10-Q 1 sgy09301710-q.htm 10-Q Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________ 
FORM 10-Q
__________________________________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 1-12074
__________________________________________________________ 
STONE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
__________________________________________________________
Delaware
72-1235413
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
625 E. Kaliste Saloom Road
 
Lafayette, Louisiana
70508
(Address of principal executive offices)
(Zip Code)
(337) 237-0410
(Registrant’s telephone number, including area code) 
__________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
Accelerated filer
ý
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ¨  No ý



Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  ý  No  ¨
As of November 1, 2017, there were 19,999,112 shares of the registrant’s common stock, par value $.01 per share, outstanding.
 



TABLE OF CONTENTS
 
 
 
Page
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.
 




PART I – FINANCIAL INFORMATION 
ITEM 1. FINANCIAL STATEMENTS 
STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
 
Successor
 
 
Predecessor
 
September 30,
2017
 
 
December 31,
2016
Assets
(Unaudited)
 
 
(Note 1)
Current assets:
 
 
 
 
Cash and cash equivalents
$
245,714

 
 
$
190,581

Restricted cash
37,684

 
 

Accounts receivable
35,670

 
 
48,464

Fair value of derivative contracts
2,565

 
 

Current income tax receivable
27,672

 
 
26,086

Other current assets
9,295

 
 
10,151

Total current assets
358,600

 
 
275,282

Oil and gas properties, full cost method of accounting:
 
 
 
 
Proved
714,515

 
 
9,616,236

Less: accumulated depreciation, depletion and amortization
(330,921
)
 
 
(9,178,442
)
Net proved oil and gas properties
383,594

 
 
437,794

Unevaluated
102,283

 
 
373,720

Other property and equipment, net
18,433

 
 
26,213

Fair value of derivative contracts
1,040

 
 

Other assets, net
18,252

 
 
26,474

Total assets
$
882,202

 
 
$
1,139,483

Liabilities and Stockholders’ Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable to vendors
$
33,120

 
 
$
19,981

Undistributed oil and gas proceeds
5,439

 
 
15,073

Accrued interest
10,244

 
 
809

Fair value of derivative contracts
368

 
 

Asset retirement obligations
84,654

 
 
88,000

Current portion of long-term debt
421

 
 
408

Other current liabilities
28,503

 
 
18,602

Total current liabilities
162,749

 
 
142,873

Long-term debt
235,567

 
 
352,376

Asset retirement obligations
182,956

 
 
154,019

Fair value of derivative contracts
74

 
 

Other long-term liabilities
10,110

 
 
17,315

Total liabilities not subject to compromise
591,456

 
 
666,583

Liabilities subject to compromise

 
 
1,110,182

Total liabilities
591,456

 
 
1,776,765

Commitments and contingencies

 
 

Stockholders’ equity:
 
 
 
 
Predecessor common stock ($.01 par value; authorized 30,000,000 shares; issued 5,610,020 shares)

 
 
56

Predecessor treasury stock (1,658 shares, at cost)

 
 
(860
)
Predecessor additional paid-in capital

 
 
1,659,731

Successor common stock ($.01 par value; authorized 60,000,000 shares; issued 19,998,019 shares)
200

 
 

Successor additional paid-in capital
555,323

 
 

Accumulated deficit
(264,777
)
 
 
(2,296,209
)
Total stockholders’ equity
290,746

 
 
(637,282
)
Total liabilities and stockholders’ equity
$
882,202

 
 
$
1,139,483

    
 The accompanying notes are an integral part of this balance sheet.

1



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
Successor
 
 
Predecessor
 
Three Months Ended
September 30, 2017
 
 
Three Months Ended
September 30, 2016
Operating revenue:
 
 
 
 
Oil production
$
61,841

 
 
$
71,116

Natural gas production
5,451

 
 
15,601

Natural gas liquids production
2,473

 
 
6,666

Other operational income
9,760

 
 
1,044

Total operating revenue
79,525

 
 
94,427

Operating expenses:
 
 
 
 
Lease operating expenses
11,778

 
 
16,976

Transportation, processing and gathering expenses
1,076

 
 
10,633

Production taxes
188

 
 
835

Depreciation, depletion and amortization
27,553

 
 
58,918

Write-down of oil and gas properties

 
 
36,484

Accretion expense
8,095

 
 
10,082

Salaries, general and administrative expenses
15,887

 
 
15,425

Incentive compensation expense
4,646

 
 
2,160

Restructuring fees
129

 
 
5,784

Other operational expenses
703

 
 
9,059

Derivative expense, net
6,685

 
 
199

Total operating expenses
76,740

 
 
166,555

 
 
 
 
 
Gain (loss) on Appalachia Properties divestiture
(132
)
 
 

 
 
 
 
 
Income (loss) from operations
2,653

 
 
(72,128
)
Other (income) expense:
 
 
 
 
Interest expense
3,529

 
 
16,924

Interest income
(366
)
 
 
(58
)
Other income
(276
)
 
 
(272
)
Other expense
47

 
 
16

Total other expense
2,934

 
 
16,610

Loss before income taxes
(281
)
 
 
(88,738
)
Provision (benefit) for income taxes:
 
 
 
 
Current
(1,578
)
 
 
(991
)
Deferred

 
 
1,888

Total income taxes
(1,578
)
 
 
897

Net income (loss)
$
1,297

 
 
$
(89,635
)
Basic income (loss) per share
$
0.06

 
 
$
(16.01
)
Diluted income (loss) per share
$
0.06

 
 
$
(16.01
)
Average shares outstanding
19,997

 
 
5,600

Average shares outstanding assuming dilution
19,997

 
 
5,600

 
The accompanying notes are an integral part of this statement.


2



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
Successor
 
 
Predecessor
 
Period from
March 1, 2017
through
September 30, 2017
 
 
Period from
January 1, 2017
through
February 28, 2017
 
Nine Months Ended
September 30, 2016
Operating revenue:
 
 
 
 
 
 
Oil production
$
143,556

 
 
$
45,837

 
$
204,102

Natural gas production
14,201

 
 
13,476

 
43,327

Natural gas liquids production
6,264

 
 
8,706

 
15,119

Other operational income
9,936

 
 
903

 
1,737

Derivative income, net
1,414

 
 

 

Total operating revenue
175,371

 
 
68,922

 
264,285

Operating expenses:
 
 
 
 
 
 
Lease operating expenses
33,154

 
 
8,820

 
55,349

Transportation, processing and gathering expenses
3,045

 
 
6,933

 
18,657

Production taxes
446

 
 
682

 
1,894

Depreciation, depletion and amortization
76,553

 
 
37,429

 
166,707

Write-down of oil and gas properties
256,435

 
 

 
284,337

Accretion expense
19,698

 
 
5,447

 
30,147

Salaries, general and administrative expenses
37,718

 
 
9,629

 
48,193

Incentive compensation expense
4,646

 
 
2,008

 
11,809

Restructuring fees
739

 
 

 
16,173

Other operational expenses
3,292

 
 
530

 
49,266

Derivative expense, net

 
 
1,778

 
687

Total operating expenses
435,726

 

73,256

 
683,219

 
 
 
 
 
 
 
Gain (loss) on Appalachia Properties divestiture
(105
)
 
 
213,453

 

 
 
 
 
 
 
 
Income (loss) from operations
(260,460
)
 
 
209,119

 
(418,934
)
Other (income) expense:
 
 
 
 
 
 
Interest expense
8,320

 
 

 
49,764

Interest income
(575
)
 
 
(45
)
 
(474
)
Other income
(719
)
 
 
(315
)
 
(840
)
Other expense
861

 
 
13,336

 
27

Reorganization items, net

 
 
(437,744
)
 

Total other (income) expense
7,887

 
 
(424,768
)
 
48,477

Income (loss) before income taxes
(268,347
)
 
 
633,887

 
(467,411
)
Provision (benefit) for income taxes:
 
 
 
 
 
 
Current
(3,570
)
 
 
3,570

 
(4,178
)
Deferred

 
 

 
10,947

Total income taxes
(3,570
)
 
 
3,570

 
6,769

Net income (loss)
$
(264,777
)
 
 
$
630,317

 
$
(474,180
)
Basic income (loss) per share
$
(13.24
)
 
 
$
110.99

 
$
(84.90
)
Diluted income (loss) per share
$
(13.24
)
 
 
$
110.99

 
$
(84.90
)
Average shares outstanding
19,997

 
 
5,634

 
5,585

Average shares outstanding assuming dilution
19,997

 
 
5,634

 
5,585


The accompanying notes are an integral part of this statement.


