Guarantor Financial Statements

3 Months Ended

Mar. 31, 2012

Guarantor Financial Statements [Abstract]

Guarantor Financial Statements

Note 9 – Guarantor Financial Statements

Stone Offshore is an unconditional guarantor (the “Guarantor Subsidiary”) of our 1  ³/4% Senior Convertible Notes due 2017, our 8 ⁵/8% Senior Notes due 2017 and our 6 ³/4% Senior Subordinated Notes due 2014. Our remaining subsidiaries (the “Non-Guarantor Subsidiaries”) have not provided guarantees. The following presents unaudited condensed consolidating financial information as of March 31, 2012 and December 31, 2011 and for the three-month periods ended March 31, 2012 and 2011 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

MARCH 31, 2012

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	222,750		$	40,955		$	136		$	—		$	263,841
Accounts receivable		37,849			113,735			1,466			(19,784	)		133,266
Fair value of hedging contracts		—			24,352			—			—			24,352
Current income tax receivable		23,140			—			—			—			23,140
Deferred taxes *		3,194			27,012			—			—			30,206
Inventory		4,360			283			—			—			4,643
Other current assets		754			—			—			—			754
Total current assets		292,047			206,337			1,602			(19,784	)		480,202
Oil and gas properties, full cost method:
Proved		672,697			6,027,024			5,051			—			6,704,772
Less: accumulated DD&A		(321,084	)		(4,929,353	)		(2,457	)		—			(5,252,894	)
Net proved oil and gas properties		351,613			1,097,671			2,594			—			1,451,878
Unevaluated		275,920			167,969			—			—			443,889
Other property and equipment, net		11,444			—			—			—			11,444
Fair value of hedging contracts		—			10,937			—			—			10,937
Other assets, net		27,494			1,469			—			—			28,963
Investment in subsidiary		777,606			(512	)		—			(777,094	)		—
Total assets	$	1,736,124		$	1,483,871		$	4,196		($	796,878	)	$	2,427,313
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	92,986		$	12,898		$	208		($	19,785	)	$	86,307
Undistributed oil and gas proceeds		24,810			1,549			—			—			26,359
Accrued interest		10,490			—			—			—			10,490
Fair value of hedging contracts		—			27,298			—			—			27,298
Asset retirement obligations		—			71,256			—			—			71,256
Other current liabilities		4,613			6,127			—			—			10,740
Total current liabilities		132,899			119,128			208			(19,785	)		232,450
Long-term debt		805,140			—			—			—			805,140
Deferred taxes *		42,131			224,865			—			—			266,996
Asset retirement obligations		7,240			347,533			4,501			—			359,274
Fair value of hedging contracts		—			8,025			—			—			8,025
Other long-term liabilities		13,809			6,714			—			—			20,523
Total liabilities		1,001,219			706,265			4,709			(19,785	)		1,692,408
Commitments and contingencies
Stockholders’ equity:
Common stock		483			—			—			—			483
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,376,730			1,724,232			1,639			(1,725,871	)		1,376,730
Accumulated earnings (deficit)		(641,251	)		(946,429	)		(2,152	)		948,581			(641,251	)
Accumulated other comprehensive income (loss)		(197	)		(197	)		—			197			(197	)
Total stockholders’ equity		734,905			777,606			(513	)		(777,093	)		734,905
Total liabilities and stockholders’ equity	$	1,736,124		$	1,483,871		$	4,196		($	796,878	)	$	2,427,313

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

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2011

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	37,389		$	926		$	136		$	—		$	38,451
Accounts receivable		36,463			81,452			1,353			(1,129	)		118,139
Fair value of hedging contracts		—			25,177			—			—			25,177
Current income tax receivable		19,946			—			—			—			19,946
Deferred taxes *		8,269			17,803			—			—			26,072
Inventory		4,360			283			—			—			4,643
Other current assets		791			—			—			—			791
Total current assets		107,218			125,641			1,489			(1,129	)		233,219
Oil and gas properties, full cost method:
Proved		696,975			5,946,141			5,052			—			6,648,168
Less: accumulated DD&A		(309,421	)		(4,862,949	)		(2,359	)		—			(5,174,729	)
Net proved oil and gas properties		387,554			1,083,192			2,693			—			1,473,439
Unevaluated		246,269			155,340			—			—			401,609
Other property and equipment, net		11,172			—			—			—			11,172
Fair value of hedging contracts		—			22,543			—			—			22,543
Other assets, net		20,873			2,896			—			—			23,769
Investment in subsidiary		733,533			(273	)		—			(733,260	)		—
Total assets	$	1,506,619		$	1,389,339		$	4,182		($	734,389	)	$	2,165,751
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	78,170		$	25,866		$	39		($	1,129	)	$	102,946
Undistributed oil and gas proceeds		26,036			1,292			—			—			27,328
Accrued interest		14,059			—			—			—			14,059
Fair value of hedging contracts		—			11,122			—			—			11,122
Asset retirement obligations		—			62,676			—			—			62,676
Other current liabilities		22,974			5,396			—			—			28,370
Total current liabilities		141,239			106,352			39			(1,129	)		246,501
Long-term debt		620,000			—			—			—			620,000
Deferred taxes *		56,970			190,865			—			—			247,835
Asset retirement obligations		7,626			351,061			4,416			—			363,103
Fair value of hedging contracts		—			815			—			—			815
Other long-term liabilities		12,955			6,713			—			—			19,668
Total liabilities		838,790			655,806			4,455			(1,129	)		1,497,922
Commitments and contingencies
Stockholders’ equity:
Common stock		481			—			—			—			481
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,338,565			1,724,232			1,639			(1,725,871	)		1,338,565
Accumulated earnings (deficit)		(692,225	)		(1,012,567	)		(1,912	)		1,014,479			(692,225	)
Accumulated other comprehensive income (loss)		21,868			21,868			—			(21,868	)		21,868
Total stockholders’ equity		667,829			733,533			(273	)		(733,260	)		667,829
Total liabilities and stockholders’ equity	$	1,506,619		$	1,389,339		$	4,182		($	734,389	)	$	2,165,751

