##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 Commission file number 1-32747
 
 MARINER ENERGY, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    86-0460233(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 One BriarLake Plaza, Suite 2000
2000 West Sam Houston Parkway South
Houston, Texas 77042  (Address of principal executive offices and zip code)
 (713) 954-5500  (Registrants telephone number, including area code)
 þ o
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
 PART IItem 1. Condensed Consolidated Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36PART IIItem 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 6. Exhibits
    
    
    39Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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##### Table of Contents



PART I
 
 Item 1. Condensed Consolidated Financial Statements
 MARINER ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006Current Assets:Cash and cash equivalents
    
    $
    6,311
    
    
    $
    9,579Receivables, net of allowances of $1,393 and $726
as of March 31, 2007 and December 31, 2006,
respectively
    
    
    156,513
    
    
    
    149,692Insurance receivables
    
    
    68,059
    
    
    
    61,001Derivative asset
    
    
    16,544
    
    
    
    54,488Prepaid seismic
    
    
    23,637
    
    
    
    20,835Prepaid expenses and other
    
    
    14,458
    
    
    
    12,846Total current assets
    
    
    285,522
    
    
    
    308,441Property and Equipment:Proved oil and gas properties, full-cost method
    
    
    2,501,165
    
    
    
    2,345,041Unproved properties, not subject to amortization
    
    
    64,405
    
    
    
    40,246Total Oil and Gas Properties
    
    
    2,565,570
    
    
    
    2,385,287Other property and equipment
    
    
    13,627
    
    
    
    13,512Accumulated depreciation, depletion and amortization
    
    
    (481,177
    )
    
    
    (386,737
    )Total property and equipment, net
    
    
    2,098,020
    
    
    
    2,012,062Restricted cash
    
    
    
    
    
    
    31,830Goodwill
    
    
    288,504
    
    
    
    288,504Derivative asset
    
    
    7,863
    
    
    
    17,153Other Assets, net of amortization
    
    
    25,659
    
    
    
    22,163TOTAL ASSETS
    
    $
    2,705,568
    
    
    $
    2,680,153Current Liabilities:Accounts payable
    
    $
    2,768
    
    
    $
    1,822Accrued liabilities
    
    
    85,151
    
    
    
    74,880Accrued capital costs
    
    
    129,902
    
    
    
    99,028Deferred income tax
    
    
    1,368
    
    
    
    26,857Derivative liability
    
    
    8,574
    
    
    
    Abandonment liability
    
    
    36,471
    
    
    
    29,660Accrued interest
    
    
    12,074
    
    
    
    7,480Total current liabilities
    
    
    276,308
    
    
    
    239,727Long-Term Liabilities:Abandonment liability
    
    
    183,181
    
    
    
    188,310Derivative liability
    
    
    183
    
    
    
    Deferred income tax
    
    
    285,978
    
    
    
    262,888Long term debt, bank credit facility
    
    
    314,000
    
    
    
    354,000Long term debt, senior unsecured notes
    
    
    300,000
    
    
    
    300,000Other long-term liabilities
    
    
    37,762
    
    
    
    32,637Total long-term liabilities
    
    
    1,121,104
    
    
    
    1,137,835Commitments and Contingencies (see Note 7)Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at March 31, 2007 and December 31, 2006
    
    
    
    
    
    
    Common stock, $.0001 par value; 180,000,000 shares
authorized, 86,361,162 shares issued and
outstanding at March 31, 2007; 180,000,000 shares
authorized, 86,375,840 shares issued and
outstanding at December 31, 2006
    
    
    9
    
    
    
    9Additional paid-in-capital
    
    
    1,045,535
    
    
    
    1,043,923Accumulated other comprehensive income
    
    
    8,843
    
    
    
    43,097Accumulated retained earnings
    
    
    253,769
    
    
    
    215,562Total stockholders equity
    
    
    1,308,156
    
    
    
    1,302,591TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,705,568
    
    
    $
    2,680,153
 The accompanying notes are an integral part of these consolidated financial statements
 3




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MARINER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedMarch 31,2007
    
    
    2006Revenues:Oil
    
    $
    60,451
    
    
    $
    30,182Natural gas
    
    
    140,532
    
    
    
    44,156Natural gas liquids
    
    
    9,149
    
    
    
    5,234Other revenues
    
    
    1,333
    
    
    
    688Total revenues
    
    
    211,465
    
    
    
    80,260Costs and Expenses:Lease operating expense
    
    
    34,756
    
    
    
    11,491Severance and ad valorem taxes
    
    
    2,990
    
    
    
    1,691Transportation expense
    
    
    1,902
    
    
    
    730General and administrative expense
    
    
    10,141
    
    
    
    10,509Depreciation, depletion and amortization
    
    
    98,634
    
    
    
    32,824Total costs and expenses
    
    
    148,423
    
    
    
    57,245OPERATING INCOME
    
    
    63,042
    
    
    
    23,015Other Income (Expense):Interest income
    
    
    291
    
    
    
    115Interest expense, net of amounts capitalized
    
    
    (12,347
    )
    
    
    (6,007
    )Other
    
    
    5,431
    
    
    
    Income before taxes
    
    
    56,417
    
    
    
    17,123Provision for income taxes
    
    
    (18,210
    )
    
    
    (5,993
    )NET INCOME
    
    $
    38,207
    
    
    $
    11,130Earnings per share:Net
income per sharebasic
    
    $
    0.45
    
    
    $
    0.22Net income per sharediluted
    
    $
    0.45
    
    
    $
    0.21Weighted average shares outstandingbasic
    
    
    85,515,561
    
    
    
    49,615,479Weighted average shares outstandingdiluted
    
    
    85,704,529
    
    
    
    51,844,610
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three MonthsEnded March 31,2007
    
    
    2006Operating Activities:Net income
    
    $
    38,207
    
    
    $
    11,130Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income tax
    
    
    17,960
    
    
    
    5,993Depreciation, depletion and amortization
    
    
    99,440
    
    
    
    34,356Ineffectiveness of derivative instruments
    
    
    2,148
    
    
    
    Stock compensation
    
    
    1,567
    
    
    
    6,427Changes in operating assets and liabilities:Receivables
    
    
    (7,501
    )
    
    
    7,251Insurance receivables
    
    
    (7,058
    )
    
    
    Prepaid expenses and other
    
    
    (1,612
    )
    
    
    (18,169
    )Other assets
    
    
    (83
    )
    
    
    (5,900
    )Accounts payable and accrued liabilities
    
    
    10,561
    
    
    
    25,419Net cash provided by operating activities
    
    
    153,629
    
    
    
    66,507Investing Activities:Additions to properties and equipment
    
    
    (148,790
    )
    
    
    (78,863
    )Property conveyances
    
    
    18
    
    
    
    Purchase price adjustment
    
    
    
    
    
    
    (20,808
    )Restricted cash designated for investment
    
    
    31,830
    
    
    
    Net cash used in investing activities
    
    
    (116,942
    )
    
    
    (99,671
    )Financing Activities:Repayment of term note
    
    
    
    
    
    
    (4,000
    )Credit facility (repayments) borrowings, net
    
    
    (40,000
    )
    
    
    214,200Debt and working capital acquired from Forest Energy Resources, Inc.
    