3



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
Successor
 
 
Predecessor
 
Three Months Ended
September 30, 2017
 
 
Three Months Ended
September 30, 2016
Net income (loss)
$
1,297

 
 
$
(89,635
)
Other comprehensive loss, net of tax effect:
 
 
 
 
Derivatives

 
 
(3,467
)
Comprehensive income (loss)
$
1,297

 
 
$
(93,102
)
 
The accompanying notes are an integral part of this statement.

4



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 
Successor
 
 
Predecessor
 
 
Period from
March 1, 2017
through
September 30, 2017
 
 
Period from
January 1, 2017
through
February 28, 2017
 
Nine Months Ended
September 30, 2016
Net income (loss)
 
$
(264,777
)
 
 
$
630,317

 
$
(474,180
)
Other comprehensive income (loss), net of tax effect:
 
 
 
 
 
 
 
Derivatives
 

 
 

 
(20,107
)
Foreign currency translation
 

 
 

 
6,073

Comprehensive income (loss)
 
$
(264,777
)
 
 
$
630,317

 
$
(488,214
)
 
The accompanying notes are an integral part of this statement.


5




STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

 
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
Balance, December 31, 2015 (Predecessor)
$
55

 
$
(860
)
 
$
1,648,687

 
$
(1,705,623
)
 
$
17,952

 
$
(39,789
)
Net loss

 

 

 
(590,586
)
 

 
(590,586
)
Adjustment for fair value accounting of derivatives, net of tax

 

 

 

 
(24,025
)
 
(24,025
)
Adjustment for foreign currency translation, net of tax

 

 

 

 
6,073

 
6,073

Exercise of stock options, vesting of restricted stock and granting of stock awards
1

 

 
(732
)
 

 

 
(731
)
Amortization of stock compensation expense

 

 
11,776

 

 

 
11,776

Balance, December 31, 2016 (Predecessor)
56

 
(860
)
 
1,659,731

 
(2,296,209
)
 

 
(637,282
)
Net income

 

 

 
630,317

 

 
630,317

Exercise of stock options, vesting of restricted stock and granting of stock awards

 

 
(172
)
 

 

 
(172
)
Amortization of stock compensation expense

 

 
3,527

 

 

 
3,527

Balance, February 28, 2017 (Predecessor)
56

 
(860
)
 
1,663,086

 
(1,665,892
)
 

 
(3,610
)
Cancellation of Predecessor equity
(56
)
 
860

 
(1,663,086
)
 
1,665,892

 

 
3,610

Balance, February 28, 2017 (Predecessor)

 

 

 

 

 

Issuance of Successor common stock and warrants
200

 

 
554,428

 

 

 
554,628

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, February 28, 2017 (Successor)
200

 

 
554,428

 

 

 
554,628

Net loss

 

 

 
(264,777
)
 

 
(264,777
)
Exercise of stock options, vesting of restricted stock and granting of stock awards

 

 
(19
)
 

 

 
(19
)
Amortization of stock compensation expense

 

 
914

 

 

 
914

Balance, September 30, 2017 (Successor)
$
200

 
$

 
$
555,323

 
$
(264,777
)
 
$

 
$
290,746


The accompanying notes are an integral part of this statement.


6



STONE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
 
Successor
 
 
Predecessor
 
Period from
March 1, 2017
through
September 30, 2017
 
 
Period from
January 1, 2017
through
February 28, 2017
 
Nine Months Ended
September 30, 2016
Cash flows from operating activities:
 
 
 
 
 
 
Net income (loss)
$
(264,777
)
 
 
$
630,317

 
$
(474,180
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation, depletion and amortization
76,553

 
 
37,429

 
166,707

Write-down of oil and gas properties
256,435

 
 

 
284,337

Accretion expense
19,698

 
 
5,447

 
30,147

Deferred income tax provision

 
 

 
10,947

(Gain) loss on sale of oil and gas properties
105

 
 
(213,453
)
 

Settlement of asset retirement obligations
(53,129
)
 
 
(3,641
)
 
(15,106
)
Non-cash stock compensation expense
893

 
 
2,645

 
6,407

Non-cash derivative expense
1,210

 
 
1,778

 
1,261

Non-cash interest expense
3

 
 

 
14,278

Non-cash reorganization items

 
 
(458,677
)
 

Other non-cash expense
877

 
 
172

 
6,081

Change in current income taxes
(5,156
)
 
 
3,570

 
21,584

Decrease in accounts receivable
6,059

 
 
6,354

 
3,968

(Increase) decrease in other current assets
2,382

 
 
(2,274
)
 
(4,426
)
Increase (decrease) in accounts payable
10,662

 
 
(4,652
)
 
3,217

Increase (decrease) in other current liabilities
17,944

 
 
(9,653
)
 
(14,222
)
Investment in derivative contracts
(2,416
)
 
 
(3,736
)
 

Other
3,054

 
 
2,490

 
(8,107
)
Net cash provided by (used in) operating activities
70,397

 
 
(5,884
)
 
32,893

Cash flows from investing activities:
 
 
 
 
 
 
Investment in oil and gas properties
(42,837
)
 
 
(8,754
)
 
(200,622
)
Proceeds from sale of oil and gas properties, net of expenses
17,777

 
 
505,383

 

Investment in fixed and other assets
(158
)
 
 
(61
)
 
(1,231
)
Change in restricted funds
37,863

 
 
(75,547
)
 
1,046

Net cash provided by (used in) investing activities
12,645

 
 
421,021

 
(200,807
)
Cash flows from financing activities:
 
 
 
 
 
 
Proceeds from bank borrowings

 
 

 
477,000

Repayments of bank borrowings

 
 
(341,500
)
 
(135,500
)
Repayments of building loan
(275
)
 
 
(24
)
 
(285
)
Cash payment to noteholders

 
 
(100,000
)
 

Debt issuance costs

 
 
(1,055
)
 
(900
)
Net payments for share-based compensation
(19
)
 
 
(173
)
 
(752
)
Net cash provided by (used in) financing activities
(294
)
 
 
(442,752
)
 
339,563

Effect of exchange rate changes on cash

 
 

 
(9
)
Net change in cash and cash equivalents
82,748

 
 
(27,615
)
 
171,640

Cash and cash equivalents, beginning of period
162,966

 
 
190,581

 
10,759

Cash and cash equivalents, end of period
$
245,714

 
 
$
162,966

 
$
182,399

 
The accompanying notes are an integral part of this statement.

7



STONE ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 

NOTE 1 – FINANCIAL STATEMENT PRESENTATION
 
Interim Financial Statements

The condensed consolidated financial statements of Stone Energy Corporation (“Stone” or the “Company”) and its subsidiaries as of September 30, 2017 (Successor) and for the three month period ended September 30, 2017 (Successor), the periods from March 1, 2017 through September 30, 2017 (Successor), January 1, 2017 through February 28, 2017 (Predecessor) and the three and nine months ended September 30, 2016 (Predecessor) are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The condensed consolidated balance sheet as of December 31, 2016 (Predecessor) has been derived from the audited financial statements as of that date contained in our Annual Report on Form 10-K for the year ended December 31, 2016 (our “2016 Annual Report on Form 10-K”). The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in our 2016 Annual Report on Form 10-K, although, as described below, such prior financial statements will not be comparable to the interim financial statements due to the adoption of fresh start accounting on February 28, 2017. For additional information, see Note 3 – Fresh Start Accounting. The results of operations for the period from March 1, 2017 through September 30, 2017 (Successor) are not necessarily indicative of future financial results. Certain prior period amounts have been reclassified to conform to current period presentation.

Emergence from Voluntary Reorganization Under Chapter 11 Proceedings

On December 14, 2016, the Company and its subsidiaries Stone Energy Offshore, L.L.C. (“Stone Offshore”) and Stone Energy Holding, L.L.C. (together with the Company, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”) seeking relief under the provisions of Chapter 11 of Title 11 (“Chapter 11”) of the United States Bankruptcy Code (the “Bankruptcy Code”). On February 15, 2017, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Second Amended Joint Prepackaged Plan of Reorganization of Stone Energy Corporation and its Debtor Affiliates, dated December 28, 2016 (the “Plan”), as modified by the Confirmation Order, and on February 28, 2017, the Plan became effective (the “Effective Date”) and the Debtors emerged from bankruptcy, with the bankruptcy cases then being closed by Final Decree Closing Chapter 11 Cases and Terminating Claims Agent Services entered by the Bankruptcy Court on April 20, 2017.

Upon emergence from bankruptcy, the Company adopted fresh start accounting in accordance with the provisions of Accounting Standards Codification (“ASC”) 852, “Reorganizations”, which resulted in the Company becoming a new entity for financial reporting purposes on the Effective Date. As a result of the adoption of fresh start accounting, the Company’s unaudited condensed consolidated financial statements subsequent to February 28, 2017 will not be comparable to its financial statements prior to that date. See Note 3 – Fresh Start Accounting for further details on the impact of fresh start accounting on the Company’s unaudited condensed consolidated financial statements.
 
