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Stone Energy Corporation Announces Third Quarter 2008 Results

November 4, 2008

LAFAYETTE, La., Nov. 4 /PRNewswire-FirstCall/ — Stone Energy Corporation today announced net income of $34.1 million, or $1.04 per share, on operating revenue of $172.4 million for the third quarter of 2008 compared to net income of $34.1 million, or $1.23 per share, on operating revenue of $178.4 million for the third quarter of 2007. For the nine months ended September 30, 2008, net income totaled $179.2 million, or $6.02 per share, on operating revenue of $634.9 million compared to net income of $116.5 million, or $4.21 per share, on operating revenue of $551.6 million during the comparable 2007 period. All per share amounts are on a diluted basis.

Discretionary cash flow was $163.8 million during the three months ended September 30, 2008 compared to $100.8 million generated during the third quarter of 2007. For the first nine months of 2008, discretionary cash flow totaled $494.6 million compared to $326.8 million for the comparable 2007 period. Please see “Non-GAAP Financial Measure” and the accompanying financial statements for a reconciliation of discretionary cash flow, a non-GAAP financial measure, to net cash flow provided by operating activities.

Net daily production volumes during the third quarter of 2008 averaged approximately 129 million cubic feet of gas equivalent (MMcfe) compared to average daily production for the second quarter of 2008 of 196 MMcfe and average daily production for the third quarter of 2007 of 203 MMcfe. The third quarter of 2008 was negatively impacted by shut-ins from Hurricanes Gustav and Ike estimated at 7.1 Bcfe (or an average of 77 Mmcfe per day for the quarter), and positively impacted by the acquired Bois d’Arc properties estimated at 0.6 Bcfe. The acquisition of Bois d’Arc Energy closed on August 28, 2008; however the subsequent shut-ins from the hurricanes minimized the effect of the Bois d’Arc production on the third quarter. For the nine months ended September 30, 2008, net average daily production volumes were approximately 170 MMcfe, or 25% lower than average daily production for the nine months ended September 30, 2007, which included 24 Mmcfe per day in average volumes from the divested Rocky Mountain properties. For the fourth quarter of 2008, Stone expects net daily production to average between 210 – 230 MMcfe.

CEO David Welch stated, “The acquisition of Bois d’Arc Energy on August 28, 2008 was an important milestone for Stone as it boosted estimated proved reserves and production by over 50%. The transaction added high quality properties and prospects, and doubled our exploitation project inventory. The transition has gone smoothly, with cooperation from all parties. Our Operations group was tested one day after the Bois d’Arc closing when Hurricane Gustav, and then Hurricane Ike, forced full evacuations of the properties. We passed this difficult test as we executed a safe, successful evacuation and subsequent return to the platforms. However, the two hurricanes did alter our drilling program and impacted our production forecast. After the September shut-ins, production has steadily increased to currently over 210 MMcfe per day. We still expect to exit the year around 275 MMcfe per day.”

“Despite the lost production and revenue from the hurricane shut-ins, the significant decline in oil and natural gas prices, the added costs associated with the hurricanes, and the world-wide credit squeeze, Stone expects to exit the year with sufficient liquidity. However, given the recent oil and gas price declines, we are further reviewing our capital plans for the remainder of this year and 2009. We still expect to accelerate our activity in Appalachia and the deep water Gulf of Mexico in 2009, and remain alert for attractive drill-to-earn opportunities caused by the current credit crisis.”

Prices realized during the third quarter of 2008 averaged $106.81 per barrel (Bbl) of oil and $10.72 per thousand cubic feet (Mcf) of natural gas, which represents a 48% increase, on an Mcfe basis, over third quarter 2007 average realized prices of $76.74 per Bbl of oil and $7.19 per Mcf of natural gas. Average realized prices during the first nine months of 2008 were $104.20 per Bbl of oil and $10.29 per Mcf of natural gas compared to $65.13 per Bbl of oil and $7.22 per Mcf of natural gas realized during the first nine months of 2007. All unit pricing amounts include the effects of cash settlements of effective hedging contracts. Hedging transactions during the third quarter of 2008 decreased the average price we received for natural gas by $0.07 per Mcf, compared to an increase in average realized prices of $0.68 per Mcf during the third quarter of 2007. Realized oil prices in the third quarter of 2008 decreased by $16.89 per Bbl, compared to a decrease in realized oil prices of $0.09 per Bbl in the comparable quarter of 2007.

