Edgar Filing: STONE ENERGY CORP

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-12074

STONE ENERGY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


Delaware		72-1235413
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

625 E. Kaliste Saloom Road Lafayette, Louisiana (Address of Principal Executive Offices)		70508 (Zip Code)

Registrant’s Telephone Number, Including Area Code: (337) 237-0410

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of August 5, 2009, there were 48,033,551 shares of the registrant’s Common Stock, par value $.01 per share, outstanding.

TABLE OF CONTENTS


	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed Consolidated Balance Sheet as of June 30, 2009 and December 31, 2008		1

Condensed Consolidated Statement of Operations for the Three and Six Months Ended June 30, 2009 and 2008		2

Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2009 and 2008		3

Notes to Condensed Consolidated Financial Statements		4

Report of Independent Registered Public Accounting Firm		20

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

Item 3. Quantitative and Qualitative Disclosures About Market Risk		28

Item 4. Controls and Procedures		28

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		29

Item 1A. Risk Factors		30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34

Item 4. Submission of Items to a Vote of Security Holders		34

Item 6. Exhibits		35

Signature		36
EX-15.1
EX-31.1
EX-31.2
EX-32.1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

STONE ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands of dollars)


	June 30,			December 31,
	2009			2008
	(Unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	109,339		$	68,137
Accounts receivable		136,742			151,641
Fair value of hedging contracts		22,714			136,072
Current income tax receivable		748			31,183
Inventory		12,546			35,675
Other current assets		1,109			1,413

Total current assets		283,198			424,121

Oil and gas properties — United States — full cost method of accounting:
Proved, net of accumulated depreciation, depletion and amortization of $4,232,424 and $3,766,676, respectively		857,972			1,130,583
Unevaluated		454,657			493,738
Building and land, net		5,537			5,615
Fixed assets, net		4,373			5,326
Other assets, net		47,484			46,620
Fair value of hedging contracts		3,307			—

Total assets	$	1,656,528		$	2,106,003


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	114,228		$	144,016
Undistributed oil and gas proceeds		15,555			37,882
Fair value of hedging contracts		17,711			—
Deferred taxes		13,629			32,416
Asset retirement obligations		62,284			70,709
Other current liabilities		10,322			15,759

Total current liabilities		233,729			300,782

Long-term debt		725,000			825,000
Deferred taxes		85,729			193,924
Asset retirement obligations		177,135			186,146
Fair value of hedging contracts		11,661			1,221
Other long-term liabilities		12,428			11,751

Total liabilities		1,245,682			1,518,824


Commitments and contingencies

Stockholders’ equity:
Stone Energy Corporation stockholders’ equity:
Common stock, $.01 par value; authorized 100,000,000 shares; issued 47,486,255 and 39,430,637 shares, respectively		475			394
Treasury stock (16,582 shares, respectively, at cost)		(860	)		(860	)
Additional paid-in capital		1,320,384			1,257,633
Accumulated deficit		(953,685	)		(754,987	)
Accumulated other comprehensive income		44,532			84,912

Total Stone Energy Corporation stockholders’ equity		410,846			587,092

Non-controlling interest		—			87

Total stockholders’ equity		410,846			587,179

Total liabilities and stockholders’ equity	$	1,656,528		$	2,106,003

The accompanying notes are an integral part of this balance sheet.

STONE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Operating revenue:
Oil production	$	107,972		$	156,569		$	178,826		$	279,276
Gas production		62,340			106,393			130,490			186,919
Derivative income, net		—			—			3,196			—

Total operating revenue		170,312			262,962			312,512			466,195


Operating expenses:
Lease operating expenses		41,122			34,900			99,276			65,153
Other operational expense		2,400			—			2,400			—
Production taxes		2,565			3,503			3,840			4,903
Depreciation, depletion and amortization		57,052			70,831			117,670			134,218
Write-down of oil and gas properties		—			10,100			340,083			10,100
Accretion expense		8,376			3,853			16,753			8,221
Salaries, general and administrative expenses		9,922			11,278			21,583			21,534
Incentive compensation expense		1,197			882			1,417			1,900
Impairment of inventory		1,256			—			7,179			—
Derivative expenses, net		743			3,353			—			3,612

Total operating expenses		124,633			138,700			610,201			249,641


Income (loss) from operations		45,679			124,262			(297,689	)		216,554


Other (income) expenses:
Interest expense		4,788			3,633			9,954			7,492
Interest income		(146	)		(3,432	)		(282	)		(8,346	)
Other income		(851	)		(1,313	)		(2,253	)		(2,409	)
Other expense		—			—			428			55

Total other (income) expenses		3,791			(1,112	)		7,847			(3,208	)


Net income (loss) before income taxes		41,888			125,374			(305,536	)		219,762


Provision (benefit) for income taxes:
Current		—			33,028			23			46,978
Deferred		14,720			9,535			(106,888	)		27,731

Total income taxes		14,720			42,563			(106,865	)		74,709


Net income (loss)		27,168			82,811			(198,671	)		145,053
Less: Net loss attributable to non-controlling interest		—			—			(27	)		—

Net income (loss) attributable to Stone Energy Corporation	$	27,168		$	82,811		$	(198,698	)	$	145,053


Basic earnings (loss) per share attributable to Stone Energy Corporation stockholders	$	0.65		$	2.90		$	(4.92	)	$	5.10
Diluted earnings (loss) per share attributable to Stone Energy Corporation stockholders	$	0.65		$	2.88		$	(4.92	)	$	5.08

Average shares outstanding		41,270			28,077			40,365			27,948
Average shares outstanding assuming dilution		41,338			28,459			40,365			28,260

The accompanying notes are an integral part of this statement.

STONE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands of dollars)

(Unaudited)


	Six Months Ended June 30,
	2009			2008
Cash flows from operating activities:
Net income (loss)	$	(198,671	)	$	145,053
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		117,670			134,218
Write-down of oil and gas properties		340,083			10,100
Impairment of inventory		7,179			—
Accretion expense		16,753			8,221
Deferred income tax provision (benefit)		(106,888	)		27,731
Settlement of asset retirement obligations		(28,249	)		(33,651	)
Non-cash stock compensation expense		3,159			4,322
Excess tax benefits		—			(2,950	)
Non-cash derivative expense		1,902			3,612
Other non-cash expenses		923			470
Unrecognized proceeds from unwound derivative contracts		71,662			—
Change in current income taxes		30,435			(47,131	)
(Increase) decrease in accounts receivable		17,638			(4,722	)
(Increase) decrease in other current assets		271			(543	)
Decrease in inventory		15,950			—
Increase (decrease) in accounts payable		11,397			(400	)
Decrease in other current liabilities		(27,765	)		(3,001	)
Investment in hedging contracts		—			(1,914	)
Other		94			(26	)

Net cash provided by operating activities		273,543			239,389


Cash flows from investing activities:
Investment in oil and gas properties		(197,001	)		(177,955	)
Proceeds from sale of oil and gas properties, net of expenses		5,496			14,090
Sale of fixed assets		35			—
Investment in fixed and other assets		(376	)		(2,503	)
Acquisition of non-controlling interest in subsidiary		(40	)		—

Net cash used in investing activities		(191,886	)		(166,368	)


Cash flows from financing activities:
Net proceeds from issuance of common stock		60,456			—
Repayments of bank borrowings		(100,000	)		—
Excess tax benefits		—			2,950
Deferred financing costs		(175	)		—
Purchase of treasury stock		(347	)		—
Net proceeds from exercise of stock options and vesting of restricted stock		(389	)		17,020

Net cash provided by (used in) financing activities		(40,455	)		19,970


Net increase in cash and cash equivalents		41,202			92,991
Cash and cash equivalents, beginning of period		68,137			475,126

Cash and cash equivalents, end of period	$	109,339		$	568,117

The accompanying notes are an integral part of this statement.

STONE ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Interim Financial Statements

The condensed consolidated financial statements of Stone Energy Corporation (“Stone”) and its subsidiaries as of June 30, 2009 and for the three and six-month periods ended June 30, 2009 and 2008 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The condensed consolidated balance sheet at December 31, 2008 has been derived from the audited financial statements at that date. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in our Annual Report on Form 10-K for the year ended December 31, 2008. The results of operations for the three and six-month periods ended June 30, 2009 are not necessarily indicative of future financial results.

Note 2 — Prior Period Restatement

During the second quarter of 2009, we determined that the first quarter 2009 financial statements had misstatements caused by two errors that resulted in the under-accrual of revenues. The net effect of the misstatements on the individual financial statement line items for the first quarter of 2009 are as follows:


	Quarter Ended March 31, 2009
	As Reported			Adjustment			As Restated
	(In thousands, except per share amounts)
Condensed Consolidated Statement of Operations:
Oil production	$	60,202		$	10,652		$	70,854
Gas production		69,277			(1,127	)		68,150
Derivative income, net		2,922			1,017			3,939
Total operating revenue		132,401			10,542			142,943
Production taxes		1,040			235			1,275
Total operating expenses		486,076			235			486,311
Income (loss) from operations		(353,675	)		10,307			(343,368	)
Net income (loss) before income taxes		(357,731	)		10,307			(347,424	)
Deferred income taxes		(125,216	)		3,608			(121,608	)
Net income (loss)		(232,538	)		6,699			(225,839	)
Net income (loss) attributable to Stone Energy Corporation stockholders		(232,565	)		6,699			(225,866	)
Basic earnings (loss) per share attributable to Stone Energy Corporation stockholders	$	(5.90	)	$	0.17		$	(5.73	)
Diluted earnings (loss) per share attributable to Stone Energy Corporation stockholders	$	(5.90	)	$	0.17		$	(5.73	)

Condensed Consolidated Balance Sheet:
Accounts receivable	$	113,085		$	10,542		$	123,627
Total current assets		288,950			10,542			299,492
Total assets		1,685,816			10,542			1,696,358
Undistributed oil and gas proceeds		14,208			235			14,443
Total current liabilities		248,128			235			248,363
Deferred taxes		70,255			3,608			73,863
Total liabilities		1,325,102			3,843			1,328,945
Accumulated deficit		(987,552	)		6,699			(980,853	)
Total Stone Energy Corporation stockholders’ equity		360,600			6,699			367,299
Total stockholders’ equity		360,714			6,699			367,413
Total liabilities and stockholders’ equity		1,685,816			10,542			1,696,358


	Quarter Ended March 31, 2009
	As Reported			Adjustment			As Restated
				(In thousands)
Condensed Consolidated Statement of Cash Flows:
Net income (loss)	$	(232,538	)	$	6,699		$	(225,839	)
Deferred income tax provision (benefit)		(125,216	)		3,608			(121,608	)
Non-cash derivative income		(653	)		(1,017	)		(1,670	)
(Increase) decrease in accounts receivable		38,556			(9,525	)		29,031
Increase (decrease) in other current liabilities		(28,378	)		235			(28,143	)

Comprehensive income (loss)	$	(227,370	)	$	6,699		$	(220,671	)

Note 3 — Earnings Per Share

Basic net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted net income per share of common stock was calculated by dividing net income applicable to common stock by the weighted-average number of common shares outstanding during the period plus the weighted-average number of dilutive stock options and restricted stock granted to outside directors and employees. There were approximately 68,000 and 382,000 dilutive shares for the three months ended June 30, 2009 and 2008, respectively. There were no dilutive shares for the six months ended June 30, 2009 because we had a net loss for the period. There were approximately 312,000 dilutive shares for the six months ended June 30, 2008.

Stock options that were considered antidilutive because the exercise price of the option exceeded the average price of our common stock for the applicable period totaled approximately 501,000 shares in the three months ended June 30, 2009. There were no antidilutive stock options in the three months ended June 30, 2008. Stock options that were considered antidilutive totaled 501,000 and 65,000 shares in the six months ended June 30, 2009 and 2008, respectively.

During the three months ended June 30, 2009, approximately 20,000 shares of common stock were issued upon the vesting of restricted stock by employees and nonemployee directors. On June 10, 2009, 8,050,000 shares of common stock were issued in a public offering (see Note 4). During the three months ended June 30, 2008, approximately 327,000 shares of common stock were issued upon the exercise of stock options and vesting of restricted stock by employees and nonemployee directors.

For the six months ended June 30, 2009 and 2008, approximately 105,000 and 503,000 shares of common stock, respectively, were issued upon the exercise of stock options and vesting of restricted stock by employees and nonemployee directors and the awarding of employee bonus stock pursuant to the 2004 Amended and Restated Stock Incentive Plan. During the six months ended June 30, 2009, 100,000 shares of common stock were repurchased under our stock repurchase program.

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF No. 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and are therefore required to be included in the earnings allocation in calculating earnings per share under the two-class method described in Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share.” Under FSP EITF No. 03-6-1, companies are required to treat unvested share-based payment awards with a right to receive non-forfeitable dividends as a separate class of securities in calculating earnings per share. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We adopted FSP EITF No. 03-6-1 effective January 1, 2009. The net effect of the implementation of FSP EITF No. 03-6-1 on our financial statements was immaterial.

Note 4 — Public Offering of Common Stock

In June 2009, we sold 8.1 million shares of our common stock in a public offering at a price of $8.00 per share resulting in net proceeds of approximately $60.5 million after deducting the underwriting discount and offering expenses. The net proceeds are reflected in the common stock and additional paid-in capital accounts of our condensed consolidated balance sheet at June 30, 2009.

Note 5 — Derivative Instruments and Hedging Activities

Our hedging strategy is designed to protect our near and intermediate term cash flow from future declines in oil and natural gas prices. This protection is essential to capital budget planning which is sensitive to expenditures that must be committed to in advance such as rig contracts and the purchase of tubular goods. We enter into hedging transactions to secure a commodity price for a portion of future production that is acceptable at the time of the transaction. These hedges are designated as cash flow hedges upon entering into the contract. We do not enter into hedging transactions for trading purposes. We have no fair value hedges.