References to “Successor” or “Successor Company” relate to the financial position and results of operations of the reorganized Company subsequent to February 28, 2017. References to “Predecessor” or “Predecessor Company” relate to the financial position and results of operations of the Company prior to, and including, February 28, 2017.

Use of Estimates

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects are uncertain and, accordingly, these estimates may change as new events occur, as additional information is obtained and as the Company’s operating environment changes. Actual results could differ from those estimates. Estimates are used primarily when accounting for depreciation, depletion and amortization (“DD&A”) expense, unevaluated property costs, estimated future net cash flows from proved reserves, costs to abandon oil and gas properties, income taxes, accruals of capitalized costs, operating costs and production revenue, capitalized general and administrative costs and interest, insurance recoveries, estimated fair value of derivative contracts, contingencies and fair value estimates, including estimates of reorganization value, enterprise value and the fair value of assets and liabilities recorded as a result of the adoption of fresh start accounting.


8



Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements. The standard may be applied retrospectively or using a modified retrospective approach, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. In August 2015, the FASB issued ASU 2015-14, deferring the effective date of ASU 2014-09 by one year. As a result, the standard is effective for interim and annual periods beginning on or after December 15, 2017. We expect to apply the modified retrospective approach upon adoption of this standard. Although we are still evaluating the effect that this new standard may have on our financial statements and related disclosures, we do not anticipate that the implementation of this new standard will have a material effect.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The standard is effective for public entities for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years, with earlier application permitted. Upon adoption the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. We are currently evaluating the effect that this new standard may have on our financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718)” to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and forfeitures, as well as classification in the statement of cash flows. ASU 2016-09 became effective for us on January 1, 2017. Under ASU 2016-09, the Company elected to not apply a forfeiture estimate and will recognize a credit in compensation expense to the extent awards are forfeited. The implementation of this new standard did not have a material effect on our financial statements or related disclosures.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815)” to improve the financial reporting of hedging relationships to better reflect an entity’s hedging strategies. The standard expands an entity’s ability to apply hedge accounting for both non-financial and financial risk components and amends the presentation and disclosure requirements. Additionally, ASU 2017-12 eliminates the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be recorded in the same income statement line as the earnings effect of the hedged item. The standard is effective for public companies for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The standard must be adopted by applying a modified retrospective approach to existing designated hedging relationships as of the adoption date, with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. We are currently evaluating the effect that this new standard may have on our financial statements and related disclosures.

NOTE 2 – REORGANIZATION
 
On December 14, 2016, the Debtors filed Bankruptcy Petitions seeking relief under the provisions of Chapter 11 of the Bankruptcy Code to pursue a prepackaged plan of reorganization. On February 15, 2017, the Bankruptcy Court entered an order confirming the Plan, and on February 28, 2017, the Plan became effective and the Debtors emerged from bankruptcy.

Prior to the filing of the Bankruptcy Petitions, the Debtors and certain holders of the 1 34% Senior Convertible Notes due 2017 (the “2017 Convertible Notes”) and the 7 12% Senior Notes due 2022 (the “2022 Notes”) (collectively, the “Notes” and the holders thereof, the “Noteholders”) and the lenders (the “Banks”) under the Fourth Amended and Restated Credit Agreement, dated as of June 24, 2014, as amended, modified, or otherwise supplemented from time to time (the “Pre-Emergence Credit Agreement”), entered into an Amended and Restated Restructuring Support Agreement (the “A&R RSA”). The A&R RSA contained certain covenants on the part of the Company and the Noteholders and Banks who are signatories to the A&R RSA, including that such Noteholders and Banks would support the Company’s sale of Stone’s producing properties and acreage, including approximately 86,000 net acres, in the Appalachia regions of Pennsylvania and West Virginia (the “Appalachia Properties”) to TH Exploration III, LLC, an affiliate of Tug Hill, Inc. (“Tug Hill”), pursuant to the terms of a Purchase and Sale Agreement dated October 20, 2016, as amended on December 9, 2016 (the “Tug Hill PSA”) for a purchase price of at least $350 million and approval of the Bankruptcy Court. Pursuant to the terms of the Tug Hill PSA, Stone agreed to sell the Appalachia Properties to Tug Hill for $360 million in cash, subject to customary purchase price adjustments.

Pursuant to Bankruptcy Court orders dated January 11, 2017 and January 31, 2017, two additional bidders were allowed to participate in competitive bidding on the Appalachia Properties. On January 18, 2017, the Bankruptcy Court approved certain bidding procedures (the “Bidding Procedures”) in connection with the sale of the Appalachia Properties. In accordance with the Bidding Procedures, Stone conducted an auction for the sale of the Appalachia Properties on February 8, 2017 and upon conclusion, selected the final bid submitted by EQT Corporation, through its wholly-owned subsidiary EQT Production Company (“EQT”), with a final purchase price of $527 million in cash, subject to customary purchase price adjustments and approval by the Bankruptcy Court, with an upward adjustment to

9



the purchase price of up to $16 million in an amount equal to certain downward adjustments, as the prevailing bid. On February 9, 2017, the Company entered into a purchase and sale agreement with EQT (the “EQT PSA”), reflecting the terms of the prevailing bid and on February 10, 2017, the Bankruptcy Court entered a sale order approving the sale of the Appalachia Properties to EQT. We completed the sale of the Appalachia Properties to EQT on February 27, 2017 for a final purchase price of $527 million in cash, subject to customary purchase price adjustments. At the close of the sale of the Appalachia Properties, the Tug Hill PSA was terminated, and the Company used a portion of the cash consideration received to pay Tug Hill a break-up fee and expense reimbursements totaling approximately $11.5 million, which is recognized as other expense in the statement of operations for the period of January 1, 2017 through February 28, 2017 (Predecessor). See Note 7 – Divestiture for additional information on the sale of the Appalachia Properties.
Upon emergence from bankruptcy, pursuant to the terms of the Plan, the following significant transactions occurred:

Shares of the Predecessor Company’s issued and outstanding common stock immediately prior to the Effective Date were cancelled, and on the Effective Date, reorganized Stone issued an aggregate of 20.0 million shares of new common stock (the “New Common Stock”).
 
The Predecessor Company’s 2022 Notes and 2017 Convertible Notes were cancelled and the holders of such notes received their pro rata share of (a) $100 million of cash, (b) 19.0 million shares of the New Common Stock, representing 95% of the New Common Stock and (c) $225 million of 7.5% Senior Second Lien Notes due 2022 (the “2022 Second Lien Notes”).

The Predecessor Company’s common stockholders received their pro rata share of 1.0 million shares of the New Common Stock, representing 5% of the New Common Stock, and warrants to purchase approximately 3.5 million shares of New Common Stock. The warrants have an exercise price of $42.04 per share and a term of four years, unless terminated earlier by their terms upon the consummation of certain business combinations or sale transactions involving the Company.

The Predecessor Company’s Pre-Emergence Credit Agreement was amended and restated as the Amended Credit Agreement (as defined in Note 10 – Debt). The obligations owed to the lenders under the Pre-Emergence Credit Agreement were converted to obligations under the Amended Credit Agreement.

All claims of creditors with unsecured claims, other than the claims by the holders of the 2022 Notes and 2017 Convertible Notes, including vendors, were unaltered and paid in full in the ordinary course of business to the extent the claims were undisputed.
 
For further information regarding the equity and debt instruments of the Predecessor Company and the Successor Company, see Note 4 – Stockholders’ Equity and Note 10 – Debt.

NOTE 3 – FRESH START ACCOUNTING

Upon emergence from bankruptcy, the Company qualified for and adopted fresh start accounting in accordance with the provisions of ASC 852, “Reorganizations” as (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims. See Note 2 – Reorganization for the terms of the Plan. The Company applied fresh start accounting as of February 28, 2017. Fresh start accounting required the Company to present its assets, liabilities and equity as if it were a new entity upon emergence from bankruptcy, with no beginning retained earnings or deficit as of the fresh start reporting date. As described in Note 1 – Financial Statement Presentation, the new entity is referred to as Successor or Successor Company, and includes the financial position and results of operations of the reorganized Company subsequent to February 28, 2017. References to Predecessor or Predecessor Company relate to the financial position and results of operations of the Company prior to, and including, February 28, 2017.

Reorganization Value

Under fresh start accounting, reorganization value represents the fair value of the Successor Company’s total assets and is intended to approximate the amount a willing buyer would pay for the assets immediately after restructuring. Upon application of fresh start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values.

