NOTE 18 — GUARANTOR FINANCIAL STATEMENTS:

Stone Offshore is an unconditional guarantor (the “Guarantor Subsidiary”) of our 2017 Notes, 2017 Convertible Notes and 2022 Notes. Our other subsidiary (the “Non-Guarantor Subsidiary”) did not provide a guarantee. Our non-guarantor subsidiary, Caillou Boca, was merged into Stone Offshore on September 6, 2012. The following presents consolidating financial information as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 on an issuer (parent company), guarantor subsidiary, non-guarantor subsidiary, and consolidated basis. Elimination entries presented are necessary to combine the entities.

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2012

(In thousands of dollars)


	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiary		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	228,398		$	51,128		$	—	$	—		$	279,526
Accounts receivable		59,213			108,075			—		—			167,288
Fair value of hedging contracts		—			39,655			—		—			39,655
Current income tax receivable		10,027			—			—		—			10,027
Deferred taxes *		5,947			9,567			—		—			15,514
Inventory		3,924			283			—		—			4,207
Other current assets		3,626			—			—		—			3,626

Total current assets		311,135			208,708			—		—			519,843
Oil and gas properties, full cost method:
Proved, net		634,697			1,099,603			—		—			1,734,300
Unevaluated		254,757			193,038			—		—			447,795
Other property and equipment, net		22,115			—			—		—			22,115
Fair value of hedging contracts		—			9,199			—		—			9,199
Other assets, net		41,679			1,500			—		—			43,179
Investment in subsidiary		736,331			—			—		(736,331	)		—

Total assets	$	2,000,714		$	1,512,048		$	—	($	736,331	)	$	2,776,431

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	74,503		$	19,858		$	—	$	—		$	94,361
Undistributed oil and gas proceeds		21,841			1,573			—		—			23,414
Accrued interest		18,546			—			—		—			18,546
Fair value of hedging contracts		—			149			—		—			149
Asset retirement obligations		—			66,260			—		—			66,260
Other current liabilities		16,765			—			—		—			16,765

Total current liabilities		131,655			87,840			—		—			219,495
Long-term debt		914,126			—			—		—			914,126
Deferred taxes *		47,758			263,072			—		—			310,830
Asset retirement obligations		5,479			416,563			—		—			422,042
Fair value of hedging contracts		—			1,530			—		—			1,530
Other long-term liabilities		29,563			6,712			—		—			36,275

Total liabilities		1,128,581			775,717			—		—			1,904,298

Commitments and contingencies
Stockholders’ equity:
Common stock		484			—			—		—			484
Treasury stock		(860	)		—			—		—			(860	)
Additional paid-in capital		1,386,475			1,496,510			—		(1,496,510	)		1,386,475
Accumulated earnings (deficit)		(542,799	)		(789,012	)		—		789,012			(542,799	)
Accumulated other comprehensive income (loss)		28,833			28,833			—		(28,833	)		28,833

Total stockholders’ equity		872,133			736,331			—		(736,331	)		872,133

Total liabilities and stockholders’ equity	$	2,000,714		$	1,512,048		$	—	($	736,331	)	$	2,776,431

*	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 Subsidiary			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, net		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

YEAR ENDED DECEMBER 31, 2012

(In thousands of dollars)


	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiary			Eliminations			Consolidated

Operating revenue:
Oil production	$	26,149		$	735,155		$	—		$	—		$	761,304
Gas production		34,331			100,408			—			—			134,739
Natural gas liquids production		15,264			33,234			—			—			48,498
Other operational income		2,766			397			357			—			3,520
Derivative income, net		—			3,428			—			—			3,428

Total operating revenue		78,510			872,622			357			—			951,489


Operating expenses:
Lease operating expenses		19,914			195,105			(16	)		—			215,003
Transportation, processing, and gathering expenses		12,049			9,733			—			—			21,782
Production taxes		3,330			6,685			—			—			10,015
Depreciation, depletion, amortization		63,022			281,152			191			—			344,365
Accretion expense		561			32,513			257			—			33,331
Salaries, general and administrative		54,641			7			—			—			54,648
Incentive compensation expense		8,113			—			—			—			8,113
Other operational expenses		173			94			—			—			267

Total operating expenses		161,803			525,289			432			—			687,524


Income (loss) from operations		(83,293	)		347,333			(75	)		—			263,965


Other (income) expenses:
Interest expense		30,446			(71	)		—			—			30,375
Interest income		(285	)		(315	)		—			—			(600	)
Other income		(144	)		(1,661	)		—			—			(1,805	)
Loss on early extinguishment of debt		1,972			—			—			—			1,972
(Income) loss from investment in subsidiaries		(223,555	)		75			—			223,480			—

