ME Mariner Energy Inc.

HOUSTON, Nov. 9 /PRNewswire-FirstCall/ -- Mariner Energy, Inc. (NYSE:ME) today announced financial results for the third quarter 2006 and provided an operational update. Production, revenues and net income for the third quarter 2006 increased significantly from results reported a year ago primarily as a result of consolidation of assets acquired in the merger transaction with Forest Oil Corporation that closed March 2, 2006. -- Production totaled 22.7 billion cubic feet gas equivalent (Bcfe) for the third quarter 2006, an increase of 274% from the third quarter 2005. -- Revenues totaled $190.5 million for the third quarter 2006, an increase of 336% from the third quarter 2005. -- Net income totaled $36.4 million for the third quarter 2006, an increase of 424% from the third quarter 2005. -- Basic and diluted earnings per share (EPS) for the third quarter 2006 were each $0.43. This compares to $0.21 basic EPS and $0.20 diluted EPS in the third quarter 2005. Mariner has scheduled a conference call to review third quarter 2006 results on November 10, 2006, at 10:00 a.m. EST (9:00 a.m. CST). To participate in the Mariner conference call, callers in the United States and Canada can dial (866) 831-6270. International callers can dial (617) 213-8858. The conference pass code for both numbers is 90786234. The call will also be broadcast live over the internet and can be accessed through the Investor Relations' Webcasts and Presentations section of the company's website at http://www.mariner-energy.com/. Following is more detailed information regarding Mariner's third quarter 2006 operational and financial results. Operating results include consolidation of the Forest assets beginning March 2, 2006. OPERATIONAL UPDATE Offshore -- Mariner drilled six offshore wells in the third quarter 2006, all of which were successful. Information regarding the six successful wells is shown below: Expected date Working Water of Initial Well Name Operator Interest Depth (Ft) Production Location GB 195 #1 (Zloty) Mariner 70% 686 feet TBD Shelf GB 244#2ST3 (Cottonwood) Petrobras 20% 2,119 feet 1st Quarter 2007 Deepwater EI 337 A10 (Mercury) Devon 17% 268 feet 1st Quarter 2007 Shelf HI 116 #5ST1 Mariner 100% 43 feet 4th Quarter 2006 Shelf HI 46#1 ST1 (Green Pepper) Mariner 31.5% 28 feet 1st Quarter 2007 Shelf WC 132 #1 (Five Forks) El Paso 20% 36 feet TBD Shelf Mariner has been successful in 17 of the 22 offshore wells drilled from January 1, 2006 through September 30, 2006. As of September 30, 2006, three offshore wells were drilling. MMS Update -- Mariner has been awarded all six blocks on which it was the high bidder in the Minerals Management Service (MMS) OCS Oil and Gas Lease Sale 198 held on August 16, 2006. Our cost for the approximately 25,000 net acres covered by the six blocks is approximately $4.4 million. Onshore -- In the third quarter of 2006, Mariner drilled 44 development wells in West Texas, all of which were successful. Mariner currently has five rigs operating on its West Texas properties. PRODUCTION Production for the third quarter 2006 averaged 247 MMcfe/d, totaling 22.7 Bcfe, compared to average daily production of 66 MMcfe/d for the third quarter 2005, which totaled 6.1 Bcfe. Production in the Gulf of Mexico for the third quarter 2006 totaled 20.3 Bcfe, an increase of 369% over the comparable period in 2005. Onshore production for the third quarter 2006 totaled 2.3 Bcfe, an increase of 35% over the comparable period in 2005. Natural gas production comprised 73% of Mariner's total production for the third quarter 2006. The increased Gulf of Mexico production levels in the third quarter 2006 resulted primarily from the acquisition of the Forest assets. Approximately 12 MMcfe per day of production remains shut-in awaiting repairs to pipelines, facilities, terminals, and host facilities. Most of the deferred production is expected to recommence by the end of the year and the balance in 2007, except for an immaterial amount of production which is not expected to recommence. REVENUES AND PRICING Total revenues for the third quarter 2006 increased 336% over the comparable period in 2005 to $190.5 million. Natural gas revenues comprised 66% of total revenues for