Lease operating expenses incurred during the third quarter of 2008 totaled $40.1 million compared to $34.9 million in the second quarter of 2008 and $39.5 million for the comparable quarter in 2007. During the third quarter of 2008, lease operating expenses included $6.8 million of repairs in excess of estimated insurance recoveries related to damage from Hurricanes Gustav and Ike. For the nine months ended September 30, 2008 and 2007, lease operating expenses were $105.3 million and $131.1 million, respectively. For the nine months ended September 30, 2007, lease operating costs included $8.6 million for the Rocky Mountain properties which were divested on June 29, 2007, and $9.9 million for an expensed replacement well.

Depreciation, depletion and amortization (DD&A) on oil and gas properties for the third quarter of 2008 totaled $51.0 million compared to $70.3 million for the third quarter of 2007. DD&A expense on oil and gas properties for the nine months ended September 30, 2008 totaled $183.9 million compared to $228.5 million during the same year-to-date period of 2007. The decrease in DD&A expense is primarily due to reduced volumes in 2008.

For the third quarter 2008, there was an impairment charge of $8.8 million relating to the investment in Bohai Bay, China. For the nine months ending September 30, 2008, the impairment charge totaled $18.9 million. The remaining investment in the Bohai Bay venture is included in unevaluated properties and totals $12.1 million.

Salaries, general and administrative (SG&A) expenses (exclusive of incentive compensation) for the third quarter of 2008 were $10.5 million compared to $7.8 million in the third quarter of 2007. For the nine months ended September 30, 2008 and 2007, SG&A (exclusive of incentive compensation) totaled $32.0 million and $25.5 million, respectively.

There were borrowings of $425 million outstanding at September 30, 2008 under our $700 million borrowing base and bank credit facility, which was amended and increased on August 28, 2008 in conjunction with the Bois d’Arc acquisition. Stone had letters of credit totaling $46.1 million, resulting in $228.9 million of available borrowings, at September 30, 2008. The borrowing base under the credit facility, which is currently $700 million, is re-determined periodically based on the bank group’s evaluation of our proved oil and gas reserves, and is currently undergoing its scheduled November review.

Capital expenditures before acquisitions and capitalized SG&A and interest during the third quarter of 2008 totaled $70.2 million, including $29.4 million of lease acquisition costs. Additionally, $4.3 million of SG&A expenses and $7.0 million of interest were capitalized during the quarter. In addition, the expenditure for the Bois d’Arc acquisition was recorded at approximately $1.656 billion in the third quarter 2008. For the nine months ended September 30, 2008, capital expenditures before acquisitions and capitalized SG&A and interest totaled $319.5 million, including $69.1 million of lease acquisition costs. Additionally, $14.2 million of SG&A expenses and $15.7 million of interest were capitalized during this period.

Through September 30, 2008, Stone acquired 100,000 common shares of stock at a cost of $4.2 million under the $100 million repurchase program authorized by the Board of Directors.

Operational Update

Ewing Bank 305. In the third quarter, Stone successfully drilled two wells in the Ewing Bank 305 drilling program. The first well is on production and the second is currently being completed. In addition, one well was successfully worked over. After the 2008 drilling program, production at Ewing Bank 305 has doubled to approximately 40 Mmcfe per day.

Main Pass 74. The Diemos prospect was successfully drilled in the third quarter and completed as a dual producer in the Main Pass 72 Field. Current production from the well is approximately 3.8 Mmcfe per day.

Ship Shoal 113. Two wells were drilled in the Ship Shoal 113 Unit during the third quarter. The Stumpknocker prospect was drilled and encountered 98 ft of pay in 3 main sands. As a result of mechanical issues, the well will require a sidetrack to get back to the pay zones. The Red Ear prospect was drilled and encountered 76 ft of pay in 3 sands, and is currently being completed. The rig will move back to the Stumpknocker sidetrack after the Red Ear well. The Ship Shoal 113 unit was acquired in the Bois d’Arc acquisition.

South Timbalier 100. The No. A-7 well was successfully drilled and completed as a dual with a selective in the South Timbalier 100 field. Two of the zones have tested at a combined rate of 7 Mmcfe per day. The South Timbalier 100 field was acquired in the Bois d’Arc acquisition.

Appalachia. Stone recently completed a well in Clinton County, Pennsylvania which is currently on production test. A second well remains under evaluation. For the remainder of 2008, Stone expects to participate in 2-4 non-operated wells in West Virginia.

Hurricane Impact Update

Substantially all of Stone’s platforms are producing or awaiting pipeline clearance to produce. Although many of the platforms sustained some minor damage, most of the damage did not impair production. Damage repair will be ongoing with minimal impact to production. Of Stone’s top three fields, two are back on production and the third is expected to resume shortly. Due to a damaged pipeline, oil volumes from Mississippi Canyon 109 (Amberjack Platform) are currently being produced utilizing a barging operation at slightly reduced levels. Production from Ewing Banks 305 is at pre-Gustav levels due to the ongoing drilling program, while production from Ship Shoal 113 Unit is projected to resume by early November when repairs are expected to be complete. Stone expects total production to be approximately 275 Mmcfe per day by year-end.

As was previously noted in Stone’s September 18, 2008 press release, six structures were lost during Hurricane Ike with minimal impact to production and reserves. Only one of the six structures was insured as the remaining platforms were substantially idle, awaiting abandonment. Although Stone carried insurance on the removal of any lost platform, the cost to plug and abandon the individual wellbores associated with these structures was not insured. The cost to plug and abandon wellbores from a standing platform is significantly less expensive than the process to plug and abandon the wellbore via an open water procedure. Stone estimates this incremental uninsured plug and abandonment cost could exceed $75 million, allocated over several years. In addition, Stone had a primary deductible of approximately $30 million on the hurricane repair cost, which Stone expects to exceed.

2008 Guidance

Estimates for Stone’s future production volumes are based on assumptions of capital expenditure levels and the assumption that market demand and prices for oil and gas will continue at levels that allow for economic production of these products. The production, transportation and marketing of oil and gas are subject to disruption due to transportation and processing availability, mechanical failure, human error, hurricanes, and numerous other factors. Stone’s estimates are based on certain other assumptions, such as well performance, which may vary significantly from those assumed. Lease operating expenses, which include major maintenance costs, vary in response to changes in prices of services and materials used in the operation of our properties and the amount of maintenance activity required. Estimates of DD&A rates can vary according to reserve additions, capital expenditures, future development costs, and other factors. Therefore, we can give no assurance that our future production volumes, lease operating expenses or DD&A rate will be as estimated.

The guidance below incorporates the impact of the Bois d’Arc acquisition as of August 28, 2008. The guidance does not give any pro forma effect to the acquisition.

Capital Expenditure Budget. The 2008 capital expenditure budget before the Bois d’Arc acquisition was approximately $395 million, which excluded acquisitions, capitalized interest and SG&A, and abandonment expenditures. After the Bois d’ Arc acquisition and the impact of the hurricanes, Stone now expects its 2008 capital expenditures to be approximately $380-420 million.

Production. For the fourth quarter of 2008, Stone expects net daily production to average between 210-230 MMcfe. This would translate into a full year 2008 average daily production to be in the range of 175-185 MMcfe per day. Stone expects production volumes to be approximately 275 Mmcfe per day by year-end.

Lease Operating Expenses. After the Bois d’ Arc acquisition and the impact of the hurricanes, Stone now expects lease operating costs, excluding production taxes, to range between $65-$75 million for the fourth quarter, or between $170-$180 million for 2008 based upon current operating conditions and budgeted maintenance activities. The increased fourth quarter estimate is primarily due to projected hurricane related repairs of $15-$20 million in the quarter, as well as the inclusion of the Bois d’Arc properties for a full quarter.

Depreciation, Depletion & Amortization. Stone expects its DD&A rate to range between $5.20-$5.30 per Mcfe in the fourth quarter 2008, which projects to $4.20-$4.30 per Mcfe for full year 2008. The increase from previous quarters is primarily due to the Bois d’Arc acquisition which had a DD&A rate of approximately $6.00 per Mcfe after the full burden of the future development costs.