Under SFAS No. 133, the nature of a derivative instrument must be evaluated to determine if it qualifies for hedge accounting treatment. If the instrument qualifies for hedge accounting treatment, it is recorded as either an asset or liability measured at fair value and subsequent changes in the derivative’s fair value are recognized in equity through other comprehensive income (loss), net of related taxes, to the extent the hedge is considered effective. Additionally, monthly settlements of effective hedges are reflected in revenue from oil and gas production and cash flows from operations. Instruments not qualifying for hedge accounting are recorded in the balance sheet at fair value and changes in fair value are recognized in earnings through derivative expense (income). Typically, a small portion of our derivative contracts are determined to be ineffective. This is because oil and natural gas price changes in the markets in which we sell our products are not 100% correlative to changes in the underlying price basis indicative in the derivative contract. Monthly settlements of ineffective hedges are recognized in earnings through derivative expense (income) and cash flows from operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. SFAS No. 161 became effective for us on January 1, 2009.

We have entered into zero-premium collars and fixed-price swaps with various counterparties for a portion of our expected 2009, 2010 and 2011 oil and natural gas production from the Gulf Coast Basin. The natural gas collar settlements are based on an average of New York Mercantile Exchange (“NYMEX”) prices for the last three days of a respective month. The collar contracts require payments to the counterparties if the average price is above the ceiling price or payment from the counterparties if the average price is below the floor price. Some of our fixed-price gas swap settlements are based on an average of NYMEX prices for the last three days of a respective month and some are based on the NYMEX price for the last day of a respective month. The fixed-price oil swap settlements are based upon an average of the NYMEX closing price for West Texas Intermediate (“WTI”) during the entire calendar month. Swaps typically provide for monthly payments by us if prices rise above the swap price or to us if prices fall below the swap price. Our outstanding collar is with BNP Paribas. Our outstanding fixed-price swap contracts are with J.P. Morgan Chase Bank, N.A., The Toronto-Dominion Bank, Barclays Bank PLC, BNP Paribas and The Bank of Nova Scotia.

All of our derivative instruments at June 30, 2009 and December 31, 2008 were designated as hedging instruments under SFAS No. 133. The following tables disclose the location and fair value amounts of derivative instruments reported in our balance sheet at June 30, 2009 and December 31, 2008.

Fair Value of Derivative Instruments at June 30, 2009

(in millions)


	Asset Derivatives			Liability Derivatives
		Fair			Fair
Description	Balance Sheet Location	Value		Balance Sheet Location	Value
Commodity contracts	Current assets: Fair value of hedging contracts	$	22.7	Current liabilities: Fair value of hedging contracts	$	(17.7	)
	Long-term assets: Fair value of hedging contracts		3.3	Long-term liabilities: Fair value of hedging contracts		(11.7	)

		$	26.0		$	(29.4	)

Fair Value of Derivative Instruments at December 31, 2008

(in millions)


	Asset Derivatives			Liability Derivatives
		Fair			Fair
Description	Balance Sheet Location	Value		Balance Sheet Location	Value
Commodity contracts	Current assets: Fair value of hedging contracts	$	136.1	Long-term liabilities: Fair value of hedging contracts	$	(1.2	)

		$	136.1		$	(1.2	)

The following tables disclose the effect of derivative instruments in the statement of operations for the three and six-month periods ended June 30, 2009 and 2008.

The Effect of Derivative Instruments on the Statement of Operations for the Three Months Ended June 30, 2009 and 2008

(in millions)


	Amount of Gain (Loss)
Derivatives in	Recognized in OCI on						Gain (Loss) Reclassified from
SFAS No. 133 Cash	Derivative						Accumulated OCI into Income						Gain (Loss) Recognized in Income on
Flow Hedging	(Effective Portion)						(Effective Portion) (a)						Derivative (Ineffective Portion)
Relationships	2009			2008			Location	2009		2008			Location	2009			2008
Commodity contracts	$	(45.6	)	$	(83.3	)	Operating revenue - oil/gas production	$	44.9	$	(21.1	)	Derivative income (expense), net	$	(0.7	)	$	(3.4	)

Total	$	(45.6	)	$	(83.3	)		$	44.9	$	(21.1	)		$	(0.7	)	$	(3.4	)


(a)		For the three months ended June 30, 2009, effective hedging contracts increased oil revenue by $19.4 million and increased gas revenue by $25.5 million. For the three months ended June 30, 2008, effective hedging contracts reduced oil revenue by $20.8 million and reduced gas revenue by $0.3 million.

The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended June 30, 2009 and 2008

(in millions)


	Amount of Gain (Loss)
Derivatives in	Recognized in OCI on						Gain (Loss) Reclassified from
SFAS No. 133 Cash	Derivative						Accumulated OCI into Income						Gain (Loss) Recognized in Income on
Flow Hedging	(Effective Portion)						(Effective Portion) (a)						Derivative (Ineffective Portion)
Relationships	2009			2008			Location	2009		2008			Location	2009		2008
Commodity contracts	$	(40.4	)	$	(87.6	)	Operating revenue - oil/gas production	$	85.7	$	(25.5	)	Derivative income (expense), net	$	3.2	$	(3.6	)

Total	$	(40.4	)	$	(87.6	)		$	85.7	$	(25.5	)		$	3.2	$	(3.6	)


(a)		For the six months ended June 30, 2009, effective hedging contracts increased oil revenue by $37.7 million and increased gas revenue by $48.0 million. For the six months ended June 30, 2008, effective hedging contracts reduced oil revenue by $26.0 million and increased gas revenue by $0.5 million.

On March 3, 2009, we unwound all of our then existing crude oil hedges for the period from April 2009 through December 2009, resulting in proceeds of approximately $59 million. On March 6, 2009, we unwound two of our natural gas hedges for the period from April 2009 through December 2009, resulting in proceeds of approximately $54 million. These amounts (net of related deferred income tax effect) were recorded in accumulated other comprehensive income. As the original time periods for these contracts expire, applicable amounts are being reclassified into earnings. During the quarter ended June 30, 2009, $37.3 million (before related deferred income tax effect) of the proceeds were reclassified into production revenue and $71.7 million (before related deferred income tax effect) remains in other comprehensive income.

At June 30, 2009, we had accumulated other comprehensive income of $44.5 million, net of tax, which related to the fair value of our 2009, 2010 and 2011 collar and swap contracts. A portion of this amount relates to the contracts that were unwound. We believe that approximately $49.8 million of the accumulated other comprehensive income will be reclassified into earnings in the next twelve months.

The following tables illustrate our hedging positions for calendar years 2009, 2010 and 2011 as of August 5, 2009:


	Zero-Premium Collars
	Natural Gas
	Daily
	Volume		Floor		Ceiling
	(MMBtus/d)		Price		Price
2009		20,000	$	8.00	$	14.30


	Fixed-Price Swaps
	Natural Gas					Oil
	Daily					Daily
	Volume			Swap		Volume			Swap
	(MMBtus/d)			Price		(Bbls/d)			Price
2009		20,000	(a)	$	4.24		3,000	(b)	$	50.00
2009		20,000	(b)		5.00		2,000	(b)		50.45
2009		20,000	(b)		5.13		4,000	(b)		71.25

2010		20,000			6.97		2,000			63.00
2010		20,000			6.50		1,000			64.05
2010		10,000			6.50		1,000			60.20
2010							1,000			75.00
2010							1,000			75.25
2010							4,000	(c)		73.65

2011		10,000			6.83		1,000			70.05
2011							1,000			78.20


(a)		July — September

(b)		October — December

(c)		January — March

Note 6 — Long-Term Debt

Long-term debt consisted of the following at:


	June 30,		December 31,
	2009		2008
	(in millions)
8¹/4% Senior Subordinated Notes due 2011	$	200.0	$	200.0
6³/4% Senior Subordinated Notes due 2014		200.0		200.0
Bank debt		325.0		425.0

Total long-term debt	$	725.0	$	825.0

On August 28, 2008, we entered into an amended and restated revolving credit facility totaling $700 million, maturing on July 1, 2011, with a syndicated bank group. In December 2008, the borrowing base was set at $625 million. On April 28, 2009, our bank credit facility was amended, and on April 29, 2009, the borrowing base under our bank credit facility was reduced from $625 million to $425 million. At June 30, 2009, we had $325 million in borrowings under our bank credit facility, letters of credit totaling $68.9 million had been issued pursuant to the facility, and the weighted average interest rate under our bank credit facility was approximately 3.3%. As of August 5, 2009, we had $313 million in borrowings and $68.9 million of outstanding letters of credit, leaving $43.1 million of availability under our bank credit facility.

The amendment increased our borrowing base pricing grid by 75 basis points in respect of London Interbank Offering Rate (“Libor Rate”) advances, by a range of 125 to 150 basis points in respect of base rates advances and by a range of 0 to 12.5 basis points in respect of commitment fees under the credit agreement. The facility is guaranteed by all of our material direct and indirect subsidiaries, including Stone Energy Offshore, L.L.C. (“Stone Offshore”), a wholly owned subsidiary of Stone.

The borrowing base under our bank credit facility is redetermined semi-annually, typically in May and November, by the lenders taking into consideration the estimated value of our oil and gas properties and those of our direct and indirect material subsidiaries in accordance with the lenders’ customary practices for oil and gas loans. In addition, we and the lenders each have discretion at any time, but not more than two additional times in any calendar year, to have the borrowing base redetermined. If a reduction caused our borrowing base to fall below any outstanding balances under our bank credit facility plus any outstanding letters of credit, our agreement with the banks allows us one of three options to cure the borrowing base deficiency: (1) repay amounts outstanding sufficient to cure the deficiency within 10 days after our written election to do so; (2) add additional oil and

gas properties acceptable to the banks to the borrowing base and take such actions necessary to grant the banks a mortgage in the properties within thirty days after our written election to do so or (3) arrange to pay the deficiency in monthly installments over ninety days or some longer period acceptable to the banks not to exceed six months.

Our bank credit facility is collateralized by substantially all of Stone’s and Stone Offshore’s assets. Stone and Stone Offshore are required to mortgage, and grant a security interest in, their oil and gas reserves representing at least 80% of the discounted present value of the future net cash flows from their oil and gas reserves reviewed in determining the borrowing base. At Stone’s option, loans under our bank credit facility will bear interest at a rate based on the adjusted Libor Rate plus an applicable margin, or a rate based on the prime rate or Federal funds rate plus an applicable margin. Our bank credit facility provides for optional and mandatory prepayments, affirmative and negative covenants, and interest coverage ratio and leverage ratio maintenance covenants.

Note 7 — Comprehensive Income

The following table illustrates the components of comprehensive income for the three and six-month periods ended June 30, 2009 and 2008:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
				(in millions)
Net income (loss)	$	27.2		$	82.8		$	(198.7	)	$	145.1
Other comprehensive loss, net of tax effect:
Adjustment for fair value accounting of derivatives		(45.6	)		(83.3	)		(40.4	)		(87.6	)

Comprehensive income (loss)		(18.4	)		(0.5	)		(239.1	)		57.5
Comprehensive income attributable to non-controlling interest		—			—			—			—

Comprehensive income (loss) attributable to Stone Energy Corporation	$	(18.4	)	$	(0.5	)	$	(239.1	)	$	57.5

Note 8 — Asset Retirement Obligations

The change in our asset retirement obligations during the six months ended June 30, 2009 is set forth below:


	Six Months
	Ended
	June 30, 2009
	(in millions)
Asset retirement obligations as of the beginning of the period, including current portion	$	256.9
Liabilities settled		(28.2	)
Divestment of properties		(6.0	)
Accretion expense		16.7

Asset retirement obligations as of the end of the period, including current portion	$	239.4

Note 9 — Impairments

Under the full cost method of accounting, we compare, at the end of each financial reporting period, the present value of estimated future net cash flows from proved reserves (based on period-end hedge adjusted commodity prices and excluding cash flows related to estimated abandonment costs), to the net capitalized costs of proved oil and gas properties net of related deferred taxes. We refer to this comparison as a “ceiling test.” If the net capitalized costs of proved oil and gas properties exceed the estimated discounted future net cash flows from proved reserves, we are required to write-down the value of our oil and gas properties to the value of the discounted cash flows. At March 31, 2009, our ceiling test computation resulted in a write-down of our oil and gas properties of $340.1 million based on a March 31, 2009 Henry Hub gas price of $3.63 per MMBtu and a West Texas Intermediate oil price of $44.92 per barrel. The benefit of hedges in place at March 31, 2009 reduced the write-down by $85.0 million.

For the six months ended June 30, 2009, we recorded a write-down of our tubular inventory in the amount of $7.2 million. This charge was the result of the market value of these tubulars falling below historical cost.

Note 10 — Fair Value Measurements

We adopted the provisions of SFAS No. 157, “Fair Value Measurements,” on January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements. The net effect of the implementation of SFAS No. 157 on our financial statements was immaterial. SFAS 157 establishes a fair value hierarchy which has three levels based on the reliability of the inputs used to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of June 30, 2009, we held certain financial assets and liabilities that are required to be measured at fair value on a recurring basis, including our commodity derivative instruments and our investments in money market funds. We utilize the services of an independent third party to assist us in valuing our derivative instruments. We used the income approach in determining the fair value of our derivative instruments utilizing a proprietary pricing model. The model accounts for the credit risk of Stone and its counterparties in the discount rate applied to estimated future cash inflows and outflows. Our swap contracts are included within the Level 2 fair value hierarchy and collar contracts are included within the Level 3 fair value hierarchy. Significant unobservable inputs used in establishing fair value for the collars were the volatility impacts in the pricing model as it relates to the call and put portions of the collar. For a more detailed description of our derivative instruments, see Note 5 — Derivative Instruments and Hedging Activities. We used the market approach in determining the fair value of our investments in money market funds, which are included within the Level 1 fair value hierarchy.

The following tables present our assets and liabilities that are measured at fair value on a recurring basis during the six months ended June 30, 2009.