the third quarter 2006. Natural gas prices (excluding the effects of hedging) for the third quarter 2006 averaged $6.92 per thousand cubic feet (/Mcf), compared to $8.67/Mcf for the third quarter 2005. Oil prices (excluding the effects of hedging) for the third quarter 2006 averaged $63.54 per barrel (/Bbl), compared to $60.33/Bbl for the third quarter 2005. The impact of hedges during the third quarter 2006 increased average natural gas pricing by $0.68/Mcf to $7.60/Mcf and reduced average oil pricing by $0.86/Bbl to $62.68/Bbl, resulting in a net hedging gain of $10.4 million. HEDGING ACTIVITY During the third quarter of 2006, Mariner entered into the following hedging transactions: Fixed Price Swaps Quantity Fixed Price Crude Oil (Bbls) October 1 - December 31, 2006 260,360 $72.35 Natural Gas (MMbtus) October 1 - December 31, 2006 5,451,000 $ 9.16 January 1, 2007 - December 31, 2007 12,156,323 9.79 January 1, 2008 - September 30, 2008 3,059,689 9.58 Costless Collars Quantity Floor Cap Crude Oil (Bbls) January 1-December 31, 2007 498,914 $62.00 $88.40 January 1-December 31, 2008 115,475 62.00 86.85 To date, no additional hedges have been entered into. OPERATING AND GENERAL & ADMINISTRATIVE EXPENSES Lease Operating Expenses -- Lease operating expenses (including workover expenses) for the third quarter 2006 were $28.7 million, compared to $5.9 million in the third quarter 2005. The increase was primarily attributable to the acquisition of the Forest assets and increased costs attributable to the addition of new productive wells onshore. On a per-unit basis, average lease operating costs rose to $1.27/Mcfe in the third quarter 2006 from an average of $0.97/Mcfe in the third quarter 2005. Continued shut-in production from the impact of the 2005 hurricanes contributed to the increased per-unit operating costs. Severance and Ad Valorem Taxes -- Severance and ad valorem taxes were $2.3 million in the third quarter 2006, compared to $1.1 million in the third quarter 2005. The increase was primarily attributable to the acquisition of the Forest assets and the resulting increased production. On a per-unit basis, average severance and ad valorem taxes decreased to $0.10/Mcfe in the third quarter 2006 from an average of $0.18 in third quarter 2005. General & Administrative Expenses -- General and administrative ("G&A") expenses totaled $7.6 million in the third quarter 2006, compared to $11.3 million in the third quarter 2005. For the third quarter 2006, G&A expense includes charges for stock compensation expense of $1.1 million, compared to $8.1 million in the third quarter 2005. G&A expense for the third quarter 2006 includes approximately $0.1 million for severance, retention, relocation, and transition costs related to the Forest transaction. Salaries and wages in the third quarter 2006 increased compared to third quarter 2005 primarily as a result of staffing additions related to the Forest transaction. G&A expenses in the third quarter 2006 are net of $4.4 million of overhead reimbursements billed or received from other working interest owners, compared to $0.7 million of similar reimbursements for the third quarter 2005. NET INCOME AND EARNINGS PER SHARE Net income for the third quarter 2006 was $36.4 million compared to $6.9 million for the third quarter 2005. Basic and diluted EPS for the third quarter 2006 were $0.43 for each measure compared to $0.21 basic EPS and $0.20 diluted EPS in the third quarter 2005. EBITDA Earnings before interest, tax, depreciation, depletion, amortization, and impairments (EBITDA) for the third quarter 2006 was $150.1 million compared to $25.2 million for the third quarter 2005. EBITDA for third quarter 2006 and 2005 includes charges of $1.1 million and $8.1 million, respectively, for non-cash stock compensation expense. A definition and reconciliation of EBITDA can be found in the table below titled "EBITDA RECONCILIATION". Capital expenditures for the third quarter 2006 totaled $240.1 million compared to $50.9 million for the third quarter 2005. PRODUCTION, AVERAGE REALIZED PRICES (NET OF HEDGING), AND PER UNIT COSTS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Production: Natural Gas (Bcf) 16.6 4.0 39.3 14.5 Oil and Liquids (MMBbls) 