Guarantor Financial Statements

6 Months Ended

Jun. 30, 2014

Guarantees [Abstract]

Guarantor Financial Statements

Note 14 – Guarantor Financial Statements

Stone Offshore is an unconditional guarantor (the “Guarantor Subsidiary”) of the 2017 Convertible Notes and the 2022 Notes. Our other subsidiaries (the “Non-Guarantor Subsidiaries”) have not provided guarantees. The following presents unaudited condensed consolidating financial information as of June 30, 2014 and December 31, 2013 and for the three and six month periods ended June 30, 2014 and 2013 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

JUNE 30, 2014

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	244,254		$	89,388		$	244		$	—		$	333,886
Accounts receivable		153,316			80,436			—			(36,257	)		197,495
Current income tax receivable		7,372			—			—			—			7,372
Deferred taxes *		1,565			34,743			—			—			36,308
Inventory		3,440			283			—			—			3,723
Other current assets		1,955			—			—			—			1,955
Total current assets		411,902			204,850			244			(36,257	)		580,739
Oil and gas properties, full cost method:
Proved		1,475,522			7,044,673			—			—			8,520,195
Less: accumulated DD&A		(527,605	)		(5,617,210	)		—			—			(6,144,815	)
Net proved oil and gas properties		947,917			1,427,463			—			—			2,375,380
Unevaluated		302,396			237,146			14,659			—			554,201
Other property and equipment, net		28,302			—			—			—			28,302
Fair value of derivative contracts		—			415			—			—			415
Other assets, net		30,734			1,880			10,401			—			43,015
Investment in subsidiary		798,664			—			25,156			(823,820	)		—
Total assets	$	2,519,915		$	1,871,754		$	50,460		($	860,077	)	$	3,582,052
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	93,251		$	125,177		$	11,729		($	36,257	)	$	193,900
Undistributed oil and gas proceeds		60,724			2,203			—			—			62,927
Accrued interest		9,025			—			—			—			9,025
Fair value of derivative contracts		—			25,711			—			—			25,711
Asset retirement obligations		—			77,132			—			—			77,132
Other current liabilities		76,461			3,078			—			—			79,539
Total current liabilities		239,461			233,301			11,729			(36,257	)		448,234
Long-term debt		1,033,931			—			—			—			1,033,931
Deferred taxes *		(16,629	)		420,817			—			—			404,188
Asset retirement obligations		3,764			427,296			—			—			431,060
Fair value of derivative contracts		—			5,251			—			—			5,251
Other long-term liabilities		47,843			—			—			—			47,843
Total liabilities		1,308,370			1,086,665			11,729			(36,257	)		2,370,507
Commitments and contingencies
Stockholders’ equity:
Common stock		549			—			—			—			549
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,624,795			1,309,562			39,580			(1,349,142	)		1,624,795
Accumulated deficit		(394,778	)		(506,723	)		(28	)		506,751			(394,778	)
Accumulated other comprehensive loss		(18,161	)		(17,750	)		(821	)		18,571			(18,161	)
Total stockholders’ equity		1,211,545			785,089			38,731			(823,820	)		1,211,545
Total liabilities and stockholders’ equity	$	2,519,915		$	1,871,754		$	50,460		($	860,077	)	$	3,582,052

* Deferred income taxes have been allocated to the Guarantor Subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2013

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	246,294		$	84,290		$	640		$	—		$	331,224
Accounts receivable		74,887			97,128			—			(44	)		171,971
Fair value of derivative contracts		—			4,549			—			—			4,549
Current income tax receivable		7,366			—			—			—			7,366
Deferred taxes *		8,659			23,051			—			—			31,710
Inventory		3,440			283			—			—			3,723
Other current assets		1,874			—			—			—			1,874
Total current assets		342,520			209,301			640			(44	)		552,417
Oil and gas properties, full cost method:
Proved		1,309,527			6,494,590			—			—			7,804,117
Less: accumulated DD&A		(459,932	)		(5,448,828	)		—			—			(5,908,760	)
Net proved oil and gas properties		849,595			1,045,762			—			—			1,895,357
Unevaluated		325,113			388,643			10,583			—			724,339
Other property and equipment, net		26,178			—			—			—			26,178
Fair value of derivative contracts		—			1,378			—			—			1,378
Other assets, net		45,410			1,349			2,128			—			48,887
Investment in subsidiary		747,472			—			12,711			(760,183	)		—
Total assets	$	2,336,288		$	1,646,433		$	26,062		($	760,227	)	$	3,248,556
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	173,147		$	22,530		$	44		($	44	)	$	195,677
Undistributed oil and gas proceeds		34,386			2,643			—			—			37,029
Accrued interest		9,022			—			—			—			9,022
Fair value of derivative contracts		—			7,753			—			—			7,753
Asset retirement obligations		—			67,161			—			—			67,161
Other current liabilities		53,682			838			—			—			54,520
Total current liabilities		270,237			100,925			44			(44	)		371,162
Long-term debt		1,027,084			—			—			—			1,027,084
Deferred taxes *		10,227			380,466			—			—			390,693
Asset retirement obligations		4,945			430,407			—			—			435,352
Fair value of derivative contracts		—			470			—			—			470
Other long-term liabilities		53,509			—			—			—			53,509
Total liabilities		1,366,002			912,268			44			(44	)		2,278,270
Commitments and contingencies
Stockholders’ equity:
Common stock		488			—			—			—			488
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,397,885			1,309,563			27,403			(1,336,966	)		1,397,885
Accumulated deficit		(425,165	)		(574,003	)		(52	)		574,055			(425,165	)
Accumulated other comprehensive loss		(2,062	)		(1,395	)		(1,333	)		2,728			(2,062	)
Total stockholders’ equity		970,286			734,165			26,018			(760,183	)		970,286
Total liabilities and stockholders’ equity	$	2,336,288		$	1,646,433		$	26,062		($	760,227	)	$	3,248,556