	Fair Value Measurements at June 30, 2009
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
Assets	Total		(Level 1)		(Level 2)		(Level 3)
			(in millions)
Money market funds	$	60.9	$	60.9	$	—	$	—
Hedging contracts		26.0		—		12.6		13.4

Total	$	86.9	$	60.9	$	12.6	$	13.4


	Fair Value Measurements at June 30, 2009
				Quoted Prices
				in Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
				Liabilities		Inputs			Inputs
Liabilities	Total			(Level 1)		(Level 2)			(Level 3)
				(in millions)
Hedging contracts	$	(29.4	)	$	—	$	(29.4	)	$	—

Total	$	(29.4	)	$	—	$	(29.4	)	$	—

The table below presents a reconciliation for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2009.


	Hedging
	Contracts, net
	(in millions)
Balance as of January 1, 2009	$	68.1
Total gains/(losses) (realized or unrealized):
Included in earnings		48.5
Included in other comprehensive income		(21.4	)
Purchases, sales, issuances and settlements		(81.8	)
Transfers in and out of Level 3		—

Balance as of June 30, 2009	$	13.4


The amount of total gains/(losses) for the period included in earnings attributable to the change in unrealized gain/(losses) relating to derivatives still held at June 30, 2009	$	(0.1	)

We have applied the fair value concepts indicated in SFAS No. 157 in recording the assets and liabilities acquired in our acquisition of Bois d’Arc Energy, Inc. (“Bois d’Arc”) (see Note 11 - Acquisitions and Divestitures). In determining the fair value of Bois d’Arc’s most significant assets, proved and unevaluated oil and gas properties, we used elements of both the income and market approaches. Future income for oil and gas properties was estimated based on proved, probable, possible and prospective reserve volumes and quoted commodity prices in the futures markets. We then applied appropriate discount rates based on the risk profile of the respective reserve categories. Resulting values from the income approach were compared to ranges of prices paid in the acquisition of similar oil and gas properties in other transactions. Values determined under the income approach were within market ranges.

In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1 (“FSP FAS 107-1”), “Interim Disclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 became effective for us on June 15, 2009.

The fair value of cash and cash equivalents, accounts receivable, accounts payable to vendors and our variable-rate bank debt approximated book value at June 30, 2009 and December 31, 2008. As of June 30, 2009 and December 31, 2008, the fair value of our $200 million 8¹/4% Senior Subordinated Notes due 2011 was $163 million and $145 million, respectively. As of June 30, 2009 and December 31, 2008, the fair value of our $200 million 6³/4% Senior Subordinated Notes due 2014 was $127 million and $101 million, respectively. The fair values of our outstanding notes were determined based upon quotes obtained from brokers.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities — Including an amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. This statement became effective for us on January 1, 2008. We did not elect the fair value option for any of our existing financial instruments other than those mandated by other FASB standards and accordingly the impact of the adoption of SFAS No. 159 on our financial statements was immaterial. We have not determined whether or not we will elect this option for financial instruments we may acquire in the future.

Note 11 — Acquisitions and Divestitures

Acquisitions

On August 28, 2008, we completed the acquisition of Bois d’Arc in a cash and stock transaction totaling approximately $1.7 billion. Bois d’Arc was an independent exploration company engaged in the discovery and production of oil and natural gas in the Gulf of Mexico. The primary factors considered by management in making the acquisition included the belief that the merger would position the combined company as one of the largest independent Gulf of Mexico-focused exploration and production companies, with a solid production base, a strong portfolio for continued development of proved and probable reserves, and an extensive inventory of exploration opportunities. Pursuant to the terms and conditions of the agreement and plan of merger, Stone paid total merger consideration of approximately $935 million in cash and issued approximately 11.3 million common shares, valued at $63.52 per share. The per share value of the Stone common shares issued was calculated as the average of Stone’s closing share price for the two days prior to through the two days after the merger announcement date of April 30, 2008. The cash component of the merger consideration was funded with approximately $510 million of cash on hand and $425 million of borrowings from our amended and restated bank credit facility.

The acquisition was accounted for using the purchase method of accounting for business combinations. The acquisition was preliminarily recorded in Stone’s consolidated financial statements on August 28, 2008, the date the acquisition closed. The preliminary purchase price allocation was adjusted in the fourth quarter of 2008 as a result of further analysis of the assets acquired, principally proved and unevaluated oil and gas properties, and liabilities assumed, principally asset retirement obligations and deferred taxes, which resulted in an adjustment to the preliminary allocation to goodwill. The adjustments were the result of additional analysis of proved, probable and possible reserves at the time of the acquisition. The following table represents the allocation of the total purchase price of Bois d’Arc to the acquired assets and liabilities of Bois d’Arc.


	(in millions)

Fair value of Bois d’Arc’s net assets:
Net working capital, including cash of $15.3	$	27.9
Proved oil and gas properties		1,339.1
Unevaluated oil and gas properties		422.2
Fixed and other assets		0.3
Goodwill		466.0
Deferred tax liability		(467.9	)
Dismantlement reserve		(4.2	)
Asset retirement obligations		(127.4	)

Total fair value of net assets	$	1,656.0

The following table represents the breakdown of the consideration paid for Bois d’Arc’s net assets.


	(in millions)
Consideration paid for Bois d’Arc’s net assets:
Cash consideration paid	$	935.4
Stone common stock issued		717.9

Aggregate purchase consideration issued to Bois d’Arc stockholders		1,653.3
Plus:
Direct merger costs (1)		2.7

Total purchase price	$	1,656.0


(1)		Direct merger costs include legal and accounting fees, printing fees, investment banking expenses and other merger-related costs.

The allocation of the purchase price included $466 million of asset valuation attributable to goodwill. Goodwill was determined in accordance with SFAS No. 141, “Business Combinations”, and represents the amount by which the total purchase price exceeds the aggregate fair values of the assets acquired and liabilities assumed in the merger, other than goodwill. Goodwill was not deductible for tax purposes. U.S. generally accepted accounting principles require that we test goodwill for impairment at least annually. We tested goodwill created in the Bois d’Arc acquisition for impairment on December 31, 2008. A substantial reduction in commodity prices and the existence of a full cost ceiling test write-down in the fourth quarter of 2008 were indications of potential impairment. The reporting unit for the impairment test was Stone Energy Corporation and its consolidated subsidiaries. The fair value of the reporting unit was determined using average quoted market prices for Stone common stock for the two market days prior to through the two market days after December 31, 2008. A control premium of 25% was applied to the market capitalization. The control premium was based on a history of control premiums paid for the acquisition of entities in similar industries. The resulting fair value of the reporting unit was $504 million below the reporting unit’s carrying value. Additional analysis indicated no implied value of the recorded goodwill, resulting in the impairment of the entire amount of goodwill of $466 million at December 31, 2008.

The following summary pro forma combined statement of operations data of Stone for the three and six-month periods ended June 30, 2008 has been prepared to give effect to the merger as if it had occurred on January 1, 2008. The pro forma financial information is not necessarily indicative of the results that might have occurred had the transaction taken place on January 1, 2008 and is not intended to be a projection of future results. Future results may vary significantly from the results reflected in the following pro forma financial information because of normal production declines, changes in commodity prices, future acquisitions and divestitures, future development and exploration activities, and other factors.


	Three Months		Six Months
	Ended		Ended
	June 30, 2008		June 30, 2008
	(in millions, except per share amounts)
Revenues	$	411.0	$	727.5
Income from operations		170.2		279.6
Net income		111.8		183.9
Basic earnings per share	$	2.84	$	4.69
Diluted earnings per share		2.81		4.65

During the second quarter of 2009, we acquired the entire non-controlling interest in a subsidiary. As a result of this transaction, all of our subsidiaries are now wholly-owned.

Divestitures

In the first quarter of 2008, we completed the divesture of a small package of Gulf of Mexico properties which totaled 17.4 Bcfe of reserves at December 31, 2007 for a cash consideration of approximately $14.1 million after closing adjustments. The properties that were sold had estimated asset retirement obligations of $32.9 million. In the second quarter of 2009, we completed the sale of an onshore Louisiana field for cash consideration of approximately $5.0 million. The estimated asset retirement obligation for this field was $6.0 million. The sale of these properties was accounted for as an adjustment of capitalized costs with no gain or loss recognized.

Note 12 — Subsequent Events

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 modifies the definition of subsequent events and requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS No. 165 became effective for us on June 15, 2009. We evaluated subsequent events through August 5, 2009, which represents the date our financial statements were issued, and we have no subsequent events to report in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.

Note 13 — Commitments and Contingencies

We have been served with several petitions filed by the Louisiana Department of Revenue (“LDR”) in Louisiana state court claiming additional franchise taxes due of approximately $9.0 million plus accrued interest of approximately $4.2 million. These assessments all relate to the LDR’s assertion that sales of crude oil and natural gas from properties located on the Outer Continental Shelf, which are transported through the state of Louisiana, should be sourced to the state of Louisiana for purposes of computing the Louisiana franchise tax apportionment ratio. The claims relate to franchise tax years from 1999 through 2006. The Company disagrees with these contentions and intends to vigorously defend itself against these claims. The franchise tax years 2007 through 2009 for Stone and franchise tax years 2006 through 2008 for Bois d’Arc remain subject to examination.

In 2005, Stone received an inquiry from the Philadelphia Stock Exchange investigating matters including trading prior to Stone’s October 6, 2005 announcement regarding the revision of Stone’s proved reserves. Stone cooperated fully with this inquiry. Stone has not received any further inquiries from the Philadelphia Exchange since the original request for information.

A consolidated putative class action is pending in the United States District Court for the Western District of Louisiana (the “Federal Court”) against Stone, David Welch, Kenneth Beer, D. Peter Canty and James Prince purporting to allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Securities Action”). The consolidated complaint alleges a putative class period to commence on May 2, 2001 and to end on March 10, 2006 and contends that, during the putative class period, defendants, among other things, misstated or failed to disclose (i) that Stone had materially overstated Stone’s financial results by overvaluing its oil reserves through improper and aggressive reserve methodologies; (ii) that the Company lacked adequate internal controls and was therefore unable to ascertain its true financial condition; and (iii) that as a result of the foregoing, the values of the Company’s proved reserves, assets and future net cash flows were materially overstated at all relevant times.

On October 1, 2007, the Federal Court ordered that (i) the claims asserted against defendants Kenneth Beer and James Prince pursuant to Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder and (ii) claims asserted on behalf of putative class members who sold their Company shares prior to October 6, 2005 be dismissed. The remaining claims are still pending.

On or about May 12, 2008, then Lead Plaintiff El Paso Fireman & Policeman’s Pension Fund filed a motion to certify the Securities Action as a class action (“Class Certification Motion”). Defendants filed an opposition to the Class Certification Motion on June 27, 2008. Defendants also filed a Motion for Judgment on the Pleadings and a related Motion to Amend Answer to the Consolidated Class Action Complaint on or about June 11, 2008. In a memorandum ruling filed on February 27, 2009, the Court held that El Paso Fireman & Policeman’s Pension Fund did not have capacity to sue or be sued and dismissed it from the lawsuit. Subsequently, the Court denied the Class Certification Motion as moot. El Paso Fireman & Policeman’s Pension Fund is appealing its dismissal. On April 13, 2009, the City of Knoxville Employees’ Pension System filed a motion to be appointed as the new lead plaintiff, and on July 16, 2009, Pipefitters Local No. 636 Defined Benefit Plan also filed a motion to be appointed as the new lead plaintiff. Defendants are opposing the motions by the City of Knoxville Employees’ Pension System and Pipefitters Local No. 636 Defined Benefit Plan, as well as El Paso Fireman & Policeman’s Pension Fund’s appeal.

In addition, pending in the Federal Court and in the 15^th Judicial District Court, Parish of Lafayette, Louisiana (the “State Court”) are actions purportedly alleging claims derivatively on behalf of Stone. The operative complaints in these derivative actions name Stone as a nominal defendant and David Welch, Kenneth Beer, D. Peter Canty, James Prince, James Stone, John Laborde, Peter Barker, George Christmas, Richard Pattarozzi, David Voelker, Raymond Gary, B.J. Duplantis and Robert Bernhard as defendants. The State Court action purports to allege claims of breach of fiduciary duty, abuse of control, gross mismanagement, and waste of corporate assets against all defendants, and claims of unjust enrichment and insider selling against certain individual defendants. The Federal Court derivative action purports to assert claims against all defendants for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment and claims against certain individual defendants for breach of fiduciary duty and violations of the Sarbanes-Oxley Act of 2002. The Federal Court action has been stayed since December 21, 2006.

The foregoing pending actions are at an early stage, and we cannot currently predict the manner and timing of the resolution of these matters and are unable to estimate a range of possible losses or any minimum loss from such matters.

Stone’s Certificate of Incorporation and/or its Restated Bylaws provide, to the extent permissible under the law of the State of Delaware (Stone’s state of incorporation), for indemnification of and advancement of defense costs to Stone’s current and former directors and officers for potential liabilities related to their service to Stone. Stone has purchased directors and officers insurance policies that, under certain circumstances, may provide coverage to Stone and/or its officers and directors for certain losses resulting from securities-related civil liabilities and/or the satisfaction of indemnification and advancement obligations owed to directors and officers. These insurance policies may not cover all costs and liabilities incurred by Stone and its current and former officers and directors in these regulatory and civil proceedings.

Note 14 — Guarantor Financial Statements

Stone Offshore is an unconditional guarantor (the “Guarantor Subsidiary”) of our 8¹/4% Senior Subordinated Notes due 2011 and 6³/4% Senior Subordinated Notes due 2014. Our remaining subsidiaries (the “Non-Guarantor Subsidiaries”) have not provided guarantees. The following presents condensed consolidating financial information as of June 30, 2009 and December 31, 2008 and for the three and six-month periods ended June 30, 2009 on an issuer (parent company), guarantor subsidiary, non-guarantor subsidiaries, and consolidated basis. Elimination entries presented are necessary to combine the entities. There were no subsidiary guarantees of any of our debt for the three and six-month periods ended June 30, 2008.

