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	Stone Energy Corporation

	 	P.O. Box 52807
	 

	 	Lafayette, Louisiana 70505
	 

	 	625 East Kaliste Saloom Road
	 

	 	Lafayette, Louisiana 70508
	 

	 	Telephone: (337) 237-0410






January 12, 2006




Mr. David H. Welch

809 Richland Avenue

Lafayette, Louisiana 70508




Dear Dave:




     This letter serves to confirm certain aspects of Stone Energy Corporation’s (the “Company’s”)
offer of continued employment to you for the positions of President and Chief Executive Officer
(“CEO”) of the Company.



     The following represents the terms and conditions of this offer:




	1.	 	Your annual base salary shall remain at $400,000.00 in 2006. Your base salary shall be
reviewed by the Company’s Board of Directors (the “Board”) (or a committee thereof) on an
annual basis, and, in the sole discretion of the Board (or such committee), your annual base
salary may be increased, but not decreased, for each successive year. You will also be
eligible to participate in the Company’s annual incentive compensation plan, sometimes
referred to as the bonus plan, with the annual amount to be determined by performance and
market comparison. In addition, you will be eligible to receive all pension, welfare and
other similar employee benefits that are provided to similarly situated executives at the
Company.






	2.	 	It is contemplated that you shall be eligible to receive awards of restricted stock and stock
options annually during employment, subject to and based on performance and market comparison.






	3.	 	After you have completed five (5) consecutive years of employment with the Company as
President and CEO, the Board (or a committee thereof) will agree that you shall not be
required to forfeit upon your retirement any unvested stock options that were granted to you
or any restricted shares of the Company’s stock that were granted to you by virtue of your
ceasing to be an employee of the Company, that is, you will not forfeit the options and/or shares, and the options will continue to vest and the restrictions will continue to lapse
without your being an employee.




 









 











January 12, 2006

Page 2





	4.	 	If this Agreement is terminated (i) by the Board for other than Cause (as defined in the
Company’s Executive Change in Control Severance Policy) or (ii) by you for Good Reason (as
defined in the Company’s Executive Change in Control Severance Policy) in connection with or
within twenty-four (24) months after a Change in Control (as defined in the Company’s
Executive Change in Control Severance Policy), subject to executing a release satisfactory to
and in favor of the Company, you will receive a lump sum cash severance payment equal to 2.99
times the sum of (a) your annual base salary calculated using the annual salary rate in effect
at the time of termination (or, if higher, your annual base salary in effect on the date of a
Change in Control) and (b) any target bonus at the one hundred percent (100%) level for which
you are eligible for the fiscal year in which your termination occurs, with such lump sum cash
severance payment to be paid to you on the first date after your termination that the lump sum
cash payment is not subject to additional taxes and interest under section 409A of the
Internal Revenue Code (the “Code”). In addition, you will receive any earned but unpaid
salary through your date of termination and a pro rata share of your bonus opportunity up to
the date of your termination at the then projected year end rate of payout. Further, you will
receive outplacement services (up to 5% of your base salary). Any other termination benefits
will be managed consistent with current severance practices for non-executive employees.






	5.	 	If any of the payments or benefits received by you, whether or not pursuant to this
agreement, will be subject to any tax imposed under section 4999 of the Code (the “Excise
Tax”), then the Company shall pay to you an additional amount (“Gross-Up Payment”) such that
the net amount retained by you, after deduction of any Excise Tax on the total payments and
any federal, state and local income and employment
taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the amount you would have
otherwise received without such Excise Tax; provided, however, that if it shall be
determined that you are entitled to a Gross-Up Payment, but that the total to be paid to you
does not exceed one hundred ten percent (110%) of the greatest amount (the “Reduced Amount”)
that could be paid to you such that the receipt of the total would not give rise to any
Excise Tax, then no Gross-Up Payment shall be made to you and the total payments to you in
the aggregate shall be reduced to the Reduced Amount.






	6.	 	Unless sooner terminated for Cause, the Company agrees to employ you through December 31,
2008. Beginning on December 31, 2006 and on December 31 of each year thereafter, the term of
this agreement shall automatically be extended for one year (such that each December 31 shall
begin a new three-year term) unless the Board shall give written notice to you that the term
shall cease to be so extended in which event this agreement shall terminate on the first
anniversary of the date such notice is given.




 









 











January 12, 2006

Page 3





	7.	 	This agreement is entered into under, and shall be governed for all purposes by, the laws of
the State of Louisiana. With respect to any claim or dispute related to or arising under this
agreement, you hereby consent to the exclusive jurisdiction, forum and venue of the state and
federal courts located in Lafayette Parish, Louisiana.





     If the foregoing accurately reflects the basic terms and conditions upon which you would be
willing to continue employment, please sign one copy of this letter and return it to Stone, to the
attention of Kenneth H. Beer, Senior Vice President and Chief Financial Officer. Unless this
letter is signed by you and a copy (by fax or otherwise) is received by Stone by 5:00 p.m. (central
time) on January 16, 2006, this letter is withdrawn, void and without effect.



	 	 	 	 	 
	 	Very truly yours,





STONE ENERGY CORPORATION

 	 
	 	By:  	/s/ James H. Stone
 	 
	 	 	James H. Stone 	 
	 	 	Chairman of the Board of Directors 	 
	 



Agreed to and accepted this 12th day of January, 2006.



/s/ David H. Welch

DAVID H. WELCH