* Deferred income taxes have been allocated to the Guarantor Subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

THREE MONTHS ENDED JUNE 30, 2014

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	5,854		$	136,539		$	—		$	—		$	142,393
Gas production		20,800			25,867			—			—			46,667
Natural gas liquids production		10,219			5,717			—			—			15,936
Other operational income		1,880			170			—			—			2,050
Total operating revenue		38,753			168,293			—			—			207,046
Operating expenses:
Lease operating expenses		5,046			44,408			—			—			49,454
Transportation, processing and gathering expenses		10,456			3,642			—			—			14,098
Production taxes		1,903			1,354			—			—			3,257
Depreciation, depletion, amortization		30,385			62,450			—			—			92,835
Accretion expense		61			7,672			—			—			7,733
Salaries, general and administrative		16,639			—			(2	)		—			16,637
Incentive compensation expense		3,903			—			—			—			3,903
Derivative expense, net		—			2,516			—			—			2,516
Total operating expenses		68,393			122,042			(2	)		—			190,433
Income (loss) from operations		(29,640	)		46,251			2			—			16,613
Other (income) expenses:
Interest expense		9,880			33			—			—			9,913
Interest income		(146	)		(41	)		(6	)		—			(193	)
Other income		(192	)		(530	)		—			—			(722	)
Other expense		179			—			—			—			179
Income from investment in subsidiaries		(29,947	)		—			(8	)		29,955			—
Total other (income) expenses		(20,226	)		(538	)		(14	)		29,955			9,177
Income (loss) before taxes		(9,414	)		46,789			16			(29,955	)		7,436
Provision (benefit) for income taxes:
Current		—			—			—			—			—
Deferred		(13,858	)		16,850			—			—			2,992
Total income taxes		(13,858	)		16,850			—			—			2,992
Net income	$	4,444		$	29,939		$	16		($	29,955	)	$	4,444
Comprehensive income (loss)	($	4,566	)	$	29,939		$	16		($	29,955	)	($	4,566	)

CONDENSED CONSOLIDATING STATEMENT OF INCOME

THREE MONTHS ENDED JUNE 30, 2013

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	8,378		$	176,120		$	—		$	—		$	184,498
Gas production		20,071			27,761			—			—			47,832
Natural gas liquids production		6,378			4,822			—			—			11,200
Other operational income		790			189			—			—			979
Derivate income, net		—			1,368			—			—			1,368
Total operating revenue		35,617			210,260			—			—			245,877
Operating expenses:
Lease operating expenses		3,425			47,092			—			—			50,517
Transportation, processing and gathering expenses		5,729			3,167			—			—			8,896
Production taxes		1,320			2,771			—			—			4,091
Depreciation, depletion, amortization		25,088			62,121			—			—			87,209
Accretion expense		93			8,225			—			—			8,318
Salaries, general and administrative		15,150			—			48			—			15,198
Incentive compensation expense		2,050			—			—			—			2,050
Other operational expenses		51			22			—						73
Total operating expenses		52,906			123,398			48			—			176,352
Income (loss) from operations		(17,289	)		86,862			(48	)		—			69,525
Other (income) expenses:
Interest expense		8,882			13			—			—			8,895
Interest income		(70	)		(38	)		(7	)		—			(115	)
Other income		(217	)		(465	)		—			—			(682	)
(Income) loss from investment in subsidiaries		(55,893	)		—			39			55,854			—
Total other (income) expenses		(47,298	)		(490	)		32			55,854			8,098
Income (loss) before taxes		30,009			87,352			(80	)		(55,854	)		61,427
Provision (benefit) for income taxes:
Current		(6,993	)		—			—			—			(6,993	)
Deferred		(2,020	)		31,418			—			—			29,398
Total income taxes		(9,013	)		31,418			—			—			22,405
Net income (loss)	$	39,022		$	55,934		($	80	)	($	55,854	)	$	39,022
Comprehensive income (loss)	$	53,060		$	55,934		($	80	)	($	55,854	)	$	53,060