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
JUNE 30, 2009
(In thousands of dollars)


							Non-
				Guarantor			Guarantor
Assets	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	105,115		$	3,601		$	623		$	—		$	109,339
Accounts receivable		77,130			60,311			(699	)		—			136,742
Fair value of hedging contracts		22,714			—			—			—			22,714
Current income tax receivable		720			28			—			—			748
Inventory		11,184			1,362			—			—			12,546
Other current assets		1,087			22			—			—			1,109

Total current assets		217,950			65,324			(76	)		—			283,198
Oil and gas properties — United States
Proved, net		3,269			853,243			1,460			—			857,972
Unevaluated		261,668			192,989			—			—			454,657
Building and land, net		5,537			—			—			—			5,537
Fixed assets, net		4,373			—			—			—			4,373
Other assets, net		47,484			—			—			—			47,484
Fair value of hedging contracts		3,307			—			—			—			3,307
Investment in subsidiary		568,794			1,639			—			(570,433	)		—

Total assets	$	1,112,382		$	1,113,195		$	1,384		$	(570,433	)	$	1,656,528

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	25,167		$	88,981		$	80		$	—		$	114,228
Undistributed oil and gas proceeds		14,168			1,387			—			—			15,555
Fair value of hedging contracts		17,711			—			—			—			17,711
Deferred taxes		13,629			—			—			—			13,629
Asset retirement obligations		29,371			32,913			—			—			62,284
Other current liabilities		9,878			444			—			—			10,322

Total current liabilities		109,924			123,725			80			—			233,729
Long-term debt		725,000			—			—			—			725,000
Deferred taxes *		(161,132	)		195,590			—			51,271			85,729
Asset retirement obligations		58,520			118,342			273			—			177,135
Fair value of hedging contracts		11,661			—			—			—			11,661
Other long-term liabilities		12,428			—			—			—			12,428

Total liabilities		756,401			437,657			353			51,271			1,245,682


Commitments and contingencies

Stockholders’ equity:
Common stock		475			—			—			—			475
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,320,310			2,016,364			1,639			(2,017,929	)		1,320,384
Retained earnings (deficit)		(1,008,476	)		(1,340,826	)		(608	)		1,396,225			(953,685	)
Accumulated other comprehensive income		44,532			—			—			—			44,532

		355,981			675,538			1,031			(621,704	)		410,846

Non-controlling interest		—			—			—			—			—

Total stockholders’ equity		355,981			675,538			1,031			(621,704	)		410,846

Total liabilities and stockholders’ equity	$	1,112,382		$	1,113,195		$	1,384		$	(570,433	)	$	1,656,528


*		Deferred income taxes have been allocated to guarantor subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2008
(In thousands of dollars)


							Non-
				Guarantor			Guarantor
Assets	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	67,122		$	818		$	197		$	—		$	68,137
Accounts receivable		119,918			32,080			99			(456	)		151,641
Fair value of hedging contracts		136,072			—			—			—			136,072
Current income tax receivable		29,480			1,703			—			—			31,183
Inventory		32,965			2,710			—			—			35,675
Other current assets		1,356			57			—			—			1,413

Total current assets		386,913			37,368			296			(456	)		424,121
Oil and gas properties — United States
Proved, net		654,048			474,953			1,582			—			1,130,583
Unevaluated		218,297			275,441			—			—			493,738
Building and land, net		5,615			—			—			—			5,615
Fixed assets, net		5,068			258			—			—			5,326
Other assets, net		46,620			—			—			—			46,620
Investment in subsidiary		199,932			1,475			—			(201,407	)		—

Total assets	$	1,516,493		$	789,495		$	1,878		$	(201,863	)	$	2,106,003

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable to vendors	$	82,129		$	61,582		$	761		$	(456	)	$	144,016
Undistributed oil and gas proceeds		37,517			365			—			—			37,882
Deferred taxes		32,416			—			—			—			32,416
Asset retirement obligations		45,634			25,075			—			—			70,709
Other current liabilities		13,861			1,898			—			—			15,759

Total current liabilities		211,557			88,920			761			(456	)		300,782
Long-term debt		825,000			—			—			—			825,000
Deferred taxes *		25,315			117,338			—			51,271			193,924
Asset retirement obligations		133,109			52,787			250			—			186,146
Fair value of hedging contracts		1,221			—			—			—			1,221
Other long-term liabilities		11,751			—			—			—			11,751

Total liabilities		1,207,953			259,045			1,011			50,815			1,518,824


Commitments and contingencies

Stockholders’ equity:
Common stock		394			—			—			—			394
Treasury stock		(860	)		—			—			—			(860	)
Additional paid-in capital		1,257,633			1,647,428			1,474			(1,648,902	)		1,257,633
Retained earnings (deficit)		(1,033,539	)		(1,116,978	)		(694	)		1,396,224			(754,987	)
Accumulated other comprehensive income		84,912			—			—			—			84,912

		308,540			530,450			780			(252,678	)		587,092

Non-controlling interest		—			—			87			—			87

Total stockholders’ equity		308,540			530,450			867			(252,678	)		587,179

Total liabilities and stockholders’ equity	$	1,516,493		$	789,495		$	1,878		$	(201,863	)	$	2,106,003


*		Deferred income taxes have been allocated to guarantor subsidiary where related oil and gas properties reside.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2009
(In thousands of dollars)


							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations		Consolidated
Operating revenue:
Oil production	$	37,799		$	70,173		$	—		$	—	$	107,972
Gas production		30,260			32,080			—			—		62,340

Total operating revenue		68,059			102,253			—			—		170,312


Operating expenses:
Lease operating expenses		7,958			33,164			—			—		41,122
Other operational expense		2,400			—			—			—		2,400
Production taxes		2,394			171			—			—		2,565
Depreciation, depletion, amortization		10,495			46,494			63			—		57,052
Accretion expense		2,564			5,801			11			—		8,376
Salaries, general and administrative.		9,929			(8	)		1			—		9,922
Incentive compensation expense		1,197			—			—			—		1,197
Derivative expense, net		743			—			—			—		743
Impairment of inventory		845			411			—			—		1,256

Total operating expenses		38,525			86,033			75			—		124,633


Income (loss) from operations		29,534			16,220			(75	)		—		45,679


Other (income) expenses:
Interest expense		4,770			18			—			—		4,788
Interest income		(146	)		—			—			—		(146	)
Other (income) expense, net		(701	)		(183	)		33			—		(851	)

Total other (income) expenses		3,923			(165	)		33			—		3,791


Income (loss) before taxes		25,611			16,385			(108	)		—		41,888


Provision for income taxes:
Current		—			—			—			—		—
Deferred		9,012			5,708			—			—		14,720

Total income taxes		9,012			5,708			—			—		14,720


		16,599			10,677			(108	)		—		27,168
Less: Net loss attributable to non-controlling interest		—			—			—			—		—

Net income (loss)	$	16,599		$	10,677		$	(108	)	$	—	$	27,168

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2009
(In thousands of dollars)


							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations		Consolidated
Operating revenue:
Oil production	$	66,450		$	112,376		$	—		$	—	$	178,826
Gas production		57,967			72,523			—			—		130,490
Derivative income, net		3,196			—			—			—		3,196

Total operating revenue		127,613			184,899			—			—		312,512


Operating expenses:
Lease operating expenses		19,186			80,090			—			—		99,276
Other operational expense		2,400			—			—			—		2,400
Production taxes		3,296			544			—			—		3,840
Depreciation, depletion, amortization		21,669			95,879			122			—		117,670
Write-down of oil and gas properties		—			340,083			—			—		340,083
Accretion expense		5,129			11,602			22			—		16,753
Salaries, general and administrative		21,411			171			1			—		21,583
Incentive compensation expense		1,417			—			—			—		1,417
Impairment of inventory		6,359			820			—			—		7,179

Total operating expenses		80,867			529,189			145			—		610,201


Income (loss) from operations		46,746			(344,290	)		(145	)		—		(297,689	)


Other (income) expenses:
Interest expense		9,913			41			—			—		9,954
Interest income		(281	)		(1	)		—			—		(282	)
Other (income) expense, net		(1,555	)		40			(310	)		—		(1,825	)

Total other (income) expenses		8,077			80			(310	)		—		7,847


Income (loss) before taxes		38,669			(344,370	)		165			—		(305,536	)


Provision (benefit) for income taxes:
Current		23			—			—			—		23
Deferred		13,583			(120,471	)		—			—		(106,888	)

Total income taxes		13,606			(120,471	)		—			—		(106,865	)


		25,063			(223,899	)		165			—		(198,671	)
Less: Net loss attributable to non-controlling interest		—			—			(27	)		—		(27	)

Net income (loss)	$	25,063		$	(223,899	)	$	138		$	—	$	(198,698	)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2009
(In thousands of dollars)


							Non-
				Guarantor			Guarantor
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	25,063		$	(223,899	)	$	165		$	—		$	(198,671	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		21,669			95,879			122			—			117,670
Write-down of oil and gas properties		—			340,083			—			—			340,083
Impairment of inventory		6,359			820			—			—			7,179
Accretion expense		5,129			11,602			22			—			16,753
Deferred income tax provision (benefit)		13,583			(120,471	)		—			—			(106,888	)
Settlement of asset retirement obligations		(3,773	)		(24,476	)		—			—			(28,249	)
Non-cash stock compensation expense		3,159			—			—			—			3,159
Non-cash derivative expense		1,902			—			—			—			1,902
Other non-cash expenses		923			—			—			—			923
Unrecognized proceeds from unwound derivative contracts		71,662			—			—			—			71,662
Change in current income taxes		28,760			1,675			—			—			30,435
(Increase) decrease in accounts receivable		36,362			(19,066	)		797			(455	)		17,638
Decrease in other current assets		237			34			—			—			271
Decrease in inventory		15,422			528			—			—			15,950
Increase (decrease) in accounts payable		(4,899	)		16,976			(680	)		—			11,397
Decrease in other current liabilities		(27,332	)		(433	)		—			—			(27,765	)
Other expenses		66			28			—			—			94

Net cash provided by (used in) operating activities		194,292			79,280			426			(455	)		273,543


Cash flows from investing activities:
Investment in oil and gas properties		(120,964	)		(76,492	)		—			455			(197,001	)
Proceeds from sale of oil and gas properties, net of expenses		5,496			—			—			—			5,496
Sale of fixed assets		—			35			—			—			35
Investment in fixed and other assets		(376	)		—			—			—			(376	)
Acquisition of non-controlling interest in subsidiary		—			(40	)		—			—			(40	)

Net cash provided by (used in) investing activities		(115,844	)		(76,497	)		—			455			(191,886	)


Cash flows from financing activities:
Net proceeds from issuance of common stock		60,456			—			—			—			60,456
Repayment of bank borrowings		(100,000	)		—			—			—			(100,000	)
Deferred financing costs		(175	)		—			—			—			(175	)
Purchase of treasury stock		(347	)		—			—			—			(347	)
Net proceeds from exercise of stock options and vesting of restricted stock		(389	)		—			—			—			(389	)

Net cash used in financing activities		(40,455	)		—			—			—			(40,455	)


Net increase in cash and cash equivalents		37,993			2,783			426			—			41,202
Cash and cash equivalents, beginning of period		67,122			818			197			—			68,137

Cash and cash equivalents, end of period	$	105,115		$	3,601		$	623		$	—		$	109,339

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE STOCKHOLDERS OF
STONE ENERGY CORPORATION:

We have reviewed the condensed consolidated balance sheet of Stone Energy Corporation as of June 30, 2009, and the related condensed consolidated statement of operations for the three and six-month periods ended June 30, 2009 and 2008, and the condensed consolidated statement of cash flows for the six-month periods ended June 30, 2009 and 2008. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Stone Energy Corporation as of December 31, 2008, and the related consolidated statements of operations, cash flows, changes in stockholders’ equity and comprehensive income for the year then ended (not presented herein) and in our report dated February 26, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

New Orleans, Louisiana
August 5, 2009

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-Q and the information referenced herein contain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “plan,” “expect,” “project,” “estimate,” “assume,” “believe,” “anticipate,” “intend,” “budget,” “forecast,” “predict” and other similar expressions are intended to identify forward-looking statements. These statements appear in a number of places and include statements regarding our plans, beliefs or current expectations, including the plans, beliefs and expectations of our officers and directors. We use the terms “Stone,” “Stone Energy,” “Company,” “we,” “us” and “our” to refer to Stone Energy Corporation.

When considering any forward-looking statement, you should keep in mind the risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include the timing and extent of changes in commodity prices for oil and gas, operating risks, liquidity risks and other risk factors as described in our Annual Report on Form 10-K in Part I, Item 1, “Business – Forward-Looking Statements”, and Item 1A, “Risk Factors”, and in this report under Part II, Item 1A, “Risk Factors”. Furthermore, the assumptions that support our forward-looking statements are based upon information that is currently available and is subject to change. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages. All forward-looking statements attributable to Stone Energy Corporation are expressly qualified in their entirety by this cautionary statement.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contained in this Form 10-Q should be read in conjunction with the MD&A contained in our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

Stone Energy Corporation is an independent oil and gas company engaged in the acquisition, exploration, exploitation, development and operation of oil and gas properties located primarily in the Gulf of Mexico. On August 28, 2008, we completed the acquisition of Bois d’Arc Energy, Inc. (“Bois d’Arc”) in a cash and stock transaction totaling approximately $1.7 billion. Bois d’Arc was an independent exploration company engaged in the discovery and production of oil and natural gas in the Gulf of Mexico. We are also active in the Appalachia region. Prior to November 30, 2008, we participated in an exploratory joint venture in Bohai Bay, China. Our business strategy is to increase reserves, production and cash flow through the acquisition, exploitation and development of mature properties in the Gulf Coast Basin and exploring opportunities in the deep water environment of the Gulf of Mexico, Appalachia and other potential areas. Throughout this document, reference to our “Gulf Coast Basin” properties includes our onshore, shelf, deep shelf and deep water properties.

