Guarantor Financial Statements

6 Months Ended

Jun. 30, 2011

Guarantor Financial Statements [Abstract]

Guarantor Financial Statements

Note 9 — Guarantor Financial Statements

     Stone Offshore is an unconditional guarantor (the “Guarantor Subsidiary”) of our 6³/4% Senior Subordinated Notes due 2014 and our 8⁵/8% Senior Notes due 2017. Our remaining subsidiaries (the “Non-Guarantor Subsidiaries”) have not provided guarantees. The following presents condensed consolidating financial information as of June 30, 2011 and December 31, 2010 and for the three and six-month periods ended June 30, 2011 and 2010 on an issuer (parent company), guarantor subsidiary, non-guarantor subsidiaries, and consolidated basis. Elimination entries presented are necessary to combine the entities.

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
JUNE 30, 2011
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	81,589		$	319		$	113		$	—		$	82,021
Accounts receivable		161,028			89,968			1,318			(120,187	)		132,127
Fair value of hedging contracts		—			11,531			—			—			11,531
Current income tax receivable		4,050			2,353			—			—			6,403
Deferred taxes *		3,168			22,859			—			—			26,027
Inventory		5,018			284			—			—			5,302
Other current assets		1,248			—			—			—			1,248
Total current assets		256,101			127,314			1,431			(120,187	)		264,659
Oil and gas properties, full cost method:
Proved, net		134,198			861,144			3,429			—			998,771
Unevaluated		320,977			189,740			—			—			510,717
Other property and equipment, net		10,754			—			—			—			10,754
Fair value of hedging contracts		—			4,748			—			—			4,748
Other assets, net		24,694			—			—			—			24,694
Investment in subsidiary		532,538			2,383			—			(534,921	)		—
Total assets	$	1,279,262		$	1,185,329		$	4,860		$	(655,108	)	$	1,814,343
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	74,089		$	139,153		$	—		$	(120,188	)	$	93,054
Undistributed oil and gas proceeds		13,451			1,255			—			—			14,706
Accrued interest		14,058			—			—			—			14,058
Fair value of hedging contracts		—			25,384			—			—			25,384
Asset retirement obligations		—			48,590			—			—			48,590
Other current liabilities		11,897			3,953			—			—			15,850
Total current liabilities		113,495			218,335			—			(120,188	)		211,642
Long-term debt		575,000			—			—			—			575,000
Deferred taxes *		41,523			116,167			—			—			157,690
Asset retirement obligations		190			301,570			4,597			—			306,357
Fair value of hedging contracts		—			7,887			—			—			7,887
Other long-term liabilities		14,769			6,713			—			—			21,482
Total liabilities		744,977			650,672			4,597			(120,188	)		1,280,058
Commitments and contingencies
Stockholders’ equity:
Common stock		480			—			—			—			480
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,334,800			1,673,597			1,639			(1,675,236	)		1,334,800
Accumulated earnings (deficit)		(789,569	)		(1,128,374	)		(1,376	)		1,129,750			(789,569	)
Accumulated other comprehensive income (loss)		(10,566	)		(10,566	)		—			10,566			(10,566	)
Total stockholders’ equity		534,285			534,657			263			(534,920	)		534,285
Total liabilities and stockholders’ equity	$	1,279,262		$	1,185,329		$	4,860		$	(655,108	)	$	1,814,343