Salaries, General & Administrative Expenses. After the Bois d’ Arc acquisition, Stone expects its SG&A expenses (excluding incentive compensation expense) to range between $12-$15 million for the fourth quarter, or $45-$48 million for 2008.

Corporate Tax Rate. For 2008, Stone expects its corporate tax rate to be approximately 35%, with a substantial portion being deferred.

Hedge Position

The following tables illustrate Stone’s derivative positions for calendar years 2008 and 2009:

                                    Zero-Premium Collars                -------------------------------------------------------------                          Natural Gas                         Oil                ----------------------------     ----------------------------                   Daily                          Daily                  Volume     Floor   Ceiling      Volume     Floor    Ceiling                (MMBtus/d)   Price    Price      (Bbls/d)    Price     Price                ----------  -------  -------     --------    ------   -------    2008          30,000*     $8.00   $14.05       3,000     $60.00    $90.20   2008          20,000**     7.50    11.35       2,000      65.00     81.00   2008          20,000***    9.00    17.90       3,000      70.00    110.25   2008          20,000***    9.00    18.45   2009          20,000       8.00    14.30       3,000      80.00    135.00   2009          20,000       9.00    14.63    *   January-March   **  April-December   *** July-December                                          Fixed-Price Swaps                      -----------------------------------------------------                               Natural Gas                      Oil                      --------------------------     ----------------------                          Daily                        Daily                         Volume           Swap         Volume        Swap                       (MMBtus/d)        Price        (Bbls/d)       Price                      -------------     --------     ---------      -------    2009                  20,000          $10.15        2,000       $107.90                                             Put Contracts                  -------------------------------------------------------                                           Natural Gas                  -------------------------------------------------------                     Daily                     Volume                                 Unamortized                    (MMBtus/d)             Floor               Cost                  ------------           --------         ---------------   2008              20,000*              $10.00           $0.52/MMBtu    *July-December                           Non-GAAP Financial Measure   

In this press release, we refer to a non-GAAP financial measure we call “discretionary cash flow.” Management believes discretionary cash flow is a financial indicator of our company’s ability to internally fund capital expenditures and service debt. Management also believes this non-GAAP financial measure of cash flow is useful information to investors because it is widely used by professional research analysts in the valuation, comparison, rating and investment recommendations of companies within the oil and gas exploration and production industry. Discretionary cash flow should not be considered an alternative to net cash provided by operating activities or net income, as defined by GAAP. Please see the “Reconciliation of Non-GAAP Financial Measure” for a reconciliation of discretionary cash flow to cash flow provided by operating activities.

Other Information

Stone Energy has planned a conference call for 1:00 p.m. Central Time on Wednesday, November 5, 2008 to discuss the operational and financial results for the third quarter of 2008. Anyone wishing to participate should visit our website at http://www.stoneenergy.com/ for a live web cast or dial 1-877-228-3598 and request the “Stone Energy Call.” If you are unable to participate in the original conference call, a digital recording accessed by dialing 1-800-642-1687 (ID #70129680) will be available at approximately 12:00 p.m. Central Time for 48 hours. A web replay will be available approximately 24 hours following the completion of the call on Stone Energy’s website at http://www.stoneenergy.com/. The web replay will be available for approximately one week.

Stone Energy is an independent oil and natural gas company headquartered in Lafayette, Louisiana, and is engaged in the acquisition, exploration, exploitation, development and operation of oil and gas properties located primarily in the Gulf of Mexico. Stone is also active in the Appalachia region as well as selected areas in the Rocky Mountains. For additional information, contact Kenneth H. Beer, Chief Financial Officer, at 337-521-2210-phone, 337-237-0426-fax or via e-mail at CFO@StoneEnergy.com.

Certain statements in this press release are forward-looking and are based upon Stone’s current belief as to the outcome and timing of future events. All statements, other than statements of historical facts, that address activities that Stone plans, expects, believes, projects, estimates or anticipates will, should or may occur in the future, including future production of oil and gas, future capital expenditures and drilling of wells and future financial or operating results are forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include the timing and extent of changes in commodity prices for oil and gas, operating risks and other risk factors as described in Stone’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission (“SEC”). Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, Stone’s actual results and plans could differ materially from those expressed in the forward-looking statements.