    
    
    
    
    
    (176,200
    )Proceeds from exercise of stock options
    
    
    45
    
    
    
    22Net cash (used in) provided by financing activities
    
    
    (39,955
    )
    
    
    34,022(Decrease) Increase in Cash and Cash Equivalents
    
    
    (3,268
    )
    
    
    858Cash and Cash Equivalents at Beginning of Period
    
    
    9,579
    
    
    
    4,556Cash and Cash Equivalents at End of Period
    
    $
    6,311
    
    
    $
    5,414
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Summary of Significant Accounting Policies
 Operations
 Interim Financial Statements
 Use of Estimates
 Principles of Consolidation
 Reclassifications
 Income Taxes
 Recent
Accounting Pronouncements
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2. Acquisitions and Dispositions
 Forest Gulf of Mexico Operations
   (In millions)Oil and natural gas properties
    
    $
    1,211.4Abandonment liabilities
    
    
    (165.2
    )Long-term debt
    
    
    (176.2
    )Fair value of oil and natural gas derivatives
    
    
    (17.5
    )Deferred tax liability
    
    
    (199.4
    )Other assets and liabilities
    
    
    (24.5
    )Goodwill
    
    
    261.4Net Assets Acquired
    
    $
    890.0
  7




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Interest in Cottonwood
 3. Long-Term Debt
 Bank Credit Facility
  Amendments of Bank Credit Facility
  8




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
    
    maintain a ratio of consolidated current assets plus the unused borrowing base to
consolidated current liabilities of not less than 1.0 to 1.0; and
    
    maintain a ratio of total debt to EBITDA, as defined in the credit agreement, of not
more than 2.5 to 1.0.
    71/2%
Senior Notes due 2013 1 2 1 2 1 2 1 2
 1 2
 1 2
 1 2 1 2 1 2
 1 2 1 2
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1 2 1 2 1 2 1 2
 1 2 1 2
 
    
    make investments;
    
    incur additional indebtedness or issue preferred stock;
    
    create certain liens;
    
    sell assets;
    
    enter into agreements that restrict dividends or other payments from its subsidiaries to itself;
    
    consolidate, merge or transfer all or substantially all of its assets;
    
    engage in transactions with affiliates;
    
    pay dividends or make other distributions on capital stock or subordinated indebtedness; and
    
    create unrestricted subsidiaries.
 1 2
 JEDI Term Promissory Note
 Cash Interest Expense
 Bank Debt Issuance Costs
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4. Oil and Gas Properties
   5. Accrual for Future Abandonment Costs
   (In millions)Abandonment liability as of December 31, 2006 (1)
    
    $
    218.0Liabilities Incurred
    
    
    0.5Liabilities Settled
    
    
    (3.4
    )Accretion Expense
    
    
    4.4Revisions to previous estimates
    
    
    0.2Abandonment Liability as of March 31, 2007 (2)
    
    $
    219.7
 
 (1)
    
    Includes $29.7 million classified as a current accrued liability at December 31, 2006.(2)
    
    Includes $36.5 million classified as a current accrued liability at March 31, 2007. 6. Stockholders Equity
 Equity Participation Plan
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Stock Incentive Plan
  Rollover Options
 Accounting for Stock Options and Restricted Stock Share-Based Payment,
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WeightedAverage
    
    
    Aggregate IntrinsicExercise
    
    
    Value (1)Shares
    
    
    Price
    
    
    ($000)Outstanding at beginning of year
    
    
    802,322
    
    
    $
    13.77Granted
    
    
    
    
    
    
    Exercised
    
    
    (3,896
    )
    
    $
    11.59Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2007
    
    
    798,426
    
    
    $
    13.78
    
    
    $
    4,272Vested and expected to vest (2)
    
    
    755,725
    
    
    $
    13.78
    
    
    $
    4,043Outstanding exercisable at March 31, 2007
    
    
    554,517
    
    
    $
    13.89
    
    
    $
    2,906Available for future grant as options or restricted stock
    
    
    4,880,706
    
    
    
    
    
    
    
    
 
 (1)
    
    Based upon the difference between the market price of the common stock on the last trading
date of the quarter and the option exercise price of in-the-money options.(2)
    
    The Companys estimated forfeiture rate was actualized at December 31, 2006 and was applied
in the calculation of options expected to vest as of March 31, 2007.  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    
    
    
    
    WeightedRemaining
    
    
    
    
    
    AverageShares
    
    Contractual
    
    
    
    
    
    SharesExercise Price
    
    Outstanding
    
    Life (Years)
    
    Expected Term
    
    Exercisable$8.81
    
    
    1,056
    
    
    
    5.91
    
    
    
    6.00
    
    
    
    1,056$9.48
    
    
    5,283
    
    
    
    6.91
    
    
    
    6.00
    
    
    
    2,642$9.67
    
    
    1,321
    
    
    
    6.83
    
    
    
    6.00
    
    
    
    $11.44
    
    
    4,952
    
    
    
    7.63
    
    
    
    6.00
    
    
    
    1,651$11.59
    
    
    67,330
    
    
    
    7.69
    
    
    
    6.00
    
    
    
    19,277$14.00
    
    
    706,880
    
    
    
    8.07
    
    
    
    6.00
    
    
    
    525,549$15.50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,000
    )$16.86
    
    
    10,564
    
    
    
    8.38
    
    
    
    6.00
    
    
    
    2,641$17.00
    
    
    1,040
    
    
    
    8.47
    
    
    
    6.00
    
    
    
    1,040
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Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageNumber
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    Life (Years)
    
    Price
    
    Exercisable
    
    Price$8.81  $17.00
    
    
    913,202
    
    
    
    7.8
    
    
    $
    13.78
    
    
    
    409,070
    
    
    $
    14.00
  March 31, 2007
    
    March 31, 2006Stock Incentive
    
    
    
    
    
    Stock IncentiveBlack-Scholes Assumptions
    
    Plan Options
    
    Rollover Options
    
    Plan Options
    
    Rollover OptionsExpected Term (years)
    
    
    6.0
    
    
    
    4.7
    
    
    
    3.0
    
    
    
    2.0Risk Free Interest Rate
    
    
    4.80
    %
    
    
    4.79
    %
    
    
    4.85
    %
    
    
    4.86
    %Expected Volatility
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Dividend Yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
   Restricted Shares under theStock Incentive PlanMarch 31,2007
    
    
    2006Total unvested shares at beginning of period: January 1
    
    
    875,380
    
    
    
    Shares granted
    
    
    
    
    
    
    Shares vested
    
    
    (48,608
    )
    
    
    Shares forfeited
    
    
    (7,850
    )
    
    
    Total unvested shares at end of period: March 31
    
    
    818,922
    
    
    
    Available for future grant as options or restricted stock
    
    
    4,880,706
    
    
    
    
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Restricted Shares under theEquity Participation PlanMarch 31,2007
    
    
    2006Total unvested shares at beginning of period: January 1
    
    
    
    
    
    
    2,267,270Shares granted
    
    
    
    
    
    
    Shares vested
    
    
    
    
    
    
    (463,656
    )Shares forfeited
    
    
    
    
    
    
    Total unvested shares at end of period: March 31
    
    
    
    
    
    
    1,803,614Available for future grant under Equity Participation Plan
    
    
    
    
    
    
    
 7. Commitments And Contingencies
 Minimum Future Lease Payments
 2008
    
    $
    1,3312009
    
    
    1,0992010
    
    
    1,3412011
    
    
    1,3202012 and thereafter
    
    
    1,054
 Hedging Program
   March 31,Weighted Average
    
    
    2007 Fair ValueFixed Price Swaps
    
    Quantity
    
    
    Fixed Price
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)April 1December 31, 2007
    
    
    627,900
    
    
    $
    69.20
    
    
    $
    (0.1
    )January 1December 31, 2008
    
    
    992,350
    
    
    $
    69.34
    
    
    
    (0.6
    )Natural Gas (MMbtus)April 1December 31, 2007
    
    
    7,870,253
    
    
    $
    9.79
    
    
    
    13.0January 1December 31, 2008
    
    
    3,059,689
    
    
    $
    9.58
    
    
    
    2.1Total
    
    
    
    
    
    
    
    
    
    $
    14.4
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March 31,Weighted Average
    
    
    Weighted Average
    
    
    2007 Fair ValueCostless Collars
    
    Quantity
    
    
    Floor
    
    
    Cap
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)April 1December 31, 2007
    
    
    1,426,269
    
    
    $
    59.64
    
    
    $
    83.88
    
    
    $
    (2.3
    )January 1December 31, 2008
    
    
    1,195,495
    
    
    $
    61.66
    
    
    $
    86.80
    
    
    
    1.6Natural Gas (MMbtus)April 1December 31, 2007
    
    
    12,797,250
    
    
    $
    7.01
    
    
    $
    12.29
    
    
    
    (2.8
    )January 1December 31, 2008
    
    
    12,347,000
    
    
    $
    7.83
    
    
    $
    14.60
    
    
    
    4.8Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1.3
  Weighted AverageFixed Price Swaps
    
    Quantity
    
    Fixed PriceCrude Oil (Bbls)January 1December 31, 2009
    
    
    1,280,750
    
    
    $
    68.93Natural Gas (MMbtus)May 1December 31, 2007
    
    
    8,774,596
    
    
    $
    8.00January 1December 31, 2008
    
    
    7,774,290
    
    
    $
    8.59January 1December 31, 2009
    
    
    8,052,820
    
    
    $
    8.30
  Other Commitments
 MMS Proceedings
  16




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Insurance Matters Hurricanes Katrina and Rita (2005)
      Hurricane Ivan (2004)
  17




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Current Insurance Against Hurricanes
   Litigation
 Letters of Credit
  8. Net Income per Share
  18




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Three months endedMarch 31,2007
    
    
    2006(In Thousands,except per share data)Numerator:Net Income
    
    $
    38,207
    
    
    $
    11,130Denominator:Weighted average shares outstanding
    
    
    85,516
    
    
    
    49,615Add dilutive securities
    
    
    189
    
    
    
    2,230Total weighted average shares outstanding and dilutive securities
    
    
    85,705
    
    
    
    51,845Earnings per sharebasic:
    
    $
    0.45
    
    
    $
    0.22Earnings per sharediluted:
    
    $
    0.45
    
    
    $
    0.21
  9. Comprehensive Income
  Three months endedMarch 31,2007
    
    
    2006(in thousands)Net Income
    
    $
    38,207
    
    
    $
    11,130Other comprehensive (loss) incomeDerivative contracts settled and reclassified, net of
income taxes of $7,534 and ($3,499)
    
    
    13,940
    
    
    
    (6,499
    )Change in unrealized mark to market (losses) gains
arising during period, net of tax net of income taxes of
($27,123) and $13,675
    
    
    (48,194
    )
    
    
    23,194Change in accumulated other comprehensive (loss) income
    
    
    (34,254
    )
    
    
    16,695Comprehensive income
    
    $
    3,953
    
    
    $
    27,825
 10. Supplemental Guarantor Information
 1 2 1 2
  19




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MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2007
(In thousands except share data)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Current Assets:Cash and cash equivalents
    
    $
    6,311
    
    
    $
    
    
    
    $
    
    
    
    $
    6,311Receivables, net
    
    
    74,440
    
    
    
    82,073
    
    
    
    
    
    
    
    156,513Insurance receivables
    
    
    3,946
    
    
    
    64,113
    
    
    
    
    
    
    
    68,059Derivative asset
    
    
    16,544
    
    
    
    
    
    
    
    
    
    
    
    16,544Prepaid seismic
    
    
    22,270
    
    
    
    1,367
    
    
    
    
    
    
    
    23,637Prepaid expenses and other
    
    
    12,539
    
    
    
    1,919
    
    
    
    
    
    
    
    14,458Total current assets
    
    
    136,050
    
    
    
    149,472
    
    
    
    
    
    
    
    285,522Property and Equipment:Oil and gas properties, full-cost method: Proved
    
    
    1,023,923
    
    
    
    1,477,242
    
    
    
    
    
    
    
    2,501,165Unproved, not subject to amortization
    
    
    63,867
    
    
    
    538
    
    
    
    
    
    
    
    64,405Total
    
    
    1,087,790
    
    
    
    1,477,780
    
    
    
    
    
    
    
    2,565,570Other property and equipment
    
    
    13,577
    
    
    
    50
    
    
    
    
    
    
    
    13,627Accumulated depreciation, depletion and amortization
    
    
    (271,860
    )
    
    
    (209,317
    )
    
    
    
    
    
    
    (481,177
    )Total property and equipment, net
    
    
    829,507
    
    
    
    1,268,513
    
    
    
    
    
    
    
    2,098,020Investment in
subsidiaries
    
    
    898,521
    
    
    
    
    
    
    
    (898,521
    )
    
    
    Intercompany
receivable
    
    
    133,890
    
    
    
    
    
    
    
    (133,890
    )
    
    
    Intercompany
note receivable
    
    
    176,200
    
    
    
    
    
    
    
    (176,200
    )
    
    
    Restricted
cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    288,504
    
    
    
    
    
    
    
    288,504Derivative
asset
    
    
    7,863
    
    
    
    
    
    
    
    
    
    
    
    7,863Other
Assets, Net of Amortization
    
    
    25,659
    
    
    
    
    
    
    
    
    
    
    
    25,659TOTAL ASSETS
    
    $
    2,207,690
    
    
    $
    1,706,489
    
    
    $
    (1,208,611
    )
    
    $
    2,705,568Current Liabilities:Accounts payable
    
    $
    2,768
    
    
    $
    
    
    
    $
    
    
    
    $
    2,768Accrued liabilities
    
    
    81,332
    
    
    
    3,819
    
    
    
    
    
    
    
    85,151Accrued capital costs
    
    
    90,467
    
    
    
    39,435
    
    
    
    
    
    
    
    129,902Deferred income tax
    
    
    1,368
    
    
    
    
    
    
    
    
    
    
    
    1,368Derivative liability
    
    
    8,574
    
    
    
    
    
    
    
    
    
    
    
    8,574Abandonment liability
    
    
    12,640
    
    
    
    23,831
    
    
    
    
    
    
    
    36,471Accrued interest
    
    
    12,074
    
    
    
    
    
    
    
    
    
    
    
    12,074Total current liabilities
    
    
    209,223
    
    
    
    67,085
    
    
    
    
    
    
    
    276,308Long-Term Liabilities:Abandonment liability
    
    
    46,444
    
    
    
    136,737
    
    
    
    
    
    
    
    183,181Derivative liability
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    183Deferred income tax
    
    
    54,013
    
    
    
    231,965
    
    
    
    
    
    
    
    285,978Intercompany payable
    
    
    
    
    
    
    133,890
    
    
    
    (133,890
    )
    
    
    Long term debt, bank credit facility
    
    
    314,000
    
    
    
    
    
    
    
    
    
    
    
    314,000Long term debt, senior unsecured notes
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Other long-term liabilities
    
    
    34,632
    
    
    
    3,130
    
    
    
    
    
    
    
    37,762Intercompany note payable
    
    
    
    
    
    
    176,200
    
    
    
    (176,200
    )
    
    
    Total long-term liabilities
    
    
    749,272
    
    
    
    681,922
    
    
    
    (310,090
    )
    
    
    1,121,104Commitments
and Contingencies (see Note 7)Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at March 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, $.0001 par value; 86,361,162 shares
issued and outstanding at March 31, 2007
    
    
    9
    
    
    
    5
    
    
    
    (5
    )
    
    
    9Additional paid-in-capital
    
    
    1,045,535
    
    
    
    886,142
    
    
    
    (886,142
    )
    
    
    1,045,535Accumulated other comprehensive income
    
    
    8,843
    
    
    
    
    
    
    
    
    
    
    
    8,843Accumulated retained earnings
    
    
    194,808
    
    
    
    71,335
    
    
    
    (12,374
    )
    
    
    253,769Total stockholders equity
    
    
    1,249,195
    
    
    
    957,482
    
    
    
    (898,521
    )
    
    
    1,308,156TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,207,690
    
    
    $
    1,706,489
    
    
    $
    (1,208,611
    )
    
    $
    2,705,568
 21




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2006
(In thousands except share data)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Current Assets:Cash and cash equivalents
    
