Stone Energy's (SGY) High Yielding Inventory To Fuel Growth

On May 30, 2016, we issued an updated research report on Louisiana-based Stone Energy Corporation (NYSE:SGY) .

Stone Energy’s widespread high yielding inventory places it strongly in the industry. The company has an extensive capital project inventory. Although Stone Energy aims to apportion the capital across its portfolio, the focus will be on the Gulf of Mexico (GoM) shelf as well as the Marcellus region.

Recently, the company witnessed positive outcome from the first four Cardona wells whose combined production was a gross 20 thousand barrels of oil equivalent per day (MBoe/d). The company’s plan to boost acreage in GoM is in line with the Amethyst, Harrier and Vemaccia well targets, all expected to be commissioned over the next 18 months

A number of opportunities in new well production (like Apache Corp (NYSE:APA). operated Parmer well in Wideberth prospect) and continued activity in the La Cantera prospect, including drilling commencement at the Taildancer prospect in Ship Shoal 113, the Taggart prospect in Mississippi Canyon 816 and San Marcos prospect at Mississippi Canyon 983 are anticipated to significantly improve revenues. Also, exploration discoveries at its 100% operated prospects – deepwater Amethyst and deep gas Tomcat – should boost the top line. Further, permits for the Phinisi, and Floyd prospects, along with the interests purchased in Pompano and Mica fields in the GoM from BP (LON:BP) and Anadarko, are expected to place the company favorably.

However, with the advance in technology, a shift to unconventional drilling has become more widespread. However, the uncertainty regarding the regulations of these practices raises investment risk. Stricter regulations and more precautions in the wake of oil spills have increased the cost pressures on companies like Stone Energy, thereby affecting cash flows.

The company’s first-quarter 2016 earnings declined from the prior-year quarter. Its revenues too decreased year over year. Lower price realizations led to the deterioration in the first-quarter results. Like other independent exploration and production companies, Stone Energy’s results too are directly exposed to oil and gas prices, which are inherently volatile and subject to complex market forces. We note that realized prices could differ significantly from our estimates, thereby affecting the company’s revenues, earnings and cash flow.

Moreover, growing exploration exposure to the mature, low reserve life and capital intensive GoM shelf is expected to aggravate Stone Energy’s risk profile. Other risks faced by the company are changes in government regulations, dependence on individual well performance, possibility of unsuccessful wells and leverage to the company's drilling pace.

Stocks to Consider

Currently, Stone Energy carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the oil and gas sector include CVR Refining, LP (NYSE:CVRR) , Sasol Ltd. (NYSE:SSL) and Braskem S.A. (NYSE:BAK) . All these stocks sport a Zacks Rank #1 (Strong Buy).


SASOL LTD -ADR (SSL): Free Stock Analysis Report

BRASKEM SA (BAK): Free Stock Analysis Report

STONE ENERGY CP (SGY): Free Stock Analysis Report

CVR REFINING LP (CVRR): Free Stock Analysis Report

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