The Company’s reorganization value is derived from an estimate of enterprise value. Enterprise value represents the estimated fair value of an entity’s long-term debt and stockholders’ equity. In support of the Plan, the Company estimated the enterprise value of the core assets (as defined in the Plan) of the Successor Company to be in the range of $300 million to $450 million, which was subsequently approved by the Bankruptcy Court. This valuation analysis was prepared using reserve information, development schedules, other financial information and financial projections and applying standard valuation techniques, including net asset value analysis, precedent transactions

10



analyses and public comparable company analyses. Based on the estimates and assumptions used in determining the enterprise value, the Company ultimately estimated the enterprise value of the Successor Company’s core assets to be approximately $420 million.

Valuation of Assets

The Company’s principal assets are its oil and gas properties, which the Company accounts for under the full cost accounting method. With the assistance of valuation experts, the Company determined the fair value of its oil and gas properties based on the discounted cash flows expected to be generated from these assets. The computations were based on market conditions and reserves in place as of the bankruptcy emergence date.

The fair value analysis performed by valuation experts was based on the Company’s estimates of reserves as developed internally by the Company’s reserve engineers. For purposes of estimating the fair value of the Company’s proved, probable and possible reserves, an income approach was used, which estimated fair value based on the anticipated cash flows associated with the Company’s reserves, risked by reserve category and discounted using a weighted average cost of capital of 12.5%. The discount factor was derived from a weighted average cost of capital computation which utilized a blended expected cost of debt and expected returns on equity for similar market participants.

Future revenues were based upon forward strip oil and natural gas prices as of the emergence date, adjusted for differentials realized by the Company, and adjusted for a 2% annual escalation after 2021. Development and operating costs were based on the Company’s recent cost trends adjusted for inflation. The discounted cash flow models also included estimates not typically included in proved reserves such as depreciation and income tax expenses. The proved reserve locations were limited to wells expected to be drilled in the Company’s five year development plan.

As a result of this analysis, the Company concluded the fair value of its proved reserves was $380.8 million and the fair value of its probable and possible reserves was $16.8 million as of the Effective Date. The Company also reviewed its undeveloped leasehold acreage and inventory. An analysis of comparable market transactions indicated a fair value of undeveloped acreage and inventory totaling $80.2 million. These amounts are reflected in the Fresh Start Adjustments item number 12 below. The fair value of the Company’s asset retirement obligations was estimated at $290.1 million and was based on estimated plugging and abandonment costs as of the Effective Date, adjusted for inflation and discounted at the Successor Company’s credit-adjusted risk free rate of 12%.

See further discussion in Fresh Start Adjustments below for details on the specific assumptions used in the valuation of the Company’s various other assets.

The following table reconciles the enterprise value per the Plan to the estimated fair value (for fresh start accounting purposes) of the Successor Company’s common stock as of February 28, 2017 (in thousands, except per share value):
 
 
February 28, 2017
Enterprise value
 
$
419,720

Plus: Cash and other assets
 
371,169

Less: Fair value of debt
 
(236,261
)
Less: Fair value of warrants
 
(15,648
)
Fair value of Successor common stock
 
$
538,980

 
 
 
Shares issued upon emergence
 
20,000

Per share value
 
$
26.95


The following table reconciles the enterprise value per the Plan to the estimated reorganization value as of the Effective Date (in thousands):
 
 
February 28, 2017
Enterprise value
 
$
419,720

Plus: Cash and other assets
 
371,169

Plus: Asset retirement obligations (current and long-term)
 
290,067

Plus: Working capital and other liabilities
 
58,055

Reorganization value of Successor assets
 
$
1,139,011



11



Reorganization value and enterprise value were estimated using numerous projections and assumptions that are inherently subject to significant uncertainties and resolution of contingencies that are beyond our control. Accordingly, the estimates set forth herein are not necessarily indicative of actual outcomes, and there can be no assurance that the estimates, projections or assumptions will be realized.

Condensed Consolidated Balance Sheet

The adjustments set forth in the following condensed consolidated balance sheet reflect the effects of the transactions contemplated by the Plan and carried out by the Company (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant assumptions or inputs. The following table reflects the reorganization and application of ASC 852 on our consolidated balance sheet as of February 28, 2017 (in thousands):

12



 
Predecessor Company
 
Reorganization Adjustments
 
Fresh Start Adjustments
 
Successor Company
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
198,571

 
$
(35,605
)
(1)
$

 
$
162,966

Restricted cash

 
75,547

(1)

 
75,547

Accounts receivable
42,808

 
9,301

(2)

 
52,109

Fair value of derivative contracts
1,267

 

 

 
1,267

Current income tax receivable
22,516

 

 

 
22,516

Other current assets
10,924

 
875

(3)
(124
)
(12)
11,675

Total current assets
276,086

 
50,118

 
(124
)
 
326,080

Oil and gas properties, full cost method of accounting:
 
 
 
 
 
 
 
Proved
9,633,907

 
(188,933
)
(1)
(8,774,122
)
(12)
670,852

Less: accumulated DD&A
(9,215,679
)
 

 
9,215,679

(12)

Net proved oil and gas properties
418,228

 
(188,933
)
 
441,557

 
670,852

Unevaluated
371,140

 
(127,838
)
(1)
(146,292
)
(12)
97,010

Other property and equipment, net
25,586

 
(101
)
(4)
(4,423
)
(13)
21,062

Fair value of derivative contracts
1,819

 

 

 
1,819

Other assets, net
26,516

 
(4,328
)
(5)

 
22,188

Total assets
$
1,119,375

 
$
(271,082
)
 
$
290,718

 
$
1,139,011

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable to vendors
$
20,512

 
$

 
$

 
$
20,512

Undistributed oil and gas proceeds
5,917

 
(4,139
)
(1)

 
1,778

Accrued interest
266

 

 

 
266

Asset retirement obligations
92,597

 

 

 
92,597

Fair value of derivative contracts
476

 

 

 
476

Current portion of long-term debt
411

 

 

 
411

Other current liabilities
17,032

 
(195
)
(6)

 
16,837

Total current liabilities
137,211

 
(4,334
)
 

 
132,877

Long-term debt
352,350

 
(116,500
)
(7)

 
235,850

Asset retirement obligations
151,228

 
(8,672
)
(1)
54,914

(14)
197,470

Fair value of derivative contracts
653

 

 

 
653

Other long-term liabilities
17,533

 

 

 
17,533

Total liabilities not subject to compromise
658,975

 
(129,506
)
 
54,914

 
584,383

Liabilities subject to compromise
1,110,182

 
(1,110,182
)
(8)

 

Total liabilities
1,769,157

 
(1,239,688
)
 
54,914

 
584,383

Commitments and contingencies
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
Common stock (Predecessor)
56

 
(56
)
(9)

 

Treasury stock (Predecessor)
(860
)
 
860

(9)

 

Additional paid-in capital (Predecessor)
1,660,810

 
(1,660,810
)
(9)

 

Common stock (Successor)

 
200

(10)

 
200

Additional paid-in capital (Successor)

 
554,428

(10)

 
554,428

Accumulated deficit
(2,309,788
)
 
2,073,984

(11)
235,804

(15)

Total stockholders’ equity
(649,782
)
 
968,606

 
235,804

 
554,628

Total liabilities and stockholders’ equity
$
1,119,375

 
$
(271,082
)
 
$
290,718

 
$
1,139,011



13



Reorganization Adjustments (dollar amounts in thousands, except per share values)

1.
Reflects the net cash proceeds received from the sale of the Appalachia Properties in connection with the Plan and net cash payments made as of the Effective Date from implementation of the Plan:
Sources:
 
 
Net cash proceeds from sale of Appalachia Properties (a)
 
$
512,472

Total sources
 
512,472

Uses:
 
 
Cash transferred to restricted account (b)
 
75,547

Break-up fee to Tug Hill
 
10,800

Repayment of outstanding borrowings under Pre-Emergence Credit Agreement
 
341,500

Repayment of 2017 Convertible Notes and 2022 Notes
 
100,000

Other fees and expenses (c)
 