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2012

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	6,234		$	195,524		$	—		$	—		$	201,758
Gas production		5,631			23,226			—			—			28,857
Natural gas liquids production		3,864			9,588			—			—			13,452
Other operational income		694			63			133			—			890
Total operating revenue		16,423			228,401			133			—			244,957
Operating expenses:
Lease operating expenses		4,904			39,387			189			—			44,480
Transportation, processing and gathering expenses		2,488			1,169			—			—			3,657
Other operational expenses		42			—			—			—			42
Production taxes		1,163			2,215			—			—			3,378
Depreciation, depletion, amortization		11,477			73,000			98			—			84,575
Accretion expense		148			8,032			86			—			8,266
Salaries, general and administrative		12,654			1,051			—			—			13,705
Incentive compensation expense		1,442			—			—			—			1,442
Derivative expense, net		—			485			—			—			485
Total operating expenses		34,318			125,339			373			—			160,030
Income (loss) from operations		(17,895	)		103,062			(240	)		—			84,927
Other (income) expenses:
Interest expense		5,846			(115	)		—			—			5,731
Interest income		(30	)		(1	)		—			—			(31	)
Other income		(19	)		(401	)		—			—			(420	)
(Income) loss from investment in subsidiaries		(66,137	)		239			—			65,898			—
Total other (income) expenses		(60,340	)		(278	)		—			65,898			5,280
Income (loss) before taxes		42,445			103,340			(240	)		(65,898	)		79,647
Provision (benefit) for income taxes:
Current		1,234			—			—			—			1,234
Deferred		(9,763	)		37,202			—			—			27,439
Total income taxes		(8,529	)		37,202			—			—			28,673
Net income (loss)	$	50,974		$	66,138		($	240	)	($	65,898	)	$	50,974
Comprehensive income (loss)	$	28,909		$	66,138		($	240	)	($	65,898	)	$	28,909

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2011

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	786		$	151,209		$	—		$	—		$	151,995
Gas production		1,280			39,880			—			—			41,160
Natural gas liquids production		—			5,999			—			—			5,999
Other operational income		722			(19	)		182			—			885
Total operating revenue		2,788			197,069			182			—			200,039
Operating expenses:
Lease operating expenses		356			37,931			—			—			38,287
Transportation, processing and gathering expenses		—			1,820			—			—			1,820
Other operational expenses		—			662			—			—			662
Production taxes		147			2,388			—			—			2,535
Depreciation, depletion, amortization		5,942			61,510			217			—			67,669
Accretion expense		4			7,622			91			—			7,717
Salaries, general and administrative		11,731			2			—			—			11,733
Incentive compensation expense		2,684			—			—			—			2,684
Derivative expense, net		—			2,180			—			—			2,180
Total operating expenses		20,864			114,115			308			—			135,287
Income (loss) from operations		(18,076	)		82,954			(126	)		—			64,752
Other (income) expenses:
Interest expense		3,031			80			—			—			3,111
Interest income		(88	)		(6	)		—			—			(94	)
Other income		—			(567	)		3			—			(564	)
Other expense		123			1			—			—			124
(Income) loss from investment in subsidiary		(53,323	)		129			—			53,194			—
Total other (income) expenses		(50,257	)		(363	)		3			53,194			2,577
Income (loss) before taxes		32,181			83,317			(129	)		(53,194	)		62,175
Provision (benefit) for income taxes:
Current		—			—			—			—			—
Deferred		(7,611	)		29,994			—			—			22,383
Total income taxes		(7,611	)		29,994			—			—			22,383
Net income (loss)	$	39,792		$	53,323		($	129	)	($	53,194	)	$	39,792
Comprehensive income (loss)	$	7,318		$	53,323		($	129	)	($	53,194	)	$	7,318

