liabilities	25,204			—			—			—			25,204
Total liabilities	1,157,861			292,963			891			(1,757		)	1,449,958
Commitments and contingencies
Stockholders’ equity:
Common stock	553			—			—			—			553
Treasury stock	(860		)	—			—			—			(860		)
Additional paid-in capital	1,648,189			1,344,577			109,795			(1,454,372		)	1,648,189
Accumulated deficit	(1,705,623		)	(624,824		)	(95,306		)	720,130			(1,705,623		)
Accumulated other comprehensive income (loss)	17,952			24,026			(12,148		)	(11,878		)	17,952
Total stockholders’ equity	(39,789		)	743,779			2,341			(746,120		)	(39,789		)
Total liabilities and stockholders’ equity	$	1,118,072		$	1,036,742		$	3,232		$	(747,877	)	$	1,410,169

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	12,103			1,360			5,007			—			18,470
Investment in subsidiary	1,050,546			—			41,638			(1,092,184		)	—
Total assets	$	2,448,634		$	1,574,087		$	83,415		$	(1,096,279	)	$	3,009,857
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	1,032,281			—			—			—			1,032,281
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	1,347,031			565,318			—			(4,095		)	1,908,254
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	$	2,448,634		$	1,574,087		$	83,415		$	(1,096,279	)	$	3,009,857

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2015

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	12,804		$	403,693		$	—		$	—		$	416,497
Natural gas production	41,646			41,863			—			—			83,509
Natural gas liquids production	22,375			9,947			—			—			32,322
Other operational income	4,369			—			—			—			4,369
Derivative income, net	—			7,952			—			—			7,952
Total operating revenue	81,194			463,455			—			—			544,649
Operating expenses:
Lease operating expenses	16,264			83,872			3			—			100,139
Transportation, processing, and gathering expenses	50,247			8,600			—			—			58,847
Production taxes	5,631			1,246			—			—			6,877
Depreciation, depletion, amortization	123,724			157,964			—			—			281,688
Write-down of oil and gas properties	785,463			529,354			47,630			—			1,362,447
Accretion expense	365			25,623			—			—			25,988
Salaries, general and administrative expenses	69,147			201			36			—			69,384
Incentive compensation expense	2,242			—			—			—			2,242
Other operational expenses	2,360			—			—			—			2,360
Total operating expenses	1,055,443			806,860			47,669			—			1,909,972
Loss from operations	(974,249		)	(343,405		)	(47,669		)	—			(1,365,323		)
Other (income) expenses:
Interest expense	43,907			21			—			—			43,928
Interest income	(327		)	(246		)	(7		)	—			(580		)
Other income	(617		)	(1,163		)	(3		)	—			(1,783		)
Other expense	434			—			—			—			434
Loss from investment in subsidiaries	231,783			—			47,659			(279,442		)	—
Total other (income) expenses	275,180			(1,388		)	47,649			(279,442		)	41,999
Loss before taxes	(1,249,429		)	(342,017		)	(95,318		)	279,442			(1,407,322		)
Provision (benefit) for income taxes:
Current	(44,096		)	—			—			—			(44,096		)
Deferred	(114,418		)	(157,893		)	—			—			(272,311		)
Total income taxes	(158,514		)	(157,893		)	—			—			(316,407		)
Net loss	$	(1,090,915	)	$	(184,124	)	$	(95,318	)	$	279,442		$	(1,090,915	)
Comprehensive loss	$	(1,156,278	)	$	(184,124	)	$	(95,318	)	$	279,442		$	(1,156,278	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2014