Public Offering of Common Stock – In June 2009, we sold 8.1 million of shares of our common stock in a public offering at a price of $8.00 per share resulting in net proceeds of approximately $60.5 million after underwriters’ discounts and offering expenses. The net proceeds are being used for general corporate purposes, including the reduction of outstanding bank debt.

Pyrenees Discovery – In early June 2009, we announced a discovery on our deepwater Pyrenees Prospect, located on Garden Banks Block 293. The well encountered approximately 125 feet of net hydrocarbon pay in three zones. We have a 15% working interest in the prospect and a small overriding royalty. Delineation drilling on the Pyrenees Discovery is planned for the second half of 2009.

Bank Credit Facility Borrowing Base Redetermination — In connection with the acquisition of Bois d’Arc on August 28, 2008, we entered into an amended and restated revolving credit facility of $700 million, maturing on July 1, 2011, with a syndicated bank group. Our bank credit facility had a borrowing base of $625 million at December 31, 2008. On April 28, 2009, our bank credit facility was amended, and on April 29, 2009, our borrowing base was reduced to $425 million. The next borrowing base redetermination is expected by November 1, 2009. See Bank Credit Facility below for additional information regarding the amended and restated credit facility.

Unwinding of 2009 Hedge Positions — In March of 2009, we unwound all of our then existing crude oil hedges for the period from April 2009 through December 2009 and two of our natural gas hedges for the period from April 2009 through December 2009, resulting in proceeds of approximately $113 million. These contracts were unwound to provide a source of liquidity to assist with funding capital expenditures, which were heavily weighted toward the first two quarters of the year.

Declining Commodity Prices — During the first quarter of 2009, we continued to experience declines in oil and natural gas prices which resulted in a ceiling test write-down of $340.1 million.

Critical Accounting Policies

Our Annual Report on Form 10-K describes the accounting policies that we believe are critical to the reporting of our financial position and operating results and that require management’s most difficult, subjective or complex judgments. Our most significant estimates are:

	•		remaining proved oil and gas reserves volumes and the timing of their production;

	•		estimated costs to develop and produce proved oil and gas reserves;

	•		accruals of exploration costs, development costs, operating costs and production revenue;

	•		timing and future costs to abandon our oil and gas properties;

	•		the effectiveness and estimated fair value of derivative positions;

	•		classification of unevaluated property costs;

	•		capitalized general and administrative costs and interest;

	•		insurance recoveries related to hurricanes;

	•		estimates of fair value in business combinations;

	•		current income taxes; and

	•		contingencies.

This Quarterly Report on Form 10-Q should be read together with the discussion contained in our Annual Report on Form 10-K regarding these critical accounting policies.

Other Factors Affecting Our Business and Financial Results

In addition to the matters discussed above, our business, financial condition and results of operations are affected by a number of other factors. This Quarterly Report on Form 10-Q should be read in conjunction with the discussion in our Annual Report on Form 10-K regarding these other risk factors.

Known Trends and Uncertainties

Hurricanes – Since the majority of our production originates in the Gulf of Mexico, we are particularly vulnerable to the effects of hurricanes on production. During the first six months of 2009, we experienced deferrals of production due to Hurricanes Gustav and Ike of approximately 10.7 Bcfe. Production deferrals for Hurricanes Gustav and Ike amounted to 18.1 Bcfe in the second half of 2008. In 2007, 2006 and 2005, we experienced deferrals of production due to Hurricanes Katrina and Rita of approximately 3.6 Bcfe, 15.6 Bcfe and 16.4 Bcfe, respectively. Additionally, affordable insurance coverage for property damage to our facilities for hurricanes is becoming more difficult to obtain. We have narrowed our insurance coverage to selected properties, increased our deductibles and are shouldering more hurricane related risk in the environment of rising insurance rates.

Credit Crisis – Beginning in the second half of 2008 and continuing into 2009, world financial markets experienced a severe reduction in the availability of credit. It is difficult to predict the impact of this condition on us in future quarters. Possible negative impacts could include additional decreases in the borrowing base under our credit facility, limitations on our ability to access the debt and equity capital markets and complete asset sales, a need to repay borrowings sooner than expected, an increased counterparty credit risk on our derivatives contracts and under our bank credit facility and the requirement by contractual counterparties of us to post collateral guaranteeing performance. During April of 2009, we posted $22.9 million of letters of credit to satisfy contractual parties.

Declining Commodity Prices – We experienced a significant decline in oil and natural gas prices in 2008 and the first quarter of 2009. This resulted in a ceiling test write-down of our oil and gas properties in the fourth quarter of 2008 and the first quarter of 2009. It has also caused a reduction in our planned capital expenditures budget for 2009. Should these restrained pricing conditions persist it could severely impact future cash flows, result in further decreases in our borrowing base under our credit facility, constrain capital budgets beyond 2009 and result in additional ceiling test write-downs.

Bank Credit Facility Borrowing Base Redetermination – On April 29, 2009, our borrowing base under our bank credit facility was reduced from $625 million to $425 million. As of August 5, 2009, we had $313 million of outstanding borrowings under the facility and $69 million in letters of credit had been issued pursuant to the facility, leaving $43 million of availability under the facility. Stone’s cash position at August 5, 2009 is approximately $140 million. If a lower commodity price environment were to persist (see discussions above), we could experience a further reduction in the borrowing base under our bank credit facility. If our borrowing base is reduced below any outstanding balances under our bank credit facility plus any outstanding letters of credit, our bank credit facility allows us one of three options to cure the borrowing base deficiency: (1) repay amounts outstanding sufficient to cure the deficiency within 10 days after our written election to do so; (2) add additional oil and gas properties acceptable to the banks to the borrowing base and take such actions necessary to grant the banks a mortgage in the properties within thirty days after our written election to do so or (3) arrange to pay the deficiency in monthly installments over ninety days or some longer period acceptable to the banks not to exceed six months.

Louisiana Franchise Taxes – We have been involved in litigation with the state of Louisiana over the proper computation of franchise taxes allocable to the state. This litigation relates to the state’s position that sales of crude oil and natural gas from properties located on the Outer Continental Shelf, which are transported through the state of Louisiana, should be sourced to Louisiana for purposes of computing franchise taxes. We disagree with the state’s position. However, if the state’s position were to be upheld, we could incur additional expense for alleged underpaid franchise taxes in prior years and higher franchise tax expense in future years. See “Item 1. Legal Proceedings.” As of June 30, 2009, the state of Louisiana had asserted claims of additional franchise taxes in the amount of $9.0 million plus accrued interest of $4.2 million. There are open franchise tax years which the state has not yet audited.

Regulatory Inquiries and Stockholder Lawsuits – We have been named as a defendant in certain regulatory inquiries and stockholder lawsuits resulting from our reserve restatement. The ultimate resolution of these matters and their impact on us is uncertain. See “Item 1. Legal Proceedings.”

Liquidity and Capital Resources

As described above in “Known Trends and Uncertainties,” the significant decline in oil and natural gas prices in early 2009 has materially adversely affected our cash flow from operations and liquidity. We have experienced a material reduction in the borrowing base under our bank credit facility. Absent an improvement in commodity prices or the addition of material reserves, we could experience a further reduction in the borrowing base by November 2009 at the time of the next scheduled redetermination. Our capital expenditure budget has been set at $300 million, which we intend to finance with cash flow from operations. If we do not have sufficient cash flow from operations or availability under our bank credit facility, we may be forced to reduce our capital expenditures. Although the Board has authorized a capital expenditure budget of $300 million, management has targeted a lesser amount of $250 million given the lower commodity price environment and the focus on liquidity. The remaining $50 million will remain as discretionary. We are considering alternatives for increasing our liquidity, which alternatives may include asset sales, issuances of debt securities, and other transactions. There is no assurance that we will be able to consummate any of these alternative financing transactions on terms acceptable to us or at all. To the extent that 2009 cash flow from operations exceeds our estimated 2009 capital expenditures, we may pay down a portion of our existing debt, expand our capital budget, repurchase shares of common stock, or invest in the money markets.

Cash Flow and Working Capital. Net cash flow provided by operating activities totaled $273.5 million during the six months ended June 30, 2009 compared to $239.4 million in the comparable period in 2008. Net cash flow provided by operating activities during the six months ended June 30, 2009 includes $71.7 million of proceeds from the unwinding of derivative contracts which will be recognized in production revenue over the remaining two quarters of 2009.

Net cash flow used in investing activities totaled $191.9 million and $166.4 million during the six months ended June 30, 2009 and 2008, respectively, which primarily represents our investment in oil and natural gas properties offset by proceeds from the sale of oil and natural gas properties.

Net cash flow used in financing activities totaled $40.5 million for the six months ended June 30, 2009, which primarily represents repayments of borrowings under our bank credit facility of approximately $100 million net of proceeds from the sale of common stock of approximately $60.5 million. Net cash flow provided by financing activities totaled $20.0 million for the six months ended June 30, 2008, which primarily represents proceeds from the exercise of stock options and vesting of restricted stock.

We had working capital at June 30, 2009 of $49.5 million.

Capital Expenditures. Second quarter 2009 additions to oil and gas property costs of $47.8 million included $3.6 million of lease acquisition costs, $4.2 million of capitalized salaries, general and administrative expenses (inclusive of incentive compensation) and $6.5 million of capitalized interest. Year-to-date 2009 additions to oil and gas property costs of $154.1 million included $2.3 million of lease acquisition costs, $8.8 million of capitalized salaries, general and administrative expenses (inclusive of incentive compensation) and $12.8 million of capitalized interest. These investments were financed by cash flow from operating activities and proceeds from the stock offering.

Bank Credit Facility. On August 28, 2008, we entered into an amended and restated revolving credit facility totaling $700 million, maturing on July 1, 2011, with a syndicated bank group. At December 31, 2008, our bank credit facility had a borrowing base of $625 million. On April 28, 2009, the credit facility was amended, and on April 29, 2009, the borrowing base was reduced to $425 million. At June 30, 2009, we had $325 million of outstanding borrowings under our bank credit facility, letters of credit totaling $69 million had been issued under the facility, and the weighted average interest rate was 3.3%. As of August 5, 2009, we had $313 million of outstanding borrowings under our bank credit facility and $69 million in letters of credit had been issued pursuant to the facility, leaving $43 million of availability under the facility. The facility is guaranteed by all of our material direct and indirect subsidiaries, including Stone Energy Offshore, L.L.C. (“Stone Offshore”), a wholly owned subsidiary of Stone.

The borrowing base under our bank credit facility is redetermined semi-annually, in May and November, by the lenders taking into consideration the estimated value of our oil and gas properties and those of our direct and indirect material subsidiaries in accordance with the lenders’ customary practices for oil and gas loans. In addition, we and the lenders each have discretion at any time, but not more than two additional times in any calendar year, to have the borrowing base redetermined. If the lower commodity price environment were to persist (see discussions above), we could experience a further reduction in the borrowing base under our bank credit facility. The next borrowing base redetermination is expected by November 1, 2009.

Our bank credit facility is collateralized by substantially all of Stone’s and Stone Offshore’s assets. Stone and Stone Offshore are required to mortgage, and grant a security interest in, their oil and gas reserves representing at least 80% of the discounted present value of the future net cash flows from their oil and gas reserves reviewed in determining the borrowing base. At Stone’s option, loans under the credit facility will bear interest at a rate based on the adjusted London Interbank Offering Rate plus an applicable margin, or a rate based on the prime rate or Federal funds rate plus an applicable margin. Our bank credit facility provides for optional and mandatory prepayments, affirmative and negative covenants, and interest coverage ratio and leverage ratio maintenance covenants. Stone has been and remains in compliance with all of the financial covenants under our bank credit facility.

Share Repurchase Program. On September 24, 2007, our Board of Directors authorized a share repurchase program for an aggregate amount of up to $100 million. The shares may be repurchased from time to time in the open market or through privately negotiated transactions. The repurchase program is subject to business and market conditions, and may be suspended or discontinued at any time. Through June 30, 2009, 300,000 shares had been repurchased under this program at a total cost of $7.1 million.

Contractual Obligations and Other Commitments

We are contingently liable to surety insurance companies relative to bonds issued on our behalf to the United States Department of the Interior Minerals Management Service (“MMS”), federal and state agencies and certain third parties from which we purchased oil and gas working interests. At June 30, 2009, we were contingently liable in the aggregate amount of $63.4 million, a reduction from our contingent liability at December 31, 2008 of $84.4 million. This redetermination was accomplished by the posting of additional letters of credit in April of 2009. The bonds represent guarantees by the surety insurance companies that we will operate in accordance with applicable rules and regulations and perform certain plugging and abandonment obligations as specified by applicable working interest purchase and sale agreements.

Results of Operations

The following tables set forth certain information with respect to our oil and gas operations.


	Three Months Ended June 30,
	2009		2008		Variance			% Change
Production:
Oil (MBbls)		1,544		1,422		122			9	%
Natural gas (MMcf)		9,723		9,284		439			5	%
Oil and natural gas (MMcfe)		18,987		17,816		1,171			7	%
Revenue data (in thousands) (a):
Oil revenue	$	107,972	$	156,569	$	(48,597	)		(31	%)
Natural gas revenue		62,340		106,393		(44,053	)		(41	%)

Total oil and natural gas revenue	$	170,312	$	262,962	$	(92,650	)		(35	%)
Average prices (a):
Oil (per Bbl)	$	69.93	$	110.10	$	(40.17	)		(36	%)
Natural gas (per Mcf)		6.41		11.46		(5.05	)		(44	%)
Oil and natural gas (per Mcfe)		8.97		14.76		(5.79	)		(39	%)
Expenses (per Mcfe):
Lease operating expenses	$	2.17	$	1.96	$	0.21			11	%
Salaries, general and administrative expenses (b)		0.52		0.63		(0.11	)		(17	%)
DD&A expense on oil and gas properties		2.93		3.94		(1.01	)		(26	%)


(a)		Includes the cash settlement of effective hedging contracts.