* Deferred income taxes have been allocated to guarantor subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2010
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	105,115		$	1,659		$	182		$	—		$	106,956
Restricted cash		5,500			—			—			—			5,500
Accounts receivable		26,760			61,560			902			(693	)		88,529
Fair value of hedging contracts		12,955			—			—			—			12,955
Deferred taxes *		27,274			—			—			—			27,274
Inventory		6,168			297			—			—			6,465
Other current assets		753			15			—			—			768
Total current assets		184,525			63,531			1,084			(693	)		248,447
Oil and gas properties, full cost method:
Proved, net		260,434			720,309			3,886			—			984,629
Unevaluated		337,725			75,455			—			—			413,180
Other property and equipment, net		10,722			—			—			—			10,722
Other assets, net		22,112			—			—			—			22,112
Investment in subsidiary		427,273			1,561			—			(428,834	)		—
Total assets	$	1,242,791		$	860,856		$	4,970		$	(429,527	)	$	1,679,090
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	60,019		$	43,881		$	—		$	(692	)	$	103,208
Undistributed oil and gas proceeds		9,491			546			—			—			10,037
Accrued interest		14,062			—			—			—			14,062
Fair value of hedging contracts		32,144			—			—			—			32,144
Asset retirement obligations		—			42,300			—			—			42,300
Current income tax payable		239			—			—			—			239
Other current liabilities		16,075			—			—			—			16,075
Total current liabilities		132,030			86,727			—			(692	)		218,065
Long-term debt		575,000			—			—			—			575,000
Deferred taxes *		(41,804	)		141,031			—			—			99,227
Asset retirement obligations		129,100			198,105			4,415			—			331,620
Fair value of hedging contracts		3,606			—			—			—			3,606
Other long-term liabilities		14,502			6,713			—			—			21,215
Total liabilities		812,434			432,576			4,415			(692	)		1,248,733
Commitments and contingencies
Stockholders’ equity:
Common stock		478			—			—			—			478
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,331,500			1,673,598			1,640			(1,675,238	)		1,331,500
Accumulated earnings (deficit)		(886,557	)		(1,245,318	)		(1,085	)		1,246,403			(886,557	)
Accumulated other comprehensive loss		(14,204	)		—			—			—			(14,204	)
Total stockholders’ equity		430,357			428,280			555			(428,835	)		430,357
Total liabilities and stockholders’ equity	$	1,242,791		$	860,856		$	4,970		$	(429,527	)	$	1,679,090

* Deferred income taxes have been allocated to guarantor subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2011
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	732		$	174,625		$	—		$	—		$	175,357
Gas production		4,303			52,210			—			—			56,513
Other operational income		587			104			173			—			864
Derivative income, net		—			1,398			—			—			1,398
Total operating revenue		5,622			228,337			173			—			234,132
Operating expenses:
Lease operating expenses		390			46,344			—			—			46,734
Other operational expense		93			40			3			—			136
Production taxes		245			1,556			—			—			1,801
Depreciation, depletion, amortization		(24	)		72,426			244			—			72,646
Accretion expense		4			7,622			91			—			7,717
Salaries, general and administrative		10,562			48			—			—			10,610
Incentive compensation expense		2,333			—			—			—			2,333
Total operating expenses		13,603			128,036			338			—			141,977
Income (loss) from operations		(7,981	)		100,301			(165	)		—			92,155
Other (income) expenses:
Interest expense		1,979			1			—			—			1,980
Interest income		(53	)		—			—			—			(53	)
Other (income) expense, net		56			(547	)		(3	)		—			(494	)
Loss on early extinguishment of debt		607			—			—			—			607
(Income) loss from investment in subsidiaries		(63,621	)		162			—			63,459			—
Total other (income) expenses		(61,032	)		(384	)		(3	)		63,459			2,040
Income (loss) before taxes		53,051			100,685			(162	)		(63,459	)		90,115
Provision (benefit) for income taxes:
Current		(9	)		(2,353	)		—			—			(2,362	)
Deferred		(4,136	)		39,417			—			—			35,281
Total income taxes		(4,145	)		37,064			—			—			32,919
Net income (loss)	$	57,196		$	63,621		$	(162	)	$	(63,459	)	$	57,196

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2010
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	13,533		$	89,626		$	—		$	—		$	103,159
Gas production		16,406			44,417			—			—			60,823
Other operational income		1,205			(18	)		244			—			1,431
Derivative income, net		2,225			—			—			—			2,225
Total operating revenue		33,369			134,025			244			—			167,638
Operating expenses:
Lease operating expenses		6,285			30,598			—			—			36,883
Other operational expense		1,275			1,172			—			—			2,447
Production taxes		1,256			334			—			—			1,590
Depreciation, depletion, amortization		10,318			53,170			277			—			63,765
Accretion expense		3,627			4,724			111			—			8,462
Salaries, general and administrative		9,960			3			—			—			9,963
Incentive compensation expense		421			—			—			—			421
Total operating expenses		33,142			90,001			388			—			123,531
Income (loss) from operations		227			44,024			(144	)		—			44,107
Other (income) expenses:
Interest expense		2,563			(23	)		—			—			2,540
Interest income		(1,002	)		—			—			—			(1,002	)
Other (income) expense, net		196			(1	)		14			—			209
(Income) loss from investment in subsidiaries		(28,617	)		158			—			28,459			—
Total other (income) expenses		(26,860	)		134			14			28,459			1,747
Income (loss) before taxes		27,087			43,890			(158	)		(28,459	)		42,360
Provision (benefit) for income taxes:
Current		(1,304	)		(88	)		—			—			(1,392	)
Deferred		519			15,361			—			—			15,880
Total income taxes		(785	)		15,273			—			—			14,488
Net income (loss)	$	27,872		$	28,617		$	(158	)	$	(28,459	)	$	27,872

