2012 Annual Report - Stone Energy Corporation

with applicable rules and regulations and perform certain plugging and abandonment obligations as specified by applicableworking interest purchase and sale agreements.In connection with our exploration and development efforts, we are contractually committed to the use of drilling rigs and theacquisition of seismic data in the aggregate amount of $52,299 to be incurred over the next three years.The Oil Pollution Act (“OPA”) imposes ongoing requirements on a responsible party, including the preparation of oil spillresponse plans and proof of financial responsibility to cover environmental cleanup and restoration costs that could be incurred inconnection with an oil spill. Under the OPA and a final rule adopted by the BOEM in August 1998, responsible parties of coveredoffshore facilities that have a worst case oil spill of more than 1,000 barrels must demonstrate financial responsibility in amountsranging from at least $10,000 in specified state waters to at least $35,000 in Outer Continental Shelf (“OCS”) waters, with higheramounts of up to $150,000 in certain limited circumstances where the BOEM believes such a level is justified by the risks posedby the operations, or if the worst case oil-spill discharge volume possible at the facility may exceed the applicable thresholdvolumes specified under the BOEM’s final rule. We do not anticipate that we will experience any difficulty in continuing tosatisfy the BOEM’s requirements for demonstrating financial responsibility under the OPA and the BOEM’s regulations.LitigationWe are also named as a defendant in certain lawsuits and are a party to certain regulatory proceedings arising in the ordinarycourse of business. We do not expect that these matters, individually or in the aggregate, will have a material adverse effect on ourfinancial condition.We have been served with several petitions filed by the Louisiana Department of Revenue (“LDR”) in Louisiana state courtclaiming additional franchise taxes due. In addition, we have received preliminary assessments from the LDR for additionalfranchise taxes resulting from audits of Stone and other subsidiaries. These assessments all relate to the LDR’s assertion that salesof crude oil and natural gas from properties located on the OCS, which are transported through the State of Louisiana, should besourced to the State of Louisiana for purposes of computing the Louisiana franchise tax apportionment ratio. We disagree withthese contentions and are defending ourselves against these claims. Total asserted claims plus estimated accrued interest amountto approximately $29,581. The franchise tax years 2010, 2011 and 2012 for Stone remain subject to examination, whichpotentially exposes us to additional estimated assessments of $2,440 including accrued interest. We estimate the potential range ofloss upon resolution of this matter to be between $0 and $32,021.NOTE 15 — EMPLOYEE BENEFIT PLANS:We have entered into deferred compensation and disability agreements with certain of our officers and former officers. Thebenefits under the deferred compensation agreements vest after certain periods of employment, and at December 31, 2012, theliability for such vested benefits was approximately $1,059 and is recorded in current and other long-term liabilities.The following is a brief description of each incentive compensation plan applicable to our employees:Annual Cash Incentive Compensation PlanThe Amended and Restated Revised Annual Incentive Compensation Plan, which was adopted in November 2007, provides forannual cash incentive bonuses that are tied to the achievement of certain strategic objectives as defined by our board of directorson an annual basis. Stone incurred expenses of $8,113, $11,600, and $5,888, net of amounts capitalized, for each of the yearsended December 31, 2012, 2011 and 2010, respectively, related to incentive compensation bonuses to be paid under the revisedplan.Stock Incentive PlansAt the 2011 Annual Meeting of Stockholders, the stockholders approved the First Amendment (the “First Amendment”) to the2009 Plan. The First Amendment increases the number of shares of common stock that Stone may issue under the 2009 Plan, andthe number of shares of common stock that may be issued under the 2009 Plan through incentive stock options by 2,800,000shares, effective May 20, 2011. The 2009 Plan is an amendment and restatement of the company’s 2004 Amended and RestatedStock Incentive Plan (the “2004 Plan”) and it supersedes and replaces in its entirety the 2004 Plan. The 2009 Plan provides for thegranting of incentive stock options and restricted stock awards or any combination as is best suited to the circumstances of theparticular employee or nonemployee director. The 2009 Plan eliminates the automatic grant of stock options or restricted stockawards to nonemployee directors that was provided for in the 2004 Plan so that awards under the 2009 Plan are entirely at thediscretion of the board of directors. Under the 2009 Plan, we may grant both incentive stock options qualifying under Section 422F-27