GUARANTOR FINANCIAL STATEMENTS

12 Months Ended

Dec. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GUARANTOR FINANCIAL STATEMENTS

GUARANTOR FINANCIAL STATEMENTS:

Stone Offshore is an unconditional guarantor (the "Guarantor Subsidiary") 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, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 on an issuer (parent company), Guarantor Subsidiary, Non-Guarantor Subsidiaries and consolidated basis. Elimination entries presented are necessary to combine the entities.

CCONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2016

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	150,537		$	40,044		$	—		$	—		$	190,581
Accounts receivable	18,745			31,452			—			(1,733		)	48,464
Current income tax receivable	26,086			—			—			—			26,086
Other current assets	10,151			—			—			—			10,151
Total current assets	205,519			71,496			—			(1,733		)	275,282
Oil and gas properties, full cost method:
Proved	1,964,046			7,608,036			44,154			—			9,616,236
Less: accumulated DD&A	(1,964,046		)	(7,170,242		)	(44,154		)	—			(9,178,442		)
Net proved oil and gas properties	—			437,794			—			—			437,794
Unevaluated	251,955			121,765			—			—			373,720
Other property and equipment, net	26,213			—			—			—			26,213
Other assets, net	25,570			904			—			—			26,474
Investment in subsidiary	389,475			76			—			(389,551		)	—
Total assets	$	898,732		$	632,035		$	—		$	(391,284	)	$	1,139,483
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	13,742		$	7,972		$	—		$	(1,733	)	$	19,981
Undistributed oil and gas proceeds	14,170			903			—			—			15,073
Accrued interest	809			—			—			—			809
Asset retirement obligations	—			88,000			—			—			88,000
Current portion of long-term debt	408			—			—			—			408
Other current liabilities	18,602			—			—			—			18,602
Total current liabilities	47,731			96,875			—			(1,733		)	142,873
Long-term debt	352,376			—			—			—			352,376
Asset retirement obligations	8,410			145,609			—			—			154,019
Other long-term liabilities	17,315			—			—			—			17,315
Total liabilities not subject to compromise	425,832			242,484			—			(1,733		)	666,583
Liabilities subject to compromise	1,110,182			—			—			—			1,110,182
Total liabilities	1,536,014			242,484			—			(1,733		)	1,776,765
Commitments and contingencies
Stockholders’ equity:
Common stock	56			—			—			—			56
Treasury stock	(860		)	—			—			—			(860		)
Additional paid-in capital	1,659,731			1,300,547			108,198			(1,408,745		)	1,659,731
Accumulated deficit	(2,296,209		)	(910,996		)	(108,198		)	1,019,194			(2,296,209		)
Total stockholders’ equity	(637,282		)	389,551			—			(389,551		)	(637,282		)
Total liabilities and stockholders’ equity	$	898,732		$	632,035		$	—		$	(391,284	)	$	1,139,483

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2015

(In thousands)

	Parent			Guarantor Subsidiary			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

YEAR ENDED DECEMBER 31, 2016

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	9,268		$	271,978		$	—		$	—		$	281,246
Natural gas production	25,276			39,325			—			—			64,601
Natural gas liquids production	22,142			6,746			—			—			28,888
Other operational income	2,657			—			—			—			2,657
Total operating revenue	59,343			318,049			—			—			377,392
Operating expenses:
Lease operating expenses	12,048			67,589			13			—			79,650
Transportation, processing, and gathering expenses	28,091			(331		)	—			—			27,760
Production taxes	2,387			761			—			—			3,148
Depreciation, depletion, amortization	67,059			153,020			—			—			220,079
Write-down of oil and gas properties	26,706			330,373			352			—			357,431
Accretion expense	232			39,997			—			—			40,229
Salaries, general and administrative expenses	59,127			(199		)	—			—			58,928
Incentive compensation expense	13,475			—			—			—			13,475
Restructuring fees	29,597			—			—			—			29,597
Other operational expenses	49,247			125			6,081			—			55,453
Derivative expense, net	—			810			—			—			810
Total operating expenses	287,969			592,145			6,446			—			886,560
Loss from operations	(228,626		)	(274,096		)	(6,446		)	—			(509,168		)
Other (income) expenses:
Interest expense	64,458			—			—			—			64,458
Interest income	(503		)	(47		)	—			—			(550		)
Other income	(482		)	(957		)	—			—			(1,439		)
Other expense	596			—			—			—			596
Reorganization items	10,947			—			—			—			10,947
Loss from investment in subsidiaries	292,618			—			6,446			(299,064		)	—
Total other (income) expenses	367,634			(1,004		)	6,446			(299,064		)	74,012
Loss before taxes	(596,260		)	(273,092		)	(12,892		)	299,064			(583,180		)
Provision (benefit) for income taxes:
Current	(5,674		)	—			—			—			(5,674		)
Deferred	—			13,080			—			—			13,080
Total income taxes	(5,674		)	13,080			—			—			7,406
Net loss	$	(590,586	)	$	(286,172	)	$	(12,892	)	$	299,064		$	(590,586	)
Comprehensive loss	$	(608,538	)	$	(286,172	)	$	(12,892	)	$	299,064		$	(608,538	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2015

