Stone Energy Corp. has committed $50 million to cover its share of costs and drilling commitments in a joint venture with Kerr-McGee Oil & Gas Corp., which was announced Tuesday. Stone and the Kerr-McGee Corp. subsidiary signed exploration agreements covering interests in 30 leases held by Kerr-McGee in the Gulf of Mexico (GOM).

Stone, headquartered in Lafayette, LA, will acquire working interests in the leases that range between 16.67% and 50%, and Oklahoma City-based Kerr-McGee will retain the remainder of the interests and also will remain operator of all the leases. The two independents also plan to participate in at least six exploratory wells in the GOM through the end of 2005.

“Our Gulf of Mexico strategy includes forming joint ventures, like these agreements with Stone Energy, that offer favorable terms for our company and allow us to leverage our exploratory drilling dollars across a broader range of prospects,” said Dave Hager, Kerr-McGee senior vice president responsible for oil and gas exploration and production.

Stone CEO David H. Welch noted the joint venture was the “first major step” toward implementing his company’s growth strategy to diversify from the conventional GOM shelf. “This agreement is an ideal vehicle for Stone’s entry into higher-potential prospects. This portfolio of opportunities spreads the geologic risk across the flex trend, emerging basins and the deep shelf. Additionally, these prospects all meet the risk mitigation criteria we have developed to improve the probability of value creation as we pursue our focused diversification strategy.”

The agreements cover several identified deepwater and deep shelf prospects, including the Kerr-McGee-operated Essex prospect in Mississippi Canyon Blocks 23, 24 and 25. Kerr-McGee retains a 65% working interest, while Stone acquires a 35% working interest in the Essex prospect, which is currently drilling. Kerr-McGee estimates its resource range is 40-150 MMboe.

The Kung Pao prospect, located in Garden Banks Block 171, also is part of the agreement. Kerr-McGee and Stone will split working interest in the prospect, which is expected to spud in 4Q2004. Kerr-McGee estimates the resource range is 20-100 MMboe. Stone now controls a 16.67% interest in the Fawkes prospect in Garden Banks Block 303, whose resource range is estimated at 25-50 MMboe. Fawkes is expected to spud in the fourth quarter. The Kung Pao and Fawkes prospects are potential satellite tiebacks to the Baldpate facility, which is located on Garden Banks Block 260.

In addition to the six-well commitment, the producers expect to participate on several other opportunities over the next two years. Most of the blocks covered in the agreements are located in the Garden Banks and Green Canyon areas of the deepwater GOM. The deep shelf leases are located in the Grand Isle, Ship Shoal, South Timbalier, Vermilion and South Marsh Island areas.

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