Guarantor Financial Statements

9 Months Ended

Sep. 30, 2011

Guarantor Financial Statements [Abstract]

Guarantor Financial Statements

Note 10 — 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 September 30, 2011 and December 31, 2010 and for the three and nine-month periods ended September 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)
SEPTEMBER 30, 2011
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	64,426		$	915		$	113		$	—		$	65,454
Accounts receivable		78,421			69,702			1,226			(35,802	)		113,547
Fair value of hedging contracts		—			56,767			—			—			56,767
Current income tax receivable		19,796			2,353			—			—			22,149
Deferred taxes *		4,684			29			—			—			4,713
Inventory		4,519			283			—			—			4,802
Other current assets		933			—			—			—			933
Total current assets		172,779			130,049			1,339			(35,802	)		268,365
Oil and gas properties, full cost method:
Proved, net		239,458			849,496			3,211			—			1,092,165
Unevaluated		305,945			205,629			—			—			511,574
Other property and equipment, net		11,191			—			—			—			11,191
Fair value of hedging contracts		—			50,171			—			—			50,171
Other assets, net		23,795			—			—			—			23,795
Investment in subsidiary		668,677			2,347			—			(671,024	)		—
Total assets	$	1,421,845		$	1,237,692		$	4,550			($706,826	)	$	1,957,261
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	75,576		$	50,885		$	—			($35,802	)	$	90,659
Undistributed oil and gas proceeds		15,609			1,315			—			—			16,924
Accrued interest		9,358			—			—			—			9,358
Fair value of hedging contracts		—			951			—			—			951
Asset retirement obligations		—			55,068			—			—			55,068
Other current liabilities		15,786			1,710			—			—			17,496
Total current liabilities		116,329			109,929			—			(35,802	)		190,456
Long-term debt		575,000			—			—			—			575,000
Deferred taxes *		54,226			165,167			—			—			219,393
Asset retirement obligations		194			284,721			4,689			—			289,604
Other long-term liabilities		12,322			6,712			—			—			19,034
Total liabilities		758,071			566,529			4,689			(35,802	)		1,293,487
Commitments and contingencies
Stockholders’ equity:
Common stock		481			—			—			—			481
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,336,460			1,673,597			1,639			(1,675,236	)		1,336,460
Accumulated earnings (deficit)		(737,748	)		(1,067,875	)		(1,778	)		1,069,653			(737,748	)
Accumulated other comprehensive income (loss).		65,441			65,441			—			(65,441	)		65,441
Total stockholders’ equity		663,774			671,163			(139	)		(671,024	)		663,774
Total liabilities and stockholders’ equity	$	1,421,845		$	1,237,692		$	4,550			($706,826	)	$	1,957,261

* 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 SEPTEMBER 30, 2011
(In thousands of dollars)

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	1,248		$	156,188		$	—		$	—		$	157,436
Gas production		6,772			43,472			—			—			50,244
Other operational income		1,050			94			101			—			1,245
Derivative income, net		—			4,082			—			—			4,082
Total operating revenue		9,070			203,836			101			—			213,007
Operating expenses:
Lease operating expenses		1,716			45,858			193			—			47,767
Other operational expense		622			32			—			—			654
Production taxes		422			2,070			—			—			2,492
Depreciation, depletion, amortization		5,615			58,630			217			—			64,462
Accretion expense		3			7,605			92			—			7,700
Salaries, general and administrative		7,193			(43	)		1			—			7,151
Incentive compensation expense		2,087			—			—			—			2,087
Total operating expenses		17,658			114,152			503			—			132,313
Income (loss) from operations		(8,588	)		89,684			(402	)		—			80,694
Other (income) expenses:
Interest expense		1,305			74			—			—			1,379
Interest income		(23	)		—			—			—			(23	)
Other (income) expense, net		302			(366	)		—			—			(64	)
(Income) loss from investment in subsidiaries		(60,498	)		401			—			60,097			—
Total other (income) expenses		(58,914	)		109			—			60,097			1,292
Income (loss) before taxes		50,326			89,575			(402	)		(60,097	)		79,402
Provision (benefit) for income taxes:
Current		(12,681	)		—			—			—			(12,681	)
Deferred		11,186			29,076			—			—			40,262
Total income taxes		(1,495	)		29,076			—			—			27,581
Net income (loss)	$	51,821		$	60,499			($402	)		($60,097	)	$	51,821

