##### 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 September 30, 2006
 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 Unaudited Financial Statements
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    30Item 4.
    
    Controls and Procedures
    
    32PART IIItem 1A.
    
    Risk Factors
    
    33Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    34Item 5.
    
    Other Information
    
    34Item 6.
    
    Exhibits
    
    36Signatures
    
    38Index to ExhibitsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I
 
 Item 1. Condensed Consolidated Unaudited Financial Statements
 MARINER ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2006
    
    
    2005Current Assets:Cash and cash equivalents
    
    $
    4,874
    
    
    $
    4,556Receivables, net of allowances of $337 at September
30, 2006 and $500 at December 31, 2005
    
    
    163,579
    
    
    
    84,109Insurance receivables
    
    
    61,586
    
    
    
    4,542Derivative financial instruments
    
    
    55,265
    
    
    
    Prepaid seismic
    
    
    16,956
    
    
    
    6,542Prepaid expenses and other
    
    
    15,149
    
    
    
    15,666Deferred tax asset
    
    
    10,215
    
    
    
    26,017Total current assets
    
    
    327,624
    
    
    
    141,432Property and Equipment:Oil and gas properties, full cost method: Proved
    
    
    2,217,982
    
    
    
    574,725Unproved, not subject to amortization
    
    
    121,297
    
    
    
    40,176Total
    
    
    2,339,279
    
    
    
    614,901Other property and equipment
    
    
    13,749
    
    
    
    11,048Accumulated depreciation, depletion and amortization
    
    
    (291,124
    )
    
    
    (110,006
    )Total property and equipment, net
    
    
    2,061,904
    
    
    
    515,943Goodwill
    
    
    263,750
    
    
    
    Derivative financial instruments
    
    
    18,674
    
    
    
    Other Assets, net of amortization
    
    
    28,772
    
    
    
    8,161TOTAL ASSETS
    
    $
    2,700,724
    
    
    $
    665,536Current Liabilities:Accounts payable
    
    $
    35,806
    
    
    $
    37,530Accrued liabilities
    
    
    107,765
    
    
    
    75,324Accrued
capital costs
    
    
    129,308
    
    
    
    37,006Abandonment
liability
    
    
    51,952
    
    
    
    11,359Accrued interest
    
    
    12,580
    
    
    
    614Derivative financial instruments
    
    
    
    
    
    
    42,173Total current liabilities
    
    
    337,411
    
    
    
    204,006Long-Term Liabilities:Abandonment liability
    
    
    170,495
    
    
    
    38,176Deferred income tax
    
    
    305,756
    
    
    
    25,886Derivative financial instruments
    
    
    
    
    
    
    21,632Long term debt, revolving credit facility
    
    
    314,000
    
    
    
    152,000Long term debt, senior unsecured notes
    
    
    300,000
    
    
    
    Note payable
    
    
    
    
    
    
    4,000Other long-term liabilities
    
    
    6,000
    
    
    
    6,500Total long-term liabilities
    
    
    1,096,251
    
    
    
    248,194Commitments and Contingencies (see Note 8)Stockholders Equity:Common stock, $.0001 par value; 180,000,000 shares
authorized, 86,269,563 shares issued and
outstanding at September 30, 2006; 70,000,000
shares authorized, 35,615,400 shares issued and
outstanding at December 31, 2005
    
    
    9
    
    
    
    4Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at September 30, 2006 and December 31, 2005
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    1,042,544
    
    
    
    160,705Accumulated other comprehensive income/(loss)
    
    
    52,185
    
    
    
    (41,473
    )Accumulated retained earnings
    
    
    172,324
    
    
    
    94,100Total stockholders equity
    
    
    1,267,062
    
    
    
    213,336TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,700,724
    
    
    $
    665,536
 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 Ended
    
    

Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Oil sales
    
    $
    63,256
    
    
    $
    15,144
    
    
    $
    150,982
    
    
    $
    53,579Gas sales
    
    
    126,432
    
    
    
    27,823
    
    
    
    285,008
    
    
    
    94,913Other revenues
    
    
    778
    
    
    
    695
    
    
    
    2,401
    
    
    
    2,753Total revenues
    
    
    190,466
    
    
    
    43,662
    
    
    
    438,391
    
    
    
    151,245Costs and Expenses:Lease operating expense
    
    
    28,744
    
    
    
    5,887
    
    
    
    62,863
    
    
    
    17,678Severance and ad valorem taxes
    
    
    2,262
    
    
    
    1,089
    
    
    
    5,710
    
    
    
    2,492Transportation expense
    
    
    1,754
    
    
    
    196
    
    
    
    4,031
    
    
    
    1,697General and administrative expense
    
    
    7,577
    
    
    
    11,326
    
    
    
    25,050
    
    
    
    26,726Depreciation, depletion and amortization
    
    
    82,416
    
    
    
    12,403
    
    
    
    192,222
    
    
    
    43,457Impairment of production equipment held
for use
    
    
    
