Good morning. My name is Nathan, and I'll be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. Welcome to the Stone Energy Corporation Fourth Quarter 2008 and Year-End Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions). I'd now like to turn the call over to Mr. David Welch, President and CEO of Stone Energy Corporation. Go ahead Mr. Welch.

Thank you Nathan and welcome everyone to the Stone Energy Corporation year end 2008 earnings conference call. First, Ken Beer our Chief Financial Officer will go over the numbers, then turn it back over to me for some general comments on our 2008 performance and a few remarks on some of the challenges and opportunities ahead in 2009. Ken?

Thank you Dave. In this, let me first start with the forward-looking statements. In this conference call, we may make forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements are subject to all the risks and uncertainties normally incident to the exploration for and development, production and sale of oil and natural gas. We urge you to read our 2007 Annual Report on Form 10-K for a discussion of the risks that could cause our actual results to differ materially from those in any forward-looking statements we may make today. In addition, in this call we may refer to financial measures that may be deemed to be non-GAAP financial measures as defined under the exchange act. Please refer to the press release we issued yesterday, which is posted on our website for a reconciliation of the differences between the financial measures and the most directly comparable GAAP financial measures. Finally in this conference call, we may refer to the terms probable and possible reserves which the SEC guidelines currently prohibit us from including in SEC filings. Please reference our disclosure in the press release addressing this issue. Once again rather than go through the financials in great detail, we'll assume that everyone has seen the press release and the attached financials. This was a very unusual quarter with a number of moving parts. In particular there were two significant charges which led to a loss for the year. The biggest impact on earnings was the $1.3 billion pre-tax non-cash ceiling test write-down using year end pricing of $41 per barrel and $5.71 per MMBtu. The after-tax impact on earnings and equity was about $850 million. Additionally, we also fully impaired our goodwill account which had a $466 million…

Okay, thank you very much Ken. Obviously 2008 was an eventful year for the world, the E&P industry, and for Stone Energy as well. By July, 2008 had brought with it record oil prices over a $147 per barrel. This was surely followed by another major hurricane which adversely impacted the industry and our production and reserves and came to financial crisis and world economy is falling into a recession or depression depending upon whom you choose to believe. And finally we experienced the almost complete collapse of oil and natural gas prices, it was quite a year. Our stock reached an all time high in mid-2008, that's been followed by an all time low this week. This has certainly been a time of extremes and our experiences here at Stone have mirrored the turbulent external period. Tactically, to deal with the present situation, we'll manage cash very carefully and we'll be intensely focused on liquidity and improving the balance sheet overtime. This year our capital program will be limited to prudent platform maintenance, hurricane clean up, future storm risk mitigation, the fulfillment of rig contracts which were executed before the price collapsed, work overs have maintained production, and activities relating to maintaining the opportunities that we have carefully put in place over the last few years. During 2008, we grew before the market turned significantly downward. Early in the second quarter, we identified and in the third quarter, we executed a major merger with Bois d'Arc Energy and the Gulf of Mexico shelf, our co-producing business. This merger provided us with significantly increased reserves, reserves life, production capacity, and a large inventory of Gulf of Mexico shelf projects. We protected the merger with forward sales of production through hedges, and amounts about equal to the anticipated production from the…

(Operator Instructions). And we'll take our question from Brian Lively, Tudor Pickering and Holt. Go ahead sir.

Hey guys, just a follow-up question on your borrowing base. I know you guys said you won't comment specifically on it but can you give some color around just on a percentage basis, what you think the borrowing base could be reduced after the re-determination, are we looking at 20% or are we looking at 10% just kind of a ballpark?

Yeah Brian, it's Ken. Really we don't know. As we've mentioned in the press release, we're just starting this process. Obviously between now and May 1st we'll have the answer. It's clearly premature and probably inappropriate for us to speculate or guess on that number. But it's something that obviously is going to be something that we look hard at and pay attention to and felt it at least appropriate, how people recognize it, that $625 million borrowing base given the environment, we'll probably be coming down. So just felt like it was appropriate to disclose that but its just -- its terribly premature to come up with any sort of guesstimates for you.

Okay. Fair enough. That was the only question I had. Thanks a lot.

Thanks Brian.

Our next question comes from David Kistler, Simmons & Company. David Kistler - Simmons & Company: Good morning guys.

Hey Dave, good morning. David Kistler - Simmons & Company: Not to blabber the point on the credit facility, but can you give us a little color about the November reassessment, kind of what price stack the banks may have been using, and the reserve estimates that were used at the time so that maybe we can try to back into it ourselves, you know, obviously all this is in flux right now?

