zman’s Energy Brain

oil, gas, stocks, etc…

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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.

2 Responses to “Stone Energy – Always A Bridesmaid”

  1. philstocks said

    Hey check this out – I was reading your post and I ran a chart of HOC to see how their day went.

    Then, a little further down, I said, I wonder how EOG did on the chart after their earnings. I put EOG in and I was cursing Yahoo because the chart didn’t change – just the header.

    After playing with it for a few seconds I realized that it did change – only the two companies had Virtually Identical Charts!

    Not just a little, but almost wiggle for wiggle throughout the day. Change to a 5 day view and they are still very similar but the one day is just freaky…

    EOG is the old Enron shop and, as far as I know, is just E&P while HOC is mainly a refiner – not even the same group!

    EOG’s income fell from $1.40 to $1.12 on a 4% increase in revenue (hedging) but they beat low expectations by 5%.

    HOC didn’t even have earnings yesterday but they did just announce a 5% buyback.

    What is the freakin’ logic to these two companies moving in lockstep? What kind of insane program trading could rationally account for this?

    This is fishy, fishy, fishy!!!;range=5d;compare=eog;indicator=volume;charttype=line;crosshair=on;logscale=on;source=

    Let me know what you think…

  2. zmann said

    It is freaky how close the two traded. EOG has been trading with oil for some time now even they’re about 90% gas! Some of their gas contracts in Trinidad key off crude prices but not enough to matter. Really weird trading. Can’t explain it.

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