    
    
    
    498
    
    
    
    
    
    
    
    498Total costs and expenses
    
    
    122,753
    
    
    
    31,399
    
    
    
    289,876
    
    
    
    92,548OPERATING INCOME
    
    
    67,713
    
    
    
    12,263
    
    
    
    148,515
    
    
    
    58,697Interest:Income
    
    
    237
    
    
    
    135
    
    
    
    486
    
    
    
    696Expense, net of amounts capitalized
    
    
    (11,724
    )
    
    
    (1,849
    )
    
    
    (26,392
    )
    
    
    (5,416
    )Income before taxes
    
    
    56,226
    
    
    
    10,549
    
    
    
    122,609
    
    
    
    53,977Provision for income taxes
    
    
    (19,836
    )
    
    
    (3,606
    )
    
    
    (44,385
    )
    
    
    (18,414
    )NET INCOME
    
    $
    36,390
    
    
    $
    6,943
    
    
    $
    78,224
    
    
    $
    35,563Earnings per share:Net income per sharebasic
    
    $
    0.43
    
    
    $
    0.21
    
    
    $
    1.07
    
    
    $
    1.10Net income per sharediluted
    
    $
    0.43
    
    
    $
    0.20
    
    
    $
    1.06
    
    
    $
    1.07Weighted average shares outstandingbasic
    
    
    85,493,237
    
    
    
    33,348,130
    
    
    
    73,270,309
    
    
    
    32,438,240Weighted average shares outstandingdiluted
    
    
    85,581,108
    
    
    
    34,806,842
    
    
    
    73,694,727
    
    
    
    33,312,831
 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
 Nine MonthsEnded September 30,2006
    
    
    2005Operating Activities:Net income
    
    $
    78,224
    
    
    $
    35,563Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income tax
    
    
    44,243
    
    
    
    15,862Depreciation, depletion and amortization
    
    
    194,963
    
    
    
    44,321Stock compensation expense
    
    
    9,016
    
    
    
    17,614Impairment of production equipment held for use
    
    
    
    
    
    
    498Net realized loss on derivative contracts acquired
    
    
    5,144
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    (25,390
    )
    
    
    2,476Insurance receivable
    
    
    (41,916
    )
    
    
    Prepaid expenses and other
    
    
    12,226
    
    
    
    418Other assets
    
    
    (3,935
    )
    
    
    (629
    )Accounts payable and accrued liabilities
    
    
    (99,781
    )
    
    
    19,251Net cash provided by operating activities
    
    
    172,794
    
    
    
    135,374Investing Activities:Additions to properties and equipment
    
    
    (404,675
    )
    
    
    (142,102
    )Proceeds from property conveyances
    
    
    2,012
    
    
    
    18Purchase price adjustment
    
    
    (20,808
    )
    
    
    Net cash used in investing activities
    
    
    (423,471
    )
    
    
    (142,084
    )Financing Activities:Repayment of term note
    
    
    (4,000
    )
    
    
    (6,000
    )Credit facility borrowings (repayments), net
    
    
    162,000
    
    
    
    (30,000
    )Debt and working capital acquired from Forest Energy Resources, Inc.
    
    
    (176,200
    )
    
    
    Proceeds from note offering
    
    
    300,000
    
    
    
    Repurchase of stock
    
    
    (14,027
    )
    
    
    Deferred offering costs
    
    
    (12,343
    )
    
    
    (2,680
    )Net realized loss on derivative contracts acquired
    
    
    (5,144
    )
    
    
    Proceeds from private equity offering
    
    
    
    
    
    
    44,534Capital contribution from affiliates
    
    
    
    
    
    
    2,879Proceeds from exercise of stock options
    
    
    709
    
    
    
    Net cash provided by financing activities
    
    
    250,995
    
    
    
    8,733Increase in Cash and Cash Equivalents
    
    
    318
    
    
    
    2,023Cash and Cash Equivalents at Beginning of Period
    
    
    4,556
    
    
    
    2,541Cash and Cash Equivalents at End of Period
    
    $
    4,874
    
    
    $
    4,564
 The accompanying notes are an integral part of these consolidated financial statements
 5




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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 Tax Provision
 Recent Accounting Pronouncements Accounting for Uncertainty in Income Taxes. Accounting for Income Taxes,
 6




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2. Related Party Transactions
 Organization and Ownership of the Company
   3. Acquisitions
 Forest Gulf of Mexico Operations
  Business
Combinations Goodwill and Other Intangible Assets.
 7




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(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
    
    
    (26.9
    )Goodwill
    
    
    263.8Net Assets Acquired
    
    $
    890.0
    Payable to Forest
 Pro Forma Financial Information
 Three Months Ended September 30.
    