Yeah and even there David, that's from a reserve standpoint I think it is safe to say that the reserve base that was utilized for the November re-determination, those reserves have come down, pricing has certainly come down. As you I'm sure are aware, each bank will have its own price stack to try to throw around A price stack is the guess at best. But just directionally both critical inputs are going down and that's why you know our Census dipped to 625 is coming down. The magnitude we just don't know but certainly between reserves coming down and price coming down its something that we're cognizant of. David Kistler - Simmons & Company: Okay. And then just to get a handle on the liquidity side of things, as you outlined, you have almost 150 million right now under the facility that could be moved, you have about 68 million in cash -- in cash equivalents?

Correct. David Kistler - Simmons & Company: And then if we look at hedges not off of 12/31, but offer a current script about $160 million give or take, is that about right?

Yeah, it's pretty dynamic, probably depends upon which hour you are talking about. David Kistler - Simmons & Company: No doubt, no doubt. But I mean pretty sizeable cushion, obviously monetizing hedges impacts, their borrowing base in some respects but a cushion of close to $200 million plus before you'd have to think about selling assets or raising debt or equities, is that kind of a fair way to think about it?

Probably appropriate, let me highlight that the hedges are certainly an important asset and very liquid asset. Cash obviously is very liquid as well. You did make the point that it is probably important to at least highlight it as you -- if you liquidate your hedges, obviously that will have an adjustment on the borrowing base calculation. But there's a numb -- there are a number of things available to us, certainly you've highlighted two, but at this point in time our thought, our hope is we won't need any of them, but we just are highlighting that the borrowing base is an important component of what we're looking at near term, as Dave had mentioned, kind of liquidity is the highest priority item in tandem within the company. David Kistler - Simmons & Company: Okay, great. Thanks for putting more color on that. Then jump into the Marcellus real quickly. Can you share the initial IP rates from those wells and you have mentioned you have added additional acreage, if you could give us kind of your total net acreage position that will be great. And also cost of those wells, if that's available or possibly too early to have all that stuff given this is your first couple of wells.

It's a little early David, but I can give you a little bit of color on that. The IP's of these two wells were both just under a million a day. And I will point out with these being our first wells, we've learnt some things on the completion technique by virtue of these two wells. And so we think they are in a very good area of that chart. It can be expanded and we would expect to get at least that or better than these future wells that we're drilling offsetting it. On the acreage side, we do have about 30,000 net acres that we have accumulated over the last several years including part of that in 2008. And we have been doing a lot of technical work over the last several years to try hi grade areas of the Marcellus Shale that we think is going to be top tier and that work is essentially complete now and our focus is going to be on those areas that we think are top to your potential. But the Marcellus could be a material part of our portfolio in years going further. We like the fact that it's price advantage relative to many of the shale plays, the fact that completion technique seem to be getting better if you follow what the industry is doing. I'm sure you are seeing that some higher rate wells are being articulated in the industry, now are being promulgated in the industry. And we feel like it's a program that's going to get better overtime. And we like where we are, we see other areas we'd like to be in. David Kistler - Simmons & Company: Can you give me a little color on the cost of those wells, obviously we know service costs are coming down pretty substantially but what in general are you guys targeting for those wells or hoping to target based on what you've seen to date?

Yeah, that's another moving target. I've seen published data on horizontal wells that range anywhere from 3.5 to $5.5 million and on vertical wells from a million to $2 million depending upon how deep and where you're in the basin. On these two wells that we had, we were toward the lower end of that on these verticals just because one of them was actually deepening of an existing well. David Kistler - Simmons & Company: Okay. Great, that's helpful. And jumping real quick to Mississippi Canyon 109, obviously pipeline repairs as you outlined are not expected until 3Q '09 but barging temporarily offline because of weather, do you expect to bringing that barging back on line, is there any of that baked into your Q1 production guidance and then assuming that the pipeline comes up in 3Q '09, can you give us specifically what you think that production will be out of Mississippi Canyon?

Well I can just tell you we don't have anything grounded into the first quarter for Miss Canyon 109. We do have the option if the weather improves in the spring and we feel like we'd like to have cash coming in the door for whatever reasons. We have the option to barge it again. The cost of barging has come down slightly which is good. But the overall value of the field is about neutral whether you barge or don't barge and it is somewhat weather dependent. If you are in a situation like in the winter where you are only able to barge 50% or 40% of the time, you intend to not want to do it if the weather improve where you can keep barging on 70-80-90% of the time then the economics slightly shift to your favor. So, I would just say it's an option that we have. Our best and long-term solution is to get this pipeline repaired. And once again we think we'll be done with that late in the third quarter. David Kistler - Simmons & Company: Okay and when that pipeline's up do you guys have a specific kind of guesstimate around what kind of production you think you'll be bringing from Mississippi Canyon 109?

