Stone Energy Sets '13 Capex Budget

Louisiana-based Stone Energy Corporation (SGY - Analyst Report) has allocated $650 million as its capital expenditure budget for 2013. The amount does not include costs relating to acquisitions and capitalized selling, general and administrative (SG&A) and interest.

The company has apportioned about 29% towards Deep Water, 8% for Deep Gas projects, 27% for the Gulf of Mexico (GoM) conventional shelf, 33% towards the Marcellus shale and 3% for Onshore Exploration projects.

Under the Deep Water segment, Stone Energy proposes to take part in 2–4 non-operated exploration wells for the year as well as employ about $80 million on long lead-time items in support of operated deep water drilling and template tie-back for the Pompano platform. Other projects include exploration drilling, preparation work to put up a rig at the Pompano platform and purchase lease.

The capital budget set aside for the Deep Gas segment will focus on a third well at the La Cantera field and another 1-3 exploration well, which is likely to comprise the onshore La Montana prospect and the offshore Tom Cat prospect.

In the Gulf of Mexico conventional shelf, Stone Energy intends to spud 3-5 development wells mainly around the Ship Shoal 113 field, the Main Pass area and onshore south Louisiana. Further, recompletions and facilities modernization to the existing infrastructure will receive an amount of $35 million while about $65–$70 million has been set aside for plugging and abandonment operations.

A horizontal rig program as well as drilling and fracturing of 26–32 wells will likely be conducted in the liquids rich Mary and Heather areas of the Marcellus Shale. The operational efficiency realized in 2012 has led to the increased level of activity. Stone Energy is also expected to perform a well test on the Upper Devonian formation.

The remaining 3% of the capital budget will concentrate on continued non-operated development drilling in the Eagle Ford shale formation as well as other new venture prospects.

The 2013 average daily yield projection is on par with 2012 production, or in the range of 41,000–44,000 barrels of oil equivalent per day (Boe/d), or 245–265 million cubic feet equivalent per day, with natural gas forming 50–52% and oil/natural gas liquids forming 50–48% on a British thermal unit equivalent basis. The company had earlier estimated the output to increase in 2014 and exceed 50,000 Boe/d in 2015, owing to the commissioning of long-term projects in the Deep Water area.

The proportion of capital towards the key areas of the company may alter depending on aspects such as permitting times, rig availability, non-operator decisions, farm-in opportunities and commodity pricing. The 2013 capital budget is expected to be financed by the estimated cash flow and cash on hand.

Stone Energy, which had recently entered into a purchase agreement with Anadarko Petroleum Corporation (APC - Analyst Report) for a working interest in a U.S. Gulf field, holds a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation.