Stone Energy (SGY, Financial) is facing difficult times. The company is struggling due to weak oil prices which are not showing any near signs of recovery. The net loss anticipated also widened. Not only in one aspect but the company saw a downfall in other aspects, too. The net daily production volumes of oil also shrank when compared with its production earlier.
This is having a negative effect on its market share as the stock has fallen much in the recent years and is trading near its 52-week low. The management is well aware of this and is putting lot of efforts to regain its lost momentum. It does look abstract still Stone Energy is trying to narrow its losses. Let us find out how?
Good progress
In response to this low-price environment, Stone Energy is trying to maintain its operational efficiency to be profitable in the future. It is trying to maintain its organizational capability to fetch the opportunities in front which can play an important role in helping Stone Energy to regain its lost glory. Under this, Stone Energy is undertaking several strategic initiatives and under this the key focus of the company surrounds around reducing the capital spending. This cut down in the expense will help it to narrow its losses.
Moving on to drilling, Stone Energy is largely focusing on executing its drilling programs in Gulf of Mexico as it sees good potential in that. In addition, Gulf of Mexico can also provide good cost metrics to Stone Energy as it has among the lowest costs of oil supply in the non-OPEC world. Besides Gulf of Mexico, Stone Energy has stopped drilling at Marcellus as it is dealing with the higher price situations in that. However, the company expects the netback pricing to improve in couple of years and the company can perform better in that better pricing market.
The way ahead
Moving forward, Stone Energy is also counting on a new well, Cardona, which is also looking in a good position to benefit it in a long run. The company is now making significant investment in this to add more value to it. This will boost up the production at Stone Energy’s camp it is expected to add another 5000 to 6000 barrel of oil equivalent per day. In addition, it is also working on various strategies to manage capital. It expects this to largely come from Amethyst well which was drilled in 2014. It is making significant investments in this to conserve capital in the current environment.
Further in this fiscal year, Stone Energy is likely to commence the placement of a platform rig onto the Pompano platform to complete one major rig work-over and drill three development wells. The company is expecting this project to add another 5,000 to 6,000 barrels of equivalent per day and it’s expected that combined development and LOE costs should be all in at around $13 per barrel. This is probably the highest IRR project available in the company.
Conclusion
Moving on to the fundamentals, the company is still making losses due to weaker pricing in the oil industry. The company is no doubt working well on its strategies but it still has a long way to go to achieve a profitable edge in the market. The oil prices are also not showing near signs of recovery so it can also be a bad long-term holding; in fact its earnings for the next five years are declining at a CAGR of -26.40% as compared to the industry average of 10.89%. So I would like to suggest the investors to wait for some concrete signs of the stock gaining market share and until then should see investment in Stone Energy from the sideline.