    $
    9,579
    
    
    $
    
    
    
    $
    
    
    
    $
    9,579Receivables, net
    
    
    51,118
    
    
    
    98,574
    
    
    
    
    
    
    
    149,692Insurance receivables
    
    
    4,673
    
    
    
    56,328
    
    
    
    
    
    
    
    61,001Derivative financial instruments
    
    
    54,488
    
    
    
    
    
    
    
    
    
    
    
    54,488Prepaid seismic
    
    
    19,468
    
    
    
    1,367
    
    
    
    
    
    
    
    20,835Prepaid expenses and other
    
    
    10,927
    
    
    
    1,919
    
    
    
    
    
    
    
    12,846Total current assets
    
    
    150,253
    
    
    
    158,188
    
    
    
    
    
    
    
    308,441Property and Equipment:Oil and gas properties, full-cost method: Proved
    
    
    922,385
    
    
    
    1,422,656
    
    
    
    
    
    
    
    2,345,041Unproved, not subject to amortization
    
    
    39,885
    
    
    
    361
    
    
    
    
    
    
    
    40,246Total
    
    
    962,270
    
    
    
    1,423,017
    
    
    
    
    
    
    
    2,385,287Other property and equipment
    
    
    13,444
    
    
    
    68
    
    
    
    
    
    
    
    13,512Accumulated depreciation, depletion and amortization
    
    
    (233,087
    )
    
    
    (153,650
    )
    
    
    
    
    
    
    (386,737
    )Total property and equipment, net
    
    
    742,627
    
    
    
    1,269,435
    
    
    
    
    
    
    
    2,012,062Investment in
subsidiaries
    
    
    945,108
    
    
    
    
    
    
    
    (945,108
    )
    
    
    Intercompany
receivable
    
    
    153,793
    
    
    
    
    
    
    
    (153,793
    )
    
    
    Intercompany
note receivable
    
    
    176,200
    
    
    
    
    
    
    
    (176,200
    )
    
    
    Restricted
cash
    
    
    31,830
    
    
    
    
    
    
    
    
    
    
    
    31,830Goodwill
    
    
    
    
    
    
    288,504
    
    
    
    
    
    
    
    288,504Derivative
financial instruments
    
    
    17,153
    
    
    
    
    
    
    
    
    
    
    
    17,153Other
Assets, Net of Amortization
    
    
    22,163
    
    
    
    
    
    
    
    
    
    
    
    22,163TOTAL ASSETS
    
    $
    2,239,127
    
    
    $
    1,716,127
    
    
    $
    (1,275,101
    )
    
    $
    2,680,153Current Liabilities:Accounts payable
    
    $
    1,822
    
    
    $
    
    
    
    $
    
    
    
    $
    1,822Accrued liabilities
    
    
    61,779
    
    
    
    13,101
    
    
    
    
    
    
    
    74,880Accrued capital costs
    
    
    60,146
    
    
    
    38,882
    
    
    
    
    
    
    
    99,028Deferred income tax
    
    
    26,857
    
    
    
    
    
    
    
    
    
    
    
    26,857Abandonment liability
    
    
    9,312
    
    
    
    20,348
    
    
    
    
    
    
    
    29,660Accrued interest
    
    
    7,355
    
    
    
    125
    
    
    
    
    
    
    
    7,480Total current liabilities
    
    
    167,271
    
    
    
    72,456
    
    
    
    
    
    
    
    239,727Long-Term Liabilities:Abandonment liability
    
    
    48,509
    
    
    
    139,801
    
    
    
    
    
    
    
    188,310Deferred income tax
    
    
    36,701
    
    
    
    226,187
    
    
    
    
    
    
    
    262,888Intercompany payable
    
    
    
    
    
    
    153,793
    
    
    
    (153,793
    )
    
    
    Long term debt, bank credit facility
    
    
    354,000
    
    
    
    
    
    
    
    
    
    
    
    354,000Long term debt, senior unsecured notes
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Other long-term liabilities
    
    
    30,055
    
    
    
    2,582
    
    
    
    
    
    
    
    32,637Intercompany note payable
    
    
    
    
    
    
    176,200
    
    
    
    (176,200
    )
    
    
    Total long-term liabilities
    
    
    769,265
    
    
    
    698,563
    
    
    
    (329,993
    )
    
    
    1,137,835Commitments
and Contingencies (see Note 7)Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, $.0001 par value; 180,000,000 shares
authorized, 86,375,840 shares issued and
outstanding at December 31, 2006
    
    
    9
    
    
    
    5
    
    
    
    (5
    )
    
    
    9Additional paid-in-capital
    
    
    1,043,923
    
    
    
    886,142
    
    
    
    (886,142
    )
    
    
    1,043,923Accumulated other comprehensive income
    
    
    43,097
    
    
    
    
    
    
    
    
    
    
    
    43,097Accumulated retained earnings
    
    
    215,562
    
    
    
    58,961
    
    
    
    (58,961
    )
    
    
    215,562Total stockholders equity
    
    
    1,302,591
    
    
    
    945,108
    
    
    
    (945,108
    )
    
    
    1,302,591TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,239,127
    
    
    $
    1,716,127
    
    
    $
    (1,275,101
    )
    
    $
    2,680,153
 22




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2007
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Oil
    
    $
    32,103
    
    
    $
    28,348
    
    
    $
    
    
    
    $
    60,451Natural gas
    
    
    75,548
    
    
    
    64,984
    
    
    
    
    
    
    
    140,532Natural gas liquids
    
    
    4,799
    
    
    
    4,350
    
    
    
    
    
    
    
    9,149Other revenues
    
    
    1,333
    
    
    
    
    
    
    
    
    
    
    
    1,333Total revenues
    
    
    113,783
    
    
    
    97,682
    
    
    
    
    
    
    
    211,465Costs and Expenses:Lease operating expense
    
    
    14,520
    
    
    
    20,236
    
    
    
    
    
    
    
    34,756Severance and ad valorem taxes
    
    
    2,089
    
    
    
    901
    
    
    
    
    
    
    
    2,990Transportation expense
    
    
    1,026
    
    
    
    876
    
    
    
    
    
    
    
    1,902General and administrative expense
    
    
    9,468
    
    
    
    673
    
    
    
    
    
    
    
    10,141Depreciation, depletion and amortization
    
    
    40,098
    
    
    
    58,536
    
    
    
    
    
    
    
    98,634Total costs and expenses
    
    
    67,201
    
    
    
    81,222
    
    
    
    
    
    
    
    148,423OPERATING INCOME
    
    
    46,582
    
    
    
    16,460
    
    
    
    
    
    
    
    63,042Earnings of Affiliates
    
    
    12,374
    
    
    
    
    
    
    
    (12,374
    )
    
    
    Other Income (Expense):Interest income
    
    
    3,897
    
    
    
    
    
    
    
    (3,606
    )
    
    
    291Interest expense, net of amounts capitalized
    
    
    (12,214
    )
    
    
    (3,739
    )
    
    
    3,606
    
    
    
    (12,347
    )Other
    
    
    
    
    
    
    5,431
    
    
    
    
    
    
    
    5,431Income before taxes
    
    
    50,639
    
    
    
    18,152
    
    
    
    (12,374
    )
    
    
    56,417Provision for income taxes
    
    
    (12,432
    )
    
    
    (5,778
    )
    
    
    
    
    
    
    (18,210
    )NET INCOME
    
    $
    38,207
    
    
    $
    12,374
    
    
    $
    (12,374
    )
    
    $
    38,207
 23




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2006
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Oil
    
    $
    24,360
    
    
    $
    5,822
    
    
    $
    
    
    
    $
    30,182Natural gas
    
    
    22,590
    
    
    
    21,566
    
    
    
    
    
    
    
    44,156Natural gas liquids
    
    
    3,946
    
    
    
    1,288
    
    
    
    
    
    
    
    5,234Other revenues
    
    
    688
    
    
    