1.0 0.3 2.5 1.3 Natural Gas Equivalent (Bcfe) 22.7 6.1 54.5 22.5 Realized Prices (net of hedging): Gas ($/Mcf) $ 7.60 $6.98 $ 7.25 $6.54 Oil ($/Bbl) 62.68 43.64 59.58 40.12 Operating Costs per MMcfe Lease Operating Expense $ 1.27 $0.97 $ 1.15 $0.78 Severance and ad valorem taxes 0.10 0.18 0.10 0.11 Transportation Expense 0.08 0.03 0.07 0.08 General and Administrative Expense 0.33 1.87 0.46 1.19 General and Administrative Expense -- net of stock comp. exp. 0.29 0.53 0.29 0.40 Depreciation, Depletion and Amortization 3.63 2.04 3.53 1.93 Impairment of production equipment held for use -- 0.08 -- 0.02 CAPITAL EXPENDITURES (Unaudited) The Company's capital expenditures for the periods ended September 30, 2006 and September 30, 2005 are summarized below: Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 (Dollars in Millions) (Dollars in Millions) Oil and Natural Gas Exploration $ 29.1 $16.1 $169.1 $23.6 Oil and Natural Gas Development 137.0 31.6 262.9 83.0 Acquisitions/Dispositions /Other 74.0 3.2 83.0 23.8 Total Capital Expenditures $240.1 $50.9 $515.0 $130.4 COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 2006 AND 2005 MARINER ENERGY, INC. STATEMENT OF OPERATIONS (In Thousands, except earnings per share amounts) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Revenues: Oil Sales $63,256 $15,144 $150,982 $53,579 Gas Sales 126,432 27,823 285,008 94,913 Other Revenues 778 695 2,401 2,753 Total Revenues 190,466 43,662 438,391 151,245 Cost and Expenses: Lease Operating Expense 28,744 5,887 62,863 17,678 Severance and ad valorem taxes 2,262 1,089 5,710 2,492 Transportation Expense 1,754 196 4,031 1,697 General and Administrative Expense 7,577 11,326 25,050 26,726 Depreciation, Depletion and Amortization 82,416 12,403 192,222 43,457 Impairment of production equipment held for use -- 498 -- 498 Total Costs and Expenses 122,753 31,399 289,876 92,548 OPERATING INCOME 67,713 12,263 148,515 58,697 Interest: Income 237 135 486 696 Expense, net of capitalized amounts (11,724) (1,849) (26,392) (5,416) Income before taxes 56,226 10,549 122,609 53,977 Provision for income taxes (19,836) (3,606) (44,385) (18,414) NET INCOME $36,390 $6,943 $78,224 $35,563 Earnings per share: Net income per share-basic $ 0.43 $0.21 $ 1.07 $1.10 Net income per share-diluted $ 0.43 $0.20 $ 1.06 $1.07 Weighted average shares outstanding-basic 85,493 33,348 73,270 32,438 Weighted average shares outstanding-diluted 85,581 34,807 73,695 33,313 MARINER ENERGY, INC. EBITDA RECONCILIATION (In Thousands) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Reconciliation of Non-GAAP Measure: Net Income $36,390 $6,943 $78,224 $35,563 Add: Net Interest Expense 11,487 1,714 25,906 4,720 Add: Provision for Income Taxes 19,836 3,606 44,385 18,414 Add: Depreciation, Depletion and Amortization 82,416 12,403 192,222 43,457 Add: Impairment of production equipment held for use -- 498 -- 498 EBITDA(1) $ 150,129 $25,164 $340,737 $102,652 (1) EBITDA means earnings before interest, income taxes, depreciation, depletion, amortization and impairments. Mariner believes that EBITDA is a widely accepted financial indicator that provides additional information about its ability to meet its future requirements for debt service, capital expenditures and working capital, but EBITDA should not be considered in isolation or as a substitute for net income, operating income, net cash provided by operating activities or any other measure of financial performance presented in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. MARINER ENERGY, INC. BALANCE SHEET (In Thousands) (Unaudited) September 30, December 31, 2006 2005 Current Assets: Cash and Cash Equivalents $ 4,874 $ 4,556 Receivables 163,579 84,109 Insurance Receivables 61,586 4,542 Derivative Financial Instruments 55,265 -- Prepaid Seismic 16,956 6,542 Deferred Tax Asset 10,215 26,017 Prepaid Expenses and Other 15,149 15,666 Total Current Assets 327,624 141,432 Property and Equipment (Net) 2,061,904 515,943 Goodwill 263,750 -- Derivative Financial Instruments 18,674 -- Other Assets, Net of Amortization 28,772 8,161 TOTAL ASSETS $2,700,724 $665,536 Current Liabilities Accounts Payable $ 35,806 $ 37,530 Accrued Liabilities 107,765 75,324 Accrued Capital Costs 129,308 37,006 