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

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	16,653		$	81,035		$	—		$	—		$	97,688
Gas production		14,742			40,780			—			—			55,522
Other operational income		1,509			—			293			—			1,802
Derivative income, net		405			—			—			—			405
Total operating revenue		33,309			121,815			293			—			155,417
Operating expenses:
Lease operating expenses		19,865			17,017			—			—			36,882
Other operational expense		698			2,305			—			—			3,003
Production taxes		1,172			345			—			—			1,517
Depreciation, depletion, amortization		10,824			49,418			240			—			60,482
Accretion expense		3,624			4,725			111			—			8,460
Salaries, general and administrative		9,742			8			1			—			9,751
Incentive compensation expense		767			—			—			—			767
Total operating expenses		46,692			73,818			352			—			120,862
Income (loss) from operations		(13,383	)		47,997			(59	)		—			34,555
Other (income) expenses:
Interest expense		2,654			13			—			—			2,667
Interest income		(49	)		(2	)		—			—			(51	)
Other (income) expense, net		73			(16	)		—			—			57
(Income) loss from investment in subsidiaries		(29,671	)		59			—			29,612			—
Total other (income) expenses		(26,993	)		54			—			29,612			2,673
Income (loss) before taxes		13,610			47,943			(59	)		(29,612	)		31,882
Provision (benefit) for income taxes:
Current		10,182			—			—			—			10,182
Deferred		(15,954	)		18,272			—			—			2,318
Total income taxes		(5,772	)		18,272			—			—			12,500
Net income (loss)	$	19,382		$	29,671			($59	)		($29,612	)	$	19,382

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

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	2,766		$	482,022		$	—		$	—		$	484,788
Gas production		12,355			140,260			—			—			152,615
Other operational income		2,359			179			456			—			2,994
Derivative income, net		—			3,300			—			—			3,300
Total operating revenue		17,480			625,761			456			—			643,697
Operating expenses:
Lease operating expenses		2,462			130,652			193			—			133,307
Other operational expense		715			734			3			—			1,452
Production taxes		814			6,014			—			—			6,828
Depreciation, depletion, amortization		11,533			192,566			678			—			204,777
Accretion expense		11			22,849			274			—			23,134
Salaries, general and administrative		29,486			7			1			—			29,494
Incentive compensation expense		7,104			—			—			—			7,104
Total operating expenses		52,125			352,822			1,149			—			406,096
Income (loss) from operations		(34,645	)		272,939			(693	)		—			237,601
Other (income) expenses:
Interest expense		6,315			155			—			—			6,470
Interest income		(164	)		(6	)		—			—			(170	)
Other (income) expense, net		481			(1,479	)		—			—			(998	)
Loss on early extinguishment of debt		607			—			—			—			607
(Income) loss from investment in subsidiaries		(177,442	)		692			—			176,750			—
Total other (income) expenses		(170,203	)		(638	)		—			176,750			5,909
Income (loss) before taxes		135,558			273,577			(693	)		(176,750	)		231,692
Provision (benefit) for income taxes:
Current		(12,690	)		(2,353	)		—			—			(15,043	)
Deferred		(561	)		98,487			—			—			97,926
Total income taxes		(13,251	)		96,134			—			—			82,883
Net income (loss)	$	148,809		$	177,443			($693	)		($176,750	)	$	148,809

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

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	41,262		$	260,150		$	—		$	—		$	301,412
Gas production		44,166			135,405			—			—			179,571
Other operational income		3,696			(30	)		823			—			4,489
Derivative income, net		3,818			—			—			—			3,818
Total operating revenue		92,942			395,525			823			—			489,290
Operating expenses:
Lease operating expenses		37,061			75,368			—			—			112,429
Other operational expense		1,973			3,477			—			—			5,450
Production taxes		3,481			1,280			—			—			4,761
Depreciation, depletion, amortization		31,650			152,467			783			—			184,900
Accretion expense		10,878			14,174			332			—			25,384
Salaries, general and administrative		30,184			14			1			—			30,199
Incentive compensation expense		2,113			—			—			—			2,113
Total operating expenses		117,340			246,780			1,116			—			365,236
Income (loss) from operations		(24,398	)		148,745			(293	)		—			124,054
Other (income) expenses:
Interest expense		9,283			(10	)		—			—			9,273
Interest income		(1,106	)		(4	)		—			—			(1,110	)
Other (income) expense, net		442			(688	)		16			—			(230	)
Loss on early extinguishment of debt		1,820			—			—			—			1,820
(Income) loss from investment in subsidiaries		(95,536	)		309			—			95,227			—
Total other (income) expenses		(85,097	)		(393	)		16			95,227			9,753
Income (loss) before taxes		60,699			149,138			(309	)		(95,227	)		114,301
Provision (benefit) for income taxes:
Current		5,006			(88	)		—			—			4,918
Deferred		(16,979	)		53,690			—			—			36,711
Total income taxes		(11,973	)		53,602			—			—			41,629
Net income (loss)	$	72,672		$	95,536			($309	)		($95,227	)	$	72,672

