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 June 30, 2016 and December 31, 2015 and for the three and six month periods ended June 30, 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

JUNE 30, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	169,193		$	1		$	—		$	—		$	169,194
Accounts receivable	25,410			31,171			883			(19,188		)	38,276
Fair value of derivative contracts	—			11,887			—			—			11,887
Current income tax receivable	46,174			—			—			—			46,174
Other current assets	12,080			—			—			—			12,080
Total current assets	252,857			43,059			883			(19,188		)	277,611
Oil and gas properties, full cost method:
Proved	1,907,347			7,565,003			45,895			—			9,518,245
Less: accumulated DD&A	(1,907,326		)	(7,007,219		)	(45,895		)	—			(8,960,440		)
Net proved oil and gas properties	21			557,784			—			—			557,805
Unevaluated	261,971			163,233			—			—			425,204
Other property and equipment, net	27,968			—			—			—			27,968
Other assets, net	27,445			738			—			—			28,183
Investment in subsidiary	503,738			—			—			(503,738		)	—
Total assets	$	1,074,000		$	764,814		$	883		$	(522,926	)	$	1,316,771
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	23,153		$	24,950		$	—		$	(19,189	)	$	28,914
Undistributed oil and gas proceeds	4,379			692			—			—			5,071
Accrued interest	9,773			—			—			—			9,773
Fair value of derivative contracts	—			37			—			—			37
Asset retirement obligations	—			33,695			—			—			33,695
Current portion of long-term debt	288,336			—			—			—			288,336
Other current liabilities	34,513			280			—			—			34,793
Total current liabilities	360,154			59,654			—			(19,189		)	400,619
Long-term debt	1,122,901			—			—			—			1,122,901
Asset retirement obligations	1,355			202,306			—			—			203,661
Other long-term liabilities	18,446						—			—			18,446
Total liabilities	1,502,856			261,960			—			(19,189		)	1,745,627
Commitments and contingencies
Stockholders’ equity:
Common stock	56			—			—			—			56
Treasury stock	(860		)	—			—			—			(860		)
Additional paid-in capital	1,654,731			1,344,577			109,078			(1,453,655		)	1,654,731
Accumulated deficit	(2,090,168		)	(849,108		)	(108,195		)	957,303			(2,090,168		)
Accumulated other comprehensive income	7,385			7,385			—			(7,385		)	7,385
Total stockholders’ equity	(428,856		)	502,854			883			(503,737		)	(428,856		)
Total liabilities and stockholders’ equity	$	1,074,000		$	764,814		$	883		$	(522,926	)	$	1,316,771

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
Other current assets	6,848			—			33			—			6,881
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	55			—			—			—			55
Treasury stock	(860		)	—			—			—			(860		)
Additional paid-in capital	1,648,687			1,344,577			109,795			(1,454,372		)	1,648,687
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 JUNE 30, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	1,323		$	71,388		$	—		$	—		$	72,711
Natural gas production	3,959			8,594			—			—			12,553
Natural gas liquids production	2,375			1,343			—			—			3,718
Other operational income	337			—			—			—			337
Total operating revenue	7,994			81,325			—			—			89,319
Operating expenses:
Lease operating expenses	3,814			15,012			—			—			18,826
Transportation, processing and gathering expenses	6,021			1,162			—			—			7,183
Production taxes	383			195			—			—			578
Depreciation, depletion and amortization	10,470			35,761			—			—			46,231
Write-down of oil and gas properties	6,534			112,114			1			—			118,649
Accretion expense	58			10,024			—			—			10,082
Salaries, general and administrative expenses	20,013			1			—			—			20,014
Incentive compensation expense	4,670			—			—			—			4,670
Restructuring fees	9,436			—			—			—			9,436
Other operational expenses	27,736			(57		)	1			—			27,680
Derivative expense, net	—			626			—			—			626
