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 March 31, 2016 and December 31, 2015 and for the three month periods ended March 31, 2016 and 2015 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

MARCH 31, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	367,133		$	1		$	—		$	—		$	367,134
Accounts receivable	57,106			38,476			885			(54,282		)	42,185
Fair value of derivative contracts	—			30,222			—			—			30,222
Current income tax receivable	46,174			—			—			—			46,174
Inventory	535			—			—			—			535
Other current assets	6,531			—			—			—			6,531
Total current assets	477,479			68,699			885			(54,282		)	492,781
Oil and gas properties, full cost method:
Proved	1,891,423			7,544,791			45,645			—			9,481,859
Less: accumulated DD&A	(1,891,423		)	(6,859,344		)	(45,645		)	—			(8,796,412		)
Net proved oil and gas properties	—			685,447			—			—			685,447
Unevaluated	261,724			159,705			—			—			421,429
Other property and equipment, net	28,667			—			—			—			28,667
Other assets, net	17,460			797			—			—			18,257
Investment in subsidiary	614,540			—			—			(614,540		)	—
Total assets	$	1,399,870		$	914,648		$	885		$	(668,822	)	$	1,646,581
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	24,915		$	67,567		$	—		$	(54,282	)	$	38,200
Undistributed oil and gas proceeds	2,800			1,075			—			—			3,875
Accrued interest	22,901			—			—			—			22,901
Asset retirement obligations	—			23,465			—			—			23,465
Current portion of long-term debt	459,201			—			—			—			459,201
Other current liabilities	32,335			336			—			—			32,671
Total current liabilities	542,152			92,443			—			(54,282		)	580,313
Long-term debt	1,063,090			—			—			—			1,063,090
Asset retirement obligations	1,298			208,550			—			—			209,848
Other long-term liabilities	18,329			—			—			—			18,329
Total liabilities	1,624,869			300,993			—			(54,282		)	1,871,580
Commitments and contingencies
Stockholders’ equity:
Common stock	558			—			—			—			558
Treasury stock	(860		)	—			—			—			(860		)
Additional paid-in capital	1,650,969			1,344,577			109,077			(1,453,654		)	1,650,969
Accumulated deficit	(1,894,407		)	(749,663		)	(108,192		)	857,855			(1,894,407		)
Accumulated other comprehensive income	18,741			18,741			—			(18,741		)	18,741
Total stockholders’ equity	(224,999		)	613,655			885			(614,540		)	(224,999		)
Total liabilities and stockholders’ equity	$	1,399,870		$	914,648		$	885		$	(668,822	)	$	1,646,581

