Lafayette, Louisiana-based Stone Energy Corporation is an independent oil and gas exploration and production (E&P) company. Stone is engaged in the acquisition and subsequent exploration, development, operation and production of oil and gas properties located primarily in the Gulf of Mexico (GoM).
Stone’s initiative of moving away from liquidity management to a disciplined organic growth mode lost momentum during the last few months. While we see an uptrend in production volumes, a 21% fall in 2009 proved reserves is our concern.
As is the case with all E&P companies, Stone’s results are vulnerable to a sustained pullback in commodity prices. While most of the decrease in proved reserves was a result of production, it was also affected by the unfavorable price-related revisions.
GoM remained the company’s principal area for growth. Stone has broadened its operational focus by going deeper into it. The deepwater GoM is consistent with its strategy of pursuing low cost primary oil reserves.
Moreover, the company continues to gain momentum with its drilling program at Marcellus Shale play with 14 horizontal wells expected to be drilled this year. We believe that Stone’s potential of GoM and Marcellus Shale activity is already reflected in its valuation, leaving little room for above-market gain.
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