20,230

Total uses
 
548,077

Net uses
 
$
(35,605
)
(a) The closing of the sale of the Appalachia Properties occurred on February 27, 2017, but as emergence was contingent on such closing, the effects of the transaction are reflected as reorganization adjustments. See Note 7 – Divestiture for additional details on the sale. Total consideration received for the sale of the Appalachia Properties of $522,472 included cash consideration of $512,472 received at closing and a $10,000 indemnity escrow which was released subsequent to emergence from bankruptcy (see Reorganization Adjustments item number 2 below).
(b) Reflects the movement of $75,000 of cash held in a restricted account to satisfy near-term plugging and abandonment liabilities, pursuant to the provisions of the Amended Credit Agreement (as defined in Note 10 – Debt), and $547 held in a restricted cash account for certain cure amounts in connection with the Chapter 11 proceedings.
(c)
Other fees and expenses include approximately $15,180 of emergence and success fees, $2,600 of professional fees and $2,395 of payments made to seismic providers in settlement of their bankruptcy claims.
2.
Reflects a receivable for a $10,000 indemnity escrow with release delayed until emergence from bankruptcy, net of a $699 reimbursement to Tug Hill in connection with the sale of the Appalachia Properties (see Note 7 – Divestiture).
3.
Reflects the payment of a claim to a seismic provider as a prepayment/deposit.
4.
Reflects the sale of vehicles in connection with the sale of the Appalachia Properties.
5.
Reflects the write-off of $2,577 of unamortized debt issuance costs related to the Pre-Emergence Credit Agreement and the reversal of a $1,750 prepayment made to Tug Hill in October 2016.
6.
Reflects the accrual of $2,008 in expected bonus payments under the KEIP (as defined in Note 5 – Share–Based Compensation and Employee Benefit Plans) and a $395 termination fee in connection with the early termination of an office lease, less the settlement of a property tax accrual of $2,598 in connection with the sale of the Appalachia Properties.
7.
Reflects the repayment of $341,500 of outstanding borrowings under the Pre-Emergence Credit Agreement and the issuance of $225,000 of 2022 Second Lien Notes as part of the settlement of the Predecessor Company 2017 Convertible Notes and 2022 Notes.
8.
Liabilities subject to compromise were settled as follows in accordance with the Plan:
1 ¾% Senior Convertible Notes due 2017
 
$
300,000

7 ½% Senior Notes due 2022
 
775,000

Accrued interest
 
35,182

Liabilities subject to compromise of the Predecessor Company
 
1,110,182

Cash payment to senior noteholders
 
(100,000
)
Issuance of 2022 Second Lien Notes to former holders of the senior notes
 
(225,000
)
Fair value of equity issued to unsecured creditors
 
(538,980
)
Fair value of warrants issued to unsecured creditors
 
(15,648
)
Gain on settlement of liabilities subject to compromise
 
$
230,554


14




9.
Reflects the cancellation of the Predecessor Company’s common stock, treasury stock and additional paid-in capital.
10.
Reflects the issuance of Successor Company equity. In accordance with the Plan, the Successor Company issued 19.0 million shares of New Common Stock to the former holders of the 2017 Convertible Notes and the 2022 Notes and 1.0 million shares of New Common Stock to the Predecessor Company’s common stockholders. These amounts are subject to dilution by warrants issued to the Predecessor Company common stockholders, totaling approximately 3.5 million shares, with an exercise price of $42.04 per share and a term of four years. The fair value of the warrants was estimated at $4.43 per share using a Black-Scholes-Merton valuation model.
11.Reflects the cumulative impact of the reorganization adjustments discussed above:
Gain on settlement of liabilities subject to compromise
 
$
230,554

Professional and other fees paid at emergence
 
(10,648
)
Write-off of unamortized deferred financing costs
 
(2,577
)
Other reorganization adjustments
 
(1,915
)
Net impact to reorganization items
 
215,414

Gain on sale of Appalachia Properties
 
213,453

Cancellation of Predecessor Company equity
 
1,662,282

Other adjustments to accumulated deficit
 
(17,165
)
Net impact to accumulated deficit
 
$
2,073,984


Fresh Start Adjustments

12.
Fair value adjustments to oil and gas properties, associated inventory and unproved acreage. See above for a detailed discussion of the fair value methodology.
13.
Fair value adjustment for an office building owned by the Company. The income and sales comparison approaches were used in determining the fair value, using anticipated future earnings and an appropriate expected rate of return, as well as relying upon recent sales or offerings of similar assets.
14.
Fair value adjustments to the Company’s asset retirement obligations using estimated plugging and abandonment costs as of the Effective Date, adjusted for inflation and discounted at the Successor Company’s credit-adjusted risk free rate.
15.
Reflects the cumulative effect of the fresh start accounting adjustments discussed above.
Reorganization Items

Reorganization items represent liabilities settled, net of amounts incurred subsequent to the Chapter 11 filing as a direct result of the Plan and are classified as “Reorganization items, net” in the Company’s unaudited condensed consolidated statement of operations. The following table summarizes reorganization items, net (in thousands):
 
 
 
 
Predecessor
 
 
 
 
Period from
January 1, 2017
through
February 28, 2017
Gain on settlement of liabilities subject to compromise
 
 
 
$
230,554

Fresh start valuation adjustments
 
 
 
235,804

Reorganization professional fees and other expenses
 
 
 
(20,512
)
Write-off of deferred financing costs
 
 
 
(2,577
)
Other reorganization items
 
 
 
(5,525
)
Gain on reorganization items, net
 
 
 
$
437,744


The cash payments for reorganization items for the period from January 1, 2017 through February 28, 2017 include approximately $10.6 million of emergence and success fees and approximately $9.1 million of other reorganization professional fees and expenses paid on the Effective Date.

15




NOTE 4 – STOCKHOLDERS’ EQUITY

Common Stock

As discussed in Note 2 – Reorganization, upon emergence from bankruptcy, all existing shares of Predecessor common stock were cancelled, and the Successor Company issued an aggregate of 20.0 million shares of New Common Stock, par value $0.01 per share, to the Predecessor Company’s existing common stockholders and holders of the 2017 Convertible Notes and the 2022 Notes pursuant to the Plan.

Warrants

As discussed in Note 2 – Reorganization, the Predecessor Company’s existing common stockholders received warrants to purchase approximately 3.5 million shares of New Common Stock. The warrants have an exercise price of $42.04 per share and a term of four years, unless terminated earlier by their terms upon the consummation of certain business combinations or sale transactions involving the Company. The Company allocated $15.6 million of the enterprise value to the warrants which is reflected in “Successor additional paid-in capital” on the unaudited condensed consolidated balance sheet at September 30, 2017 (Successor).

NOTE 5 – SHARE–BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

Predecessor Awards
Immediately prior to emergence, the vesting of all Predecessor outstanding, unvested share-based awards for non-executive employees was accelerated and, as a result, all unrecognized compensation cost related to such awards was recognized, with $1.7 million expensed as salaries, general and administrative (“SG&A”) expense in the Predecessor Company statement of operations during the period from January 1, 2017 through February 28, 2017, and $0.6 million capitalized into oil and gas properties.
Upon emergence from bankruptcy, all Predecessor outstanding, unvested restricted shares held by the Company’s executives were cancelled and exchanged for a proportionate share of the 5% of New Common Stock, plus a proportionate share of the warrants for ownership of up to 15% of the Successor Company’s common equity. Vesting continues in accordance with the applicable vesting provisions of the original awards. As of September 30, 2017, there was $14 thousand of unrecognized compensation cost related to unvested restricted shares held by the Company’s executives. The current weighted average remaining vesting period of such awards is approximately three months. All other Predecessor Company executive share-based awards were cancelled upon emergence from bankruptcy.
The board of directors of the Predecessor Company received grants of stock, totaling 10,404 shares, during the period from January 1, 2017 through February 28, 2017, representing the pro-rated portion of their annual retainer for such period. The aggregate grant date value of such stock totaled $69 thousand and was recognized as SG&A expense in the Predecessor Company statement of operations for the period from January 1, 2017 through February 28, 2017. Pursuant to the Plan, as of the Effective Date, all non-employee directors of the Predecessor Company ceased to serve on the Company’s board of directors.

Successor Awards
 
On March 1, 2017, the board of directors of the Successor Company (the “Board”) received grants of restricted stock units under the 2017 LTIP (see 2017 Long-Term Incentive Plan below). The restricted stock units are scheduled to vest in full on the day prior to the annual meeting of the Company’s stockholders in May 2018, subject to: (i) the director’s continued service on the Board through the vesting date, and (ii) earlier vesting upon the occurrence of a change of control event or the termination of the director’s service due to death or removal from the Board without cause. A total of 62,137 restricted stock units were granted with an aggregate grant date fair value of $1.7 million, based on a per share grant date fair value of $26.95. As of September 30, 2017, there was $0.9 million of unrecognized compensation cost related to such restricted stock units, with a current weighted average remaining vesting period of approximately seven months.

