Stone Energy (SGY, Financial) is focused on optimizing its cost structure by significantly lowering the operating costs. It targets on particularly operating the expansion projects in the deepwater Gulf of Mexico, which is believed to have the least cost of oil supply in the non-OPEC environment, and its projects illustrate extremely beneficial cost metrics.
Steps undertaken
Stone as of now has stopped the drilling and concluding operations at the Marcellus with the netback pricing estimated to optimize in the near future and expects to match its expenditure with improved pricing. The three deepwater growth projects that Stone targets on investing into for this year are believed to have overall growth and LOE costs of nearly $30 per barrel, $15 per barrel, and $13 per barrel. Moving ahead, these projects are estimated to deliver improved shareholder returns and margins, even in the declining pricing scenario.
Stone expects to drill and link an extra well to the Cardona flow line loop started the production in November. The significant Cardona No. 6 well is believed to be at the centre of the company’s investment plans and is estimated to get linked for production in just six weeks of drilling and conclusion. Hence, Stone is believed produce further 5,000 to 6,000 barrel of oil equivalent per day through its 100% owned Pompano platform.
The significant growth efforts of Stone coupled with the continued cost-cutting initiatives executed by the company is estimated to grow the company’s customer base and hence, improved investor returns.
What next
Further, Stone focuses on completing the 100% owned Amethyst discovery well drilled during 2014 and develop a single line tieback to Pompano, forecasted to be launched during the first quarter of 2016. The joint growth and LOE for this project is expected to be all-inclusive at approximately $15 per Boe. It has also discovered the Point Pleasant-Utica in West Virginia.
The third growth investment is estimated to begin this year with the positioning of a platform rig onto the Pompano stage to conclude one key rig work-over and further drill three expansion wells. This key project is estimated to add further 5,000 to 6,000 barrels of equivalent per day and it’s expected that consolidated expansion and LOE costs to be all-inclusive at approximately $13 per barrel.
The planned development of Amethyst discovery well drilled in 2014 along with the drilling of three other key wells is believed to significantly grow the company production and expand the related shareholder returns.
Stone expects to significantly explore the drilling operations at Mississippi Canyon and Vernaccia when combined to its Pompano platform. Pompano platform is currently producing approximately 15,000 barrels of oil per day and it is expected to have enough capacity to process and deliver 200 million cubic feet a day and 60,000 barrels a day.
The increase in the oil and gas production by Stone through the key well explorations is estimated to be partially offset by the global decline in the oil prices.
Positive moves
Stone successfully negotiated a key win-win deepwater rig agreement with Ensco for the uniquely positioned 8503 rig. Stone estimates to start the operations at the rig in April when its first drilling activity is planned and conclude the Cardona No. 6 well. Further, with this rig Stone has acquired the capability to function in water depths ranging from 800 feet to more than 8,000 feet of water, positioning it as the largely flexible rigs across the globe.
Stone enhanced the reserves by 6% in the previous year, conquering each of the reserve fall linked with its non-strategic property sales and gaining 252% production substitution organically. Its production held fundamentally flat and also lost nearly 10,000 barrels per day of volumes linked to its property sales.
The ongoing strategic well acquisition planned by Stone combined with the superb organic growth illustrated by the company is believed to improve the free cash flows and thus benefit the investors.
Conclusion
Overall, the investors are advised to invest in Stone Energy Corporation despite weak valuations and declining profit as illustrated by the profit margin of -24.67%, indicating no profit but loss. This is because the company has strong prospects going forward.
