Stone Energy (SGY, Financial) remains strong amid a difficult oil price environment. It is making significant changes in order to fight with this tough situation. It has dramatically reduced its capital budget by over 50% this year. Also, it managed to reduce its lease operating expenses and SG&A to 35% and 10% respectively in 2015. Stone energy is making smart moves such as selling off non-core shelf assets, executing cost-cutting measures and improving infrastructure. These pains should further bring down its LOE in 2015.
Reducing costs to improve performance
Stone Energy anticipates its lease-operating expenses to be in the range of $115 million to $125 million this year. This is about 30% down as compared to operating costs in 2014. Interesting thing to note here is that, even at this LOE, the company will produce approximately 39.0 to 43.0 MBoe per day in 2015, which is slightly above its production in 2014. It expects its production in the deep water to increase this year.
In spite of selling its non-core assets, the company is able to maintain production growth. The non-core assets had capabilities of delivering around 10,000 barrels of oil per day. It has total proved reserves of 152 million barrels of oil equivalent at the close of 2014 as compared to 144 million barrels of oil equivalent in 2013. This represents 6% organic growth.
These three projects in combine should deliver significant profit to Stone Energy going forward. At present its Pompano platform is producing about 15,000 barrels of oil per day. This asset has capability of processing approximately 60,000 barrels of oil per day and 200 million cubic feet a day. The below chart demonstrates Pompano’s estimated production in 2016 and 2017 with significantly better operating leverage. This is undeniably a great asset for Stone Energy and should improve its bottom line performance going forward.
Conclusion
Stone Energy should bounce back with the better oil price projected this year. Also, the company is making right investment and exploring Gulf of Mexico that has among the lowest cost of oil supply in the non-OPEC world. Moreover, its projects at Pompano Platform carry favorable costs metrics that should improve its bottom line performance in the future. Its balance sheet carries total cash of $74.49 million and has total debt of $1.04 billion. Stone Energy has operating cash flow of about $401.14 million.
