Stone Energy – Always A Bridesmaid
Posted by zmann on October 31, 2006
SGY first blush looks awful. EPS missed pretty bad on better than expected revenue.
- Costs Soar. Operating costs look high and they’re increasing op cost guidance substantially. LOE, which was not good in the first place, flew up 66% to $2.65 per mcfes. SG&A per Mcfe jumped 52%.This is not the impact of reduced volumes because they’re up 4% YoY. Guidance going forward is lower for op costs – we’ll see.
- Production guidance is being maintained for 2006 and they’re still suffering from Katrina /Rita damage which is fine although I’ve seen these guys remain behind the eightball over weather too often. As one of their GOM peers said once, “yeah, we noticed it was raining harder over on their platforms” ;->
- Boosting its cap ex budget, not for increased activity but due to higher expected costs in China.
- Hedges (or lack thereof) SGY’s production is a little over 50% gas and yet they have nothing hedged for 2007 and less than a quarter of expected oil production hedged at $60. That’s pretty naked compared to their peers. The commodity prices that have prevailed over the past 6 months have provided other companies with the opportunity to hedge ample volumes through 2008 and beyond. SGY is betting on higher prices (I guess they need them with those costs) but could have locked in prices $3 higher on gas and $20 higher on oil. They’ve been burned by bad hedges before and now, I guess, they’re a bit gunshy.
- Recent trip down the isle costs more than just price, substantial prospect inventory went with it. This is the second failed marriage in a year. What’s hiding under the covers that the grooms haven’t liked?
- I mentioned SGY when the breakup was announced a couple weeks back but didn’t follow up on it. I’ll be watching this naked, under performer much closer now.