Total other (income) expenses		(191,566	)		(1,972	)		—			223,480			29,942


Income (loss) before taxes		108,273			349,305			(75	)		(223,480	)		234,023


Provision (benefit) for income taxes:
Current		15,022			—			—			—			15,022
Deferred		(56,175	)		125,750			—			—			69,575

Total income taxes		(41,153	)		125,750			—			—			84,597

Net income (loss)	$	149,426		$	223,555		($	75	)	($	223,480	)	$	149,426


Comprehensive income (loss)	$	156,391		$	223,555		($	75	)	($	223,480	)	$	156,391

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2011

(In thousands of dollars)


	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiary			Eliminations			Consolidated

Operating revenue:
Oil production	$	5,675		$	658,283		$	—		$	—		$	663,958
Gas production		19,470			151,141			—			—			170,611
Natural gas liquids production		—			29,996			—			—			29,996
Other operational income		3,085			249			604			—			3,938
Derivative income, net		—			1,418			—			—			1,418

Total operating revenue		28,230			841,087			604			—			869,921


Operating expenses:
Lease operating expenses		6,632			169,018			231			—			175,881
Transportation, processing and gathering expenses		—			8,958			—			—			8,958
Production taxes		1,434			7,946			—			—			9,380
Depreciation, depletion, amortization		17,860			261,326			834			—			280,020
Accretion expense		15			30,385			364			—			30,764
Salaries, general and administrative		40,073			94			2			—			40,169
Incentive compensation expense		11,600			—			—			—			11,600
Other operational expenses		1,404			745			—			—			2,149

Total operating expenses		79,018			478,472			1,431			—			558,921


Income (loss) from operations		(50,788	)		362,615			(827	)		—			311,000


Other (income) expenses:
Interest expense		9,043			246			—			—			9,289
Interest income		(178	)		(242	)		—			—			(420	)
Other (income) expense, net		(52	)		(1,890	)		—			—			(1,942	)
Loss on early extinguishment of debt		607			—			—			—			607
(Income) loss from investment in subsidiaries		(232,751	)		827			—			231,924			—

Total other (income) expenses		(223,331	)		(1,059	)		—			231,924			7,534


Income (loss) before taxes		172,543			363,674			(827	)		(231,924	)		303,466


Provision (benefit) for income taxes:
Current		(20,386	)		—			—			—			(20,386	)
Deferred		(1,403	)		130,923			—			—			129,520

Total income taxes		(21,789	)		130,923			—			—			109,134

Net income (loss)	$	194,332		$	232,751		($	827	)	($	231,924	)	$	194,332


Comprehensive income (loss)	$	230,404		$	232,751		($	827	)	($	231,924	)	$	230,404

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2010

(In thousands of dollars)


	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiary			Eliminations			Consolidated

Operating revenue:
Oil production	$	51,357		$	366,591		$	—		$	—		$	417,948
Gas production		61,137			149,549			—			—			210,686
Natural gas liquids production		—			27,473			—			—			27,473
Other operational income		4,831			(54	)		1,139			—			5,916
Derivative income, net		3,265			—			—			—			3,265

Total operating revenue		120,590			543,559			1,139			—			665,288


Operating expenses:
Lease operating expenses		64,868			85,344			—			—			150,212
Transportation, processing and gathering expenses		—			7,218			—			—			7,218
Production taxes		3,631			2,177			—			—			5,808
Depreciation, depletion, amortization		40,351			206,856			994			—			248,201
Accretion expense		14,503			19,524			442			—			34,469
Salaries, general and administrative		42,741			17			1			—			42,759
Incentive compensation expense		5,888			—			—			—			5,888
Other operational expenses		2,097			3,482			—			—			5,579

Total operating expenses		174,079			324,618			1,437			—			500,134


Income (loss) from operations		(53,489	)		218,941			(298	)		—			165,154


Other (income) expenses:
Interest expense		12,192			—			—			—			12,192
Interest income		(1,439	)		(25	)		—			—			(1,464	)
Other income		(53	)		(762	)		39			—			(776	)
Other expense		601			70			—			—			671
Loss on early extinguishment of debt		1,820			—			—			—			1,820
(Income) loss from investment in subsidiary		(140,366	)		337			—			140,029			—