(In thousands)

	Parent			Guarantor Subsidiary			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 Subsidiary			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 CASH FLOWS

YEAR ENDED DECEMBER 31, 2016

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(590,586	)	$	(286,172	)	$	(12,892	)	$	299,064		$	(590,586	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	67,059			153,020			—			—			220,079
Write-down of oil and gas properties	26,706			330,373			352			—			357,431
Accretion expense	232			39,997			—			—			40,229
Deferred income tax benefit	—			13,080			—			—			13,080
Settlement of asset retirement obligations	(85		)	(19,530		)	(899		)	—			(20,514		)
Non-cash stock compensation expense	8,443			—			—			—			8,443
Non-cash derivative expense	—			1,471			—			—			1,471
Non-cash interest expense	18,404			—			—			—			18,404
Non-cash reorganization items	8,332			—			—			—			8,332
Other non-cash expense	168			—			6,080			—			6,248
Change in current income taxes	20,088			—			—			—			20,088
Non-cash loss from investment in subsidiaries	292,618			—			6,446			(299,064		)	—
Change in intercompany receivables/payables	43,330			(42,449		)	(881		)	—			—
(Increase) decrease in accounts receivable	(7,490		)	6,078			—			—			(1,412		)
(Increase) decrease in other current assets	(3,526		)	—			33			—			(3,493		)
Increase (decrease) in accounts payable	4,313			(3,287		)	—			—			1,026
Increase (decrease) in other current liabilities	10,321			(424		)	—			—			9,897
Other	(9,178		)	(957		)	—			—			(10,135		)
Net cash (used in) provided by operating activities	(110,851		)	191,200			(1,761		)	—			78,588
Cash flows from investing activities:
Investment in oil and gas properties	(86,442		)	(151,158		)	(352		)	—			(237,952		)
Investment in fixed and other assets	(1,266		)	—			—			—			(1,266		)
Change in restricted funds	—			—			1,046			—			1,046
Investment in subsidiaries	—			—			715			(715		)	—
Net cash (used in) provided by investing activities	(87,708		)	(151,158		)	1,409			(715		)	(238,172		)
Cash flows from financing activities:
Proceeds from bank borrowings	477,000			—			—			—			477,000
Repayments of bank borrowings	(135,500		)	—			—			—			(135,500		)
Deferred financing costs	(900		)	—			—			—			(900		)
Repayments of building loan	(423		)	—			—			—			(423		)
Equity proceeds from parent	—			—			(715		)	715			—
Net payments for share-based compensation	(762		)	—			—			—			(762		)
Net cash used in financing activities	339,415			—			(715		)	715			339,415
Effect of exchange rate changes on cash	—			—			(9		)	—			(9		)
Net change in cash and cash equivalents	140,856			40,042			(1,076		)	—			179,822
Cash and cash equivalents, beginning of period	9,681			2			1,076			—			10,759
Cash and cash equivalents, end of period	$	150,537		$	40,044		$	—		$	—		$	190,581

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2015

(In thousands)

	Parent			Guarantor Subsidiary			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
Excess tax benefits	1,586			—			—			—			1,586
Equity proceeds from parent	—			—			9,714			(9,714		)	—
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 Subsidiary			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