2012 Annual Report - Stone Energy Corporation

We may not have sufficient funds to make such repayments. If we are unable to repay our debt out of cash on hand, we couldattempt to refinance such debt, sell assets or repay such debt with the proceeds from an equity offering. We cannot assure you thatwe 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 bank credit facility and our indentures, may also prohibit us from taking such actions. Factors that will affect ourability to raise cash through offerings of our capital stock, a refinancing of our debt or a sale of assets include financial marketconditions and our market value and operating performance at the time of such offerings, refinancing or sale of assets. We cannotassure you that any such offerings, refinancing or sale of assets can be successfully completed.We have experienced significant shut-ins and losses of production due to the effects of hurricanes in the GOMApproximately 18% of our estimated proved reserves at December 31, 2012 (by volume) and 56% of our production during2012 were associated with our Gulf Coast Basin conventional shelf properties. Approximately 38% of our estimated provedreserves at December 31, 2012 (by volume) and 27% of our production during 2012 were associated with our GOM deep waterand deep shelf gas properties. Accordingly, if the level of production from these properties substantially declines, it could have amaterial adverse effect on our overall production level and our revenue. We are particularly vulnerable to significant risk fromhurricanes and tropical storms in the GOM. In past years, we have experienced shut-ins and losses of production due to the effectsof hurricanes in the GOM. We are unable to predict what impact future hurricanes and tropical storms might have on our futureresults of operations and production.Our acreage must be drilled before lease expiration in order to hold the acreage by production. If natural gas pricesremain depressed for an extended period of time, it might not be economical for us to drill sufficient wells in order to holdacreage, which could result in the expiry of a portion of our acreage, which could have an adverse effect on our business.Unless production is established within the spacing units covering the undeveloped acres on which some of the locations areidentified, the leases for such acreage may expire. See “Item 2. Properties – Productive Well and Acreage Data.”The marketability of our production depends mostly upon the availability, proximity and capacity of oil and natural gasgathering systems, pipelines and processing facilities.The marketability of our production depends upon the availability, proximity, operation and capacity of oil and natural gasgathering systems, pipelines and processing facilities. The unavailability or lack of capacity of these gathering systems, pipelinesand processing facilities could result in the shut-in of producing wells or the delay or discontinuance of development plans forproperties. The disruption of these gathering systems, pipelines and processing facilities due to maintenance and/or weather couldnegatively impact our ability to market and deliver our products. Federal, state and local regulation of oil and gas production andtransportation, general economic conditions and changes in supply and demand could adversely affect our ability to produce andmarket our oil and natural gas. If market factors changed dramatically, the financial impact on us could be substantial. Theavailability of markets and the volatility of product prices are beyond our control and represent a significant risk.We may not receive payment for a portion of our future production.We may not receive payment for a portion of our future production. We have attempted to diversify our sales and obtain creditprotections such as parental guarantees from certain of our purchasers. The tightening of credit in the financial markets may makeit more difficult for customers to obtain financing and, depending on the degree to which this occurs, there may be a materialincrease in the nonpayment and nonperformance by customers. We are unable to predict, however, what impact the financialdifficulties of certain purchasers may have on our future results of operations and liquidity.Our actual production could differ materially from our forecasts.From time to time, we provide forecasts of expected quantities of future oil and gas production. These forecasts are based on anumber of estimates, including expectations of production from existing wells. In addition, our forecasts assume that none of therisks associated with our oil and gas operations summarized in this Item 1A occur, such as facility or equipment malfunctions,adverse weather effects, or significant declines in commodity prices or material increases in costs, which could make certainproduction uneconomical.14