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	29,701		$	486,403		$	—		$	—		$	516,104
Natural gas production	86,812			79,682			—			—			166,494
Natural gas liquids production	61,200			24,442			—			—			85,642
Other operational income	7,551			400			—			—			7,951
Derivative income, net	—			19,351			—			—			19,351
Total operating revenue	185,264			610,278			—			—			795,542
Operating expenses:
Lease operating expenses	18,719			157,776			—			—			176,495
Transportation, processing, and gathering expenses	53,028			11,923			—			—			64,951
Production taxes	8,324			3,827			—			—			12,151
Depreciation, depletion, amortization	138,313			201,693			—			—			340,006
Write-down of oil and gas properties	351,192			—			—			—			351,192
Accretion expense	230			28,181			—			—			28,411
Salaries, general and administrative expenses	66,430			4			17			—			66,451
Incentive compensation expense	10,361			—			—			—			10,361
Other operational expenses	669			193			—			—			862
Total operating expenses	647,266			403,597			17			—			1,050,880
Income (loss) from operations	(462,002		)	206,681			(17		)	—			(255,338		)
Other (income) expenses:
Interest expense	38,810			45			—			—			38,855
Interest income	(333		)	(192		)	(49		)	—			(574		)
Other income	(836		)	(1,496		)	—			—			(2,332		)
Other expense	274			—			—			—			274
Income from investment in subsidiaries	(133,336		)	—			(32		)	133,368			—
Total other (income) expenses	(95,421		)	(1,643		)	(81		)	133,368			36,223
Income (loss) before taxes	(366,581		)	208,324			64			(133,368		)	(291,561		)
Provision (benefit) for income taxes:
Current	159			—			—			—			159
Deferred	(177,197		)	75,020			—			—			(102,177		)
Total income taxes	(177,038		)	75,020			—			—			(102,018		)
Net income (loss)	$	(189,543	)	$	133,304		$	64		$	(133,368	)	$	(189,543	)
Comprehensive income (loss)	$	(104,166	)	$	133,304		$	64		$	(133,368	)	$	(104,166	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2013

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	30,475		$	684,629		$	—		$	—		$	715,104
Natural gas production	68,895			121,685			—			—			190,580
Natural gas liquids production	32,293			28,394			—			—			60,687
Other operational income	7,163			645			—			—			7,808
Total operating revenue	138,826			835,353			—			—			974,179
Operating expenses:
Lease operating expenses	14,680			186,473			—			—			201,153
Transportation, processing and gathering expenses	28,322			13,850			—			—			42,172
Production taxes	6,229			8,800			—			—			15,029
Depreciation, depletion, amortization	93,579			256,995			—			—			350,574
Accretion expense	372			33,203			—			—			33,575
Salaries, general and administrative expenses	59,473			5			46			—			59,524
Franchise tax settlement	12,590			—			—			—			12,590
Incentive compensation expense	15,340			—			—			—			15,340
Other operational expenses	38			113			—			—			151
Derivative expense, net	—			2,090			—			—			2,090
Total operating expenses	230,623			501,529			46			—			732,198
Income (loss) from operations	(91,797		)	333,824			(46		)	—			241,981
Other (income) expenses:
Interest expense	32,816			21			—			—			32,837
Interest income	(1,480		)	(195		)	(20		)	—			(1,695		)
Other income	(875		)	(1,924		)	—			—			(2,799		)
Loss on early extinguishment of debt	27,279			—			—			—			27,279
(Income) loss from investment in subsidiaries	(214,983		)	—			26			214,957			—
Total other (income) expenses	(157,243		)	(2,098		)	6			214,957			55,622
Income (loss) before taxes	65,446			335,922			(52		)	(214,957		)	186,359
Provision (benefit) for income taxes:
Current	(10,904		)	—			—			—			(10,904		)
Deferred	(41,284		)	120,913			—			—			79,629
Total income taxes	(52,188		)	120,913			—			—			68,725
Net income (loss)	$	117,634		$	215,009		$	(52	)	$	(214,957	)	$	117,634
Comprehensive income (loss)	$	86,739		$	215,009		$	(52	)	$	(214,957	)	$	86,739