Abandonment liability 51,952 11,359 Accrued Interest 12,580 614 Derivative Liability -- 42,173 Total Current Liabilities 337,411 204,006 Long-Term Liabilities Abandonment Liability 170,495 38,176 Deferred Income Tax 305,756 25,886 Derivative Liability -- 21,632 Long-Term Debt 614,000 156,000 Other Long-Term Liabilities 6,000 6,500 Total Long-Term Liabilities 1,096,251 248,194 Stockholders' Equity Common Stock and Additional Paid in Capital 1,042,553 160,709 Accumulated Other Comprehensive Income/(Loss) 52,185 (41,473) Accumulated Retained Earnings 172,324 94,100 Total Stockholders' Equity 1,267,062 213,336 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,700,724 $665,536 MARINER ENERGY, INC. SELECTED CASH FLOW INFORMATION (In Thousands) (Unaudited) Nine Months Ended September 30, 2006 2005 Cash Flows from Operations $331,590 $113,858 Changes in Operating Assets and Liabilities (158,796) 21,516 Net Cash Provided by Operating Activities $172,794 $135,374 Net Cash Used in Investing Activities $(423,471) $(142,084) Net Cash Provided by Financing Activities $ 250,995 $ 8,733 Increase in Cash and Cash Equivalents $ 318 $ 2,023 2006 GUIDANCE UPDATE As described in the following table, Mariner has updated its guidance for the full-year 2006. Factors that could materially impact the company's actual results are noted below in the forward-looking statements section of this release. 2006E Capital Spending (In Millions): Exploration $185 - $190 Development 400 - 410 Capitalized Interest/Other 10 - 15 Production: Total (Bcfe) 79 - 80 FORWARD-LOOKING STATEMENTS The preceding guidance estimates contain assumptions that we believe are reasonable. These estimates are based on information that is available as of the date of this news release. We are not undertaking any obligation to update these estimates as conditions change or as additional information becomes available. There can be no assurance that any of the guidance estimates can or will be achieved. This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, that address activities that Mariner assumes, plans, expects, believes, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. Our forward-looking statements are generally accompanied by words such as "may", "will," "estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "plan," "goal," or other words that convey the uncertainty of future events or outcomes. The forward-looking statements provided in this press release are based on the current belief of Mariner based on currently available information as to the outcome and timing of future events. Mariner cautions that its future natural gas and liquids production, revenues and expenses and other forward-looking statements are subject to all of the risks and uncertainties normally incident to the exploration for and development and production and sale of oil and gas. These risks include, but are not limited to, price volatility or inflation, lack of availability of goods and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating future oil and gas production or reserves, and other risks as described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and other documents filed by Mariner with the Securities and Exchange Commission. Any of these factors could cause the actual results and plans of Mariner to differ materially from those in the forward-looking statements. Investors are urged to read the Annual Report on Form 10-K for the year ended December 31, 2005 and other documents filed by Mariner with the Securities and Exchange Commission that contain important information including detailed risk factors. This news release does not constitute an offer to sell or a solicitation of an offer to buy any securities of Mariner. About Mariner Energy, Inc. Mariner Energy, Inc. is an independent oil and gas exploration, development and production company with principal operations in the Gulf of Mexico and West Texas. For more information about Mariner, please visit its website at http://www.mariner-energy.com/. DATASOURCE: Mariner Energy, Inc. CONTACT: Jaime F. Brito, Director, Investor Relations, +1-713-954-5558, , of Mariner Energy, Inc. Web site: http://www.mariner-energy.com/

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