Yeah, it should be somewhere and I think we've highlighted that it is somewhere around that 4 to 5000 barrels a day, lets call it 4000 barrels a day. Kind of the 25 million cubic feet a day equivalent but it will all be oil. David Kistler - Simmons & Company: Alright, guys. Well thanks for that color. I am going to let somebody jump on and may hop back in the queue.

Great, thank you David.

Our next question comes from Richard Tullis, Capital One Southcoast.

Good morning.

Good morning.

Hey Richard.

Looking at the rigs, how many are Gulf of Mexico rigs that you have under contract now and what's its rates and duration?

Just in general we have four rigs right now, which we will be releasing two of those within the next month or so I would say. One would continue through April and that's the extent of it.

Okay. What are you looking at running say beyond that... just the one rig?

That one rig that goes out in April we will probably not going to continue drilling after that point.

Okay, so you will drilling pretty much after that.

Right.

Looking at your production guidance for 2009, the 210 to 240 a day and then looking at the exit rate for 2008 at 200 a day, what is your base decline expectations for 2009 on a daily basis.

Yeah, again it will depend obviously field by field. But I think what we are suggesting is kind of in that 210 to 240 we will see some field declines, but for the most part that will be offset by the production from fields that have been impacted by pipeline repairs will come into offset that. So roughly the addition of the hurricane impacted volumes should offset the production declines.

Okay. Do you have a number for your production declines on a yearly basis?

Yeah, I know typically you've got Gulf of Mexico declines are certainly in that 25% to 30% range. Again through recompletions we can hope to offset some of that decline as well. So that's why I say each field is slightly different.

Alright, okay. Which sort of rig rates do you need to... some reductions there that you need to see or increases in commodity price or combination that gets you back to drilling in the Gulf?

There are all sorts of combinations that could lead to that. But I can't put it an exact number out there for you to help with that right now Richard. It is a combination of factors. We are seeing the rig rates coming in the Gulf right now. They've dropped about in certain categories of rigs they dropped about a third. And really it's going to be on a prospect-by-prospect basis as to whether or not it makes sense to go back to drilling. And the prospect is going to be a combination of the rate and the reserves of the potential prospect and the rig cost and it's just that ratio that either creates or destroys value on a creation side.

Okay. Assuming prices stay low and you end your drilling for the year after April, what sort of reserve expectations do you have for year end '09?

I don't think we have actually contemplated guidance on that. You have something we can look at and discuss with you later today.

Okay. Okay.

It's obviously heavily tied to which prospects we end up drilling, whether they are more development oriented or exploratory oriented. You know obviously at $300 million, it's a relatively limited capital budget. But as Dave has mentioned, if that guidance is not out there because it's just very early in the year and despite the $300 million capital budget, the components of that still are somewhat dynamic.

Okay. One last question, I'll jump back in the queue. What is your interest expense on the income statement expectations for 2009?

Well, that's why I went through at least that discussion. The expense side, if you look at a big portion of our debt just theoretically being tied to the unevaluated portion, it's going to be a smaller percent of the actual cash that would be generated. I mean would be paid on our interest payment. So for the fourth quarter, I think there would be reported is what I want to say is under 3 million but the total cash was two times of it.

Alright, very good. Thank you.

Our next question comes from Evan Templeton, Jefferies. Go ahead. Evan Templeton - Jefferies & Company: Hi, actually I had two questions. The first is, can you just share with us how we should think about our CapEx particularly just the timing on a quarterly basis for 2009, particularly if we are going to see drilling in April?

Yeah, as you can appreciate it's going to be very front-end loaded. As Dave mentioned we currently are at four rigs. We will very quickly move to three and then two and again the two remaining rigs that will go into the second quarter. And after that period we do not have any rig commitments. There might be some very specific prospects that could get drilled but I would not expect to have any substantial rig commitments after that given the capital budgets. So it will certainly be front-end loaded for the first and the second quarter. And then a much, much lower capital program in quarters three and four. Evan Templeton - Jefferies & Company: So, we would be thinking something along the lines of 80% in the first half of the year and 20% in the second or is it even more extreme than that?