Total operating expenses	89,135			174,838			2			—			263,975
Loss from operations	(81,141		)	(93,513		)	(2		)	—			(174,656		)
Other (income) expenses:
Interest expense	17,599			—			—			—			17,599
Interest income	(302		)	—			—			—			(302		)
Other income	(20		)	(250		)	—			—			(270		)
Other expense	9			—			—			—			9
Loss from investment in subsidiaries	99,447			—			1			(99,448		)	—
Total other (income) expenses	116,733			(250		)	1			(99,448		)	17,036
Loss before taxes	(197,874		)	(93,263		)	(3		)	99,448			(191,692		)
Provision (benefit) for income taxes:
Current	(2,113		)	—			—			—			(2,113		)
Deferred	—			6,182			—			—			6,182
Total income taxes	(2,113		)	6,182			—			—			4,069
Net loss	$	(195,761	)	$	(99,445	)	$	(3	)	$	99,448		$	(195,761	)
Comprehensive loss	$	(207,117	)	$	(99,445	)	$	(3	)	$	99,448		$	(207,117	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	6,504		$	105,081		$	—		$	—		$	111,585
Natural gas production	15,647			11,260			—			—			26,907
Natural gas liquids production	8,077			2,956			—			—			11,033
Total operating revenue	30,228			119,297			—			—			149,525
Operating expenses:
Lease operating expenses	5,111			22,318			—			—			27,429
Transportation, processing and gathering expenses	17,974			1,966			—			—			19,940
Production taxes	1,436			391			—			—			1,827
Depreciation, depletion and amortization	44,052			33,899			—			—			77,951
Write-down of oil and gas properties	179,125			—			45,169			—			224,294
Accretion expense	91			6,317			—			—			6,408
Salaries, general and administrative expenses	16,398			—			20			—			16,418
Incentive compensation expense	1,264			—			—			—			1,264
Other operational expenses	1,454			—			—			—			1,454
Derivative expense, net	—			701			—			—			701
Total operating expenses	266,905			65,592			45,189			—			377,686
Income (loss) from operations	(236,677		)	53,705			(45,189		)	—			(228,161		)
Other (income) expenses:
Interest expense	10,472			—			—			—			10,472
Interest income	(46		)	(19		)	(1		)	—			(66		)
Other income	(187		)	(423		)	(3		)	—			(613		)
(Income) loss from investment in subsidiaries	(16,147		)	—			28,918			(12,771		)	—
Total other (income) expenses	(5,908		)	(442		)	28,914			(12,771		)	9,793
Income (loss) before taxes	(230,769		)	54,147			(74,103		)	12,771			(237,954		)
Provision (benefit) for income taxes:
Deferred	(77,863		)	9,082			(16,267		)	—			(85,048		)
Total income taxes	(77,863		)	9,082			(16,267		)	—			(85,048		)
Net income (loss)	$	(152,906	)	$	45,065		$	(57,836	)	$	12,771		$	(152,906	)
Comprehensive income (loss)	$	(183,062	)	$	45,065		$	(57,836	)	$	12,771		$	(183,062	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	1,384		$	131,602		$	—		$	—		$	132,986
Natural gas production	6,426			21,300			—			—			27,726
Natural gas liquids production	3,509			4,944			—			—			8,453
Other operational income	693			—			—			—			693
Total operating revenue	12,012			157,846			—			—			169,858
Operating expenses:
Lease operating expenses	6,542			31,818			13			—			38,373
Transportation, processing and gathering expenses	7,567			457			—			—			8,024
Production taxes	642			417			—			—			1,059
Depreciation, depletion and amortization	19,064			88,725			—			—			107,789
Write-down of oil and gas properties	15,858			231,645			350			—			247,853
Accretion expense	116			19,949			—			—			20,065
Salaries, general and administrative expenses	32,967			(199		)	—			—			32,768
Incentive compensation expense	9,649			—			—			—			9,649
Restructuring fees	10,389			—			—			—			10,389
Other operational expenses	33,845			280			6,082			—			40,207
Derivative expense, net	—			488			—			—			488
Total operating expenses	136,639			373,580			6,445			—			516,664
Loss from operations	(124,627		)	(215,734		)	(6,445		)	—			(346,806		)
Other (income) expenses:
Interest expense	32,840			—			—			—			32,840