    
    
    
    
    
    
    
    
    688Total revenues
    
    
    51,584
    
    
    
    28,676
    
    
    
    
    
    
    
    80,260Costs and Expenses:Lease operating expense
    
    
    7,101
    
    
    
    4,390
    
    
    
    
    
    
    
    11,491Severance and ad valorem taxes
    
    
    1,691
    
    
    
    
    
    
    
    
    
    
    
    1,691Transportation expense
    
    
    474
    
    
    
    256
    
    
    
    
    
    
    
    730General and administrative expense
    
    
    10,097
    
    
    
    412
    
    
    
    
    
    
    
    10,509Depreciation, depletion and amortization
    
    
    16,607
    
    
    
    16,217
    
    
    
    
    
    
    
    32,824Total costs and expenses
    
    
    35,970
    
    
    
    21,275
    
    
    
    
    
    
    
    57,245OPERATING INCOME
    
    
    15,614
    
    
    
    7,401
    
    
    
    
    
    
    
    23,015Earnings of Affiliates
    
    
    6,263
    
    
    
    
    
    
    
    (6,263
    )
    
    
    Other Income (Expense):Interest income
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115Interest expense, net of amounts capitalized
    
    
    (4,869
    )
    
    
    (1,138
    )
    
    
    
    
    
    
    (6,007
    )Income before taxes
    
    
    17,123
    
    
    
    6,263
    
    
    
    (6,263
    )
    
    
    17,123Provision for income taxes
    
    
    (5,993
    )
    
    
    
    
    
    
    
    
    
    
    (5,993
    )NET INCOME
    
    $
    11,130
    
    
    $
    6,263
    
    
    $
    (6,263
    )
    
    $
    11,130
 24




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2007
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Energy, Inc.Operating Activities:Net income
    
    $
    25,833
    
    
    $
    12,374
    
    
    $
    38,207Adjustments to reconcile net income to net cash
provided by operating activities:Deferred income tax
    
    
    12,182
    
    
    
    5,778
    
    
    
    17,960Depreciation, depletion and amortization
    
    
    40,686
    
    
    
    58,754
    
    
    
    99,440Ineffectiveness of derivative instruments
    
    
    2,148
    
    
    
    
    
    
    
    2,148Stock compensation
    
    
    1,567
    
    
    
    
    
    
    
    1,567Changes in operating assets and liabilities:Receivables
    
    
    (24,002
    )
    
    
    16,501
    
    
    
    (7,501
    )Insurance receivables
    
    
    727
    
    
    
    (7,785
    )
    
    
    (7,058
    )Prepaid expenses and other
    
    
    (1,612
    )
    
    
    
    
    
    
    (1,612
    )Other assets
    
    
    (83
    )
    
    
    
    
    
    
    (83
    )Accounts payable and accrued liabilities
    
    
    22,088
    
    
    
    (11,527
    )
    
    
    10,561Net cash provided by operating activities
    
    
    79,534
    
    
    
    74,095
    
    
    
    153,629Investing Activities:Additions to properties and equipment
    
    
    (94,598
    )
    
    
    (54,192
    )
    
    
    (148,790
    )Property conveyances
    
    
    18
    
    
    
    
    
    
    
    18Restricted cash designated for investment
    
    
    31,830
    
    
    
    
    
    
    
    31,830Net cash used in investing activities
    
    
    (62,750
    )
    
    
    (54,192
    )
    
    
    (116,942
    )Financing Activities:Credit facility repayments, net
    
    
    (40,000
    )
    
    
    
    
    
    
    (40,000
    )Proceeds from exercise of stock options
    
    
    45
    
    
    
    
    
    
    
    45Net activity
in investment from subsidiaries
    
    
    19,903
    
    
    
    (19,903
    )
    
    
    Net cash
used in financing activities
    
    
    (20,052
    )
    
    
    (19,903
    )
    
    
    (39,955
    )Decrease in Cash and Cash Equivalents
    
    
    (3,268
    )
    
    
    
    
    
    
    (3,268
    )Cash and Cash Equivalents at Beginning of Period
    
    
    9,579
    
    
    
    
    
    
    
    9,579Cash and Cash Equivalents at End of Period
    
    $
    6,311
    
    
    $
    
    
    
    $
    6,311
 25




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2006
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Energy, Inc.Operating Activities:Net income
    
    $
    4,867
    
    
    $
    6,263
    
    
    $
    11,130Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income tax
    
    
    5,993
    
    
    
    
    
    
    
    5,993Depreciation, depletion and amortization
    
    
    18,070
    
    
    
    16,286
    
    
    
    34,356Stock compensation
    
    
    6,427
    
    
    
    
    
    
    
    6,427Changes in operating assets and liabilities:Receivables
    
    
    10,278
    
    
    
    (3,027
    )
    
    
    7,251Prepaid expenses and other
    
    
    (11,503
    )
    
    
    (6,666
    )
    
    
    (18,169
    )Other assets
    
    
    (10,961
    )
    
    
    5,061
    
    
    
    (5,900
    )Accounts payable and accrued liabilities
    
    
    35,785
    
    
    
    (10,366
    )
    
    
    25,419Net cash provided by operating activities
    
    
    58,956
    
    
    
    7,551
    
    
    
    66,507Investing Activities:Additions to properties and equipment
    
    
    (60,320
    )
    
    
    (18,543
    )
    
    
    (78,863
    )Purchase price adjustment
    
    
    
    
    
    
    (20,808
    )
    
    
    (20,808
    )Net cash used in investing activities
    
    
    (60,320
    )
    
    
    (39,351
    )
    
    
    (99,671
    )Financing Activities:Repayment of term note
    
    
    (4,000
    )
    
    
    
    
    
    
    (4,000
    )Credit facility repayments, net
    
    
    38,000
    
    
    
    176,200
    
    
    
    214,200Debt and working capital acquired from Forest Energy Resources, Inc.
    
    
    
    
    
    
    (176,200
    )
    
    
    (176,200
    )Proceeds from exercise of stock options
    
    
    22
    
    
    
    
    
    
    
    22Net activity in investments from subsidiaries
    
    
    (31,810
    )
    
    
    31,810
    
    
    
    Net cash provided by financing activities
    
    
    2,212
    
    
    
    31,810
    
    
    
    34,022Increase in Cash and Cash Equivalents
    
    
    848
    
    
    
    10
    
    
    
    858Cash and Cash Equivalents at Beginning of Period
    
    
    4,556
    
    
    
    
    
    
    
    4,556Cash and Cash Equivalents at End of Period
    
    $
    5,404
    
    
    $
    10
    
    
    $
    5,414
 11. Subsequent Events
 Amendment of Bank Credit Facility.
 Offering of 8% Senior Notes due 2017.
 26




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##### Table of Contents



1 2
    
    
    
    make investments;
    
    incur additional indebtedness or issue preferred stock;
    
    create certain liens;
    
    sell assets;
    
    enter into agreements that restrict dividends or other payments from its subsidiaries to itself;
    
    consolidate, merge or transfer all or substantially all of its assets;
 27




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##### Table of Contents




    
    engage in transactions with affiliates;
    
    pay dividends or make other distributions on capital stock or subordinated indebtedness; and
    
    create unrestricted subsidiaries.
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
    Recent Developments
 Amendment of Bank Credit Facility.
 Offering of 8% Senior Notes due 2017.
 28




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##### Table of Contents



Results of Operations
 Offshore
 Well Name
    
    Operator
    
    Working Interest
    
    Water Depth (Ft)
    