Nine Months Ended September 30.2006
    
    2005
    
    2006
    
    2005(In thousands, except per share amounts)
    
    (In thousands, except per share amounts)Pro Forma:Revenue
    
    $
    190,466
    
    
    $
    136,052
    
    
    $
    505,873
    
    
    $
    477,967Net income available to
common stockholders
    
    $
    36,390
    
    
    $
    14,913
    
    
    $
    92,622
    
    
    $
    71,221Basic earnings per share
    
    $
    0.43
    
    
    $
    0.18
    
    
    $
    1.09
    
    
    $
    0.86Diluted earnings per share
    
    $
    0.43
    
    
    $
    0.17
    
    
    $
    1.09
    
    
    $
    0.85
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4. Long-Term Debt
 Secured Bank Credit Facility
  Amendments of Secured Bank Credit Facility
   
    
    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 of not more than 2.5 to 1.0.
 9




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Private Offering of Senior Unsecured Notes due 2013
     
   10




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
    
    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.
  
    
    file a registration statement within 180 days after the closing date of the offering
enabling holders of Notes to exchange the privately placed Notes for publicly registered Notes with substantially identical terms;
    
    use its reasonable best efforts to cause the registration statement to become effective
within 270 days after the closing date of the offering and to complete the exchange offer
within 360 days after the closing of the offering; and
    
    file a shelf registration statement for the resale of the Notes if it cannot effect an
exchange offer within the time periods listed above and in other circumstances.
   JEDI Term Promissory Note
 Cash Interest Expense
 11




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Bank Debt Issuance Costs
 5. Oil and Gas Properties
    6. Accrual for Future Abandonment Costs
   (In millions)Abandonment liability as of December 31, 2005 (1)
    
    $
    49.5Liabilities Incurred
    
    
    17.3Claims Settled
    
    
    (21.5
    )Accretion Expense
    
    
    11.1Revisions to previous estimates
    
    
    0.8Liabilities incurred from assets acquired (2)
    
    
    165.2Abandonment Liability as of September 30, 2006 (3)
    
    $
    222.4
 
 (1)
    
    Includes $11.4 million classified as a current accrued liability at December 31, 2005.(2)
    
    Represents the fair value of the asset retirement obligation acquired through the Forest
Transaction.(3)
    
    Includes $52.0 million classified as a current accrued liability at September 30, 2006. 12




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7. Stockholders Equity
 Increase
in Number of Shares Authorized
 Equity Participation Plan
 Amended and Restated Stock Incentive Plan
   13




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Rollover Options
 Accounting for Stock Options and Restricted Stock Share-Based Payment
 14




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2006
    
    
    2005Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of period: January 1,
    
    
    809,000
    
    
    $
    14.02
    
    
    
    
    
    
    $
    Granted
    
    
    156,626
    (1)
    
    
    8.31
    
    
    
    809,000
    (1)
    
    
    14.02Exercised
    
    
    (50,600
    )
    
    
    14.00
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (96,964
    )(2)
    
    
    12.58
    
    
    
    
    
    
    
    Outstanding at end of period: September 30,
    
    
    818,062
    
    
    
    13.69
    
    
    
    809,000
    
    
    
    14.02Outstanding exercisable at end of period: September 30,
    
    
    349,377
    
    
    
    14.00
    
    
    
    
    
    
    
    Available for future grant as options or restricted stock
    
    
    4,966,071
    
    
    
    
    
    
    
    1,191,000
    
    
    
    
 
 (1)
    
    The options exercisable for an aggregate 156,626 shares were Rollover Options granted
pursuant to the Forest Transaction merger agreement. The options exercisable for an aggregate
809,000 shares were granted under the Stock Incentive Plan.(2)
    
    Rollover Options exercisable for an aggregate 47,964 shares and an option exercisable for
40,000 shares granted under the Stock Incentive Plan were forfeited due to terminations of
employment, but are not indicative of a historical forfeiture rate. In-the-money options
exercisable for an aggregate 9,000 shares granted under the Stock Incentive Plan to two
directors of the Company were cancelled on March 31, 2006 and replaced by restricted stock
grants.  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageRange of Exercise
    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    ExercisePrices
    
    Outstanding
    
    Life (Years)
    
    Price
    
    Exercisable
    
    Price$8.81  $17.00
    
    
    818,062
    
    
    
    8.5
    
    
    $
    13.69
    
    
    
    349,377
    
    
    $
    14.00
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageNumber
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    Life (Years)
    
    Price
    
    Exercisable
    
    Price$14.00 $17.00
    
    
    809,000
    
    
    
    9.5
    
    
    $
    14.02
    
    
    
    
    
    
    
    
  Three Months Ended September 30,2006:Amended andRestated StockIncentive PlanOptions
    
    Rollover OptionsExpected Life (years)
    
    
    7.0
    
    
    
    5.0Risk Free Interest Rate
    
    
    4.82
    %
    
    
    4.80
    %Expected Volatility
    
    
    36
    %
    
    
    36
    %Dividend Yield
    
    
    0.0
    %
    
    
    0.0
    %
 Nine Months Ended September 30,2006:Amended andRestated StockIncentive PlanOptions
    