Interest income	(416		)	—			—			—			(416		)
Other income	(59		)	(509		)	—			—			(568		)
Other expense	11			—			—			—			11
Loss from investment in subsidiaries	230,729			—			6,444			(237,173		)	—
Total other (income) expenses	263,105			(509		)	6,444			(237,173		)	31,867
Loss before taxes	(387,732		)	(215,225		)	(12,889		)	237,173			(378,673		)
Provision (benefit) for income taxes:
Current	(3,187		)	—			—			—			(3,187		)
Deferred	—			9,059			—			—			9,059
Total income taxes	(3,187		)	9,059			—			—			5,872
Net loss	$	(384,545	)	$	(224,284	)	$	(12,889	)	$	237,173		$	(384,545	)
Comprehensive loss	$	(395,112	)	$	(224,284	)	$	(12,889	)	$	237,173		$	(395,112	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	10,854		$	208,238		$	—		$	—		$	219,092
Natural gas production	32,264			22,980			—			—			55,244
Natural gas liquids production	17,956			5,443			—			—			23,399
Other operational income	1,792			—			—			—			1,792
Derivative income, net	—			2,427			—			—			2,427
Total operating revenue	62,866			239,088			—			—			301,954
Operating expenses:
Lease operating expenses	10,087			44,919			—			—			55,006
Transportation, processing and gathering expenses	34,082			3,561			—			—			37,643
Production taxes	3,634			708			—			—			4,342
Depreciation, depletion and amortization	86,164			78,209			—			—			164,373
Write-down of oil and gas properties	670,537			—			45,169			—			715,706
Accretion expense	182			12,635			—			—			12,817
Salaries, general and administrative expenses	33,399			1			25			—			33,425
Incentive compensation expense	2,827			—			—			—			2,827
Other operational expenses	1,170			—			—			—			1,170
Total operating expenses	842,082			140,033			45,194			—			1,027,309
Income (loss) from operations	(779,216		)	99,055			(45,194		)	—			(725,355		)
Other (income) expenses:
Interest expense	20,816			21			—			—			20,837
Interest income	(147		)	(35		)	(6		)	—			(188		)
Other income	(320		)	(433		)	(3		)	—			(756		)
(Income) loss from investment in subsidiaries	(45,174		)	—			28,918			16,256			—
Total other (income) expenses	(24,825		)	(447		)	28,909			16,256			19,893
Income (loss) before taxes	(754,391		)	99,502			(74,103		)	(16,256		)	(745,248		)
Provision (benefit) for income taxes:
Deferred	(274,097		)	25,410			(16,267		)	—			(264,954		)
Total income taxes	(274,097		)	25,410			(16,267		)	—			(264,954		)
Net income (loss)	$	(480,294	)	$	74,092		$	(57,836	)	$	(16,256	)	$	(480,294	)
Comprehensive income (loss)	$	(522,953	)	$	74,092		$	(57,836	)	$	(16,256	)	$	(522,953	)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2016

(In thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(384,545	)	$	(224,284	)	$	(12,889	)	$	237,173		$	(384,545	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	19,064			88,725			—			—			107,789
Write-down of oil and gas properties	15,858			231,645			350			—			247,853
Accretion expense	116			19,949			—			—			20,065
Deferred income tax provision	—			9,059			—			—			9,059
Settlement of asset retirement obligations	—			(9,807		)	(899		)	—			(10,706		)
Non-cash stock compensation expense	4,682			—			—			—			4,682
Non-cash derivative expense	—			1,025			—			—			1,025
Non-cash interest expense	9,403			—			—			—			9,403
Other non-cash expense	—			—			6,081			—			6,081
Change in current income taxes	(3,187		)	—			—			—			(3,187		)
Non-cash loss from investment in subsidiaries	230,729			—			6,444			(237,173		)	—
Change in intercompany receivables/payables	(1,658		)	1,658			—			—			—
(Increase) decrease in accounts receivable	(8,471		)	19,109			(883		)	—			9,755
(Increase) decrease in other current assets	(5,316		)	—			33			—			(5,283		)
Increase (decrease) in accounts payable	2,226			(2,547		)	—			—			(321		)
Decrease in other current liabilities	(5,565		)	(355		)	—			—			(5,920		)