CONDENSED CONSOLIDATING STATEMENT OF INCOME

SIX MONTHS ENDED JUNE 30, 2014

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	12,490		$	268,192		$	—		$	—		$	280,682
Gas production		49,639			53,390			—			—			103,029
Natural gas liquids production		28,473			15,433			—			—			43,906
Other operational income		2,704			343			—			—			3,047
Total operating revenue		93,306			337,358			—			—			430,664
Operating expenses:
Lease operating expenses		9,059			87,298			—			—			96,357
Transportation, processing and gathering expenses		20,773			7,951			—			—			28,724
Production taxes		3,584			2,735			—			—			6,319
Depreciation, depletion, amortization		58,440			117,041			—			—			175,481
Accretion expense		129			15,159			—			—			15,288
Salaries, general and administrative		32,964			2			—			—			32,966
Incentive compensation expense		7,037			—			—			—			7,037
Other operational expenses		176			36			—			—			212
Derivative expense, net		—			3,115			—			—			3,115
Total operating expenses		132,162			233,337			—			—			365,499
Income (loss) from operations		(38,856	)		104,021			—			—			65,165
Other (income) expenses:
Interest expense		18,233			37			—			—			18,270
Interest income		(225	)		(99	)		(12	)		—			(336	)
Other income		(373	)		(1,056	)		—			—			(1,429	)
Other expense		179			—			—			—			179
Income from investment in subsidiaries		(67,292	)		—			(12	)		67,304			—
Total other (income) expenses		(49,478	)		(1,118	)		(24	)		67,304			16,684
Income before taxes		10,622			105,139			24			(67,304	)		48,481
Provision (benefit) for income taxes:
Current		—			—			—			—			—
Deferred		(19,765	)		37,859			—			—			18,094
Total income taxes		(19,765	)		37,859			—			—			18,094
Net income	$	30,387		$	67,280		$	24		($	67,304	)	$	30,387
Comprehensive income	$	14,288		$	67,280		$	24		($	67,304	)	$	14,288

CONDENSED CONSOLIDATING STATEMENT OF INCOME

SIX MONTHS ENDED JUNE 30, 2013

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenue:
Oil production	$	13,721		$	357,702		$	—		$	—		$	371,423
Gas production		27,269			57,385			—			—			84,654
Natural gas liquids production		8,677			11,701			—			—			20,378
Other operational income		1,439			347			—			—			1,786
Derivate income, net		—			147			—			—			147
Total operating revenue		51,106			427,282			—			—			478,388
Operating expenses:
Lease operating expenses		5,716			97,845			—			—			103,561
Transportation, processing and gathering expenses		7,781			6,512			—			—			14,293
Production taxes		2,187			3,993			—			—			6,180
Depreciation, depletion, amortization		35,279			127,365			—			—			162,644
Accretion expense		186			16,395			—			—			16,581
Salaries, general and administrative		29,098			4			48			—			29,150
Incentive compensation expense		3,481			—			—			—			3,481
Other operational expenses		101			44			—						145
Total operating expenses		83,829			252,158			48			—			336,035
Income (loss) from operations		(32,723	)		175,124			(48	)		—			142,353
Other (income) expenses:
Interest expense		18,509			21			—			—			18,530
Interest income		(150	)		(75	)		(7	)		—			(232	)
Other income		(441	)		(967	)		—			—			(1,408	)
(Income) loss from investment in subsidiaries		(112,721	)		—			39			112,682			—
Total other (income) expenses		(94,803	)		(1,021	)		32			112,682			16,890
Income (loss) before taxes		62,080			176,145			(80	)		(112,682	)		125,463
Provision (benefit) for income taxes:
Current		(10,739	)		—			—			—			(10,739	)
Deferred		(6,961	)		63,383			—			—			56,422
Total income taxes		(17,700	)		63,383			—			—			45,683
Net income (loss)	$	79,780		$	112,762		($	80	)	($	112,682	)	$	79,780
Comprehensive income (loss)	$	75,477		$	112,762		($	80	)	($	112,682	)	$	75,477