    Rollover OptionsExpected Life (years)
    
    
    5.7
    
    
    
    4.6Risk Free Interest Rate
    
    
    4.87
    %
    
    
    4.87
    %Expected Volatility
    
    
    35
    %
    
    
    35
    %Dividend Yield
    
    
    0.0
    %
    
    
    0.0
    %
 15




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StockIncentivePlanExpected Life (years)
    
    
    3.0Risk Free Interest Rate
    
    
    3.8
    %Expected Volatility
    
    
    38
    %Dividend Yield
    
    
    0.0
    %
   Restricted Shares under theAmended and Restated StockIncentive PlanSeptember 30,2006
    
    
    2005Total unvested shares at beginning of period: January 1
    
    
    
    
    
    
    Shares granted
    
    
    796,171
    
    
    
    Shares vested
    
    
    (1,500
    )
    
    
    Shares forfeited
    
    
    (22,078
    )
    
    
    Total unvested shares at end of period: September 30
    
    
    772,593
    
    
    
    Total vested shares at end of period: September 30
    
    
    1,500
    
    
    
    Available for future grant as options or restricted stock
    
    
    4,966,071Average fair value of shares granted during the period
    
    $
    19.44
    
    
    $
    
  Restricted Shares under theEquity Participation PlanSeptember 30,2006
    
    
    2005Total unvested shares at beginning of period: January 1
    
    
    2,267,270
    
    
    
    Shares granted
    
    
    
    
    
    
    2,267,270Shares vested
    
    
    (2,267,270
    )
    
    
    Shares forfeited
    
    
    
    
    
    
    Total unvested shares at end of period: September 30
    
    
    
    
    
    
    2,267,270Total vested shares at end of period: September 30
    
    
    2,267,270
    
    
    
    Available for future grant under Equity Participation Plan
    
    
    
    
    
    
    Average fair value of shares granted during the period
    
    
    
    
    
    $
    14.00
 Private Equity Placement.
 16




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8. Commitments And Contingencies
 Minimum Future Lease Payments
 2007
    
    $
    1.52008
    
    
    1.32009
    
    
    1.12010
    
    
    1.32011 and thereafter
    
    
    2.4
 Hedging Program
   September 30,2006 Fair ValueFixed Price Swaps
    
    Quantity
    
    
    Fixed Price
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)October 1December 31, 2006
    
    
    644,920
    
    
    $
    72.24
    
    
    $
    5.1Natural Gas (MMbtus)October 1December 31, 2006
    
    
    9,315,000
    
    
    
    7.97
    
    
    
    20.9January 1December 31, 2007
    
    
    15,846,323
    
    
    
    9.68
    
    
    
    31.7January 1September 30, 2008
    
    
    3,059,689
    
    
    
    9.58
    
    
    
    4.3Total
    
    
    
    
    
    
    
    
    
    $
    62.0
 17




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September 30,2006 Fair ValueCostless Collars
    
    Quantity
    
    
    Floor
    
    
    Cap
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)October 1December 31, 2006
    
    
    63,480
    
    
    $
    32.65
    
    
    $
    41.52
    
    
    $
    (1.4
    )January 1December 31, 2007
    
    
    2,032,689
    
    
    
    59.84
    
    
    
    84.21
    
    
    
    (1.0
    )January 1December 31, 2008
    
    
    1,195,495
    
    
    
    61.66
    
    
    
    86.80
    
    
    
    2.7Natural Gas (MMbtus)October 1December 31, 2006
    
    
    1,851,960
    
    
    
    5.78
    
    
    
    7.85
    
    
    
    0.9January 1December 31, 2007
    
    
    14,106,750
    
    
    
    6.87
    
    
    
    11.82
    
    
    
    1.7January 1December 31, 2008
    
    
    12,347,000
    
    
    
    7.83
    
    
    
    14.60
    
    
    
    9.1Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12.0
  Other Commitments
 MMS
Proceedings
  Insurance Matters
 18




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##### Table of Contents



19




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##### Table of Contents



Litigation
 Letters of Credit
  9. Net Income per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands except per share data)
    
    
    (In thousands except per share data)Numerator:Net Income
    
    $
    36,390
    
    
    $
    6,943
    
    
    $
    78,224
    
    
    $
    35,563Denominator:Weighted average shares outstanding
    
    
    85,493
    
    
    
    33,348
    
    
    
    73,270
    
    
    
    32,438Add dilutive securities
    
    
    88
    
    
    
    1,459
    
    
    
    425
    
    
    
    875Total weighted average shares
outstanding and dilutive
securities
    
    
    85,581
    
    
    
    34,807
    
    
    
    73,695
    
    
    
    33,313Earnings per sharebasic:
    
    $
    0.43
    
    
    $
    0.21
    
    
    $
    1.07
    
    
    $
    1.10Earnings per sharediluted:
    
