Is a reverse stock split enough to save Stone Energy's (SGY)?
Monday's closing price suggests the oil and gas company has a lot of work ahead of it as shares lost 9% on a split-adjusted basis.
The troubled Louisiana-based company completed a 10-for-1 reverse stock split Monday, which sent its shares to nearly $5, up from $0.50 last week. The move follows a slew of reverse splits of ailing energy companies announced in recent weeks in an effort to maintain their listing standards. Others that have completed similar splits include Pacific Drilling (PACD), California Resources (CRC), Resolute Energy (REN) and Petroquest (PQ).
"I don't see any way out for Stone Energy," Real Money contributor Jim Collins said in an email Monday. "It looks like they are making tactical moves to prepare for a prepackaged bankruptcy. In that case, obviously, the equity would be worthless."
In a filing with the Securities and Exchange Commission released Monday morning, Stone Energy said that the move helps the company comply with listing standards related to minimum share price, but it "will not cure Stone's non-compliance with the NYSE average global market capitalization." Stone Energy's market cap is approximately $30 million, which falls short of the NYSE's $50 million listing requirement. In April, Stone Energy was notified that it had six months to get in compliance with share price standards and in May, the company was told it had 18 months to get the company's market cap in compliance.
Representatives from Stone Energy did not immediately respond to requests to comment.
Stone Energy's troubles have been widely telegraphed in recent months as persistently low energy prices have weakened independent oil and gas companies and pushed several to seek Chapter 11 bankruptcy protection. Analyst support for Stone Energy has waned: According to a Bloomberg survey of analysts, none rate Stone Energy a Buy, eight rate the company a Hold and three rate it a Sell.
In May, S&P Global Ratings lowered its rating on Stone Energy to D from CCC- after the company missed an interest payment on its 7.5% senior notes coming due in 2022. As of its first-quarter earnings release, Stone Energy's long-term debt load was just over $1 billion.
"The 'D' rating reflects our expectation that Stone Energy will elect to file for Chapter 11 bankruptcy protection rather than make the May interest payment on its 7.5% senior unsecured notes due 2022," S&P said in a statement announcing the ratings action.
Making matters worse, just last week, The Deal reported that Stone Energy's efforts reach a deal with its creditors to restructure its debts was unsuccessful.
Given the broader troubles Stone Energy faces in managing its debt, it is not clear how much help the reverse-split can provide. Stock prices may get a boost from the split -- as was the case with Petroquest and Pacific Drilling, both of which are now in compliance with their respective exchanges -- but it is important to remember the fundamental issues the caused companies to need to do reverse-splits.