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2015

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(1,090,915	)	$	(184,124	)	$	(95,318	)	$	279,442		$	(1,090,915	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	123,724			157,964			—			—			281,688
Write-down of oil and gas properties	785,463			529,354			47,630			—			1,362,447
Accretion expense	365			25,623			—			—			25,988
Deferred income tax benefit	(114,418		)	(157,893		)	—			—			(272,311		)
Settlement of asset retirement obligations	(15		)	(72,367		)	—			—			(72,382		)
Non-cash stock compensation expense	12,324			—			—			—			12,324
Excess tax benefits	(1,586		)	—			—			—			(1,586		)
Non-cash derivative expense	—			16,440			—			—			16,440
Non-cash interest expense	17,788			—			—			—			17,788
Change in current income taxes	(37,377		)	—			—			—			(37,377		)
Non-cash loss from investment in subsidiaries	231,783			—			47,659			(279,442		)	—
Change in intercompany receivables/payables	9,744			(19,486		)	9,742			—			—
Decrease in accounts receivable	34,609			9,084			31			—			43,724
(Increase) decrease in other current assets	1,799			—			(32		)	—			1,767
(Increase) decrease in inventory	(1,394		)	2,698			—			—			1,304
Decrease in accounts payable	(7,471		)	(7,111		)	—			—			(14,582		)
Increase (decrease) in other current liabilities	(25,989		)	53			—			—			(25,936		)
Other	256			(1,163		)	—			—			(907		)
Net cash (used in) provided by operating activities	(61,310		)	299,072			9,712			—			247,474
Cash flows from investing activities:
Investment in oil and gas properties	(188,154		)	(323,359		)	(10,534		)	—			(522,047		)
Proceeds from sale of oil and gas properties, net of expenses	—			22,839			—			—			22,839
Investment in fixed and other assets	(1,549		)	—			—			—			(1,549		)
Change in restricted funds	177,647			—			1,820			—			179,467
Investment in subsidiaries	—			—			(9,714		)	9,714			—
Net cash used in investing activities	(12,056		)	(300,520		)	(18,428		)	9,714			(321,290		)
Cash flows from financing activities:
Proceeds from bank borrowings	5,000			—			—			—			5,000
Repayments of bank borrowings	(5,000		)	—			—			—			(5,000		)
Deferred financing costs	(68		)	—			—			—			(68		)
Proceeds from building loan	11,770			—			—			—			11,770
Equity proceeds from parent	—			—			9,714			(9,714		)	—
Excess tax benefits	1,586			—			—			—			1,586
Net payments for share-based compensation	(3,127		)	—			—			—			(3,127		)
Net cash provided by financing activities	10,161			—			9,714			(9,714		)	10,161
Effect of exchange rate changes on cash	—			—			(74		)	—			(74		)
Net change in cash and cash equivalents	(63,205		)	(1,448		)	924			—			(63,729		)
Cash and cash equivalents, beginning of period	72,886			1,450			152			—			74,488
Cash and cash equivalents, end of period	$	9,681		$	2		$	1,076		$	—		$	10,759

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2014

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(189,543	)	$	133,304		$	64		$	(133,368	)	$	(189,543	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	138,313			201,693			—			—			340,006
Write-down of oil and gas properties	351,192			—			—			—			351,192
Accretion expense	230			28,181			—			—			28,411
Deferred income tax (benefit) provision	(177,197		)	75,020			—			—			(102,177		)
Settlement of asset retirement obligations	(201		)	(56,208		)	—			—			(56,409		)
Non-cash stock compensation expense	11,325			—			—			—			11,325
Non-cash derivative income	—			(18,028		)	—			—			(18,028		)
Non-cash interest expense	16,661			—			—			—			16,661
Change in current income taxes	158			—			—			—			158
Non-cash income from investment in subsidiaries	(133,336		)	—			(32		)	133,368			—
Change in intercompany receivables/payables	114,056			(145,250		)	31,194			—			—
(Increase) decrease in accounts receivable	1,131			50,514			(34		)	—			51,611
Increase in other current assets	(6,238		)	—			(6		)	—			(6,244		)
(Increase) decrease in inventory	2,415			(2,415		)	—			—			—
Decrease in accounts payable	(662		)	(2,757		)	—			—			(3,419		)
Decrease in other current liabilities	(16,946		)	(2,206		)	—			—			(19,152		)
Other	(1,755		)	(1,496		)	—			—			(3,251		)
Net cash provided by operating activities	109,603			260,352			31,186			—			401,141
Cash flows from investing activities:
Investment in oil and gas properties	(338,731		)	(558,003		)	(30,513		)	—			(927,247		)
Proceeds from sale of oil and gas properties, net of expenses	28,103			214,811			—			—			242,914
Investment in fixed and other assets	(10,182		)	—			—			—			(10,182		)
Change in restricted funds	(177,647		)	—			(425		)	—			(178,072		)
Investment in subsidiaries	—			—			(31,696		)	31,696			—
Net cash used in investing activities	(498,457		)	(343,192		)	(62,634		)	31,696			(872,587		)
Cash flows from financing activities:
Proceeds from issuance of common stock	225,999			—			—			—			225,999
Deferred financing costs	(3,371		)	—			—			—			(3,371		)
Equity proceeds from parent	—			—			31,696			(31,696		)	—
Net payments for share-based compensation	(7,182		)	—			—			—			(7,182		)
Net cash provided by financing activities	215,446			—			31,696			(31,696		)	215,446
Effect of exchange rate changes on cash	—			—			(736		)	—			(736		)
Net change in cash and cash equivalents	(173,408		)	(82,840		)	(488		)	—			(256,736		)
Cash and cash equivalents, beginning of period	246,294			84,290			640			—			331,224
Cash and cash equivalents, end of period	$	72,886		$	1,450		$	152		$	—		$	74,488