    $
    0.43
    
    
    $
    0.20
    
    
    $
    1.06
    
    
    $
    1.07
  20




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##### Table of Contents



10. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)
    
    
    (in thousands)Net Income
    
    $
    36,390
    
    
    $
    6,943
    
    
    $
    78,224
    
    
    $
    35,563Other comprehensive income (loss)Derivative contracts settled and reclassified, net of tax
    
    
    10,432
    
    
    
    12,509
    
    
    
    1,506
    
    
    
    23,401Change in unrealized mark to market gains/(losses)
arising during period, net of tax
    
    
    48,904
    
    
    
    (49,853
    )
    
    
    92,152
    
    
    
    (79,479
    )Change in accumulated other comprehensive income
(loss)
    
    
    59,336
    
    
    
    (37,344
    )
    
    
    93,658
    
    
    
    (56,078
    )Comprehensive income/(loss)
    
    $
    95,726
    
    
    $
    (30,401
    )
    
    $
    171,882
    
    
    
    (20,515
    )
 11. Supplemental Guarantor Information
    21




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2006
 Parent
    
    
    Subsidiary
    
    
    
    
    
    
    Consolidated MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Current Assets:Cash and cash equivalents
    
    $
    4,874
    
    
    $
    
    
    
    $
    
    
    
    $
    4,874Receivables, net
    
    
    100,344
    
    
    
    63,235
    
    
    
    
    
    
    
    163,579Insurance receivables
    
    
    4,552
    
    
    
    57,034
    
    
    
    
    
    
    
    61,586Derivative financial instruments
    
    
    64,458
    
    
    
    (9,193
    )
    
    
    
    
    
    
    55,265Prepaid seismic
    
    
    16,291
    
    
    
    665
    
    
    
    
    
    
    
    16,956Prepaid expenses and other
    
    
    13,779
    
    
    
    1,370
    
    
    
    
    
    
    
    15,149Deferred tax asset
    
    
    
    
    
    
    10,215
    
    
    
    
    
    
    
    10,215Total current assets
    
    
    204,298
    
    
    
    123,326
    
    
    
    
    
    
    
    327,624Property and Equipment:Oil and gas properties, full cost method: Proved
    
    
    843,821
    
    
    
    1,374,161
    
    
    
    
    
    
    
    2,217,982Unproved, not subject to amortization
    
    
    116,644
    
    
    
    4,653
    
    
    
    
    
    
    
    121,297Total
    
    
    960,465
    
    
    
    1,378,814
    
    
    
    
    
    
    
    2,339,279Other property and equipment
    
    
    13,465
    
    
    
    284
    
    
    
    
    
    
    
    13,749Accumulated depreciation, depletion and
amortization
    
    
    (188,412
    )
    
    
    (102,712
    )
    
    
    
    
    
    
    (291,124
    )Total property and equipment, net
    
    
    785,518
    
    
    
    1,276,386
    
    
    
    
    
    
    
    2,061,904Investment in subsidiaries
    
    
    958,250
    
    
    
    
    
    
    
    (958,250
    )
    
    
    Intercompany
    
    
    156,393
    
    
    
    (156,393
    )
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    263,750
    
    
    
    
    
    
    
    263,750Derivative financial instruments
    
    
    18,674
    
    
    
    
    
    
    
    
    
    
    
    18,674Other Assets, Net of Amortization
    
    
    20,968
    
    
    
    7,804
    
    
    
    
    
    
    
    28,772TOTAL ASSETS
    
    $
    2,144,101
    
    
    $
    1,514,873
    
    
    $
    (958,250
    )
    
    $
    2,700,724Current Liabilities:Accounts payable
    
    $
    34,453
    
    
    $
    1,353
    
    
    $
    
    
    
    $
    35,806Accrued liabilities
    
    
    95,792
    
    
    
    11,973
    
    
    
    
    
    
    
    107,765Accrued capital costs
    
    
    100,201
    
    
    
    29,107
    
    
    
    
    
    
    
    129,308Abandonment liability
    
    
    6,623
    
    
    
    45,329
    
    
    
    
    
    
    
    51,952Accrued interest
    
    
    12,404
    
    
    
    176
    
    
    
    
    
    
    
    12,580Intercompany note payable/(receivable)
    
    
    (176,200
    )
    
    
    176,200
    
    
    
    
    
    
    
    Total current liabilities
    
    
    73,273
    
    
    
    264,138
    
    
    
    
    
    
    
    337,411Long-Term Liabilities:Abandonment liability
    
    
    53,398
    
    
    
    117,097
    
    
    
    
    
    
    
    170,495Deferred income tax
    
    
    123,296
    
    
    
    182,460
    
    
    
    
    
    
    
    305,756Long term debt, revolving credit facility
    
    
    314,000
    
    
    
    
    
    
    
    
    
    
    
    314,000Long term debt, senior unsecured notes
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Other long-term liabilities
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    6,000Total long-term liabilities
    
    
    796,694
    
    
    
    299,557
    
    
    