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

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	148,809		$	177,443			($693	)		($176,750	)	$	148,809
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		11,533			192,566			678			—			204,777
Accretion expense		11			22,849			274			—			23,134
Deferred income tax provision (benefit)		(561	)		98,487			—			—			97,926
Settlement of asset retirement obligations		—			(52,543	)		—			—			(52,543	)
Non-cash stock compensation expense		4,492			—			—			—			4,492
Excess tax benefits		(1,490	)		—			—			—			(1,490	)
Non-cash derivative income		—			(4,337	)		—			—			(4,337	)
Loss on early extinguishment of debt		607			—			—			—			607
Non-cash (income) loss from investment in subsidiaries		(175,962	)		(788	)		—			176,750			—
Other non-cash expense		50			—			—			—			50
Change in current income taxes		(19,357	)		(2,353	)		—			—			(21,710	)
Change in intercompany receivables/payables		233,904			(233,577	)		(327	)		—			—
(Increase) decrease in accounts receivable		(16,878	)		(242	)		3			—			(17,117	)
(Increase) decrease in other current assets		(200	)		15			—			—			(185	)
Decrease in inventory		1,592			14			—			—			1,606
Increase (decrease) in accounts payable		2,709			(30	)		—			—			2,679
Increase in other current liabilities		1,124			2,480			—			—			3,604
Other		(1,889	)		—			—			—			(1,889	)
Net cash provided by (used in) operating activities		188,494			199,984			(65	)		—			388,413
Cash flows from investing activities:
Investment in oil and gas properties		(227,862	)		(202,845	)		(4	)		—			(430,711	)
Proceeds from sale of oil and gas properties, net of expenses		5,575			2,117			—			—			7,692
Investment in fixed and other assets		(1,788	)		—			—			—			(1,788	)
Net cash used in investing activities		(224,075	)		(200,728	)		(4	)		—			(424,807	)
Cash flows from financing activities:
Deferred financing costs		(4,017	)		—			—			—			(4,017	)
Excess tax benefits		1,490			—			—			—			1,490
Net payments for share based compensation		(2,581	)		—			—			—			(2,581	)
Net cash used in financing activities		(5,108	)		—			—			—			(5,108	)
Net decrease in cash and cash equivalents		(40,689	)		(744	)		(69	)		—			(41,502	)
Cash and cash equivalents, beginning of period		105,115			1,659			182			—			106,956
Cash and cash equivalents, end of period	$	64,426		$	915		$	113		$	—		$	65,454

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

							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	72,672		$	95,536			($309	)		($95,227	)	$	72,672
Adjustments to reconcile net income (loss) to net cash provided by operating activities:											—
Depreciation, depletion and amortization		31,650			152,467			783			—			184,900
Accretion expense		10,878			14,174			332			—			25,384
Deferred income tax provision (benefit)		(16,979	)		53,690			—			—			36,711
Settlement of asset retirement obligations		(5,012	)		(23,640	)		—			—			(28,652	)
Non-cash stock compensation expense		4,023			—			—			—			4,023
Excess tax benefits		(297	)		—			—			—			(297	)
Non-cash derivative income		(1,459	)		—			—			—			(1,459	)
Loss on early extinguishment of debt		1,820			—			—			—			1,820
Non-cash (income) loss from investment in subsidiaries		(95,536	)		309			—			95,227			—
Other non-cash expenses		741			—			—			—			741
Change in current income taxes		(5,926	)		(88	)		—			—			(6,014	)
(Increase) decrease in accounts receivable		231,945			(191,343	)		(1,033	)		—			39,569
(Increase) decrease in other current assets		(361	)		56			—			—			(305	)
Decrease in inventory		1,503			275			—			—			1,778
Increase (decrease) in accounts payable		(959	)		(306	)		—			—			(1,265	)
Decrease in other current liabilities		(21,171	)		(230	)		—			—			(21,401	)
Other		561			700			—			—			1,261
Net cash provided by (used in) operating activities		208,093			101,600			(227	)		—			309,466
Cash flows from investing activities:
Investment in oil and gas properties		(157,192	)		(104,687	)		(91	)		—			(261,970	)
Proceeds from sale of oil and gas properties, net of expenses		30,955			680			—			—			31,635
Investment in fixed and other assets		(1,722	)		—			—			—			(1,722	)
Net cash used in investing activities		(127,959	)		(104,007	)		(91	)		—			(232,057	)
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		(9,766	)		—			—			—			(9,766	)
Excess tax benefits		297			—			—			—			297
Net payments for share based compensation		(1,360	)		—			—			—			(1,360	)
Net cash used in financing activities		(61,332	)		—			—			—			(61,332	)
Net increase (decrease) in cash and cash equivalents		18,802			(2,407	)		(318	)		—			16,077
Cash and cash equivalents, beginning of period		64,830			3,963			500			—			69,293
Cash and cash equivalents, end of period	$	83,632		$	1,556		$	182		$	—		$	85,370