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2013

(In thousands)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	117,634		$	215,009		$	(52	)	$	(214,957	)	$	117,634
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	93,579			256,995			—			—			350,574
Accretion expense	372			33,203			—			—			33,575
Deferred income tax provision (benefit)	(41,284		)	120,913			—			—			79,629
Settlement of asset retirement obligations	—			(83,854		)	—			—			(83,854		)
Non-cash stock compensation expense	10,347			—			—			—			10,347
Excess tax benefits	(156		)	—			—			—			(156		)
Non-cash derivative expense	—			2,239			—			—			2,239
Loss on early extinguishment of debt	27,279			—			—			—			27,279
Non-cash interest expense	16,219			—			—			—			16,219
Change in current income taxes	2,767			—			—			—			2,767
Non-cash (income) loss from investment in subsidiaries	(214,983		)	—			26			214,957			—
Change in intercompany receivables/payables	186,903			(186,947		)	44			—			—
(Increase) decrease in accounts receivable	(15,630		)	10,947			—			—			(4,683		)
Decrease in other current assets	1,752			—			—			—			1,752
Decrease in inventory	583			—			—			—			583
Increase (decrease) in accounts payable	(1,052		)	1,454			—			—			402
Increase in other current liabilities	40,543			1,908			—			—			42,451
Other	419			(2,972		)	—			—			(2,553		)
Net cash provided by operating activities	225,292			368,895			18			—			594,205
Cash flows from investing activities:
Investment in oil and gas properties	(273,474		)	(378,254		)	(11,571		)	—			(663,299		)
Proceeds from sale of oil and gas properties, net of expenses	6,300			42,521			—			—			48,821
Investment in fixed and other assets	(6,816		)	—			—			—			(6,816		)
Change in restricted funds	—			—			(1,742		)	—			(1,742		)
Investment in subsidiaries	(14,000		)	—			(13,404		)	27,404			—
Net cash used in investing activities	(287,990		)	(335,733		)	(26,717		)	27,404			(623,036		)
Cash flows from financing activities:
Proceeds from issuance of senior notes	489,250			—			—			—			489,250
Deferred financing costs	(9,065		)	—			—			—			(9,065		)
Redemption of senior notes	(396,014		)	—			—			—			(396,014		)
Excess tax benefits	156			—			—			—			156
Equity proceeds from parent	—			—			27,404			(27,404		)	—
Net payments for share-based compensation	(3,733		)	—			—			—			(3,733		)
Net cash provided by financing activities	80,594			—			27,404			(27,404		)	80,594
Effect of exchange rate changes on cash	—			—			(65		)	—			(65		)
Net change in cash and cash equivalents	17,896			33,162			640			—			51,698
Cash and cash equivalents, beginning of period	228,398			51,128			—			—			279,526
Cash and cash equivalents, end of period	$	246,294		$	84,290		$	640		$	—		$	331,224