CONDENSED 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 STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	61		$	60,214		$	—		$	—		$	60,275
Natural gas production	2,467			12,706			—			—			15,173
Natural gas liquids production	1,134			3,601			—			—			4,735
Other operational income	356			—			—			—			356
Derivative income, net	—			138			—			—			138
Total operating revenue	4,018			76,659			—			—			80,677
Operating expenses:
Lease operating expenses	2,728			16,806			13			—			19,547
Transportation, processing and gathering expenses	1,546			(705		)	—			—			841
Production taxes	259			222			—			—			481
Depreciation, depletion and amortization	8,594			52,964			—			—			61,558
Write-down of oil and gas properties	9,324			119,531			349			—			129,204
Accretion expense	58			9,925			—			—			9,983
Salaries, general and administrative expenses	13,907			(200		)	—			—			13,707
Incentive compensation expense	4,979			—			—			—			4,979
Other operational expenses	6,109			337			6,081			—			12,527
Total operating expenses	47,504			198,880			6,443			—			252,827
Loss from operations	(43,486		)	(122,221		)	(6,443		)	—			(172,150		)
Other (income) expenses:
Interest expense	15,241			—			—			—			15,241
Interest income	(114		)	—			—			—			(114		)
Other income	(39		)	(259		)	—			—			(298		)
Other expense	2			—			—			—			2
Loss from investment in subsidiaries	131,282			—			6,443			(137,725		)	—
Total other (income) expenses	146,372			(259		)	6,443			(137,725		)	14,831
Loss before taxes	(189,858		)	(121,962		)	(12,886		)	137,725			(186,981		)
Provision (benefit) for income taxes:
Current	(1,074		)	—			—			—			(1,074		)
Deferred	—			2,877			—			—			2,877
Total income taxes	(1,074		)	2,877			—			—			1,803
Net loss	$	(188,784	)	$	(124,839	)	$	(12,886	)	$	137,725		$	(188,784	)
Comprehensive loss	$	(187,995	)	$	(124,839	)	$	(12,886	)	$	137,725		$	(187,995	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	4,350		$	103,157		$	—		$	—		$	107,507
Natural gas production	16,617			11,720			—			—			28,337
Natural gas liquids production	9,879			2,487			—			—			12,366
Other operational income	2,160			—			—			—			2,160
Derivative income, net	—			3,128			—			—			3,128
Total operating revenue	33,006			120,492			—			—			153,498
Operating expenses:
Lease operating expenses	4,976			22,601			—			—			27,577
Transportation, processing and gathering expenses	16,108			1,595			—			—			17,703
Production taxes	2,198			317			—			—			2,515
Depreciation, depletion and amortization	42,112			44,310			—			—			86,422
Write-down of oil and gas properties	491,412			—			—			—			491,412
Accretion expense	91			6,318			—			—			6,409
Salaries, general and administrative expenses	17,001			1			5			—			17,007
Incentive compensation expense	1,563			—			—			—			1,563
Other operational expenses	84			—			—			—			84
Total operating expenses	575,545			75,142			5			—			650,692
Income (loss) from operations	(542,539		)	45,350			(5		)	—			(497,194		)
Other (income) expenses:
Interest expense	10,344			21			—			—			10,365
Interest income	(101		)	(16		)	(5		)	—			(122		)
Other income	(133		)	(10		)	—			—			(143		)
Income from investment in subsidiaries	(29,027		)	—			—			29,027			—
Total other (income) expenses	(18,917		)	(5		)	(5		)	29,027			10,100
Income (loss) before taxes	(523,622		)	45,355			—			(29,027		)	(507,294		)
Provision (benefit) for income taxes:
Deferred	(196,234		)	16,328			—			—			(179,906		)
Total income taxes	(196,234		)	16,328			—			—			(179,906		)
Net income (loss)	$	(327,388	)	$	29,027		$	—		$	(29,027	)	$	(327,388	)
Comprehensive income (loss)	$	(339,891	)	$	29,027		$	—		$	(29,027	)	$	(339,891	)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(188,784	)	$	(124,839	)	$	(12,886	)	$	137,725		$	(188,784	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	8,594			52,964			—			—			61,558
Write-down of oil and gas properties	9,324			119,531			349			—			129,204
Accretion expense	58			9,925			—			—			9,983
Deferred income tax provision	—			2,877			—			—			2,877
Settlement of asset retirement obligations	—			(3,768		)	(899		)	—			(4,667		)
Non-cash stock compensation expense	2,312			—			—			—			2,312
Non-cash derivative expense	—			192			—			—			192
Non-cash interest expense	4,635			—			—			—			4,635
Other non-cash expense	—			—			6,081			—			6,081
Change in current income taxes	(1,074		)	—			—			—			(1,074		)
Non-cash loss from investment in subsidiaries	131,282			—			6,443			(137,725		)	—
Change in intercompany receivables/payables	(1,657		)	1,657			—			—			—
(Increase) decrease in accounts receivable	(36,703		)	43,432			(884		)	—			5,845
(Increase) decrease in other current assets	(218		)	—			33			—			(185		)
Increase (decrease) in accounts payable	45			(2,183		)	—			—			(2,138		)
Increase in other current liabilities	3,813			85			—			—			3,898
Other	(39		)	(259		)	—			—			(298		)
Net cash (used in) provided by operating activities	(68,412		)	99,614			(1,763		)	—			29,439
Cash flows from investing activities:
Investment in oil and gas properties	(29,895		)	(99,615		)	(349		)	—			(129,859		)
Investment in fixed and other assets	(496		)	—			—			—			(496		)
Change in restricted funds	—			—			1,045			—			1,045
Investment in subsidiaries	—			—			718			(718		)	—
Net cash (used in) provided by investing activities	(30,391		)	(99,615		)	1,414			(718		)	(129,310		)
Cash flows from financing activities:
Proceeds from bank borrowings	477,000			—			—			—			477,000
Repayments of bank borrowings	(20,000		)	—			—			—			(20,000		)
Repayments of building loan	(95		)	—			—			—			(95		)
Equity proceeds from parent	—			—			(718		)	718			—
Net payments for share-based compensation	(650		)	—			—			—			(650		)
Net cash provided by (used in) financing activities	456,255			—			(718		)	718			456,255
Effect of exchange rate changes on cash	—			—			(9		)	—			(9		)
Net change in cash and cash equivalents	357,452			(1		)	(1,076		)	—			356,375
Cash and cash equivalents, beginning of period	9,681			2			1,076			—			10,759
Cash and cash equivalents, end of period	$	367,133		$	1		$	—		$	—		$	367,134

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(327,388	)	$	29,027		$	—		$	(29,027	)	$	(327,388	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	42,112			44,310			—			—			86,422
Write-down of oil and gas properties	491,412			—			—			—			491,412
Accretion expense	91			6,318			—			—			6,409
Deferred income tax (benefit) provision	(196,234		)	16,328			—			—			(179,906		)
Settlement of asset retirement obligations	(1		)	(17,144		)	—			—			(17,145		)
Non-cash stock compensation expense	2,640			—			—			—			2,640
Non-cash derivative expense	—			1,511			—			—			1,511
Non-cash interest expense	4,318			—			—			—			4,318
Change in current income taxes	7,188			—			—			—			7,188
Non-cash income from investment in subsidiaries	(29,027		)	—			—			29,027			—
Change in intercompany receivables/payables	(33,748		)	25,548			8,200			—			—
Decrease in accounts receivable	3,606			4,600			—			—			8,206
Decrease in other current assets	1,881			—			2			—			1,883
(Increase) decrease in inventory	(2,415		)	2,415			—			—			—
Decrease in accounts payable	(1,007		)	(7,650		)	—			—			(8,657		)
Increase in other current liabilities	6,347			542			—			—			6,889
Other	(249		)	(11		)	—			—			(260		)
Net cash (used in) provided by operating activities	(30,474		)	105,794			8,202			—			83,522
Cash flows from investing activities:
Investment in oil and gas properties	(84,470		)	(77,229		)	(8,196		)	—			(169,895		)
Investment in fixed and other assets	(662		)	—			—			—			(662		)
Change in restricted funds	177,647			—			(5		)	—			177,642
Investment in subsidiaries	—			—			(8,168		)	8,168			—
Net cash provided by (used in) investing activities	92,515			(77,229		)	(16,369		)	8,168			7,085
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	—			—			8,168			(8,168		)	—
Net payments for share-based compensation	(2,991		)	—			—			—			(2,991		)
Net cash (used in) provided by financing activities	(2,991		)	—			8,168			(8,168		)	(2,991		)
Effect of exchange rate changes on cash	—			—			24			—			24
Net change in cash and cash equivalents	59,050			28,565			25			—			87,640
Cash and cash equivalents, beginning of period	72,886			1,450			152			—			74,488
Cash and cash equivalents, end of period	$	131,936		$	30,015		$	177		$	—		$	162,128