Other	(7,372		)	(508		)	—			—			(7,880		)
Net cash (used in) provided by operating activities	(134,036		)	133,669			(1,763		)	—			(2,130		)
Cash flows from investing activities:
Investment in oil and gas properties	(45,292		)	(133,670		)	(349		)	—			(179,311		)
Investment in fixed and other assets	(898		)	—			—			—			(898		)
Change in restricted funds	—			—			1,045			—			1,045
Investment in subsidiaries	—			—			717			(717		)	—
Net cash (used in) provided by investing activities	(46,190		)	(133,670		)	1,413			(717		)	(179,164		)
Cash flows from financing activities:
Proceeds from bank borrowings	477,000			—			—			—			477,000
Repayments of bank borrowings	(135,500		)	—			—			—			(135,500		)
Repayments of building loan	(189		)	—			—			—			(189		)
Deferred financing costs	(900		)	—			—			—			(900		)
Equity proceeds from parent	—			—			(717		)	717			—
Net payments for share-based compensation	(673		)	—			—			—			(673		)
Net cash provided by (used in) financing activities	339,738			—			(717		)	717			339,738
Effect of exchange rate changes on cash	—			—			(9		)	—			(9		)
Net change in cash and cash equivalents	159,512			(1		)	(1,076		)	—			158,435
Cash and cash equivalents, beginning of period	9,681			2			1,076			—			10,759
Cash and cash equivalents, end of period	$	169,193		$	1		$	—		$	—		$	169,194

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2015

(In thousands)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(480,294	)	$	74,092		$	(57,836	)	$	(16,256	)	$	(480,294	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	86,164			78,209			—			—			164,373
Write-down of oil and gas properties	670,537			—			45,169			—			715,706
Accretion expense	182			12,635			—			—			12,817
Deferred income tax (benefit) provision	(274,097		)	25,410			(16,267		)	—			(264,954		)
Settlement of asset retirement obligations	(14		)	(35,909		)	—			—			(35,923		)
Non-cash stock compensation expense	6,028			—			—			—			6,028
Non-cash derivative expense	—			7,931			—			—			7,931
Non-cash interest expense	8,737			—			—			—			8,737
Change in current income taxes	7,206			—			—			—			7,206
Non-cash (income) expense from investment in subsidiaries	(45,174		)	—			28,918			16,256			—
Change in intercompany receivables/payables	15,070			(24,802		)	9,732			—			—
Decrease in accounts receivable	16,968			6,079			—			—			23,047
Increase in other current assets	(1,895		)	—			(64		)	—			(1,959		)
(Increase) decrease in inventory	(2,415		)	2,415			—			—			—
Decrease in accounts payable	(500		)	(7,326		)	—			—			(7,826		)
Decrease in other current liabilities	(8,409		)	(311		)	—			—			(8,720		)
Other	(71		)	(433		)	—			—			(504		)
Net cash (used in) provided by operating activities	(1,977		)	137,990			9,652			—			145,665
Cash flows from investing activities:
Investment in oil and gas properties	(128,333		)	(124,506		)	(11,516		)	—			(264,355		)
Proceeds from sale of oil and gas properties, net of expenses	—			10,100			—			—			10,100
Investment in fixed and other assets	(727		)	—			—			—			(727		)
Change in restricted funds	177,647			—			1,828			—			179,475
Investment in subsidiaries	—			—			(9,684		)	9,684			—
Net cash provided by (used in) investing activities	48,587			(114,406		)	(19,372		)	9,684			(75,507		)
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	—			—			9,684			(9,684		)	—
Net payments for share-based compensation	(3,069		)	—			—			—			(3,069		)
Net cash (used in) provided by financing activities	(3,069		)	—			9,684			(9,684		)	(3,069		)
Effect of exchange rate changes on cash	—			—			78			—			78
Net change in cash and cash equivalents	43,541			23,584			42			—			67,167
Cash and cash equivalents, beginning of period	72,886			1,450			152			—			74,488
Cash and cash equivalents, end of period	$	116,427		$	25,034		$	194		$	—		$	141,655