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2011
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	1,518		$	325,834		$	—		$	—		$	327,352
Gas production		5,583			96,788			—			—			102,371
Other operational income		1,309			85			355			—			1,749
Total operating revenue		8,410			422,707			355			—			431,472
Operating expenses:
Lease operating expenses		746			84,794			—			—			85,540
Other operational expense		93			702			3			—			798
Production taxes		392			3,944			—			—			4,336
Depreciation, depletion, amortization		5,918			133,936			461			—			140,315
Accretion expense		8			15,244			182			—			15,434
Salaries, general and administrative		22,293			50			—			—			22,343
Incentive compensation expense		5,017			—			—			—			5,017
Derivative expenses, net		—			782			—			—			782
Total operating expenses		34,467			239,452			646			—			274,565
Income (loss) from operations		(26,057	)		183,255			(291	)		—			156,907
Other (income) expenses:
Interest expense		5,010			81			—			—			5,091
Interest income		(141	)		(6	)		—			—			(147	)
Other (income) expense, net		179			(1,113	)		—			—			(934	)
Loss on early extinguishment of debt		607			—			—			—			607
(Income) loss from investment in subsidiaries		(116,944	)		291			—			116,653			—
Total other (income) expenses		(111,289	)		(747	)		—			116,653			4,617
Income (loss) before taxes		85,232			184,002			(291	)		(116,653	)		152,290
Provision (benefit) for income taxes:
Current		(9	)		(2,353	)		—			—			(2,362	)
Deferred		(11,747	)		69,411			—			—			57,664
Total income taxes		(11,756	)		67,058			—			—			55,302
Net income (loss)	$	96,988		$	116,944		$	(291	)	$	(116,653	)	$	96,988

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2010
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	24,609		$	179,115		$	—		$	—		$	203,724
Gas production		29,424			94,625			—			—			124,049
Other operational income		2,187			(30	)		530			—			2,687
Derivative income, net		3,413			—			—			—			3,413
Total operating revenue		59,633			273,710			530			—			333,873
Operating expenses:
Lease operating expenses		17,196			58,351			—			—			75,547
Other operational expense		1,275			1,172			—			—			2,447
Production taxes		2,309			935			—			—			3,244
Depreciation, depletion, amortization		20,826			103,049			543			—			124,418
Accretion expense		7,254			9,449			221			—			16,924
Salaries, general and administrative		20,442			6			—			—			20,448
Incentive compensation expense		1,346			—			—			—			1,346
Total operating expenses		70,648			172,962			764			—			244,374
Income (loss) from operations		(11,015	)		100,748			(234	)		—			89,499
Other (income) expenses:
Interest expense		6,629			(23	)		—			—			6,606
Interest income		(1,057	)		(2	)		—			—			(1,059	)
Other (income) expense, net		369			(672	)		16			—			(287	)
Loss on early extinguishment of debt		1,820			—			—			—			1,820
(Income) loss from investment in subsidiaries		(65,865	)		250			—			65,615			—
Total other (income) expenses		(58,104	)		(447	)		16			65,615			7,080
Income (loss) before taxes		47,089			101,195			(250	)		(65,615	)		82,419
Provision (benefit) for income taxes:
Current		(5,176	)		(88	)		—			—			(5,264	)
Deferred		(1,025	)		35,418			—			—			34,393
Total income taxes		(6,201	)		35,330			—			—			29,129
Net income (loss)	$	53,290		$	65,865		$	(250	)	$	(65,615	)	$	53,290