(b)		Exclusive of incentive compensation expense.


	Six Months Ended June 30,
	2009		2008		Variance			% Change
Production:
Oil (MBbls)		2,838		2,704		134			5	%
Natural gas (MMcf)		19,382		18,417		965			5	%
Oil and natural gas (MMcfe)		36,410		34,641		1,769			5	%
Revenue data (in thousands) (a):
Oil revenue	$	178,826	$	279,276	$	(100,450	)		(36	%)
Natural gas revenue		130,490		186,919		(56,429	)		(30	%)

Total oil and natural gas revenue	$	309,316	$	466,195	$	(156,879	)		(34	%)
Average prices (a):
Oil (per Bbl)	$	63.01	$	103.28	$	(40.27	)		(39	%)
Natural gas (per Mcf)		6.73		10.15		(3.42	)		(34	%)
Oil and natural gas (per Mcfe)		8.50		13.46		(4.96	)		(37	%)
Expenses (per Mcfe):
Lease operating expenses	$	2.73	$	1.88	$	0.85			45	%
Salaries, general and administrative expenses (b)		0.59		0.62		(0.03	)		(5	%)
DD&A expense on oil and gas properties		3.15		3.84		(0.69	)		(18	%)


(a)		Includes the cash settlement of effective hedging contracts.

(b)		Exclusive of incentive compensation expense.

During the second quarter of 2009, we reported net income totaling $27.2 million, or $0.65 per share, compared to net income for the second quarter of 2008 of $82.8 million, or $2.88 per share. For the six months ended June 30, 2009, we reported a net loss totaling $198.7 million, or $4.92 per share. For the six months ended June 30, 2008, we reported net income of $145.1 million, or $5.08 per share. All per share amounts are on a diluted basis. On August 28, 2008, we completed the acquisition of Bois d’Arc. The revenues and expenses associated with Bois d’Arc have been included in Stone’s Condensed Consolidated Financial Statements since August 28, 2008.

We follow the full cost method of accounting for oil and gas properties. At the end of the first quarter of 2009, we recognized a ceiling test write-down of our oil and gas properties totaling $340.1 million ($221.1 million after taxes). The write-down did not impact our cash flow from operations but did reduce net income and stockholders’ equity.

The variance in the three and six-month periods’ results was due to the following components:

Production. During the second quarter of 2009, total production volumes increased 7% to 19.0 Bcfe compared to 17.8 Bcfe produced during the second quarter of 2008. Oil production during the second quarter of 2009 totaled approximately 1,544,000 barrels compared to 1,422,000 barrels produced during the second quarter of 2008, while natural gas production totaled 9.7 Bcf during the second quarter of 2009 compared to 9.3 Bcf produced during the second quarter of 2008. Year-to-date production totaled 2,838,000 barrels of oil and 19.4 Bcf of natural gas compared to 2,704,000 barrels of oil and 18.4 Bcf of natural gas produced during the comparable 2008 period.

Production rates were negatively impacted during the second quarter of 2009 by Gulf Coast shut-ins due to Hurricanes Gustav and Ike, amounting to volumes of approximately 4.4 Bcfe (49 MMcfe per day). Without the effects of hurricane production deferrals, production volumes increased approximately 5.6 Bcfe for the second quarter of 2009 compared to the comparable 2008 quarter. Production associated with the Bois d’Arc acquisition totaled approximately 6.0 Bcfe for the second quarter of 2009. Production deferrals due to hurricanes for the six months ended June 30, 2009 amounted to 10.7 Bcfe (59 MMcfe per day). Without the effects of hurricane production deferrals, year-to-date 2009 production volumes increased approximately 12.5 Bcfe from year-to-date 2008 production volumes. Production associated with the Bois d’Arc acquisition totaled approximately 12.5 Bcfe for the six months ended June 30, 2009.

Prices. Prices realized during the second quarter of 2009 averaged $69.93 per Bbl of oil and $6.41 per Mcf of natural gas, or 39% lower, on an Mcfe basis, than second quarter 2008 average realized prices of $110.10 per Bbl of oil and $11.46 per Mcf of natural gas. Average realized prices during the first half of 2009 were $63.01 per Bbl of oil and $6.73 per Mcf of natural gas compared to $103.28 per Bbl of oil and $10.15 per Mcf of natural gas realized during the first half of 2008. All unit pricing amounts include the cash settlement of effective hedging contracts.

We enter into various hedging contracts in order to reduce our exposure to the possibility of declining oil and gas prices. Our effective hedging transactions increased our average realized natural gas price by $2.62 per Mcf and increased our average realized oil price by $12.57 per Bbl in the second quarter of 2009. During the second quarter of 2008, our effective hedging transactions decreased our average realized natural gas price by $0.03 per Mcf and decreased our average realized oil price by $14.63 per Bbl. Effective hedging transactions for the six months ended June 30, 2009 increased our average realized natural gas price by $2.48 per Mcf and increased our average realized oil price by $13.28 per Bbl. For the six months ended June 30, 2008, effective hedging transactions increased our average realized gas price by $0.03 per Mcf and decreased our average realized oil price by $9.62 per Bbl.

Income. Oil and natural gas revenue decreased 35% to $170.3 million in the second quarter of 2009 from $263.0 million during the second quarter of 2008. The decrease is attributable to a 39% decrease in average realized prices on a gas equivalent basis. Slightly offsetting this decrease is oil and natural gas revenue related to the properties acquired from Bois d’Arc totaling $35.2 million in the second quarter of 2009. Year-to-date 2009 oil and natural gas revenue totaled $309.3 million compared to $466.2 million during the comparable 2008 period. The decrease was due to a 37% decrease in average realized prices on a gas equivalent basis, slightly offset by oil and natural gas revenue related to the properties acquired from Bois d’Arc, totaling $72.4 million for the six months ended June 30, 2009.

Interest income totaled $0.1 million during the second quarter of 2009 compared to $3.4 million during the comparable quarter of 2008 and $0.3 million during the six months ended June 30, 2009 compared to $8.3 million during the comparable 2008 period. The decrease in interest income is the result of a decrease in our cash balances during the periods after the acquisition of Bois d’Arc.

Derivative Income/Expense. During the year-to-date periods ended June 30, 2009 and 2008, certain of our derivative contracts were determined to be partially ineffective because of differences in the relationship between the fixed price in the derivative contract and actual prices realized. Net derivative expense for the quarter ended June 30, 2009, totaled $0.7 million, consisting of $1.5 million of cash settlements on the ineffective portion of derivative contracts, less $2.2 million of changes in the fair market value of the ineffective portion of derivative contracts. Net derivative expense for the quarter ended June 30, 2008, totaled $3.4 million, representing changes in the fair market value of the ineffective portion of derivatives. Net derivative income for the six months ended June 30, 2009, totaled $3.2 million, consisting of $7.6 million of cash settlements on the ineffective portion of derivative contracts, less $4.4 million of changes in the fair market value of the ineffective portion of derivative contracts. Net derivative expense for the six months ended June 30, 2008, totaled $3.6 million, representing changes in the fair market value of the ineffective portion of derivatives.

Expenses. Lease operating expenses during the second quarter of 2009 totaled $41.1 million compared to $34.9 million for the second quarter of 2008. For the first six months of 2009 and 2008, lease operating expenses totaled $99.3 million and $65.2 million, respectively. The increase in lease operating expenses is primarily the result of $38.9 million of lease operating expenses associated with the properties acquired from Bois d’Arc and $16.6 million of repairs in excess of estimated insurance recoveries related to damage from Hurricanes Gustav and Ike for the six months ended June 30, 2009. On a unit of production basis, lease operating expenses were $2.73 per Mcfe and $1.88 per Mcfe for the six months ended June 30, 2009 and 2008, respectively, primarily a result of the production disruption from Hurricanes Gustav and Ike and the related repair work.

The other operational expense charge of $2.4 million for the three and six-month periods ended June 30, 2009 relates to the cancellation of a drilling contract based on declining commodity prices and the current economic environment.

Depreciation, depletion and amortization (“DD&A”) on oil and gas properties for the second quarter of 2009 totaled $55.6 million, or $2.93 per Mcfe, compared to $70.2 million, or $3.94 per Mcfe, for the second quarter of 2008. For the six months ended June 30, 2009 and 2008, DD&A expense totaled $114.7 million and $132.9 million, respectively. The decrease from 2008 is primarily due to the 2008 year-end and first quarter 2009 ceiling test write-downs, which reduced the carrying value of the full cost pool for our oil and gas properties.

Accretion expense for the second quarter of 2009 was $8.4 million compared to $3.9 million for the comparable period of 2008. For the six months ended June 30, 2009 and 2008, accretion expense totaled $16.8 million and $8.2 million, respectively. Due to falling commodity prices and hurricanes, the timing on a substantial portion of our asset retirement obligations was revised in the fourth quarter of 2008 leading to a redetermination of the present value of these obligations. In this redetermination, our credit adjusted risk free interest rate was increased to account for current credit conditions, resulting in a material increase in accretion expense in 2009. Also contributing to the increase was the addition of liabilities associated with properties acquired from Bois d’Arc.

Salaries, general and administrative (“SG&A”) expenses (exclusive of incentive compensation) for the second quarter of 2009 were $9.9 million compared to $11.3 million in the second quarter of 2008. For the six months ended June 30, 2009 and 2008, SG&A totaled $21.6 million and $21.5 million, respectively. The decrease in SG&A for the second quarter of 2009 from the comparable 2008 quarter is primarily due to a decrease in stock compensation expense for restricted stock.

The impairment of inventory for the second quarter of 2009 totaling $1.3 million relates to the write-down of our tubular inventory. For the six months ended June 30, 2009, the impairment charge totaled $7.2 million. This charge was the result of the market value of these tubulars falling below historical cost. We consider only tubular goods not committed to capital projects to be inventory items.

Interest expense for the second quarter of 2009 totaled $4.8 million, net of $6.5 million of capitalized interest, compared to interest expense of $3.6 million, net of $4.7 million of capitalized interest, during the second quarter of 2008. For the six months ended June 30, 2009, interest expense totaled $10.0 million, net of capitalized interest of $12.8 million, compared to interest expense of $7.5 million, net of capitalized interest of $8.7 million for the six months ended June 30, 2008. The increase is primarily the result of interest expense associated with an increase in borrowings under our bank credit facility in 2009 compared to the first six months of 2008.

We estimate that we have incurred approximately $23,000 of current federal income tax expense for the six months ended June 30, 2009. We have a $748,000 current income tax receivable at June 30, 2009 as a result of current year estimated tax payments exceeding our current estimated federal income tax liability. Our previous estimate of current taxes was adjusted downward primarily as a result of production deferrals associated with the hurricanes as well as a decline in commodity prices.

Recent Accounting Developments

Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities. In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF No. 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and are therefore required to be included in the earnings allocation in calculating earnings per share under the two-class method described in Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share.” Under FSP EITF No. 03-6-1, companies are required to treat unvested share-based payment awards with a right to receive non-forfeitable dividends as a separate class of securities in calculating earnings per share. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We adopted FSP EITF No. 03-6-1 effective January 1, 2009. The net effect of the implementation of FSP EITF No. 03-6-1 on our financial statements was immaterial.

Interim Disclosures About Fair Value of Financial Instruments. In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1 (“FSP FAS 107-1”), “Interim Disclosures about Fair Value of Financial Instruments.” FSP FAS 107-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 became effective for us on June 15, 2009.

Subsequent Events. In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 modifies the definition of subsequent events and requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS No. 165 became effective for us on June 15, 2009.

FASB Accounting Standards Codification. The FASB has voted to approve the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental U.S. Generally Accepted Accounting Principles (“GAAP”) as of July 1, 2009. The Codification will be effective for interim and annual periods ending after September 15, 2009. The Codification reorganizes the many U.S. GAAP pronouncements into approximately 90 accounting topics, with all topics using a consistent structure. It also includes relevant authoritative content issued by the Securities and Exchange (“SEC”), as well as selected SEC staff interpretations and administrative guidance. The Codification will be effective for our September 30, 2009 Current Report on Form 10-Q.

Modernization of Oil and Gas Reporting. In December 2008, the SEC issued a final rule, “Modernization of Oil and Gas Reporting,” which adopts revisions to the SEC’s oil and gas reporting requirements. It is effective January 1, 2010 for Annual Reports on Form 10-K for years ending on or after December 31, 2009, with early adoption prohibited. The revisions are designed to modernize and update the oil and gas disclosure requirements to align them with current practices and changes in technology. Among other things, the revisions will: replace the single-day year-end pricing with a twelve-month average pricing assumption; permit the reporting of probable and possible reserves in addition to the existing requirement to disclose proved reserves; allow the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserve volumes; require the disclosure of the independence and qualifications of third party preparers of reserves; and require the filing of reports when a third party is relied upon to prepare reserve estimates. We will adopt the provisions of the new rule as of December 31, 2009 for our 2009 Annual Report on Form 10-K. We are currently evaluating the potential impact of the new rule on our financial statements and disclosures.

Defined Terms

Oil and condensate are stated in barrels (“Bbls”) or thousand barrels (“MBbls”). Natural gas is stated herein in billion cubic feet (“Bcf”), million cubic feet (“MMcf”) or thousand cubic feet (“Mcf”). Oil and condensate are converted to natural gas at a ratio of one barrel of liquids per six Mcf of gas. Bcfe, MMcfe, and Mcfe represent one billion cubic feet, one million cubic feet and one thousand cubic feet of gas equivalent, respectively. MMBtu represents one million British Thermal Units and BBtu represents one billion British Thermal Units. An active property is an oil and gas property with existing production. A primary term lease is an oil and gas property with no existing production, in which we have a specific time frame to establish production without losing the rights to explore the property. Liquidity is defined as the ability to obtain cash quickly either through the conversion of assets or incurrence of liabilities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk

Our major market risk exposure continues to be the pricing applicable to our oil and natural gas production. Our revenues, profitability and future rate of growth depend substantially upon the market prices of oil and natural gas, which fluctuate widely. Oil and natural gas price declines and volatility could adversely affect our revenues, cash flows and profitability. Price volatility is expected to continue. In order to manage our exposure to oil and natural gas price declines, we occasionally enter into oil and natural gas price hedging arrangements to secure a price for a portion of our expected future production.