    
    
    
    
    1,096,251Commitments and ContingenciesStockholders Equity:Common stock, $.0001 par value; 180,000,000
shares authorized, 86,269,563 shares issued and
outstanding at September 30, 2006
    
    
    9
    
    
    
    5
    
    
    
    (5
    )
    
    
    9Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and
outstanding at September 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in-capital
    
    
    1,042,544
    
    
    
    886,142
    
    
    
    (886,142
    )
    
    
    1,042,544Accumulated other comprehensive income/(loss)
    
    
    59,257
    
    
    
    (7,072
    )
    
    
    
    
    
    
    52,185Accumulated retained earnings
    
    
    172,324
    
    
    
    72,103
    
    
    
    (72,103
    )
    
    
    172,324Total stockholders equity
    
    
    1,274,134
    
    
    
    951,178
    
    
    
    (958,250
    )
    
    
    1,267,062TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,144,101
    
    
    $
    1,514,873
    
    
    $
    (958,250
    )
    
    $
    2,700,724
 22




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2006
 Subsidiary
    
    
    
    
    
    
    Consolidated MarinerParent Company
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Oil sales
    
    $
    84,009
    
    
    $
    66,973
    
    
    $
    
    
    
    $
    150,982Gas sales
    
    
    123,930
    
    
    
    161,078
    
    
    
    
    
    
    
    285,008Other revenues
    
    
    2,401
    
    
    
    
    
    
    
    
    
    
    
    2,401Total revenues
    
    
    210,340
    
    
    
    228,051
    
    
    
    
    
    
    
    438,391Costs and Expenses:Lease operating expense
    
    
    28,073
    
    
    
    34,790
    
    
    
    
    
    
    
    62,863Severance and ad valorem taxes
    
    
    5,205
    
    
    
    505
    
    
    
    
    
    
    
    5,710Transportation expense
    
    
    2,728
    
    
    
    1,303
    
    
    
    
    
    
    
    4,031General and administrative expense
    
    
    23,613
    
    
    
    1,437
    
    
    
    
    
    
    
    25,050Depreciation, depletion and amortization
    
    
    82,191
    
    
    
    110,031
    
    
    
    
    
    
    
    192,222Total costs and expenses
    
    
    141,810
    
    
    
    148,066
    
    
    
    
    
    
    
    289,876OPERATING INCOME
    
    
    68,530
    
    
    
    79,985
    
    
    
    
    
    
    
    148,515Earnings of Affiliates
    
    
    72,103
    
    
    
    
    
    
    
    (72,103
    )
    
    
    Interest:Income
    
    
    486
    
    
    
    
    
    
    
    
    
    
    
    486Expense, net of amounts capitalized
    
    
    (18,510
    )
    
    
    (7,882
    )
    
    
    
    
    
    
    (26,392
    )Income before taxes
    
    
    122,609
    
    
    
    72,103
    
    
    
    (72,103
    )
    
    
    122,609Provision for income taxes
    
    
    (44,385
    )
    
    
    
    
    
    
    
    
    
    
    (44,385
    )NET INCOME
    
    $
    78,224
    
    
    $
    72,103
    
    
    $
    (72,103
    )
    
    $
    78,224
 MARINER ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2006
 Subsidiary
    
    
    
    
    
    
    Consolidated MarinerParent Company
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Oil sales
    
    $
    29,775
    
    
    $
    33,481
    
    
    $
    
    
    
    $
    63,256Gas sales
    
    
    53,822
    
    
    
    72,610
    
    
    
    
    
    
    
    126,432Other revenues
    
    
    778
    
    
    
    
    
    
    
    
    
    
    
    778Total revenues
    
    
    84,375
    
    
    
    106,091
    
    
    
    
    
    
    
    190,466Costs and Expenses:Lease operating expense
    
    
    12,175
    
    
    
    16,569
    
    
    
    
    
    
    
    28,744Severance and ad valorem taxes
    
    
    1,757
    
    
    
    505
    
    
    
    
    
    
    
    2,262Transportation expense
    
    
    1,201
    
    
    
    553
    
    
    
    
    
    
    
    1,754General and administrative expense
    
    
    6,947
    
    
    
    630
    
    
    
    
    
    
    
    7,577Depreciation, depletion and amortization
    
    
    34,064
    
    
    
    48,352
    
    
    
    
    
    
    
    82,416Total costs and expenses
    
    
    56,144
    
    
    
    66,609
    
    
    
    
    
    
    
    122,753OPERATING INCOME
    
    
    28,231
    
    
    
    39,482
    
    
    
    
    
    
    
    67,713Earnings of Affiliates
    
    
    35,719
    
    
    
    
    
    
    
    (35,719
    )
    
    
    Interest:Income
    
    
    237
    
    
    
    
    
    
    
    
    
    
    
    237Expense, net of amounts capitalized
    
    
    (7,961
    )
    
    
    (3,763
    )
    
    
    
    
    