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2012

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	50,974		$	66,138		($	240	)	($	65,898	)	$	50,974
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		11,477			73,000			98			—			84,575
Accretion expense		148			8,032			86			—			8,266
Deferred income tax provision (benefit)		(9,763	)		37,202			—			—			27,439
Settlement of asset retirement obligations		—			(2,980	)		—			—			(2,980	)
Non-cash stock compensation expense		1,750			—			—			—			1,750
Excess tax benefits		(847	)		—			—			—			(847	)
Non-cash derivative expense		—			1,342			—			—			1,342
Non-cash (income) loss from investment in subsidiaries		(65,737	)		(161	)		—			65,898			—
Other non-cash expenses		1,173			—			—			—			1,173
Change in current income taxes		(2,647	)		—			—			—			(2,647	)
Change in intercompany receivables/payables		18,655			(18,445	)		(210	)		—			—
(Increase) decrease in accounts receivable		(983	)		(20,823	)		98			—			(21,708	)
Decrease in other current assets		35			—			—			—			35
Increase (decrease) in accounts payable		(25	)		(6,157	)		167			—			(6,015	)
Increase (decrease) in other current liabilities		(23,155	)		987			—			—			(22,168	)
Other		146			—			—			—			146
Net cash provided by (used in) operating activities		(18,799	)		138,135			(1	)		—			119,335
Cash flows from investing activities:
Investment in oil and gas properties		(8,364	)		(98,106	)		1			—			(106,469	)
Sale of fixed assets		134			—			—			—			134
Investment in fixed and other assets		(909	)		—			—			—			(909	)
Net cash provided by (used in) investing activities		(9,139	)		(98,106	)		1			—			(107,244	)
Cash flows from financing activities:
Proceeds from bank borrowings		25,000			—			—			—			25,000
Repayments of bank borrowings		(70,000	)		—			—			—			(70,000	)
Proceeds from issuance of senior convertible notes		300,000			—			—			—			300,000
Financing costs of senior convertible notes		(8,855	)		—			—			—			(8,855	)
Proceeds from Sold Warrants		40,170			—			—			—			40,170
Payments for Purchased Call Options		(70,830	)		—			—			—			(70,830	)
Excess tax benefits		847			—			—			—			847
Net payments for share based compensation		(3,033	)		—			—			—			(3,033	)
Net cash provided by financing activities		213,299			—			—			—			213,299
Net change in cash and cash equivalents		185,361			40,029			—			—			225,390
Cash and cash equivalents, beginning of period		37,389			926			136			—			38,451
Cash and cash equivalents, end of period	$	222,750		$	40,955		$	136		$	—		$	263,841

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2011

(In thousands of dollars)

	Parent			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	39,792		$	53,323		($	129	)	($	53,194	)	$	39,792
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		5,942			61,510			217			—			67,669
Accretion expense		4			7,622			91			—			7,717
Deferred income tax provision (benefit)		(7,611	)		29,994			—			—			22,383
Settlement of asset retirement obligations		—			(19,034	)		—			—			(19,034	)
Non-cash stock compensation expense		1,680			—			—			—			1,680
Excess tax benefits		(649	)		—			—			—			(649	)
Non-cash derivative expense		—			1,804			—			—			1,804
Non-cash (income) loss from investment in subsidiary		(52,756	)		(438	)		—			53,194			—
Other non-cash income		(104	)		—			—			—			(104	)
Change in current income taxes		(3,681	)		—			—			—			(3,681	)
Change in intercompany receivables/payables		44,230			(43,804	)		(426	)		—			—
(Increase) decrease in accounts receivable		6,833			(28,509	)		121			—			(21,555	)
Decrease in other current assets		25			—			—			—			25
Decrease in inventory		365			—			—			—			365
Increase in accounts payable		2,609			81			—			—			2,690
Increase (decrease) in other current liabilities		(10,929	)		870			—			—			(10,059	)
Other		272			—			—			—			272
Net cash provided by (used in) operating activities		26,022			63,419			(126	)		—			89,315
Cash flows from investing activities:
Investment in oil and gas properties		(89,444	)		(67,087	)		(4	)		—			(156,535	)
Proceeds from sale of oil and gas properties		5,575			2,117			—			—			7,692
Investment in fixed and other assets		(262	)		—			—			—			(262	)
Net cash used in investing activities		(84,131	)		(64,970	)		(4	)		—			(149,105	)
Cash flows from financing activities:
Deferred financing costs		(66	)		—			—			—			(66	)
Excess tax benefits		649			—			—			—			649
Net payments for share based compensation		(1,843	)		—			—			—			(1,843	)
Net cash used in financing activities		(1,260	)		—			—			—			(1,260	)
Net change in cash and cash equivalents		(59,369	)		(1,551	)		(130	)		—			(61,050	)
Cash and cash equivalents, beginning of period		105,115			1,659			182			—			106,956
Cash and cash equivalents, end of period	$	45,746		$	108		$	52		$	—		$	45,906