Our hedging policy provides that not more than 50% of our estimated production quantities can be hedged without the consent of the board of directors. We believe our current hedging positions have hedged approximately 23% of our estimated 2009 production, 42% of our estimated 2010 production, and 10% of our estimated 2011 production. See Item 1. Financial Statements – Note 5 – Derivative Instruments and Hedging Activities for a detailed discussion of hedges in place to manage our exposure to oil and natural gas price declines.

Since the filing of our Annual Report on Form 10-K for the year ended December 31, 2008, there have been no material changes in reported market risk as it relates to commodity prices.

Interest Rate Risk

We had long-term debt outstanding of $725 million at June 30, 2009, of which $400 million, or approximately 55%, bears interest at fixed rates. The $400 million of fixed-rate debt is comprised of $200 million of 8¹/4% Senior Subordinated Notes due 2011 and $200 million of 6³/4% Senior Subordinated Notes due 2014. At June 30, 2009, the remaining $325 million of our outstanding long-term debt bears interest at a floating rate and consists of borrowings outstanding under our bank credit facility. At June 30, 2009, the weighted average interest rate under our bank credit facility was approximately 3.3% per annum. We currently have no interest rate hedge positions in place to reduce our exposure to changes in interest rates.

On April 28, 2009, our bank credit facility was amended, and on April 29, 2009, the borrowing base under the credit facility was reduced from $625 million to $425 million. In connection with this redetermination, our borrowing base pricing grid was increased by 75 basis points in respect of Libor rate advances, by a range of 125 to 150 basis points in respect of base rate advances and by a range of 0 to 12.5 basis points in respect of commitment fees payable under the credit facility.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to Stone Energy Corporation and its consolidated subsidiaries (collectively “Stone”) is made known to the officers who certify Stone’s financial reports and the Board of Directors. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Our chief executive officer and our chief financial officer, with the participation of other members of our senior management, reviewed and evaluated the effectiveness of Stone’s disclosure controls and procedures as of the end of the quarterly period ended June 30, 2009. Based on this evaluation, our chief executive officer and chief financial officer believe:

	•		Stone’s disclosure controls and procedures were effective to ensure that information required to be disclosed by Stone in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

	•		Stone’s disclosure controls and procedures were effective to ensure that information required to be disclosed by Stone in the reports that it files or submits under the Securities Exchange Act of 1934 was accumulated and communicated to Stone’s management, including Stone’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There has not been any change in our internal control over financial reporting that occurred during the quarter ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

On December 30, 2004, Stone was served with two petitions (civil action numbers 2004-6227 and 2004-6228) filed by the Louisiana Department of Revenue (“LDR”) in the 15th Judicial District Court (Parish of Lafayette, Louisiana) claiming additional franchise taxes due. In one case, the LDR is seeking additional franchise taxes from Stone in the amount of $640,000, plus accrued interest of $352,000 (calculated through December 15, 2004), for the franchise tax year 2001. In the other case, the LDR is seeking additional franchise taxes from Stone (as successor to Basin Exploration, Inc.) in the amount of $274,000, plus accrued interest of $159,000 (calculated through December 15, 2004), for the franchise tax years 1999, 2000 and 2001. On December 29, 2005, the LDR filed another petition in the 15^th Judicial District Court claiming additional franchise taxes due for the taxable years ended December 31, 2002 and 2003 in the amount of $2.6 million plus accrued interest calculated through December 15, 2005 in the amount of $1.2 million. Also, on January 2, 2008, Stone was served with a petition (civil action number 2007-6754) claiming $1.5 million of additional franchise taxes due for the 2004 franchise tax year, plus accrued interest of $800,000 calculated through November 30, 2007. Further, on January 7, 2009, Stone was served with a petition (civil action number 2008-7193) claiming additional franchise taxes due for the taxable years ended December 31, 2005 and 2006 in the amount of $4.0 million plus accrued interest calculated through October 21, 2008 in the amount of $1.7 million. These assessments all relate to the LDR’s assertion that sales of crude oil and natural gas from properties located on the Outer Continental Shelf, which are transported through the State of Louisiana, should be sourced to the State of Louisiana for purposes of computing the Louisiana franchise tax apportionment ratio. The Company disagrees with these contentions and intends to vigorously defend itself against these claims. The franchise tax years 2007 through 2009 for Stone and franchise tax years 2006 through 2008 for Bois d’Arc remain subject to examination.

On or around November 30, 2005, George Porch filed a putative class action in the United States District Court for the Western District of Louisiana (the “Federal Court”) against Stone, David Welch, Kenneth Beer, D. Peter Canty and James Prince purporting to allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Three similar complaints were filed soon thereafter. All complaints had asserted a putative class period commencing on June 17, 2005 and ending on October 6, 2005. All complaints contended that, during the putative class period, defendants, among other things, misstated or failed to disclose (i) that Stone had materially overstated Stone’s financial results by overvaluing its oil reserves through improper and aggressive reserve methodologies; (ii) that Stone lacked adequate internal controls and was therefore unable to ascertain its true financial condition; and (iii) that as a result of the foregoing, the values of Stone’s proved reserves, assets and future net cash flows were materially overstated at all relevant times. On March 17, 2006, these purported class actions were consolidated, with El Paso Fireman & Policeman’s Pension Fund designated as lead plaintiff (“Securities Action”). El Paso Fireman & Policeman’s Pension Fund filed a consolidated class action complaint on or about June 14, 2006. The consolidated complaint alleges claims similar to those described above and expands the putative class period to commence on May 2, 2001 and to end on March 10, 2006. On September 13, 2006, Stone and the individual defendants filed motions seeking dismissal of that action.

On August 17, 2007, a Federal Magistrate Judge issued a report and recommendation (the “Report”) recommending that the Federal Court grant in part and deny in part the Motions to Dismiss. The Report recommended that (i) the claims asserted against defendants Kenneth Beer and James Prince pursuant to Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder and (ii) claims asserted on behalf of putative class members who sold their Company shares prior to October 6, 2005 be dismissed and that the Motions to Dismiss be denied with respect to the other claims against Stone and the individual defendants.

On October 1, 2007, the Federal Court issued an Order directing that judgment on the Motions to Dismiss be entered in accordance with the recommendations of the Report. On October 23, 2007, Stone and the individual defendants filed a motion seeking permission to appeal the denial of the Motions to Dismiss to the Fifth Circuit Court of Appeals, which motion was denied. The discovery process began, and the parties exchanged initial disclosures, document requests, and interrogatories and also began producing documents.

On or about May 12, 2008, El Paso Fireman & Policeman’s Pension Fund filed a motion to certify the Securities Action as a class action under Rule 23 of the Federal Rules of Civil Procedure (“Class Certification Motion”). Defendants filed their opposition to the Class Certification Motion on June 27, 2008. Defendants also filed a Motion for Judgment on the Pleadings and a related Motion to Amend Answer to the Consolidated Class Action Complaint on or about June 11, 2008. The trial date and deadlines previously set by the parties’ agreed Joint Plan of Work and Proposed Scheduling Order were vacated by the Court on December 1, 2008. In a memorandum ruling filed on February 27, 2009, the Court dismissed El Paso Fireman & Policeman’s Pension Fund from the lawsuit, holding that El Paso Fireman & Policeman’s Pension Fund did not have capacity to sue or be sued, and subsequently, the Court denied the Class Certification Motion as moot. El Paso Fireman & Policeman’s Pension Fund is appealing its dismissal. On April 13, 2009, the City of Knoxville Employees’ Pension System filed a motion to be appointed as the new lead plaintiff, and on July 16, 2009, Pipefitters Local No. 636 Defined Benefit Plan also filed a motion to be appointed as

the new lead plaintiff. Defendants are opposing the motions by the City of Knoxville Employees’ Pension System and Pipefitters Local No. 636 Defined Benefit Plan, as well as El Paso Fireman & Policeman’s Pension Fund’s appeal.

In addition, on or about December 16, 2005, Robert Farer and Priscilla Fisk filed respective complaints in the Federal Court purportedly alleging claims derivatively on behalf of Stone. Similar complaints were filed thereafter in the Federal Court by Joint Pension Fund, Local No. 164, I.B.E.W., and in the 15^th Judicial District Court, Parish of Lafayette, Louisiana (the “State Court”) by Gregory Sakhno. Stone was named as a nominal defendant and David Welch, Kenneth Beer, D. Peter Canty, James Prince, James Stone, John Laborde, Peter Barker, George Christmas, Richard Pattarozzi, David Voelker, Raymond Gary, B.J. Duplantis and Robert Bernhard were named as defendants in these actions. The State Court action purportedly alleged claims of breach of fiduciary duty, abuse of control, gross mismanagement, and waste of corporate assets against all defendants, and claims of unjust enrichment and insider selling against certain individual defendants. The Federal Court derivative actions asserted purported claims against all defendants for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment and claims against certain individual defendants for breach of fiduciary duty and violations of the Sarbanes-Oxley Act of 2002.

On March 30, 2006, the Federal Court entered an order consolidating the Federal Court derivative actions and naming Robert Farer, Priscilla Fisk and Joint Pension Fund, Local No. 164, I.B.E.W. as co-lead plaintiffs in the consolidated Federal Court derivative action. On December 21, 2006, the Federal Court stayed the Federal Court derivative action at least until resolution of the then-pending motion to dismiss the Securities Action after which time a hearing was to be conducted by the Federal Court to determine the propriety of maintaining that stay. As of the date hereof, the Federal Court has yet to consider any potential modification of the stay.

The foregoing pending actions are at an early stage and subject to substantial uncertainties concerning the outcome of material factual and legal issues relating to the litigation and the regulatory proceedings. Accordingly, based on the current status of the litigation and inquiries, we cannot currently predict the manner and timing of the resolution of these matters and are unable to estimate a range of possible losses or any minimum loss from such matters. Furthermore, to the extent that our insurance policies are ultimately available to cover any costs and/or liabilities resulting from these actions, they may not be sufficient to cover all costs and liabilities incurred by us and our current and former officers and directors in these regulatory and civil proceedings.

Item 1A. Risk Factors

The following risk factors update the Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2008. Except as set forth below, there have been no material changes to the risks described in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2008.

The continuing financial crisis may impact our business and financial condition. We may not be able to obtain funding in the capital markets on terms we find acceptable, or obtain funding under our current bank credit facility because of the deterioration of the capital and credit markets and our borrowing base.

The current credit crisis and related turmoil in the global financial systems have had an impact on our business and our financial condition, and we may face challenges if economic and financial market conditions do not improve. Historically, we have used our cash flow from operations and borrowings under our bank credit facility to fund our capital expenditures and have relied on the capital markets and asset monetization transactions to provide us with additional capital for large or exceptional transactions. A continuation of the economic crisis could further reduce the demand for oil and natural gas and continue to put downward pressure on the prices for oil and natural gas, which have declined significantly since reaching historic highs in July 2008. These price declines have negatively impacted our revenues and cash flows. In 2009, we expect to finance our capital expenditures with cash flow from operations.

We have an existing bank credit facility with lender commitments totaling $700 million. The borrowing base under the credit facility was reduced from $625 million to $425 million on April 29, 2009. As of August 5, 2009, we had $43 million of availability under the credit facility. Stone’s cash position at August 5, 2009 is approximately $140 million. The borrowing base is determined by the lenders periodically and is based on the estimated value of our oil and gas properties using pricing models determined by the lenders at such time. Our bank credit facility is redetermined semi-annually. The next borrowing base redetermination is expected by November 1, 2009. In the future, we may not be able to access adequate funding under our bank

credit facility as a result of (i) a decrease in our borrowing base due to the outcome of a borrowing base redetermination, or (ii) an unwillingness or inability on the part of our lending counterparties to meet their funding obligations. A continuation of the declines in commodity prices could result in a determination to further lower the borrowing base in the future and, in such case, we could be required to repay any indebtedness in excess of the borrowing base. The turmoil in the financial markets has adversely impacted the stability and solvency of a number of large global financial institutions.

The current credit crisis makes it difficult to obtain funding in the public and private capital markets. In particular, the cost of raising money in the debt and equity capital markets has increased substantially while the availability of funds from those markets generally has diminished significantly. Also, as a result of concerns about the general stability of financial markets and the solvency of specific counterparties, the cost of obtaining money from the credit markets has increased as many lenders and institutional investors have increased interest rates, imposed tighter lending standards, refused to refinance existing debt at maturity at all or on terms similar to existing debt or at all, and reduced and, in some cases, ceased to provide any new funding.

The credit crisis also has impacted the level of activity in the oil and gas property sales market. The lack of available credit and access to capital has limited and will likely continue to limit the parties interested in any proposed asset transactions and will likely reduce the values we could realize in those transactions.

The distressed economic conditions also may adversely affect the collectability of our trade receivables. For example, our accounts receivable are primarily from purchasers of our oil and natural gas production and other exploration and production companies which own working interests in the properties that we operate. This industry concentration could adversely impact our overall credit risk, because our customers and working interest owners may be similarly affected by changes in economic and financial market conditions, commodity prices, and other conditions. Further, the credit crisis and turmoil in the financial markets could cause our commodity derivative instruments to be ineffective in the event a counterparty were to be unable to perform its obligations or seek bankruptcy protection.

Due to these factors, we cannot be certain that funding, if needed, will be available to the extent required and, on acceptable terms. If we are unable to access funding when needed on acceptable terms, we may not be able to fully implement our business plans, complete new property acquisitions to replace our reserves, take advantage of business opportunities, respond to competitive pressures, or refinance our debt obligations as they come due, any of which could have a material adverse effect on our operations and financial results.