    LocationSM 150 #1
    
    Mariner
    
    100%
    
    235
    
    Conventional ShelfWC 110 #12ST
    
    Mariner
    
    100%
    
    45
    
    Conventional ShelfWC 110#18ST
    
    Mariner
    
    100%
    
    45
    
    Conventional ShelfAT 426 #1BP1
    
    Mariner
    
    42.2%
    
    6640
    
    DeepwaterAT 426 #2
    
    Mariner
    
    42.2%
    
    6640
    
    DeepwaterEI 337 A5ST1
    
    Devon
    
    2%
    
    265
    
    Conventional ShelfHI A467 A16
    
    Mariner
    
    100%
    
    185
    
    Conventional Shelf
  Onshore 
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
  Operating and Financial Results for the Three Months Ended March 31, 2007 Compared to the Three
Months Ended March 31, 2006
 Three months endedMarch 31,Summary Operating Information:
    
       2007
    
    2006(In thousands, exceptaverage sales prices andproduction volumes)Net Production:Oil (MBbls)
    
    
    1,046.5
    
    
    
    563.6Natural gas (MMcf)
    
    
    17,477.8
    
    
    
    6,419.6Natural gas liquids (MBbls)
    
    
    276.9
    
    
    
    120.5Total natural gas equivalent (MMcfe)
    
    
    25,418.4
    
    
    
    10,524.0Average daily production (MMcfe/d)
    
    
    282.4
    
    
    
    114.4Average sales prices:Oil (per Bbl) (1)
    
    $
    57.76
    
    
    $
    53.55Natural gas (per Mcf) (1)
    
    
    8.04
    
    
    
    6.88Natural gas liquids (per Mcf) (1)
    
    
    33.04
    
    
    
    43.44Total natural gas equivalent ($/Mcfe) (1)
    
    
    8.27
    
    
    
    7.56Oil and gas revenues:Oil
    
    $
    60,451
    
    
    $
    30,182Natural gas
    
    
    140,532
    
    
    
    44,156Natural gas liquids
    
    
    9,149
    
    
    
    5,234Total oil and gas revenues
    
    
    210,132
    
    
    
    79,572Other revenues
    
    
    1,333
    
    
    
    688Operating expenses:Lease operating expense
    
    
    34,756
    
    
    
    11,491Severance and ad valorem taxes
    
    
    2,990
    
    
    
    1,691Transportation expense
    
    
    1,902
    
    
    
    730Depreciation, depletion and amortization
    
    
    98,634
    
    
    
    32,824
 29




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##### Table of Contents



Three months endedMarch 31,Summary Operating Information:
    
       2007
    
    2006(In thousands, exceptaverage sales prices andproduction volumes)General and administrative expense
    
    
    10,141
    
    
    
    10,509Net interest expense (income)
    
    
    12,056
    
    
    
    5,892Other income
    
    
    (5,431
    )
    
    
    Income before taxes
    
    
    56,417
    
    
    
    17,123Provision for income taxes
    
    
    18,210
    
    
    
    5,993Net Income
    
    
    38,207
    
    
    
    11,130
 
 (1)
    
    Average prices include the effects of hedging Net Production:
  Oil and gas revenues:
   Other revenues
 Lease operating expenses
 Severance and ad valorem taxes
 Transportation expense
 Depreciation, depletion, and amortization (DD&A) expense
 30




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##### Table of Contents



General and administrative (G&A) expense
 Net interest expense
 Other income
 Income before income taxes
 Income taxes
 Liquidity and Capital Resources
    Capital Expenditures 
 Bank Credit Facility
 31




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##### Table of Contents




    
    maintain a ratio of consolidated current assets plus the unused borrowing base to
consolidated current liabilities of not less than 1.0 to 1.0; and
    
    maintain a ratio of total debt to EBITDA, as defined in the credit agreement, of not more
than 2.5 to 1.0.
  Offering of 8% Senior Notes due 2017.
 1 2
  32




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##### Table of Contents




    
    make investments;
    
    incur additional indebtedness or issue preferred stock;
    
    create certain liens;
    
    sell assets;
    
    enter into agreements that restrict dividends or other payments from its subsidiaries to itself;
    
    consolidate, merge or transfer all or substantially all of its assets;
    
    engage in transactions with affiliates;
    
    pay dividends or make other distributions on capital stock or subordinated indebtedness; and
    
    create unrestricted subsidiaries.
  Future Uses of Capital.
 
    
    funding future capital expenditures;
    
    funding hurricane repairs and hurricane-related abandonment operations;
    
    financing any future acquisitions that Mariner may identify;
 33




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##### Table of Contents




    
    paying routine operating and administrative expenses; and
    
    paying other commitments comprised largely of cash settlement of hedging obligations and debt service.
 2007 Capital Expenditures.
 Future Capital Resources.
 
    
    cash flow from operations in future periods;
    
    proceeds under our bank credit facility;
    
    proceeds from insurance policies relating to hurricane repairs; and
    
    proceeds from future capital markets transactions as needed.
   Off-Balance Sheet Arrangements
 Letters of Credit
  34




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Commodity Prices and Related Hedging Activities
     March 31,Weighted Average
    
    
    2007 Fair ValueFixed Price Swaps
    
    Quantity
    
    
    Fixed Price
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)April 1December 31, 2007
    
    
    627,900
    
    
    $
    69.20
    
    
    $
    (0.1
    )January 1December 31, 2008
    
    
    992,350
    
    
    $
    69.34
    
    
    
    (0.6
    )Natural Gas (MMbtus)April 1December 31, 2007
    
    
    7,870,253
    
    
    $
    9.79
    
    
    
    13.0January 1December 31, 2008
    
    
    3,059,689
    
    
    $
    9.58
    
    
    
    2.1Total
    
    
    
    
    
    
    
    
    
    $
    14.4
 March 31,Weighted Average
    
    
    Weighted Average
    
    
    2007 Fair ValueCostless Collars
    
    Quantity
    
    
    Floor
    
    
    Cap
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)April 1December 31, 2007
    
    
    1,426,269
    
    
    $
    59.64
    
    
    $
    83.88
    
    
    $
    (2.3
    )January 1December 31, 2008
    
    
    1,195,495
    
    
    $
    61.66
    
    
    $
    86.80
    
    
    
    1.6Natural Gas (MMbtus)April 1December 31, 2007
    
    
    12,797,250
    
    
    $
    7.01
    
    
    $
    12.29
    
    
    
    (2.8
    )January 1December 31, 2008
    
    
    12,347,000
    
    
    $
    7.83
    
    
    $
    14.60
    
    
    
    4.8Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1.3
 35




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##### Table of Contents



Weighted AverageFixed Price Swaps
    
    Quantity
    
    Fixed PriceCrude Oil (Bbls)January 1December 31, 2009
    
    
    1,280,750
    
    
    $
    68.93Natural Gas (MMbtus)May 1December 31, 2007
    
    
    8,774,596
    
    
    $
    8.00January 1December 31, 2008
    
    
    7,774,290
    
    
    $
    8.59January 1December 31, 2009
    
    
    8,052,820
    
    
    $
    8.30
  Interest Rate Market Risk 
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors.
   36




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##### Table of Contents




    
    the volatility of oil and natural gas prices;
    
    discovery, estimation, development and replacement of oil and natural gas reserves;
    
    cash flow, liquidity and financial position;
    
    business strategy;
    
    amount, nature and timing of capital expenditures, including future development costs;
    
    availability and terms of capital;
    
    timing and amount of future production of oil and natural gas;
    
    availability of drilling and production equipment;
    
    operating costs and other expenses;
    
    prospect development and property acquisitions;
    
    risks arising out of our hedging transactions;
    
    marketing of oil and natural gas;
    
    competition in the oil and natural gas industry;
    
    the impact of weather and the occurrence of natural events and natural disasters such as
loop currents, hurricanes, fires, floods and other natural events, catastrophic events and
natural disasters;
    
    governmental regulation of the oil and natural gas industry;
    
    environmental liabilities;
    
    developments in oil-producing and natural gas-producing countries;
    
    uninsured or underinsured losses in our oil and natural gas operations;
    
    risks related to our level of indebtedness; and
    
    our acquisition of Forest Oil Corporations Gulf of Mexico operations including strategic
plans, expectations and objectives for future operations, and the realization of expected
benefits from the transaction.
 37