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2011
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	96,988		$	116,944		$	(291	)	$	(116,653	)	$	96,988
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		5,918			133,936			461			—			140,315
Accretion expense		8			15,244			182			—			15,434
Deferred income tax provision (benefit)		(11,747	)		69,411			—			—			57,664
Settlement of asset retirement obligations		—			(33,568	)		—			—			(33,568	)
Non-cash stock compensation expense		3,138			—			—			—			3,138
Excess tax benefits		(1,060	)		—			—			—			(1,060	)
Non-cash derivative income		—			(118	)		—			—			(118	)
Loss on early extinguishment of debt		607			—			—			—			607
Non-cash (income) loss from investment in subsidiaries		(116,944	)		291			—			116,653			—
Other non-cash expense (income)		959			(1,114	)		—			—			(155	)
Change in current income taxes		(3,893	)		(2,352	)		—			—			(6,245	)
Change in intercompany receivables/payables		149,716			(149,290	)		(426	)		—			—
(Increase) decrease in accounts receivable		(15,198	)		(22,239	)		9			—			(37,428	)
(Increase) decrease in other current assets		(491	)		15			—			—			(476	)
Decrease in inventory		1,149			14			—			—			1,163
Increase in accounts payable		2,494			3,360			—			—			5,854
Increase (decrease) in other current liabilities		(224	)		4,664			—			—			4,440
Other		(21	)		—			—			—			(21	)
Net cash provided by (used in) operating activities		111,399			135,198			(65	)		—			246,532
Cash flows from investing activities:
Investment in oil and gas properties		(134,792	)		(137,655	)		(4	)		—			(272,451	)
Proceeds from sale of oil and gas properties, net of expenses		5,575			1,117			—			—			6,692
Investment in fixed and other assets		(894	)		—			—			—			(894	)
Net cash used in investing activities		(130,111	)		(136,538	)		(4	)		—			(266,653	)
Cash flows from financing activities:
Deferred financing costs		(4,017	)		—			—			—			(4,017	)
Excess tax benefits		1,060			—			—			—			1,060
Net payments for share based compensation		(1,857	)		—			—			—			(1,857	)
Net cash used in financing activities		(4,814	)		—			—			—			(4,814	)
Net decrease in cash and cash equivalents		(23,526	)		(1,340	)		(69	)		—			(24,935	)
Cash and cash equivalents, beginning of period		105,115			1,659			182			—			106,956
Cash and cash equivalents, end of period	$	81,589		$	319		$	113		$	—		$	82,021

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2010
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	53,290		$	65,865		$	(250	)	$	(65,615	)	$	53,290
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		20,826			103,049			543			—			124,418
Accretion expense		7,254			9,449			221			—			16,924
Deferred income tax provision (benefit)		(1,025	)		35,418			—			—			34,393
Settlement of asset retirement obligations		(960	)		(18,838	)		—			—			(19,798	)
Non-cash stock compensation expense		2,741			—			—			—			2,741
Excess tax benefits		(294	)		—			—			—			(294	)
Non-cash derivative income		(1,818	)		—			—			—			(1,818	)
Loss on early extinguishment of debt		1,820			—			—			—			1,820
Non-cash (income) loss from investment in subsidiaries		(65,865	)		250			—			65,615			—
Other non-cash expenses		519			—			—			—			519
Change in current income taxes		(8,725	)		(88	)		—			—			(8,813	)
(Increase) decrease in accounts receivable		149,721			(121,407	)		(814	)		—			27,500
(Increase) decrease in other current assets		(181	)		28			—			—			(153	)
Decrease in inventory		813			123			—			—			936
Increase (decrease) in accounts payable		47			(62	)		—			—			(15	)
Decrease in other current liabilities		(21,209	)		(260	)		—			—			(21,469	)
Other		181			(28	)		—			—			153
Net cash provided by (used in) operating activities		137,135			73,499			(300	)		—			210,334
Cash flows from investing activities:
Investment in oil and gas properties		(92,960	)		(76,939	)		(84	)		—			(169,983	)
Proceeds from sale of oil and gas properties, net of expenses		29,047			680			—			—			29,727
Investment in fixed and other assets		(1,125	)		—			—			—			(1,125	)
Net cash used in investing activities		(65,038	)		(76,259	)		(84	)		—			(141,381	)
Cash flows from financing activities:
Repayment of bank borrowings		(125,000	)		—			—			—			(125,000	)
Redemption of senior subordinated notes		(200,503	)		—			—			—			(200,503	)
Proceeds from issuance of senior notes		275,000			—			—			—			275,000
Deferred financing costs		(9,701	)		—			—			—			(9,701	)
Excess tax benefits		294			—			—			—			294
Net payments for share based compensation		(1,071	)		—			—			—			(1,071	)
Net cash used in financing activities		(60,981	)		—			—			—			(60,981	)
Net increase (decrease) in cash and cash equivalents		11,116			(2,760	)		(384	)		—			7,972
Cash and cash equivalents, beginning of period		64,830			3,963			500			—			69,293
Cash and cash equivalents, end of period	$	75,946		$	1,203		$	116		$	—		$	77,265