2017 Long-Term Incentive Plan

On the Effective Date, pursuant to the Plan, the Stone Energy Corporation 2017 Long-Term Incentive Plan (the “2017 LTIP”) became effective, replacing the Stone Energy Corporation 2009 Amended and Restated Stock Incentive Plan (As Amended and Restated December 17, 2015). The types of awards that may be granted under the 2017 LTIP include stock options, restricted stock, restricted stock units, dividend equivalents and other forms of awards granted or denominated in shares of New Common Stock, as well as certain cash-based awards. The maximum number of shares of New Common Stock that may be issued or transferred pursuant to awards under

16



the 2017 LTIP is 2,614,379. As of November 1, 2017, other than the grant of the 62,137 restricted stock units to the Board (see Successor Awards above), there have been no other issuances or awards of stock under the 2017 LTIP.

Key Executive Incentive Plan
Pursuant to the terms of the Executive Claims Settlement Agreement approved by the Bankruptcy Court on January 10, 2017, the Company’s executives agreed to waive their claims related to the Company’s 2016 Performance Incentive Compensation Plan (the “2016 PICP”), and in exchange therefor, the Company adopted the Stone Energy Corporation Key Executive Incentive Plan (“KEIP”), in which the Company’s executives were allowed to participate. Future payments to the Company’s executives under the KEIP were limited to $2 million, or the equivalent of the target bonus under the 2016 PICP for the fourth quarter of 2016, to be paid in two equal installments. The first payment to the Company’s executives under the KEIP was made subsequent to consummation of the bankruptcy cases, on April 24, 2017, and the second payment was made on May 30, 2017.

2017 Annual Incentive Compensation Plan
On July 25, 2017, the Board approved the Stone Energy Corporation 2017 Annual Incentive Compensation Plan (the “2017 Annual Incentive Plan”) for all salaried employees (other than the interim chief executive officer) of the Company. The 2017 Annual Incentive Plan is a performance-based incentive program that provides award opportunities based on the Company’s annual performance in certain performance measures as defined by the Board. The 2017 Annual Incentive Plan replaced the Company’s 2005 Annual Incentive Compensation Plan. We recognized a charge of $4.1 million during the three months ended September 30, 2017 (Successor), net of amounts capitalized, representing a pro-rated portion of the 2017 estimated annual incentive compensation awards, for the nine months ended September 30, 2017. This charge is reflected in incentive compensation expense on the statement of operations.

Retention Award Agreement
On July 25, 2017, the Board approved retention awards and the form of Stone Energy Corporation Retention Award Agreement (the “Retention Award Agreement”) and authorized the Company to enter into Retention Award Agreements with certain executive officers and employees of the Company. The Retention Award Agreement provides for a retention award to certain individuals to be paid in a lump sum cash payment within 30 days of the earliest to occur of (i) the first anniversary (June 1, 2018) of the effective date of the Retention Award Agreement, subject to the individual remaining employed by the Company or a subsidiary of the Company on such date, (ii) a change in control of the Company or (iii) a termination of the individual’s employment with the Company (a) due to death, (b) by the Company without “cause” or (c) by the individual for “good reason.” We recognized a charge of $0.5 million during the three months ended September 30, 2017 (Successor), representing a pro-rated portion of estimated retention awards for the period from June 1, 2017 through September 30, 2017. This charge is reflected in incentive compensation expense on the statement of operations.

Executive Severance Plan
On July 25, 2017, the Board approved the Stone Energy Corporation Executive Severance Plan (the “Executive Severance Plan”), which provides for the payment of severance and change in control benefits to the executive officers (other than the interim chief executive officer) of the Company. Pursuant to the Executive Severance Plan, if a covered executive officer is terminated (i) by the Company without “cause” or (ii) by the executive officer for “good reason” (each, an “Involuntary Termination”), the executive officer will receive (i) a lump sum cash payment in an amount equal to 1.0x or 1.5x the executive officer’s annual base salary, (ii) a lump sum cash payment equal to 100% of the executive officer’s annual bonus opportunity, at target, prorated by the number of days that have elapsed from January 1 of that calendar year, (iii) six months of health benefit continuation for the executive officer and the executive officer’s dependents, (iv) accelerated vesting of any outstanding and unvested equity awards, (v) certain outplacement services and (vi) any unpaid portion of the executive officer’s annual pay as of the date of the Involuntary Termination. The Executive Severance Plan replaced the Stone Energy Corporation Executive Severance Plan dated December 13, 2016.


17



NOTE 6 – EARNINGS PER SHARE
 
On February 28, 2017, upon emergence from Chapter 11 bankruptcy, the Company’s Predecessor equity was cancelled and new equity was issued. Additionally, the Predecessor Company’s 2017 Convertible Notes were cancelled. See Note 2 – Reorganization and Note 4 – Stockholders’ Equity for further details.

The following tables set forth the calculation of basic and diluted weighted average shares outstanding and earnings per share for the indicated periods (in thousands, except per share amounts):
 
Successor
 
 
Predecessor
 
Three Months Ended
September 30, 2017
 
 
Three Months Ended
September 30, 2016
Income (numerator):
 
 
 
 
Basic:
 
 
 
 
Net income (loss)
$
1,297

 
 
$
(89,635
)
Net income attributable to participating securities
(4
)
 
 

Net income (loss) attributable to common stock - basic
$
1,293

 
 
$
(89,635
)
Diluted:
 
 
 
 
Net income (loss)
$
1,297

 
 
$
(89,635
)
Net income attributable to participating securities
(4
)
 
 

Net income (loss) attributable to common stock - diluted
$
1,293

 
 
$
(89,635
)
Weighted average shares (denominator):
 
 
 
 
Weighted average shares - basic
19,997

 
 
5,600

Dilutive effect of stock options

 
 

Dilutive effect of warrants

 
 

Dilutive effect of convertible notes

 
 

Weighted average shares - diluted
19,997

 
 
5,600

Basic income (loss) per share
$
0.06

 
 
$
(16.01
)
Diluted income (loss) per share
$
0.06

 
 
$
(16.01
)

 
Successor
 
 
Predecessor
 
Period from
March 1, 2017
through
September 30, 2017
 
 
Period from
January 1, 2017
through
February 28, 2017
 
Nine Months Ended
September 30, 2016
Income (numerator):
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
Net income (loss)
$
(264,777
)
 
 
$
630,317

 
$
(474,180
)
Net income attributable to participating securities

 
 
(4,995
)
 

Net income (loss) attributable to common stock - basic
$
(264,777
)
 
 
$
625,322

 
$
(474,180
)
Diluted:
 
 
 
 
 
 
Net income (loss)
$
(264,777
)
 
 
$
630,317

 
$
(474,180
)
Net income attributable to participating securities

 
 
(4,995
)
 

Net income (loss) attributable to common stock - diluted
$
(264,777
)
 
 
$
625,322

 
$
(474,180
)
Weighted average shares (denominator):
 
 
 
 
 
 
Weighted average shares - basic
19,997

 
 
5,634

 
5,585

Dilutive effect of stock options

 
 

 

Dilutive effect of warrants

 
 

 

Dilutive effect of convertible notes

 
 

 

Weighted average shares - diluted
19,997

 
 
5,634

 
5,585

Basic income (loss) per share
$
(13.24
)
 
 
$
110.99

 
$
(84.90
)
Diluted income (loss) per share
$
(13.24
)
 
 
$
110.99

 
$
(84.90
)
 

18



All outstanding stock options were considered antidilutive during the period from January 1, 2017 through February 28, 2017 (Predecessor) (approximately 10,400 shares) because the exercise price of the options exceeded the average price of our common stock for the applicable period. During the three and nine months ended September 30, 2016 (Predecessor), all outstanding stock options were considered antidilutive (approximately 12,900 shares) because we had net losses for such periods. On February 28, 2017, upon emergence from bankruptcy, all outstanding stock options were cancelled. See Note 5 – Share-Based Compensation and Employee Benefit Plans.

On February 28, 2017, upon emergence from bankruptcy, the Predecessor Company’s existing common stockholders received warrants to purchase common stock of the Successor Company. See Note 2 – Reorganization. For the three months ended September 30, 2017 (Successor), all outstanding warrants (approximately 3,529,000) were considered antidilutive because the exercise price of the warrants exceeded the average price of our common stock for the applicable period. For the period of March 1, 2017 through September 30, 2017 (Successor), all outstanding warrants (approximately 3,529,000) were antidilutive because we had a net loss for such period.

The Predecessor Company had no outstanding restricted stock units. The Board received grants of restricted stock units on March 1, 2017. See Note 5 – Share-Based Compensation and Employee Benefit Plans. For the period from March 1, 2017 through September 30, 2017 (Successor), all outstanding restricted stock units (approximately 62,000) were considered antidilutive because we had a net loss for such period.