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchases of Equity Securities
 Maximum Number (orTotal Number of
    
    Approximate DollarShares
    
    Value) ofTotal
    
    
    
    
    
    (or Units)
    
    Shares (or Units)Number of
    
    Average
    
    Purchased as
    
    that May Yet BeShares (or
    
    Price Paid
    
    Part of Publicly
    
    Purchased Under theUnits)
    
    per Share
    
    Announced Plans or
    
    Plans orPeriod
    
    Purchased
    
    (or Unit)
    
    Programs
    
    ProgramsJanuary 1, 2007 to January 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 1, 2007 to February 28, 2007(1)
    
    
    783
    
    
    $
    19.37
    
    
    
    
    
    
    
    March 31, 2007 to March 31, 2007(1)
    
    
    9,941
    
    
    $
    17.45
    
    
    
    
    
    
    
    Total
    
    
    10,724
    
    
    $
    18.41
    
    
    
    
    
    
    
    
 
 (1)
    
    These shares were withheld upon the vesting of employee restricted stock grants in connection
with payment of required withholding taxes. 38




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##### Table of Contents



Item 6. Exhibits
 Number
    
    Description2.1*
    
    Agreement and Plan of Merger, dated as of September 9, 2005, among
Forest Oil Corporation, SML Wellhead Corporation, Mariner Energy,
Inc. and MEI Sub, Inc. (incorporated by reference to Exhibit 2.1 to
Mariners Registration Statement on Form S-4 (File No. 333-129096)
filed on October 18, 2005).2.2*
    
    Letter Agreement, dated as of February 3, 2006, among Forest Oil
Corporation, Forest Energy Resources, Inc., Mariner Energy, Inc.,
and MEI Sub, Inc. amended the transaction agreements (incorporated
by reference to Exhibit 2.2 to Amendment No. 3 to Mariners
Registration Statement on Form S-4 (File No. 333-129096) filed on
February 8, 2006).2.3*
    
    Letter Agreement, dated as of February 28, 2006, among Forest Oil
Corporation, Forest Energy Resources, Inc., Mariner Energy, Inc. and
MEI Sub, Inc. amended the transaction agreements (incorporated by
reference to Exhibit 2.1 to Mariners Form 8-K filed on March 3,
2006).2.4*
    
    Letter Agreement, dated April 12, 2006, among Forest Oil
Corporation, Mariner Energy Resources, Inc. and Mariner Energy, Inc.
amended the transaction agreements (incorporated by reference to
Exhibit 2.1 to Mariners Form 8-K filed on April 13, 2006).3.1*
    
    Second Amended and Restated Certificate of Incorporation of Mariner
Energy, Inc., as amended (incorporated by reference to Exhibit 3.1
to Mariners Registration Statement on Form S-8 (File No.
333-132800) filed on March 29, 2006).3.2*
    
    Fourth Amended and Restated Bylaws of Mariner Energy, Inc.
(incorporated by reference to Exhibit 3.2 to Mariners Registration
Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005).4.1*
    
    Indenture, dated as of April 30, 2007, among Mariner Energy, Inc.,
the guarantors party thereto and Wells Fargo Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K
filed on May 1, 2007).4.2*
    
    Indenture, dated as of April 24, 2006, among Mariner Energy, Inc.,
the guarantors party thereto and Wells Fargo Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K
filed on April 25, 2006).4.3*
    
    Exchange and Registration Rights Agreement, dated as of April 24,
2006, among Mariner Energy, Inc., the guarantors party thereto and
the initial purchasers party thereto (incorporated by reference to
Exhibit 4.2 to Mariners Form 8-K filed on April 25, 2006).4.4*
    
    Amended and Restated Credit Agreement, dated as of March 2, 2006,
among Mariner Energy, Inc. and Mariner Energy Resources, Inc., as
Borrowers, the Lenders party thereto from time to time, as Lenders,
and Union Bank of California, N.A., as Administrative Agent and as
Issuing Lender (incorporated by reference to Exhibit 4.1 to
Mariners Form 8-K filed on March 3, 2006).4.5*
    
    Amendment No. 1 and Consent, dated as of April 7, 2006, among
Mariner Energy, Inc. and Mariner Energy Resources, Inc., as
Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender
for such Lenders (incorporated by reference to Exhibit 4.1 to
Mariners Form 8-K filed on April 13, 2006).4.6*
    
    Amendment No. 2, dated as of October 13, 2006, among Mariner Energy,
Inc. and Mariner Energy Resources, Inc., as Borrowers, the Lenders
party thereto, and Union Bank of California, N.A., as Administrative
Agent for such Lenders and as Issuing Lender for such Lenders
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K
filed on October 18, 2006).
 39




---



##### Table of Contents



Number
    
    Description4.7*
    
    Amendment No. 3 and Consent, dated as of April 23, 2007, among
Mariner Energy, Inc. and Mariner Energy Resources, Inc., as
Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender
for such Lenders Lenders (incorporated by reference to Exhibit 4.1
to Mariners Form 8-K filed on April 24, 2007).4.8*
    
    Credit Agreement among Mariner Energy Inc., the Lenders party
thereto and Union Bank of California, N.A., dated as of March 2,
2004 (incorporated by reference to Exhibit 10.1 to Mariners
Registration Statement on Form S-4 (File No. 333-129096) filed on
October 18, 2005).4.9*
    
    Amendment No. 1 and Assignment Agreement among Mariner Energy, Inc.,
Mariner Holdings, Inc., Mariner Energy LLC, the Lenders party
thereto, and Union Bank of California, N.A., dated as of July 14,
2004 (incorporated by reference to Exhibit 10.2 to Mariners
Registration Statement on Form S-4 (File No. 333-129096) filed on
October 18, 2005).4.10*
    
    Waiver and Consent among Mariner Energy, Inc., Mariner Holdings,
Inc., Mariner Energy LLC, the Union Bank of California, N.A. and the
Lenders party thereto, dated December 29, 2004 (incorporated by
reference to Exhibit 10.3 to Mariners Registration Statement on
Form S-4 (File No. 333-129096) filed on October 18, 2005).4.11*
    
    Amendment No. 2 and Consent among Mariner Energy, Inc., Mariner
Holdings, Inc., Mariner Energy LLC, the Lenders party thereto, and
Union Bank of California, N.A., dated as of February 7, 2005
(incorporated by reference to Exhibit 10.4 to Mariners Registration
Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005).4.12*
    
    Amendment No. 3 and Consent among Mariner Energy, Inc., Mariner LP
LLC, Mariner Energy Texas LP, the Lenders party thereto, and Union
Bank of California, N.A., dated as of March 3, 2005 (incorporated by
reference to Exhibit 10.5 to Mariners Registration Statement on
Form S-4 (File No. 333-129096) filed on October 18, 2005).4.13*
    
    Amendment No. 4 among Mariner Energy, Inc., Mariner LP LLC, Mariner
Energy Texas LP, the Lenders party thereto, and Union Bank of
California, N.A., dated as of July 14, 2005 (incorporated by
reference to Exhibit 4.10 to Mariners Form 10-Q filed on May 12,
2006).4.14*
    
    Amendment No. 5 among Mariner Energy, Inc., Mariner LP LLC, Mariner
Energy Texas LP, the Lenders party thereto, and Union Bank of
California, N.A., dated as of August 5, 2005 (incorporated by
reference to Exhibit 4.11 to Mariners Form 10-Q filed on May 12,
2006).10.1*
    
    Underwriting Agreement, dated April 25, 2007, among J.P. Morgan
Securities Inc., as Representative of the several Underwriters
listed in Schedule 1 thereto, Mariner Energy, Inc., Mariner Energy
Resources, Inc., Mariner LP LLC, and Mariner Energy Texas LP
(incorporated by reference to Exhibit 1.1 to Mariners Form 8-K
filed on April 26, 2007).10.2*
    
