Stone Energy Corporation (NYSE: SGY) Walks Away From $20 Million Contract

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Stone Energy Corporation (NYSE:SGY) has decided to walk out of the multiyear drilling services contract that it had inked with Ensco PLC (NYSE:ESV). But the company has left options open to work with Ensco again in future in some drilling activities. It seems SGY decided to terminate the contract with Ensco so that it concentrate on production activities at its Mary filed in Appalachia.

Stone Energy Corporation (NYSE: SGY) has instead tapped Williams Companies Inc. (NYSE: WMB) to help with gas production at Mary field. But the agreement with Williams is based on interim terms. However, SGY said that the deal with Williams is mutually beneficial.

For Stone Energy Corporation (NYSE:SGY), the agreement with Williams for gas gathering and processing at Mary field will provide near-term relief as it allows the company to restart production at the field. Mary field remained in shut-in situation in 1Q2016.

For Williams, resuming production at Mary field will provide greater volume.

Production volumes at Mary field

Mary field was producing close to 45 MMcfe per day before its shut-in. But there is potential for the output to rise to more than 60 MMcfe per day this month and then again rise to 100 MMcfe per day next month.

According to Stone Energy Corporation (NYSE:SGY), the production estimates for Mary field are significantly higher than daily production at the Buddy and Heather fields.

Terminating $20 million

As SGY pursues immediate benefits from resuming production at Mary field, the company has had to end the previous deepwater drilling it had committed to in a contract with Ensco.

The deepwater drilling contract was described as long-term and was expected to consume $20 million to completion. SGY had made a $5 million deposit toward the deepwater activity.

But as it terminates the contract with Ensco, the company is providing an opportunity to Ensco to work on some of its drilling programs in the future.

Terminating the contract with Ensco is also expected to free Stone Energy Corporation (NYSE:SGY)’s balance sheet from a long-term financial obligation.

Financial results – Stone Energy Corporation (NYSE: SGY)

Stone Energy Corporation (NYSE: SGY) generated gas revenue of $80.2 million and adjusted EPS loss of $0.79 in 1Q2016.

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