    
    (11,724
    )Income before taxes
    
    
    56,226
    
    
    
    35,719
    
    
    
    (35,719
    )
    
    
    56,226Provision for income taxes
    
    
    (19,836
    )
    
    
    
    
    
    
    
    
    
    
    (19,836
    )NET INCOME
    
    $
    36,390
    
    
    $
    35,719
    
    
    $
    (35,719
    )
    
    $
    36,390
 23




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2006
 Subsidiary
    
    
    Consolidated MarinerParent Company
    
    
    Guarantors
    
    
    Energy, Inc.Net cash provided by operating activities
    
    $
    129,880
    
    
    $
    42,914
    
    
    $
    172,794Investing Activities:Additions to properties and equipment
    
    
    (266,853
    )
    
    
    (137,822
    )
    
    
    (404,675
    )Proceeds from property conveyances
    
    
    2,012
    
    
    
    
    
    
    
    2,012Purchase price adjustment
    
    
    
    
    
    
    (20,808
    )
    
    
    (20,808
    )Net cash used in investing activities
    
    
    (264,841
    )
    
    
    (158,630
    )
    
    
    (423,471
    )Financing Activities:Repayment of term note
    
    
    (4,000
    )
    
    
    
    
    
    
    (4,000
    )Credit facility repayments, net
    
    
    162,000
    
    
    
    
    
    
    
    162,000Debt and working capital acquired from Forest
Energy Resources, Inc.
    
    
    
    
    
    
    (176,200
    )
    
    
    (176,200
    )Proceeds from note offering
    
    
    300,000
    
    
    
    
    
    
    
    300,000Repurchase of stock
    
    
    (14,027
    )
    
    
    
    
    
    
    (14,027
    )Deferred offering costs
    
    
    (12,343
    )
    
    
    
    
    
    
    (12,343
    )Net realized loss on derivative contracts acquired
    
    
    
    
    
    
    (5,144
    )
    
    
    (5,144
    )Proceeds from exercise of stock options
    
    
    709
    
    
    
    
    
    
    
    709Net activity in investments from subsidiaries
    
    
    (297,060
    )
    
    
    297,060
    
    
    
    Net cash provided by financing activities
    
    
    135,279
    
    
    
    115,716
    
    
    
    250,995Increase in Cash and Cash Equivalents
    
    
    318
    
    
    
    
    
    
    
    318Cash and Cash Equivalents at Beginning of Period
    
    
    4,556
    
    
    
    
    
    
    
    4,556Cash and Cash Equivalents at End of Period
    
    $
    4,874
    
    
    $
    
    
    
    $
    4,874
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
  24




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##### Table of Contents



Recent Developments
 Material
Gulf of Mexico Discovery 
 Results of Operations
 Offshore
 Expected date ofWell Name
    
    Operator
    
    Working Interest
    
    Water Depth (Ft)
    
    Initial Production
    
    LocationGB 195 #1 (Zloty)
    
    Mariner
    
    
    70
    %
    
    686 feet
    
    TBD
    
    ShelfGB 244#2ST3 (Cottonwood)
    
    Petrobras
    
    
    20
    %
    
    2,119 feet
    
    1st Quarter 2007
    
    DeepwaterEI 337 A10 (Mercury)
    
    Devon
    
    
    17
    %
    
    268 feet
    
    1st Quarter 2007
    
    ShelfHI 116 #5ST1
    
    Mariner
    
    
    100
    %
    
    43 feet
    
    4th Quarter 2006
    
    ShelfHI 46#1ST1 (Green Pepper)
    
    Mariner
    
    
    31.5
    %
    
    28 feet
    
    4th Quarter 2006
    
    ShelfWC 132 #1 (Five Forks)
    
    El Paso
    
    
    20
    %
    
    36 feet
    
    TBD
    
    Shelf
   Onshore 
 25




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##### Table of Contents



Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005 and the
Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005
 Operating and Financial Results for the Three Months Ended
September 30, 2006 Compared to the Three
Months EndedSeptember 30, 2005 and the Nine Months Ended September 30, 2006 Compared to the Nine
Months Ended September 30, 2005
 Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,Summary Operating Information:
    
    2006
    
    2005
    
    2006
    
    2005(In thousands except average sales prices and production volumes)Net Production:Oil (MBbls)
    
    
    1,009
    
    
    
    347
    
    
    
    2,534
    
    
    
    1,336Natural Gas (MMcf)
    
    
    16,630
    
    
    
    3,985
    
    
    
    39,298
    
    
    
    14,508Total (MMcfe)
    
    
    22,686
    
    
    
    6,067
    
    
    
    54,503
    
    
    
    22,521Average daily production (MMcfe/d)
    
    
    247
    
    
    
    66
    
    
    
    200
    
    
    
    82Average sales prices:Oil (per Bbl) (1)
    
    $
    62.68
    
    
    $
    43.64
    
    
    $
    59.58
    
    
    $
    40.12Natural gas (per Mcf) (1)
    