For the period from January 1, 2017 through February 28, 2017 (Predecessor), the average price of our common stock was less than the effective conversion price for the 2017 Convertible Notes, resulting in no dilutive effect on the diluted earnings per share computation for such period. For the three and nine months ended September 30, 2016 (Predecessor), the 2017 Convertible Notes had no dilutive effect on the diluted earnings per share computation as we had net losses for such periods. On February 28, 2017, upon emergence from bankruptcy, the 2017 Convertible Notes were cancelled. See Note 2 – Reorganization.
 
During the three months ended September 30, 2017 (Successor), there were no issuances of common stock of the Successor Company. During the period from March 1, 2017 through September 30, 2017 (Successor), 1,195 shares of common stock of the Successor Company were issued from authorized shares upon the lapsing of forfeiture restrictions of restricted stock for employees. During the periods from January 1, 2017 through February 28, 2017 (Predecessor) and the three and nine months ended September 30, 2016 (Predecessor), approximately 47,390 shares, 12,900 shares and 75,100 shares of Predecessor Company common stock, respectively, were issued from authorized shares upon the granting of stock awards and the lapsing of forfeiture restrictions of restricted stock for employees and nonemployee directors.  
 
NOTE 7 – DIVESTITURE

On February 27, 2017, we completed the sale of the Appalachia Properties to EQT for net cash consideration of approximately $522.5 million, representing gross proceeds of $527.0 million adjusted downward by approximately $4.5 million for purchase price adjustments for operations related to the Appalachia Properties after June 1, 2016, the effective date of the transaction. A portion of the consideration received from the sale of the Appalachia Properties was used to fund the Company’s cash payment obligations under the Plan. See Note 2 – Reorganization.

At December 31, 2016, the estimated proved oil and natural gas reserves associated with these assets totaled 18 MMBoe (million barrels of oil equivalent), which represented approximately 34% of our estimated proved oil and natural gas reserves on a volume equivalent basis. We no longer have assets or operations in Appalachia. Since accounting for the sale of these oil and gas properties as a reduction of the capitalized costs of oil and gas properties would have significantly altered the relationship between capitalized costs and reserves, we recognized a gain on the sale of $213.5 million during the period from January 1, 2017 through February 28, 2017 (Predecessor), computed as follows (in millions):
Net consideration received for sale of Appalachia Properties
 
$
522.5

Add:
Release of funds held in suspense
 
4.1

 
Transfer of asset retirement obligations
 
8.7

 
Other adjustments, net
 
2.6

Less:
Transaction costs
 
(7.1
)
 
Carrying value of properties sold
 
(317.3
)
Gain on sale
 
$
213.5


The carrying value of the properties sold was determined by allocating total capitalized costs within the U.S. full cost pool between properties sold and properties retained based on their relative fair values.


19



NOTE 8 – INVESTMENT IN OIL AND GAS PROPERTIES
 
With the adoption of fresh start accounting, the Company recorded its oil and gas properties at fair value as of February 28, 2017. The Company’s proved, probable and possible reserves and unevaluated properties (including inventory) were assigned values of $380.8 million, $16.8 million and $80.2 million, respectively. See Note 3 – Fresh Start Accounting for a discussion of the valuation approach used.

Under the full cost method of accounting, we compare, at the end of each financial reporting period, the present value of estimated future net cash flows from proved reserves (adjusted for designated cash flow hedges and excluding cash flows related to estimated abandonment costs) to the net capitalized costs of proved oil and gas properties, net of related deferred taxes. We refer to this comparison as a ceiling test. If the net capitalized costs of proved oil and gas properties exceed the estimated discounted future net cash flows from proved reserves, we are required to write down the value of our oil and gas properties to the value of the discounted cash flows.

At March 31, 2017 (Successor), our ceiling test computation resulted in a write-down of our U.S. oil and gas properties of $256.4 million based on twelve-month average prices, net of applicable differentials, of $45.40 per Bbl of oil, $2.24 per Mcf of natural gas and $19.18 per Bbl of natural gas liquids (“NGLs”). The write-down at March 31, 2017 is reflected in the statement of operations of the Successor Company for the period from March 1, 2017 through September 30, 2017 and was primarily due to differences between the trailing twelve-month average pricing assumption used in calculating the ceiling test and the forward prices used in fresh start accounting to estimate the fair value of our oil and gas properties on the fresh start reporting date of February 28, 2017. Weighted average commodity prices used in the determination of the fair value of our oil and gas properties for purposes of fresh start accounting were $56.01 per Bbl of oil, $2.52 per Mcf of natural gas and $14.18 per Bbl of NGLs, net of applicable differentials. Since none of our derivatives as of March 31, 2017 were designated as cash flow hedges (see Note 9 – Derivative Instruments and Hedging Activities), the write-down at March 31, 2017 was not affected by hedging.

At September 30, 2016 (Predecessor), our ceiling test computation resulted in a write-down of our U.S. oil and gas properties of $36.5 million based on twelve-month average prices, net of applicable differentials, of $40.51 per Bbl of oil, $1.99 per Mcf of natural gas and $13.88 per Bbl of NGLs. The write-down at September 30, 2016 was decreased by $9.6 million as a result of hedges. At June 30, 2016 (Predecessor), our ceiling test computation resulted in a write-down of our U.S. oil and gas properties of $118.6 million based on twelve-month average prices, net of applicable differentials, of $43.49 per Bbl of oil, $1.93 per Mcf of natural gas and $9.33 per Bbl of NGLs. The write-down at June 30, 2016 was decreased by $18.1 million as a result of hedges. At March 31, 2016 (Predecessor), our ceiling test computation resulted in a write-down of our U.S. oil and gas properties of $128.9 million based on twelve-month average prices, net of applicable differentials, of $46.72 per Bbl of oil, $2.01 per Mcf of natural gas and $13.65 per Bbl of NGLs. At March 31, 2016, the write-down of oil and gas properties also included $0.3 million related to our Canadian oil and gas properties, which were deemed to be fully impaired at the end of 2015. The write-down at March 31, 2016 was decreased by $23 million as a result of hedges. The September 30, June 30 and March 31, 2016 write-downs are reflected in the statement of operations of the Predecessor Company.

NOTE 9 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
Our hedging strategy is designed to protect our near and intermediate term cash flows from future declines in oil and natural gas prices. This protection is essential to capital budget planning, which is sensitive to expenditures that must be committed to in advance, such as rig contracts and the purchase of tubular goods. We enter into derivative transactions to secure a commodity price for a portion of our expected future production that is acceptable at the time of the transaction. We do not enter into derivative transactions for trading purposes.

All derivatives are recognized as assets or liabilities on the balance sheet and are measured at fair value. At the end of each quarterly period, these derivatives are marked-to-market. If the derivative does not qualify or is not designated as a cash flow hedge, subsequent changes in the fair value of the derivative are recognized in earnings through derivative income (expense) in the statement of operations. If the derivative qualifies and is designated as a cash flow hedge, subsequent changes in the fair value of the derivative are recognized in stockholders’ equity through other comprehensive income (loss), net of related taxes, to the extent the hedge is considered effective. Monthly settlements of effective hedges are reflected in revenue from oil and natural gas production. Monthly settlements of ineffective hedges and derivatives not designated or that do not qualify for hedge accounting are recognized in earnings through derivative income (expense). The resulting cash flows from all monthly settlements are reported as cash flows from operating activities.
Through December 31, 2016, we designated our commodity derivatives as cash flow hedges for accounting purposes upon entering into the contracts. A small portion of our cash flow hedges were typically determined to be ineffective because oil and natural gas price changes in the markets in which we sell our products were not 100% correlative to changes in the underlying price basis indicative in the derivative contract. We had no outstanding derivatives at December 31, 2016. With respect to our 2017, 2018 and 2019 commodity derivative contracts, we have elected to not designate these contracts as cash flow hedges for accounting purposes. Accordingly, the net changes in the mark-to-market valuations and the monthly settlements on these derivative contracts will be recorded in earnings through derivative income (expense).

20



We have entered into put contracts, fixed-price swaps and collar contracts with various counterparties for a portion of our expected 2017, 2018 and 2019 oil and natural gas production from the Gulf Coast Basin. All of our derivative transactions have been carried out in the over-the-counter market and are not typically subject to margin-deposit requirements. The use of derivative instruments involves the risk that the counterparties will be unable to meet the financial terms of such transactions. The counterparties to all of our derivative instruments have an “investment grade” credit rating. We monitor the credit ratings of our derivative counterparties on an ongoing basis. Although we typically enter into derivative contracts with multiple counterparties to mitigate our exposure to any individual counterparty, if any of our counterparties were to default on its obligations to us under the derivative contracts or seek bankruptcy protection, we may not realize the benefit of some of our derivative instruments and incur a loss. At November 1, 2017, our derivative instruments were with five counterparties, two of which accounted for approximately 64% of our contracted volumes. Currently, all of our outstanding derivative instruments are with lenders under our current bank credit facility. 

