Stone Energy Inks Deal With Williams, Ends Ensco Contract

Stone Energy Corporation (NYSE:SGY) has entered into a contract with Williams Co. (NYSE:WMB) and terminated an agreement with Ensco plc (NYSE:ESV) on Jun 29.

The terminated drilling services contract between Stone Energy and Ensco was valued at $20 million, of which about $5 million was a deposit earlier provided to the latter. Moreover, Stone Energy has given Ensco the opportunity to carry out certain drilling services started before Dec 31, 2019.

The company also paid Ensco a $5 million deposit to be used as a credit against future drilling activities commenced before Mar 31, 2017. This, however, is subject to extension in certain circumstances. The ENSCO 8503 deep water rig was contracted at a dayrate of $341,000 and was scheduled to expire in Aug 2017.

Separately, Stone Energy entered into an interim agreement with Williams. The deal pertains to gas gathering and processing at the Mary field in Appalachia.

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The interim agreement will offer near-term respite for Stone Energy by allowing it to continue production at the Mary field. The deal will also benefit Williams by generating higher volumes.

Currently, the Mary field produces about 45 million cubic feet equivalent (MMcfe) per day and the level is expected to increase to over 60 MMcfe per day in July and finally reach over 100 MMcfe per day in August. These volumes are substantially higher than the 20 MMcfe per day produced from the Heather and Buddy fields.

The impact of this agreement on annual guidance, including production volumes and associated costs, is still being evaluated. Updates to annual guidance will be provided with Stone Energy's second-quarter 2016 earnings release.

Stone Energy holds a Zacks Rank #2 (Buy). Another well-ranked player from the energy sector is FutureFuel Corp. (NYSE:FF) with a Zacks Rank #1 (Strong Buy).