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Stone Energy Corp. (SGY - Analyst Report) reported fourth-quarter 2013 earnings of 56 cents per share, which lagged the Zacks Consensus Estimate of 61 cents and decreased 37.1% from the year-earlier profit of 89 cents. The company blamed lower price realizations for the underperformance.

Total operating revenue of $239.3 million decreased 6.1% year over year from $254.9 million and missed the Zacks Consensus Estimate of $245.0 million.

For full-year 2013, the company earned $2.88 per share compared with the prior year profit of $3.03 and failed to meet the Zacks Consensus Estimate of $2.94. Total revenue was $974.2 million, representing a 2.4% increase from the year-ago level of $951.5 million.

Operational Highlights

During the quarter, production averaged 298 million cubic feet of gas equivalent per day (MMcfe/d), up 10.4% from the year-earlier level of 270 MMcfe/d. Of the total production, natural gas accounted for nearly 52% while 36% was oil and the remaining 12% was natural gas liquids (NGL).

Overall realization on a per Mcfe basis amounted to $8.55 versus $10.21 per Mcfe in fourth quarter 2012. Natural gas prices at $3.76 per Mcf were down from $3.79 per Mcf in the year-ago quarter, while oil price was $95.14 per barrel (down approximately 11% on an annualized basis). Natural gas liquids prices increased 19.4% from the year-ago quarter to $42.94 per barrel.

On the cost front, unit lease operating expenses decreased to $1.59 per Mcfe from $2.33 per Mcfe in the year-ago quarter. Depreciation, depletion and amortization was $3.43 per Mcfe (versus $3.32 per Mcfe a year ago), while salaries, general and administrative (SG&A) expenses totaled 59 cents per Mcfe (versus 57 cents per Mcfe).

Liquidity

At quarter end, the company had approximately $331.2 million in cash and $1,027.1 million in long-term debt, with a debt-to-capitalization ratio of 51.4% versus 50.9% in the preceding quarter. Discretionary cash flow decreased 7.4% year over year to $142.5 million.

Guidance

For the first quarter of 2014, the company expects net daily production of 261−270 MMcfe. For full-year 2014, the company anticipates total volume in the range of 258−282 MMcfe per day.

The company has projected capital outlay for the year at $825 million and expects the tax rate at 36–38%. In 2014, Stone Energy estimates lease operating expenses at $195–$210 million, transportation, processing and gathering expenses at $56–$68 million, and salaries, general & administrative expenses at $65–$69 million.

Outlook

Lafayette, Louisiana-based Stone Energy is an independent oil and gas exploration and production company engaged in the acquisition and subsequent exploration, development, operation and production of oil and gas properties, located primarily in the Gulf of Mexico (GoM).

Currently, Stone Energy is well placed in the industry with widespread high yielding inventory. The company boasts an extensive capital project inventory and is generating surplus cash flow with no bank debt. Although Stone Energy aims to apportion the capital across its portfolio, the focus will be on the GoM shelf as well as the Marcellus region.

Stone Energy holds a Zacks Rank #5 (Strong Sell rating). However, there are other stocks in the oil and gas sector – Helmerich & Payne, Inc. (HP - Analyst Report), Matrix Service Company (MTRX - Snapshot Report) and Matador Resources Company (MTDR - Snapshot Report) – which hold a Zacks Rank #1 (Strong Buy) and are expected to outperform the market.

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