Stone Energy Corp. (SGY) reported third-quarter earnings of 42 cents per share, which was below the Zacks Consensus Estimate of 48 cents and year-earlier profit of $1.06. The decrease was primarily due to lower production volumes and weak commodity price realizations.

Net income during the reported quarter was $20.3 million, down from $51.1 million in the third quarter 2009. Revenues decreased 24.2% year over year to $153.6 million, but inched past the Zacks Consensus Estimate of $153 million.                                                                                         

Production during the quarter averaged 198 million cubic feet of gas equivalent per day (MMcfe/d), down more than 17% from the year-earlier level. Of the total production, natural gas accounted for 56%. The decrease in quarterly production was due to permit delays for recompletions, workovers, pipeline repairs and drilling at Amberjack.

Prices realized during the quarter averaged $72.52 per barrel of oil (down more than 6% year over year) and $5.48 per Mcf of natural gas (down nearly 7%). Overall realization, on a per Mcfe basis, decreased 8.9% at $8.41.

On the costs front, unit lease operating expenses increased 58% to $2.03 per Mcfe. DD&A was up nearly 6% year over year at $3.24 per Mcfe and SG&A expenses were up 25% at 54 cents per Mcfe.

At the end of the quarter, the company had approximately $85.4 million in cash and $475 million in long-term debt. Discretionary cash flow was $92.5 million during the quarter, down 41% year over year.

For the fourth quarter, the company expects net daily production of 195−210 MMcfe. Stone maintained its full-year production target at 205–215 MMcfe per day. Stone increased its 2010 capex guidance to $425 million from $400 million. This increase was mainly due to perked up activity and specific Appalachian lease acreage acquisitions.

Although production in the third quarter was hurt by project related delays, management said that the company is doing well in oil production. Stone will drill more for oil within its existing assets in the Gulf of Mexico (GoM). Importantly, year-end reserves will grow with the success in the GoM and  the Marcellus Shale program.

Though Stone shares were slightly down yesterday, the company’s increased activity level and greater emphasis on oil reflected in its stock performance. In the last two months, Stone shares jumped nearly 37%. Stone shares are currently rated Neutral with a Zacks #3 Rank (Hold).

 
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