Total other (income) expenses		(127,245	)		(380	)		39			140,029			12,443


Income (loss) before taxes		73,756			219,321			(337	)		(140,029	)		152,711


Provision (benefit) for income taxes:
Current		5,896			(88	)		—			—			5,808
Deferred		(28,569	)		79,043			—			—			50,474

Total income taxes		(22,673	)		78,955			—			—			56,282

Net income (loss)	$	96,429		$	140,366		($	337	)	($	140,029	)	$	96,429


Comprehensive income (loss)	$	97,605		$	140,366		($	337	)	($	140,029	)	$	97,605

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2012

(In thousands of dollars)


	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiary			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	149,426		$	223,555		($	75	)	($	223,480	)	$	149,426
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		63,022			281,152			191			—			344,365
Accretion expense		561			32,513			257			—			33,331
Deferred income tax provision (benefit)		(56,175	)		125,750			—			—			69,575
Settlement of asset retirement obligations		—			(65,567	)		—			—			(65,567	)
Non-cash stock compensation expense		8,699			—			—			—			8,699
Excess tax benefits		(949	)		—			—			—			(949	)
Non-cash derivative income		—			(509	)		—			—			(509	)
Loss on early extinguishment of debt		1,972			—			—			—			1,972
Non-cash interest expense		13,085			—			—			—			13,085
Non-cash (income) loss from investment in subsidiaries		(223,555	)		75			—			223,480			—
Change in current income taxes		10,618			—			—			—			10,618
Change in intercompany receivables/payables		275,819			(275,125	)		(694	)		—			—
(Increase) decrease in accounts receivable		(22,750	)		(33,345	)		224			—			(55,871	)
Increase in other current assets		(2,836	)		—			—			—			(2,836	)
Decrease in inventory		436			—			—			—			436
Increase (decrease) in accounts payable		5,348			(208	)		(39	)		—			5,101
Decrease in other current liabilities		(5,311	)		(5,115	)		—			—			(10,426	)
Other		10,960			(1,661	)		—			—			9,299

Net cash provided by (used in) operating activities		228,370			281,515			(136	)		—			509,749


Cash flows from investing activities:
Investment in oil and gas properties		(324,542	)		(231,313	)		—			—			(555,855	)
Proceeds from sale of oil and gas properties, net of expenses		403			—			—			—			403
Sale of fixed assets		134			—			—			—			134
Investment in fixed and other assets		(13,370	)		—			—			—			(13,370	)

Net cash used in investing activities		(337,375	)		(231,313	)		—			—			(568,688	)


Cash flows from financing activities:
Proceeds from bank borrowings		25,000			—			—			—			25,000
Repayment of bank borrowings		(70,000	)		—			—			—			(70,000	)
Proceeds from issuance of senior convertible notes		300,000			—			—			—			300,000
Deferred 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	)
Proceeds from issuance of senior notes		300,000			—			—			—			300,000
Deferred financing costs		(11,966	)		—			—			—			(11,966	)
Redemption of senior subordinated notes		(200,681	)		—			—			—			(200,681	)
Excess tax benefits		949			—			—			—			949
Net payments for share based compensation		(3,773	)		—			—			—			(3,773	)

Net cash provided by financing activities		300,014			—			—			—			300,014


Net change in cash and cash equivalents		191,009			50,202			(136	)		—			241,075
Cash and cash equivalents, beginning of period		37,389			926			136			—			38,451

Cash and cash equivalents, end of period	$	228,398		$	51,128		$	—		$	—		$	279,526

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2011

(In thousands of dollars)


	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiary			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	194,332		$	232,751		($	827	)	($	231,924	)	$	194,332
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		17,860			261,326			834			—			280,020
Accretion expense		15			30,385			364			—			30,764
Deferred income tax provision (benefit)		(1,403	)		130,923			—			—			129,520
Settlement of asset retirement obligations		—			(63,391	)		—			—			(63,391	)
Non-cash stock compensation expense		5,905			—			—			—			5,905
Excess tax benefits		(1,493	)		—			—			—			(1,493	)
Non-cash derivative income		—			(2,216	)		—			—			(2,216	)
Loss on early extinguishment of debt		607			—			—			—			607
Non-cash interest expense		1,908			—			—			—			1,908
Other non-cash income		(1,602	)		—			—			—			(1,602	)
Non-cash (income) loss from investment in subsidiaries		(230,861	)		(1,063	)		—			231,924			—
Change in current income taxes		(19,451	)		—			—			—			(19,451	)
Change in intercompany receivables/payables		217,287			(217,724	)		437			—			—
Increase in accounts receivable		(11,022	)		(7,688	)		(890	)		—			(19,600	)
(Increase) decrease in other current assets		(80	)		14			—			—			(66	)
Decrease in inventory		1,605			14			—			—			1,619
Increase in accounts payable		2,658			3,341			40			—			6,039
Increase in other current liabilities		23,440			6,143			—			—			29,583
Other		(1,628	)		—			—			—			(1,628	)

