Stone Energy Corp. Reports Operating Results (10-Q)
Stone Energy Corporation has a market cap of $1.16 billion; its shares were traded at around $24.38 with a P/E ratio of 6.6 and P/S ratio of 1.3. Stone Energy Corporation had an annual average earning growth of 4.3% over the past 10 years.
Highlight of Business Operations:The nature of a derivative instrument must be evaluated to determine if it qualifies for hedge accounting treatment. If the instrument qualifies for hedge accounting treatment, it is recorded as either an asset or liability measured at fair value and subsequent changes in the derivatives fair value are recognized in equity through other comprehensive income (loss), net of related taxes, to the extent the hedge is considered effective. Additionally, monthly settlements of effective hedges are reflected in revenue from oil and gas production and cash flows from operations. Instruments not qualifying for hedge accounting treatment are recorded in the balance sheet at fair value and changes in fair value are recognized in earnings through derivative expense (income). Typically, a small portion of our derivative contracts are determined to be ineffective. This is because oil and natural gas price changes in the markets in which we sell our products are not 100% correlative to changes in the underlying price basis indicated in the derivative contracts. Monthly settlements of ineffective hedges are recognized in earnings through derivative expense (income) and cash flows from operations.
At September 30, 2012, we had accumulated other comprehensive income of $29.8 million, net of tax, which related to the fair value of our swap contracts that were outstanding as of September 30, 2012. We believe that approximately $19.9 million of the accumulated other comprehensive income will be reclassified into earnings in the next 12 months.
Earnings Per Share On March 6, 2012, we issued $300 million of 2017 Convertible Notes. These notes are convertible into cash, shares of our common stock or combination thereof at our election. Current accounting standards require us to use the treasury method for determining potential dilution in our diluted earnings per share computation since it is managements intention to settle the principal in cash. However, if due to changes in facts and circumstances beyond our control such intention were to change, or it becomes probable that we will be unable to settle the principal in cash, we could be required to change our methodology for determining fully diluted earnings per share to the if-converted method. The if-converted method would result in a substantial dilutive effect on diluted earnings per share when compared to the treasury method.
Revenue. Oil, natural gas and NGL revenue was $226.7 million during the three months ended September 30, 2012, compared to $209.3 million during the comparable period of 2011. The increase is attributable to an 18% increase in production quantities on a gas equivalent basis, partially offset by an 8% decrease in average realized prices. Oil, natural gas and NGL revenue for the nine months ended September 30, 2012 was $691.0 million compared to $641.9 million during the comparable period of 2011. The increase is attributable to a 12% increase in production quantities on a gas equivalent basis.
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