Our debt level and the covenants in the current and any future agreements governing our debt could negatively impact our financial condition, results of operations and business prospects.

At August 5, 2009, the principal amount of our outstanding debt was $713 million, including $313 million outstanding under our bank credit facility. The terms of the current agreements governing our debt impose significant restrictions on our ability to take a number of actions that we may otherwise desire to take, including:

	•		incurring additional debt;

	•		paying dividends on stock, redeeming stock or redeeming subordinated debt;

	•		making investments;

	•		creating liens on our assets;

	•		selling assets;

	•		guaranteeing other indebtedness;

	•		entering into agreements that restrict dividends from our subsidiary to us;

	•		merging, consolidating or transferring all or substantially all of our assets; and

	•		entering into transactions with affiliates.

Our level of indebtedness, and the covenants contained in current and future agreements governing our debt, could have important consequences on our operations, including:

	•		making it more difficult for us to satisfy our obligations under the indentures or other debt and increasing the risk that we may default on our debt obligations;

	•		requiring us to dedicate a substantial portion of our cash flow from operating activities to required payments on debt, thereby reducing the availability of cash flow for working capital, capital expenditures and other general business activities;

	•		limiting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and other general business activities;

	•		limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

	•		detracting from our ability to successfully withstand a downturn in our business or the economy generally;

	•		placing us at a competitive disadvantage against other less leveraged competitors; and

	•		making us vulnerable to increases in interest rates, because debt under our credit facility is at variable rates.

We may be required to repay all or a portion of our debt on an accelerated basis in certain circumstances. If we fail to comply with the covenants and other restrictions in the agreements governing our debt, it could lead to an event of default and the acceleration of our repayment of outstanding debt. Our ability to comply with these covenants and other restrictions may be affected by events beyond our control, including prevailing economic and financial conditions. Our borrowing base under our bank credit facility, which is redetermined semi-annually, is based on an amount established by the bank group after its evaluation of our proved oil and gas reserve values. On April 29, 2009, our borrowing base was reduced from $625 million to $425 million. At August 5, 2009, we had $43 million of availability under our bank credit facility. The next borrowing base redetermination is expected by November 1, 2009. Due to current credit conditions and lower commodity prices, we could experience further reductions of our borrowing base. Upon a redetermination, if borrowings in excess of the revised borrowing capacity were outstanding, we could be forced to repay a portion of our bank debt.

We may not have sufficient funds to make such repayments. If we are unable to repay our debt out of cash on hand, we could attempt to refinance such debt, sell assets or repay such debt with the proceeds from an equity offering. We cannot assure you that we will be able to generate sufficient cash flow from operating activities to pay the interest on our debt or that future borrowings, equity financings or proceeds from the sale of assets will be available to pay or refinance such debt. The terms of our debt, including our credit facility and our indentures, may also prohibit us from taking such actions. Factors that will affect our ability to raise cash through an offering of our capital stock, a refinancing of our debt or a sale of assets include financial market conditions and our market value and operating performance at the time of such offering or other financing. We cannot assure you that any such offering, refinancing or sale of assets can be successfully completed.

Certain U.S. federal income tax deductions currently available with respect to oil and gas exploration and development may be eliminated as a result of future legislation.

President Obama’s Proposed Fiscal Year 2010 Budget includes proposed legislation that would, if enacted into law, make significant changes to United States tax laws, including the elimination of certain key U.S. federal income tax incentives currently available to oil and natural gas exploration and production companies. These changes include, but are not limited to, (i) the repeal of the percentage depletion allowance for oil and natural gas properties, (ii) the elimination of current deductions for intangible drilling and development costs, (iii) the elimination of the deduction for certain domestic production activities, and (iv) an extension of the amortization period for certain geological and geophysical expenditures. It is unclear whether any such changes will be enacted or how soon any such changes could become effective. The passage of any legislation as a result of these proposals or any other similar changes in U.S. federal income tax laws could eliminate certain tax deductions that are currently available with respect to oil and gas exploration and development, and any such change could negatively affect our financial condition and results of operations.

The adoption of climate change legislation by Congress could result in increased operating costs and reduced demand for the oil and natural gas we produce.

On June 26, 2009, the U.S. House of Representatives approved adoption of the “American Clean Energy and Security Act of 2009,” also known as the “Waxman-Markey cap-and-trade legislation” or ACESA. The purpose of ACESA is to control and reduce emissions of “greenhouse gases,” or “GHGs,” in the United States. GHGs are certain gases, including carbon dioxide and methane, that may be contributing to warming of the Earth’s atmosphere and other climatic changes. ACESA would establish an economy-wide cap on emissions of GHGs in the United States and would require an overall reduction in GHG emissions of 17% (from 2005 levels) by 2020, and by over 80% by 2050. Under ACESA, most sources of GHG emissions would be required to obtain GHG emission “allowances” corresponding to their annual emissions of GHGs. The number of emission allowances issued each year would decline as necessary to meet ACESA’s overall emission reduction goals. As the number of GHG emission allowances declines each year, the cost or value of allowances is expected to escalate significantly. The net effect of ACESA will be to impose increasing costs on the combustion of carbon-based fuels such as oil, refined petroleum products, and natural gas.

The U.S. Senate has begun work on its own legislation for controlling and reducing emissions of GHGs in the United States. If the Senate adopts GHG legislation that is different from ACESA, the Senate legislation would need to be reconciled with ACESA and both chambers would be required to approve identical legislation before it could become law. President Obama has indicated that he is in support of the adoption of legislation to control and reduce emissions of GHGs through an emission allowance permitting system that results in fewer allowances being issued each year but that allows parties to buy, sell and trade allowances as needed to fulfill their GHG emission obligations. Although it is not possible at this time to predict whether or when the Senate may act on climate change legislation or how any bill approved by the Senate would be reconciled with ACESA, any laws or regulations that may be adopted to restrict or reduce emissions of GHGs would likely require us to incur increased operating costs, and could have an adverse effect on demand for the oil and natural gas we produce.

The adoption of derivatives legislation by Congress could have an adverse impact on our ability to hedge risks associated with our business.

Congress is currently considering legislation to impose restrictions on certain transactions involving derivatives, which could affect the use of derivatives in hedging transactions. ACESA contains provisions that would prohibit private energy commodity derivative and hedging transactions. ACESA would expand the power of the Commodity Futures Trading Commission, or CFTC, to regulate derivative transactions related to energy commodities, including oil and natural gas, and to mandate clearance of such derivative contracts through registered derivative clearing organizations. Under ACESA, the CFTC’s expanded authority over energy derivatives would terminate upon the adoption of general legislation covering derivative regulatory reform. The CFTC is considering whether to set limits on trading and positions in commodities with finite supply, particularly energy commodities, such as crude oil, natural gas and other energy products. The CFTC also is evaluating whether position limits should be applied consistently across all markets and participants. In addition, the Treasury Department recently has indicated that it intends to propose legislation to subject all OTC derivative dealers and all other major OTC derivative market participants to substantial supervision and regulation, including by imposing conservative capital and margin requirements and strong business conduct standards. Derivative contracts that are not cleared through central clearinghouses and exchanges may be subject to substantially higher capital and margin requirements. Although it is not possible at this time to predict whether or when Congress may act on derivatives legislation or how any climate change bill approved by the Senate would be reconciled with ACESA, any laws or regulations that may be adopted that subject us to additional capital or margin requirements relating to, or to additional restrictions on, our trading and commodity positions could have an adverse effect on our ability to hedge risks associated with our business or on the cost of our hedging activity.

Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

Congress is currently considering legislation to amend the federal Safe Drinking Water Act to require the disclosure of chemicals used by the oil and gas industry in the hydraulic fracturing process. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into rock formations to stimulate natural gas production. Sponsors of bills currently pending before the Senate and House of Representatives have asserted that chemicals used in the fracturing process could adversely affect drinking water supplies. The proposed legislation would require the reporting and public disclosure of chemicals used in the fracturing process, which could make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, these bills, if adopted, could establish an additional level of regulation at the federal level that could lead to operational delays or increased operating costs and could result in additional regulatory burdens that could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On September 24, 2007, our Board of Directors authorized a share repurchase program for an aggregate amount of up to $100 million. The shares may be repurchased from time to time in the open market or through privately negotiated transactions. The repurchase program is subject to business and market conditions, and may be suspended or discontinued at any time. Additionally, shares were withheld from certain employees to pay taxes associated with the employees’ vesting of restricted stock. The following table sets forth information regarding our repurchases or acquisitions of common stock during the second quarter of 2009:


						Total Number of
						Shares (or Units)		Maximum Number (or
						Purchased as Part		Approximate Dollar Value)
	Total Number of			Average Price		of Publicly		of Shares (or Units) that May
	Shares (or Units)			Paid per Share		Announced Plans or		Yet be Purchased Under the
Period	Purchased			(or Unit)		Programs		Plans or Programs
Share Repurchase Program:
April 2009		—			—		—
May 2009		—			—		—
June 2009		—			—		—

		—			—		—	$	92,928,632


Other:
April 2009		620	(a)	$	3.37		—
May 2009		469	(a)		6.39		—
June 2009		—			—		—

		1,089			4.67		—		N/A

Total		1,089		$	4.67		—


(a)		Amounts include shares withheld from employees upon the vesting of restricted stock in order to satisfy the required tax withholding obligations.

Item 4. Submission of Matters to a Vote of Security Holders

At the annual meeting of stockholders held on May 28, 2009, six Directors, Robert A. Bernhard, Peter D. Kinnear, Donald E. Powell, Kay G. Priestly, David R. Voelker and David H. Welch were elected to serve as directors of the Company until the annual meeting of stockholders in the year 2010. Robert A. Bernhard received the vote of 35,287,412 shares with the vote of 1,025,283 shares withheld, Peter D. Kinnear received the vote of 35,083,758 shares with the vote of 1,228,937 shares withheld, Donald E. Powell received the vote of 35,325,868 shares with the vote of 986,827 shares withheld, Kay G. Priestly received the vote of 35,351,265 shares with the vote of 961,430 shares withheld, David R. Voelker received the vote of 35,142,509 shares with the vote of 1,170,186 shares withheld, and David H. Welch received the vote of 35,152,483 shares with the vote of 1,160,212 shares withheld. No other director was standing for election. George R. Christmas, B. J. Duplantis, John P. Laborde and Richard A. Pattarozzi are Class II Directors whose terms expire with the 2010 annual meeting of stockholders. Beginning with the 2010 annual meeting of stockholders, each Director will stand for election each year.

A proposal to ratify the appointment by the Board of Directors of Ernst & Young LLP as independent registered public accountants to the Company for the year 2009 was approved by the stockholders. The vote was 35,706,581 shares for, 407,502 shares against, and 198,612 shares abstained.

A proposal to approve the adoption of the Company’s 2009 Amended and Restated Stock Incentive Plan was approved by the stockholders. The vote was 23,731,423 shares for, 2,344,857 shares against, and 460,769 shares abstained.

Item 6. Exhibits


3.1		Certificate of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 33-62362)).

3.2		Certificate of Amendment of the Certificate of Incorporation of Stone Energy Corporation, dated February 1, 2001 (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K, filed February 7, 2001).

3.3		Amended & Restated Bylaws of Stone Energy Corporation, dated May 15, 2008 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated May 15, 2008 (File No. 001-12074)).

10.1		Amendment No. 1, dated as of April 28, 2009, to the Second Amended and Restated Credit Agreement dated as of August 28, 2008, among Stone Energy Corporation, Stone Energy Offshore, L.L.C. and the financial institutions named therein (incorporated by reference to Exhibit 10.18 to the Registrant’s Current Report on Form 8-K, filed April 30, 2009 (File No. 001-12074)).

10.2		Stone Energy Corporation 2009 Amended and Restated Stock Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A for Stone’s 2009 Annual Meeting of Stockholders (File No. 001-12074)).

*15.1		Letter from Ernst & Young LLP dated August 5, 2009, regarding unaudited interim financial information.

*31.1		Certification of Principal Executive Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.

*31.2		Certification of Principal Financial Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.

*#32.1		Certification of Chief Executive Officer and Chief Financial Officer of Stone Energy Corporation pursuant to 18 U.S.C. § 1350.


*		Filed herewith.

#		Not considered to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	STONE ENERGY CORPORATION
Date: August 5, 2009	By:	/s/ J. Kent Pierret
		J. Kent Pierret
		Senior Vice President, Chief Accounting Officer and Treasurer (On behalf of the Registrant and as Chief Accounting Officer)

EXHIBIT INDEX


Exhibit
Number		Description

3.1		Certificate of Incorporation of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 33-62362)).

3.2		Certificate of Amendment of the Certificate of Incorporation of Stone Energy Corporation, dated February 1, 2001 (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K, filed February 7, 2001).

3.3		Amended & Restated Bylaws of Stone Energy Corporation, dated May 15, 2008 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated May 15, 2008 (File No. 001-12074)).

10.1		Amendment No. 1, dated as of April 28, 2009, to the Second Amended and Restated Credit Agreement dated as of August 28, 2008, among Stone Energy Corporation, Stone Energy Offshore, L.L.C. and the financial institutions named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed April 30, 2009 (File No. 001-12074)).

10.2		Stone Energy Corporation 2009 Amended and Restated Stock Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A for Stone’s 2009 Annual Meeting of Stockholders (File No. 001-12074)).

*15.1		Letter from Ernst & Young LLP dated August 5, 2009, regarding unaudited interim financial information.

*31.1		Certification of Principal Executive Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.

*31.2		Certification of Principal Financial Officer of Stone Energy Corporation as required by Rule 13a-14(a) of the Securities Exchange Act of 1934.

*#32.1		Certification of Chief Executive Officer and Chief Financial Officer of Stone Energy Corporation pursuant to 18 U.S.C. § 1350.


*		Filed herewith.

#		Not considered to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.

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