Net cash provided by (used in) operating activities		198,077			372,815			(42	)		—			570,850


Cash flows from investing activities:
Investment in oil and gas properties		(309,026	)		(455,903	)		(4	)		—			(764,933	)
Proceeds from sale of oil and gas properties, net of expenses		5,575			82,355			—			—			87,930
Investment in fixed and other assets		(2,247	)		—			—			—			(2,247	)

Net cash used in investing activities		(305,698	)		(373,548	)		(4	)		—			(679,250	)


Cash flows from financing activities:
Proceeds from bank borrowings		75,000			—			—			—			75,000
Repayment of bank borrowings		(30,000	)		—			—			—			(30,000	)
Deferred financing costs		(4,017	)		—			—			—			(4,017	)
Excess tax benefits		1,493			—			—			—			1,493
Net payments for share based compensation		(2,581	)		—			—			—			(2,581	)

Net cash provided by financing activities		39,895			—			—			—			39,895


Net change in cash and cash equivalents		(67,726	)		(733	)		(46	)		—			(68,505	)
Cash and cash equivalents, beginning of period		105,115			1,659			182			—			106,956

Cash and cash equivalents, end of period	$	37,389		$	926		$	136		$	—		$	38,451

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2010

(In thousands of dollars)


	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiary			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	96,429		$	140,366		($	337	)	($	140,029	)	$	96,429
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		40,351			206,856			994			—			248,201
Accretion expense		14,503			19,524			442			—			34,469
Deferred income tax provision (benefit)		(28,569	)		79,043			—			—			50,474
Settlement of asset retirement obligations		(6,461	)		(30,440	)		—			—			(36,901	)
Non-cash stock compensation expense		5,692			—			—			—			5,692
Excess tax benefits		(299	)		—			—			—			(299	)
Non-cash derivative income		(324	)		—			—			—			(324	)
Loss on early extinguishment of debt		1,820			—			—			—			1,820
Non-cash interest expense		858			—			—			—			858
Other non-cash expense		979			—			—			—			979
Non-cash (income) loss from investment in subsidiary		(140,366	)		337			—			140,029			—
Change in current income taxes		(10,783	)		(88	)		—			—			(10,871	)
Change in intercompany receivable/payables		349,118			(347,941	)		(1,177	)		—			—
(Increase) decrease in accounts receivable		(11,556	)		61,254			(65	)		—			49,633
Decrease in other current assets		18			56			—			—			74
Decrease in inventory		1,848			275			—			—			2,123
Increase (decrease) in accounts payable		(1,045	)		272			—			—			(773	)
Decrease in other current liabilities		(17,423	)		(665	)		—			—			(18,088	)
Other expenses		1,230			68			—			—			1,298

Net cash provided by (used in) operating activities		296,020			128,917			(143	)		—			424,794


Cash flows from investing activities:
Investment in oil and gas properties		(265,198	)		(136,394	)		(175	)		—			(401,767	)
Proceeds from sale of oil and gas properties, net of expenses		25,455			6,180			—			—			31,635
Investment in fixed and other assets		(2,949	)		—			—			—			(2,949	)
Acquisition of non-controlling interest		—			(1,007	)		—			—			(1,007	)

Net cash used in investing activities		(242,692	)		(131,221	)		(175	)		—			(374,088	)


Cash flows from financing activities:
Repayment of bank borrowings		(175,000	)		—			—			—			(175,000	)
Proceeds from issuance of senior notes		375,000			—			—			—			375,000
Deferred financing costs		(11,474	)		—			—			—			(11,474	)
Redemption of senior subordinated notes		(200,503	)		—			—			—			(200,503	)
Excess tax benefits		299			—			—			—			299
Net payments for share based compensation		(1,365	)		—			—			—			(1,365	)

Net cash used in financing activities		(13,043	)		—			—			—			(13,043	)


Net increase (decrease) in cash and cash equivalents		40,285			(2,304	)		(318	)		—			37,663
Cash and cash equivalents, beginning of period		64,830			3,963			500			—			69,293

Cash and cash equivalents, end of period	$	105,115		$	1,659		$	182		$	—		$	106,956