                          STONE ENERGY CORPORATION                             SUMMARY STATISTICS               (In thousands, except per share/unit amounts)                                (Unaudited)                                           Three Months      Nine Months                                              Ended            Ended                                          September 30,    September 30,                                       ----------------- -------------------                                          2008     2007     2008      2007                                        -------  -------  -------   --------   FINANCIAL RESULTS     Net income                         $34,121  $34,068 $179,174  $116,527     Net income per share                 $1.04    $1.23    $6.02     $4.21    PRODUCTION QUANTITIES     Oil (MBbls)                            943    1,313    3,647     4,691     Gas (MMcf)                           6,213   10,801   24,631    34,109     Oil and gas (MMcfe)                 11,871   18,679   46,513    62,255    AVERAGE DAILY PRODUCTION     Oil (MBbls)                             10       14       13        17     Gas (MMcf)                              68      117       90       125     Oil and gas (MMcfe)                    129      203      170       228    REVENUE DATA (1)     Oil revenue                       $100,726 $100,759 $380,002  $305,516     Gas revenue                         66,584   77,653  253,503   246,120                                       -------- -------- --------  --------     Total oil and gas revenue         $167,310 $178,412 $633,505  $551,636     AVERAGE PRICES (1)     Oil (per Bbl)                      $106.81   $76.74  $104.20    $65.13     Gas (per Mcf)                        10.72     7.19    10.29      7.22     Per Mcfe                             14.09     9.55    13.62      8.86    COST DATA     Lease operating expenses           $40,149  $39,476 $105,302  $131,072     Salaries, general and      administrative expenses            10,481    7,844   32,015    25,479     DD&A expense on oil and gas      properties                         51,046   70,296  183,925   228,488    AVERAGE COSTS (per Mcfe)     Lease operating expenses             $3.38    $2.11    $2.26     $2.11     Salaries, general and      administrative expenses              0.88     0.42     0.69      0.41     DD&A expense on oil and gas      properties                           4.30     3.76     3.95      3.67    AVERAGE SHARES OUTSTANDING - Diluted  32,670   27,722   29,740    27,669    (1) Includes the cash settlement of effective hedging contracts.                             STONE ENERGY CORPORATION                    CONSOLIDATED STATEMENT OF OPERATIONS                               (In thousands)                                (Unaudited)                                    Three Months Ended   Nine Months Ended                                      September 30,        September 30,                                  --------------------  ------------------                                    2008      2007       2008      2007                                  --------  --------   --------  --------   Operating revenue:     Oil production               $100,726  $100,759   $380,002  $305,516     Gas production                 66,584    77,653    253,503   246,120     Derivative income, net          5,045         -      1,433         -                                  --------  --------   --------  --------       Total operating revenue     172,355   178,412    634,938   551,636                                  --------  --------   --------  --------    Operating expenses:     Lease operating expenses       40,149     39,476   105,302   131,072     Production taxes                1,325      1,542     6,228     8,214     Depreciation, depletion and      amortization                  51,962     71,096   186,180   231,275     Write-down of oil and gas      properties                     8,759          -    18,859         -     Accretion expense               4,146      4,394    12,367    13,226     Salaries, general and      administrative expenses       10,481      7,844    32,015    25,479     Incentive compensation      expense                          283      1,319     2,183     2,680     Derivative expenses, net            -         36         -       127                                   --------  --------   --------  -------       Total operating expenses    117,105    125,707   363,134   412,073                                   --------  --------   --------  -------    Gain on Rockies divestiture           -        (89)        -    55,727                                   --------  --------   --------  -------   Income from operations           55,250     52,616   271,804   195,290                                   --------  --------   --------  -------    Other (income) expenses:     Interest expense                3,036      6,281    10,528    27,756     Interest income                (2,255)    (5,314)  (10,601)   (6,923)     Other income, net              (1,421)    (1,356)   (3,775)   (4,591)     Early extinguishment of debt        -        592         -       592                                    -------   --------   -------   -------       Total other (income) expenses  (640)       203    (3,848)   16,834                                    -------   --------   -------   -------    Income before taxes              55,890     52,413   275,652   178,456                                    -------   --------  --------  --------   Provision (benefit) for    income taxes:      Current                      (45,583)    29,000     1,395    46,500      Deferred                      67,352    (10,655)   95,083    15,429                                    -------   --------   -------   -------        Total income taxes          21,769     18,345    96,478    61,929                                    -------   --------   -------   -------   Net income                      $34,121    $34,068  $179,174  $116,527                                   =======================================                             STONE ENERGY CORPORATION                