Probably not more extreme than that because that's very extreme. Evan Templeton - Jefferies & Company: Yeah, alright. And then I guess just a second question is just regarding storm expenses and insurance. Just where do you stand in terms of recoveries? In terms of, I think you've spent 20 plus million in terms of storm related expenses in this fourth quarter, do you hope to recover any of that through insurance?

For the most part the expenses in the fourth quarter were virtually uncovered by insurance, again pretty high deductibles. So, for the most part most of those repairs were recorded as LOE and did not have an offsetting insurance receivable associated with it. As we've mentioned I guess it's in the -- in our release some post Gustav and Ike. I know we do expect to actually spend additional capital on down five forms in abandonment that were uninsured. There are certainly some of the activities and some of the projects that we will be involved in for this year. We will be insured and we would look to get insurance reimbursements. But I'd say for the most part into the fourth quarter, I would not look for really virtually any of that to come back to us via insurance. Evan Templeton - Jefferies & Company: Great. Thanks for clarifying that.

Okay.

(Operator Instructions). We will take a follow up from Dave Kistler with Simmons & Company. David Kistler - Simmons & Company: Hey guys. One quick question on the P&A liabilities, last time you updated us on that you said about 75 million, is that still sort of your estimate and how do you anticipate that being spend over the next couple of years?

Yeah, in couple of years the right number, I mean the thought is that its going to be over several years we would look to initiate a lot of that work. And again, some of its going to start this year, but over the next several years is when we would look to address some of the P&A work. Really I'd say three, four, five years something like that. David Kistler - Simmons & Company: Yeah and 75 million is still about the right number?

It seems to be the right ballpark David. David Kistler - Simmons & Company: Okay and last then question, obviously challenging the answer in light of the liquidity -- potential liquidity updates and what not. But if I look at your valuation, it's getting remarkably discounted versus the rest of the peer group. You still have an authorization to do a share buyback. Does that step up in terms of -- I don't know, level of importance for you guys, should you get through the credit facility review and have ample cash on hand to look going forward?

I think we certainly will be looking through what comes out of the bank reviews. It does feel like its intriguing and in good use of capital at the current share price. But don't think we can make any commitment as to what we might do with respect to any buybacks that you're -- Ken do you have anything you want to add on that?

Yeah, again just David, we mentioned liquidity is obviously at the top item that we're looking at and this would be obviously countered to that. So as attractive as it might be, it's difficult to reconcile those two goals although as David mentioned that it is certainly attractive and obviously in a position where we should never say never. David Kistler - Simmons & Company: Great. Well thanks for that additional clarification guys.

Thank you.

We'll take a follow up question from Richard Tullis, Capital One Southcoast.

Thank you. The six Marcellus wells planned for 2009, will those all be drilled in West Virginia acreage or any in Pennsylvania?

I think four of those wells are development wells offsetting the two wells that we have on production now. We do have the flexibility for a couple of other wells which we have, which are more exploratory in nature are actually evaluation in nature. Those could be drilled in either of those states. It's possible we drill a well in Pennsylvania this year.

This four well development program is in West Virginia.

Okay. What sort of commodity price differentials are you seeing in the Gulf of Mexico right now?

Really one of the nice things of us being in the Gulf of Mexico is we really don't have much of a differentials since you are going right to Henry Hub. Obviously we enjoy a BTU outlet that tends to put us above their quoted NYMEX MMBtu price. So, I guess the short answer is we really don't see that differential. It really tends to be differentials off of Henry Hub and we're basically ultimately on Henry Hub.

Okay. And the one exploration well in the deepwater that you had mentioned earlier, can you give anymore details on who your partner is and where the well will be drilled, time and things like that?

Yeah, this well is in partnership with Newfield. And the well is going to be drilled earlier this year. In fact I think the well has actually already spuded.

Okay, do you know the location?

I do know the location but we're running this thing as a tight hole and I don't want to come out with much more on it right now.

Okay. Alright, that's all for me. Thanks very much.

Hey Richard, I did want to clarify that I think you'd asked about the interest expense?

Yeah.

Regarding the release, the interest expense in the fourth quarter was 2.7 that was reported but we did highlight that we capitalized little over 10 million. So we're upwards of about 13 million of cash interest and that's not a bad run-rate in terms of the cash but the reported interest rate, I mean, I am sorry the reported interest expense might be in that $3 million or may be $4 million range. So I just wanted to at least clarify that.

Okay. Thanks very much Ken.

Yup.

Mr. Welch, that was the last question in the queue. I'll turn the program back over to you.

Okay. Thank you very much Nathan and thanks everyone for attending the call. We'll talk to you soon. So long.

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