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2014

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	30,387		$	67,280		$	24		($	67,304	)	$	30,387
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		58,440			117,041			—			—			175,481
Accretion expense		129			15,159			—			—			15,288
Deferred income tax provision (benefit)		(19,765	)		37,859			—			—			18,094
Settlement of asset retirement obligations		(82	)		(24,833	)		—			—			(24,915	)
Non-cash stock compensation expense		5,358			—			—			—			5,358
Non-cash derivative expense		—			2,697			—			—			2,697
Non-cash interest expense		8,229			—			—			—			8,229
Change in current income taxes		(6	)		—			—			—			(6	)
Non-cash income from investment in subsidiaries		(67,292	)		—			(12	)		67,304			—
Change in intercompany receivables/payables		(126,526	)		114,841			11,685			—			—
(Increase) decrease in accounts receivable		(42,216	)		16,692			—			—			(25,524	)
Increase in other current assets		(82	)		—			—			—			(82	)
Increase (decrease) in accounts payable		2,052			(209	)		—			—			1,843
Increase in other current liabilities		48,987			1,798			—			—			50,785
Other		381			(1,056	)		—			—			(675	)
Net cash (used in) provided by operating activities		(102,006	)		347,269			11,697			—			256,960
Cash flows from investing activities:
Investment in oil and gas properties		(121,836	)		(384,349	)		(11,719	)		—			(517,904	)
Proceeds from sale of oil and gas properties, net of expenses		9,777			42,178			—			—			51,955
Investment in fixed and other assets		(3,896	)		—			—			—			(3,896	)
Change in restricted funds		—			—			(356	)		—			(356	)
Investment in subsidiaries		—			—			(12,176	)		12,176			—
Net cash used in investing activities		(115,955	)		(342,171	)		(24,251	)		12,176			(470,201	)
Cash flows from financing activities:
Net proceeds from issuance of common stock		226,036			—			—			—			226,036
Deferred financing costs		(3,167	)		—			—			—			(3,167	)
Equity proceeds from parent		—			—			12,176			(12,176	)		—
Net payments for share-based compensation		(6,948	)		—			—			—			(6,948	)
Net cash provided by financing activities		215,921			—			12,176			(12,176	)		215,921
Effect of exchange rate changes on cash		—			—			(18	)		—			(18	)
Net change in cash and cash equivalents		(2,040	)		5,098			(396	)		—			2,662
Cash and cash equivalents, beginning of period		246,294			84,290			640			—			331,224
Cash and cash equivalents, end of period	$	244,254		$	89,388		$	244		$	—		$	333,886

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2013

(In thousands)

	Parent			Guarantor Subsidiary			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	79,780		$	112,762		($	80	)	($	112,682	)	$	79,780
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		35,279			127,365			—			—			162,644
Accretion expense		186			16,395			—			—			16,581
Deferred income tax provision (benefit)		(6,961	)		63,383			—			—			56,422
Settlement of asset retirement obligations		—			(37,335	)		—			—			(37,335	)
Non-cash stock compensation expense		4,866			—			—			—			4,866
Excess tax benefits		(104	)		—			—			—			(104	)
Non-cash derivative expense		—			311			—			—			311
Non-cash interest expense		8,181			—			—			—			8,181
Non-cash income (loss) from investment in subsidiaries		(112,722	)		—			40			112,682			—
Change in current income taxes		(16,399	)		—			—			—			(16,399	)
Change in intercompany receivables/payables		170,815			(170,859	)		44			—			—
(Increase) decrease in accounts receivable		(17,365	)		18,503			—			—			1,138
Increase in other current assets		(245	)		—			—			—			(245	)
Decrease in inventory		158			—			—			—			158
Increase in accounts payable		4,507			2,086			—			—			6,593
Increase (decrease) in other current liabilities		(5,258	)		2,088			—			—			(3,170	)
Other		(2,482	)		(966	)		—			—			(3,448	)
Net cash provided by operating activities		142,236			133,733			4			—			275,973
Cash flows from investing activities:
Investment in oil and gas properties		(176,896	)		(133,659	)		(9,663	)		—			(320,218	)
Investment in fixed and other assets		(1,711	)		—			—			—			(1,711	)
Change in restricted funds		—			—			(3,515	)		—			(3,515	)
Investment in subsidiaries		(14,000	)		—			(13,404	)		27,404			—
Net cash used in investing activities		(192,607	)		(133,659	)		(26,582	)		27,404			(325,444	)
Cash flows from financing activities:
Deferred financing costs		(11	)		—			—			—			(11	)
Excess tax benefits		104			—			—			—			104
Equity proceeds from parent		—			—			27,404			(27,404	)		—
Net payments for share-based compensation		(3,590	)		—			—			—			(3,590	)
Net cash (used in) provided by financing activities		(3,497	)		—			27,404			(27,404	)		(3,497	)
Effect of exchange rate on cash		—			—			(186	)		—			(186	)
Net change in cash and cash equivalents		(53,868	)		74			640			—			(53,154	)
Cash and cash equivalents, beginning of period		228,398			51,128			—			—			279,526
Cash and cash equivalents, end of period	$	174,530		$	51,202		$	640		$	—		$	226,372