RECONCILIATION OF NON-GAAP FINANCIAL MEASURE                               (In thousands)                                (Unaudited)                                       Three Months Ended  Nine Months Ended                                        September 30,       September 30,                                     ------------------- --------------------                                       2008       2007     2008       2007                                     -------    -------   -------   --------    Net income as reported            $34,121    $34,068  $179,174  $116,527    Reconciling items:     Depreciation, depletion and      amortization                    51,962     71,096   186,180   231,275     Write-down of oil and gas      properties                       8,759          -    18,859         -     Deferred income tax provision      (benefit)                       67,352    (10,655)   95,083    15,429     Accretion expense                 4,146      4,394    12,367    13,226     Gain on sale of oil and gas      properties                           -         89         -   (55,727)     Stock compensation expense        1,964        812     6,286     3,342     Other                            (4,524)     1,009    (3,392)    2,687                                     -------    --------  -------   -------   Discretionary cash flow           163,780    100,813   494,557   326,759    Settlement of asset retirement    obligations                       (8,551)   (34,895)  (42,202)  (53,668)   Increase (decrease) in current    (45,583)    28,972   (92,714)   45,541    income taxes payable   Investment in put contracts             -          -    (1,914)        -   Other working capital changes     138,163     62,021   129,471    55,699                                     -------   --------   -------   -------    Net cash provided by operating    activities                      $247,809   $156,911  $487,198  $374,331                                    ========  =========  ========  =========                             STONE ENERGY CORPORATION                         CONSOLIDATED BALANCE SHEET                               (In thousands)                                (Unaudited)                                                  September 30,  December 31,                                                     2008          2007                                                 -------------  ------------                      Assets    Current assets:     Cash and cash equivalents                     $172,643      $475,126     Accounts receivable                            146,792       186,853     Deferred tax asset                                   -         9,039     Other current assets                            91,404         2,684                                                   --------      --------       Total current assets                         410,839       673,702    Oil and gas properties, net - United States:     Proved, net                                  2,588,132     1,001,179     Unevaluated                                    663,491       150,568   Oil and gas properties - China (unevaluated)      12,123        29,565   Building and land, net                             5,632         5,667   Fixed assets, net                                  5,674         5,584   Other assets, net                                 39,464        23,338   Goodwill                                         337,886             -                                                 ----------    ----------       Total assets                              $4,063,241    $1,889,603                                                 ==========    ==========        Liabilities and Stockholders' Equity    Current liabilities:     Accounts payable to vendors                   $123,676       $88,801     Undistributed oil and gas proceeds              73,873        37,743     Asset retirement obligations                    65,411        44,180     Deferred taxes                                   2,394             -     Current income taxes payable                         -        57,631     Other current liabilities                       36,233        32,902                                                    -------       -------       Total current liabilities                    301,587       261,257    8 1/4% Senior Subordinated Notes due 2011        200,000       200,000   6 3/4% Senior Subordinated Notes due 2014        200,000       200,000   Bank debt                                        425,000             -   Deferred taxes                                   721,584        89,665   Asset retirement obligations                     362,845       245,610   Other long-term liabilities                       12,263         7,269                                                  ---------     ---------     Total liabilities                            2,223,279     1,003,801                                                  ---------     ---------    Minority interest                                    163             -                                                  ---------     ---------    Common stock                                         396           278   Treasury stock                                    (2,878)       (1,161)   Additional paid-in capital                     1,259,331       515,055   Retained earnings                                561,418       382,365   Accumulated other comprehensive income (loss)     21,532       (10,735)                                                  ---------     ---------     Total stockholders' equity                   1,839,799       885,802                                                  ---------     ---------     Total liabilities and stockholders'      equity                                     $4,063,241    $1,889,603                                                 ==========    ==========  

Stone Energy Corporation

CONTACT: Kenneth H. Beer, Chief Financial Officer of Stone EnergyCorporation, +1-337-521-2210, fax, +1-337-237-0426, CFO@StoneEnergy.com

Web site: http://www.stoneenergy.com/




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