    Purchase Agreement, dated as of April 19, 2006, among Mariner
Energy, Inc., Mariner LP LLC, Mariner Energy Resources, Inc.,
Mariner Energy Texas LP and the initial purchasers party thereto
(incorporated by reference to Exhibit 10.1 to Mariners Form 8-K
filed on April 25, 2006).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference as indicated.  40




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##### Table of Contents



SIGNATURES
  Mariner Energy, Inc.By:
    
    /s/ Scott D. JoseyName: Scott D. JoseyTitle: Chairman of the Board,Chief Executive Officer and PresidentBy:
    
    /s/ John H. KarnesName: John H. KarnesTitle: Senior Vice President, Chief Financial Officer 
         and Treasurer
 41




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##### Table of Contents



Exhibit Index
 Number
    
    Description2.1*
    
    Agreement and Plan of Merger, dated as of September 9, 2005, among
Forest Oil Corporation, SML Wellhead Corporation, Mariner Energy,
Inc. and MEI Sub, Inc. (incorporated by reference to Exhibit 2.1 to
Mariners Registration Statement on Form S-4 (File No. 333-129096)
filed on October 18, 2005).2.2*
    
    Letter Agreement, dated as of February 3, 2006, among Forest Oil
Corporation, Forest Energy Resources, Inc., Mariner Energy, Inc.,
and MEI Sub, Inc. amended the transaction agreements (incorporated
by reference to Exhibit 2.2 to Amendment No. 3 to Mariners
Registration Statement on Form S-4 (File No. 333-129096) filed on
February 8, 2006).2.3*
    
    Letter Agreement, dated as of February 28, 2006, among Forest Oil
Corporation, Forest Energy Resources, Inc., Mariner Energy, Inc. and
MEI Sub, Inc. amended the transaction agreements (incorporated by
reference to Exhibit 2.1 to Mariners Form 8-K filed on March 3,
2006).2.4*
    
    Letter Agreement, dated April 12, 2006, among Forest Oil
Corporation, Mariner Energy Resources, Inc. and Mariner Energy, Inc.
amended the transaction agreements (incorporated by reference to
Exhibit 2.1 to Mariners Form 8-K filed on April 13, 2006).3.1*
    
    Second Amended and Restated Certificate of Incorporation of Mariner
Energy, Inc., as amended (incorporated by reference to Exhibit 3.1
to Mariners Registration Statement on Form S-8 (File No.
333-132800) filed on March 29, 2006).3.2*
    
    Fourth Amended and Restated Bylaws of Mariner Energy, Inc.
(incorporated by reference to Exhibit 3.2 to Mariners Registration
Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005).4.1*
    
    Indenture, dated as of April 30, 2007, among Mariner Energy, Inc.,
the guarantors party thereto and Wells Fargo Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K
filed on April 30, 2007).4.2*
    
    Indenture, dated as of April 24, 2006, among Mariner Energy, Inc.,
the guarantors party thereto and Wells Fargo Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K
filed on April 25, 2006).4.3*
    
    Exchange and Registration Rights Agreement, dated as of April 24,
2006, among Mariner Energy, Inc., the guarantors party thereto and
the initial purchasers party thereto (incorporated by reference to
Exhibit 4.2 to Mariners Form 8-K filed on April 25, 2006).4.4*
    
    Amended and Restated Credit Agreement, dated as of March 2, 2006,
among Mariner Energy, Inc. and Mariner Energy Resources, Inc., as
Borrowers, the Lenders party thereto from time to time, as Lenders,
and Union Bank of California, N.A., as Administrative Agent and as
Issuing Lender (incorporated by reference to Exhibit 4.1 to
Mariners Form 8-K filed on March 3, 2006).4.5*
    
    Amendment No. 1 and Consent, dated as of April 7, 2006, among
Mariner Energy, Inc. and Mariner Energy Resources, Inc., as
Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender
for such Lenders (incorporated by reference to Exhibit 4.1 to
Mariners Form 8-K filed on April 13, 2006).4.6*
    
    Amendment No. 2, dated as of October 13, 2006, among Mariner Energy,
Inc. and Mariner Energy Resources, Inc., as Borrowers, the Lenders
party thereto, and Union Bank of California, N.A., as Administrative
Agent for such Lenders and as Issuing Lender for such Lenders
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K
filed on October 18, 2006).




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##### Table of Contents



Number
    
    Description4.7*
    
    Amendment No. 3 and Consent, dated as of April 23, 2007, among
Mariner Energy, Inc. and Mariner Energy Resources, Inc., as
Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender
for such Lenders Lenders (incorporated by reference to Exhibit 4.1
to Mariners Form 8-K filed on April 24, 2007).4.8*
    
    Credit Agreement among Mariner Energy Inc., the Lenders party
thereto and Union Bank of California, N.A., dated as of March 2,
2004 (incorporated by reference to Exhibit 10.1 to Mariners
Registration Statement on Form S-4 (File No. 333-129096) filed on
October 18, 2005).4.9*
    
    Amendment No. 1 and Assignment Agreement among Mariner Energy, Inc.,
Mariner Holdings, Inc., Mariner Energy LLC, the Lenders party
thereto, and Union Bank of California, N.A., dated as of July 14,
2004 (incorporated by reference to Exhibit 10.2 to Mariners
Registration Statement on Form S-4 (File No. 333-129096) filed on
October 18, 2005).4.10*
    
    Waiver and Consent among Mariner Energy, Inc., Mariner Holdings,
Inc., Mariner Energy LLC, the Union Bank of California, N.A. and the
Lenders party thereto, dated December 29, 2004 (incorporated by
reference to Exhibit 10.3 to Mariners Registration Statement on
Form S-4 (File No. 333-129096) filed on October 18, 2005).4.11*
    
    Amendment No. 2 and Consent among Mariner Energy, Inc., Mariner
Holdings, Inc., Mariner Energy LLC, the Lenders party thereto, and
Union Bank of California, N.A., dated as of February 7, 2005
(incorporated by reference to Exhibit 10.4 to Mariners Registration
Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005).4.12*
    
    Amendment No. 3 and Consent among Mariner Energy, Inc., Mariner LP
LLC, Mariner Energy Texas LP, the Lenders party thereto, and Union
Bank of California, N.A., dated as of March 3, 2005 (incorporated by
reference to Exhibit 10.5 to Mariners Registration Statement on
Form S-4 (File No. 333-129096) filed on October 18, 2005).4.13*
    
    Amendment No. 4 among Mariner Energy, Inc., Mariner LP LLC, Mariner
Energy Texas LP, the Lenders party thereto, and Union Bank of
California, N.A., dated as of July 14, 2005 (incorporated by
reference to Exhibit 4.10 to Mariners Form 10-Q filed on May 12,
2006).4.14*
    
    Amendment No. 5 among Mariner Energy, Inc., Mariner LP LLC, Mariner
Energy Texas LP, the Lenders party thereto, and Union Bank of
California, N.A., dated as of August 5, 2005 (incorporated by
reference to Exhibit 4.11 to Mariners Form 10-Q filed on May 12,
2006).10.1*
    
    Underwriting Agreement, dated April 25, 2007, among J.P. Morgan
Securities Inc., as Representative of the several Underwriters
listed in Schedule 1 thereto, Mariner Energy, Inc., Mariner Energy
Resources, Inc., Mariner LP LLC, and Mariner Energy Texas LP
(incorporated by reference to Exhibit 1.1 to Mariners Form 8-K
filed on April 26, 2007).10.2*
    
    Purchase Agreement, dated as of April 19, 2006, among Mariner
Energy, Inc., Mariner LP LLC, Mariner Energy Resources, Inc.,
Mariner Energy Texas LP and the initial purchasers party thereto
(incorporated by reference to Exhibit 10.1 to Mariners Form 8-K
filed on April 25, 2006).31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference as indicated.In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.