Stone Energy (NYSE:SGY) is allocating the bulk of its capital spending in 2012 towards offshore exploration and development in the Gulf of Mexico, as the company looks to grow oil production from this popular region.

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2012 Capital Budget
Stone Energy plans to spend $625 million in 2012, with the majority of the capital devoted to the company's offshore exploration and development program. The funds will be used for exploration and development in the deepwater and other areas of the Gulf of Mexico.

Shelf Area
Stone Energy has budgeted $210 million in 2012 for various conventional activities on the continental shelf area in the Gulf of Mexico. The company has interest in 110 leases and operates 80% of its holdings. Stone Energy plans to conduct recompletions and workovers of existing wells, and drill eight wells targeting oil on its acreage.

SEE: Oil And Gas Industry Primer

Pompano Field
Stone Energy operates the Pompano project, which produces from several oil and gas fields in the deepwater Gulf of Mexico. The company recently announced an agreement with Anadarko Petroleum (NYSE:APC) to buy that company's 25% interest at the Pompano project. Stone Energy agreed to pay $67 million for this stake along with interests in several other properties in the Gulf of Mexico. In late 2011, the company purchased the ownership stake held by BP (NYSE:BP) in the Pompano field.

Deepwater Exploration
Stone Energy has budgeted $125 million in 2012 for the deepwater Gulf of Mexico, with most of these funds dedicated to exploration activities.

One exploration prospect for Stone Energy is the Parmer prospect operated by Apache Corporation (NYSE:APA) in the Green Canyon section of the Gulf of Mexico. The company estimates that the resource potential at Parmer ranges from 10 million to 210 million barrels of oil equivalent (BOE). Apache Corporation plans to spud the well before the end of the second quarter of 2012.

The Pompano area also has a number of prospects and in 2012 Stone Energy plans to drill several exploration wells, including the Derbio, Amethyst and Phinisi prospects.

SEE: Top 6 Oil-Producing States

Production Growth
Stone Energy expects to more than double production from its deepwater properties in 2012, ending the year with production of 50 million cubic feet of natural gas equivalents per day. This production growth will come from the startup of the Pyrenees and Wideberth projects as well as the acquired production from its Pompano purchase.

Deep Gas
Stone Energy hasn't abandoned natural gas development and plans to spend $35 million on two offshore deep gas wells in 2012. The company is targeting natural gas reserves that contain liquid hydrocarbons.

SEE: Top Oil Producing Countries In 2011

The Bottom Line
Stone Energy has maintained the company's oil and gas exploration and development program in the Gulf of Mexico, unlike many of its peers that left this region to focus on what is perceived to be less risky development in the onshore United States. This should pay off for the company in the long term, with a more diversified set of assets.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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