Put contracts are purchased at a rate per unit of hedged production that fluctuates with the commodity futures market. The historical cost of the put contract represents our maximum cash exposure. We are not obligated to make any further payments under the put contract regardless of future commodity price fluctuations. Under put contracts, monthly payments are made to us if the New York Mercantile Exchange (“NYMEX”) prices fall below the agreed upon floor price, while allowing us to fully participate in commodity prices above the floor. Swaps typically provide for monthly payments by us if prices rise above the swap price or monthly payments to us if prices fall below the swap price. Collar contracts typically require payments by us if the NYMEX average closing price is above the ceiling price or payments to us if the NYMEX average closing price is below the floor price. Settlements for our oil put contracts, oil collar contracts and fixed-price oil swaps are based on an average of the NYMEX closing price for West Texas Intermediate crude oil during the entire calendar month. Settlements for our natural gas collar contracts and fixed-price natural gas swaps are based on the NYMEX price for the last day of a respective contract month.

The following tables illustrate our derivative positions for calendar years 2017, 2018 and 2019 as of November 1, 2017:
 
 
Put Contracts (NYMEX)
 
 
Oil
 
 
Daily Volume
(Bbls/d)
 
Price
($ per Bbl)
2017
February - December
2,000

 
$
50.00

2017
July - December
1,000

 
41.10

2018
January - December
1,000

 
54.00

2018
January - December
1,000

 
45.00


 
 
Fixed-Price Swaps (NYMEX)
 
 
Natural Gas
 
Oil
 
 
Daily Volume
(MMBtus/d)
 
Swap Price
($ per MMBtu)
 
Daily Volume
(Bbls/d)
 
Swap Price
($ per Bbl)
2017
March - December


 


 
1,000

 
$
53.90

2017
July - December
11,000

 
$
3.00

 
 
 
 
2017
October - December
 
 
 
 
1,000

 
52.10

2018
January - December


 


 
1,000

 
52.50

2018
January - December
 
 
 
 
1,000

 
51.98

2018
January - December
 
 
 
 
1,000

 
53.67

2019
January - December
 
 
 
 
1,000

 
51.00

2019
January - December
 
 
 
 
1,000

 
51.57


 
 
Collar Contracts (NYMEX)
 
 
Natural Gas
 
Oil
 
 
Daily Volume
(MMBtus/d)
 
Floor Price
($ per MMBtu)
 
Ceiling Price
($ per MMBtu)
 
Daily Volume
(Bbls/d)
 
Floor Price
($ per Bbl)
 
Ceiling Price
($ per Bbl)
2017
March - December
 
 
 
 
 
 
1,000

 
$
50.00

 
$
56.45

2017
April - December
 
 
 
 
 
 
1,000

 
50.00

 
56.75

2018
January - December
6,000

 
$
2.75

 
$
3.24

 
1,000

 
45.00

 
55.35


21




Derivatives not designated or not qualifying as hedging instruments

The following table discloses the location and fair value amounts of derivatives not designated or not qualifying as hedging instruments, as reported in our balance sheet, at September 30, 2017 (Successor) (in millions). We had no outstanding hedging instruments at December 31, 2016 (Predecessor). 
Fair Value of Derivatives Not Designated or Not Qualifying as Hedging Instruments at
September 30, 2017
(Successor)
 
Asset Derivatives
 
Liability Derivatives
Description
Balance Sheet Location
 
Fair
Value
 
Balance Sheet Location
 
Fair
Value
Commodity contracts
Current assets: Fair value of
derivative contracts
 
$
2.6

 
Current liabilities: Fair value of derivative contracts
 
$
0.4

 
Long-term assets: Fair value
of derivative contracts
 
1.0

 
Long-term liabilities: Fair
value of derivative contracts
 
0.1

 
 
 
$
3.6

 
 
 
$
0.5

 
 
 
 
 
 
 
 
Gains or losses related to changes in fair value and cash settlements for derivatives not designated or not qualifying as hedging instruments are recorded as derivative income (expense) in the statement of operations. The following table discloses the before tax effect of our derivatives not designated or not qualifying as hedging instruments on the statement of operations for the three months ended September 30, 2017 (Successor), the period from January 1, 2017 through February 28, 2017 (Predecessor) and the period from March 1, 2017 through September 30, 2017 (Successor) (in millions).

Gain (Loss) Recognized in Derivative Income (Expense)
 
Successor
 
Successor
 
 
Predecessor
 
Three Months Ended
September 30, 2017
 
Period from
March 1, 2017
through
September 30, 2017
 
 
Period from
January 1, 2017
through
February 28, 2017
Description
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
Cash settlements
$
1.2

 
$
2.6

 
 
$

Change in fair value
(7.9
)
 
(1.2
)
 
 
(1.8
)
Total gains (losses) on derivatives not designated or not qualifying as hedging instruments
$
(6.7
)
 
$
1.4

 
 
$
(1.8
)

Derivatives qualifying as hedging instruments
 
None of our derivative contracts outstanding as of September 30, 2017 (Successor) were designated as accounting hedges. We had no outstanding derivatives at December 31, 2016 (Predecessor). At September 30, 2016, we had outstanding derivatives that were designated and qualified as hedging instruments. The following tables disclose the before tax effect of derivatives qualifying as hedging instruments, as reported in the statement of operations, during the three and nine months ended September 30, 2016 (Predecessor) (in millions):


22



Effect of Derivatives Qualifying as Hedging Instruments on the Statement of Operations
 
for the Three Months Ended September 30, 2016
 
(Predecessor)
 
Derivatives in
Cash Flow Hedging
Relationships
 
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives
 
Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) (a)
 
Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion)
 
 
 
2016
 
Location
 
2016
 
Location
 
2016
 
Commodity contracts
 
$
2.3

 
Operating revenue - oil/natural gas production
 
$
7.7

 
Derivative income (expense), net
 
$
(0.2
)
 
Total
 
$
2.3

 
 
 
$
7.7

 
 
 
$
(0.2
)


(a) For the three months ended September 30, 2016, effective hedging contracts increased oil revenue by $5.3 million and increased natural gas revenue by $2.4 million.
Effect of Derivatives Qualifying as Hedging Instruments on the Statement of Operations
 
for the Nine Months Ended September 30, 2016
 
(Predecessor)
 
Derivatives in
Cash Flow Hedging
Relationships
 
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives
 
Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) (a)
 
Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion)
 
 
 
2016
 
Location
 
2016
 
Location
 
2016
 
Commodity contracts
 
$
(1.7
)
 
Operating revenue - oil/natural gas production
 
$
29.4

 
Derivative income (expense), net
 
$
(0.7
)
 
Total
 
$
(1.7
)
 
 
 
$
29.4

 
 
 
$
(0.7
)
 

(a) For the nine months ended September 30, 2016, effective hedging contracts increased oil revenue by $19.7 million and increased natural gas revenue by $9.7 million.

Offsetting of derivative assets and liabilities
 
Our derivative contracts are subject to netting arrangements. It is our policy to not offset our derivative contracts in presenting the fair value of these contracts as assets and liabilities in our balance sheet. The following table presents the potential impact of the offset rights associated with our recognized assets and liabilities at September 30, 2017 (Successor) (in millions):
 
 
As Presented Without Netting
 
Effects of Netting
 
With Effects of Netting
 
 
 
 
 
 
 
Current assets: Fair value of derivative contracts
 
$
2.6

 
$
(0.4
)
 
$
2.2

Long-term assets: Fair value of derivative contracts
 
1.0

 
(0.1
)
 
0.9

Current liabilities: Fair value of derivative contracts
 
(0.4
)
 
0.4

 

Long-term liabilities: Fair value of derivative contracts
 
(0.1
)
 
0.1

 


We had no outstanding derivative contracts at December 31, 2016 (Predecessor).


23



NOTE 10 – DEBT
 
Our debt balances (net of related unamortized discounts and debt issuance costs) as of September 30, 2017 and December 31, 2016 were as follows (in millions):
 
Successor
 
 
Predecessor
 
September 30,
2017
 
 
December 31,
2016
7 ½% Senior Second Lien Notes due 2022
$
225.0

 
 
$

1 ¾% Senior Convertible Notes due 2017

 
 
300.0

7 ½% Senior Notes due 2022

 
 
775.0

Predecessor revolving credit facility

 
 
341.5

4.20% Building Loan
11.0

 
 
11.3

Total debt
236.0

 
 
1,427.8