    
    7.60
    
    
    
    6.98
    
    
    
    7.25
    
    
    
    6.54Total natural gas equivalent
($/Mcfe) (1)
    
    
    8.36
    
    
    
    7.08
    
    
    
    8.00
    
    
    
    6.59Oil and gas revenues:Oil sales (1)
    
    $
    63,256
    
    
    $
    15,144
    
    
    $
    150,982
    
    
    $
    53,579Gas sales (1)
    
    
    126,432
    
    
    
    27,823
    
    
    
    285,008
    
    
    
    94,913Total oil and gas revenues (1)
    
    
    189,688
    
    
    
    42,967
    
    
    
    435,990
    
    
    
    148,492Other revenues
    
    
    778
    
    
    
    695
    
    
    
    2,401
    
    
    
    2,753Lease operating expenses
    
    
    28,744
    
    
    
    5,887
    
    
    
    62,863
    
    
    
    17,678Severance and ad valorem taxes
    
    
    2,262
    
    
    
    1,089
    
    
    
    5,710
    
    
    
    2,492Transportation expenses
    
    
    1,754
    
    
    
    196
    
    
    
    4,031
    
    
    
    1,697Depreciation, depletion and
amortization
    
    
    82,416
    
    
    
    12,403
    
    
    
    192,222
    
    
    
    43,457General and administrative expenses
    
    
    7,577
    
    
    
    11,326
    
    
    
    25,050
    
    
    
    26,726Impairment
of production equipment held for use
    
    
    
    
    
    
    498
    
    
    
    
    
    
    
    498Net interest expense
    
    
    11,487
    
    
    
    1,714
    
    
    
    25,906
    
    
    
    4,720Income before taxes
    
    
    56,226
    
    
    
    10,549
    
    
    
    122,609
    
    
    
    53,977Provision for income taxes
    
    
    19,836
    
    
    
    3,606
    
    
    
    44,385
    
    
    
    18,414Net Income
    
    
    36,390
    
    
    
    6,943
    
    
    
    78,224
    
    
    
    35,563
 
 (1)
    
    Includes the effects of hedging Production:
 26




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##### Table of Contents



Oil and gas revenues:
    Lease operating expenses
 Severance and ad valorem taxes
 27




---



##### Table of Contents



Transportation expenses
 Depreciation, depletion, and amortization (DD&A)
expense
 General and administrative (G&A)
expenses
 Net interest expense
 Income before income taxes
 28




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##### Table of Contents



Provision
for income taxes
 Liquidity and Capital Resources
 Cash Flows and Liquidity
 Secured Bank Credit Facility
    Exchange Offer for Senior Unsecured Notes due 2013
 
    
    file a registration statement within 180 days after the closing date of the offering
enabling holders of notes to exchange the privately placed notes for publicly registered notes with substantially identical terms;
    
    use our reasonable best efforts to cause the registration statement to become effective
within 270 days after the closing date of the offering and to complete the exchange offer
within 360 days after the closing of the offering; and
    
    file a shelf registration statement for the resale of the Notes if we cannot effect an
exchange offer within the time periods listed above and in other circumstances.
  29




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##### Table of Contents



Cash
Flows
   Capital Expenditures
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Market Risk 
 Commodity Prices and Related Hedging Activities 
  30




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##### Table of Contents



September 30,2006 Fair ValueFixed Price Swaps
    
    Quantity
    
    
    Fixed Price
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)October 1December 31, 2006
    
    
    644,920
    
    
    $
    72.24
    
    
    $
    5.1Natural Gas (MMbtus)October 1December 31, 2006
    
    
    9,315,000
    
    
    
    7.97
    
    
    
    20.9January 1December 31, 2007
    
    
    15,846,323
    
    
    
    9.68
    
    
    
    31.7January 1September 30, 2008
    
    
    3,059,689
    
    
    
    9.58
    
    
    
    4.3Total
    
    
    
    
    
    
    
    
    
    $
    62.0
 31




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##### Table of Contents



September 30,2006 Fair ValueCostless Collars
    
    Quantity
    
    
    Floor
    
    
    Cap
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)October 1December 31, 2006
    
    
    63,480
    
    
    $
    32.65
    
    
    $
    41.52
    
    
    $
    (1.4
    )January 1December 31, 2007
    
    
    2,032,689
    
    
    
    59.84
    
    
    
    84.21
    
    
    
    (1.0
    )January 1December 31, 2008
    
    
    1,195,495
    
    
    
    61.66
    
    
    
    86.80
    
    
    
    2.7Natural Gas (MMbtus)October 1December 31, 2006
    
    
    1,851,960
    
    
    
    5.78
    
    
    
    7.85
    
    
    
    0.9January 1December 31, 2007
    
    
    14,106,750
    
    
    
    6.87
    
    
    
    11.82
    
    
    
    1.7January 1December 31, 2008
    
    
    12,347,000
    
    
    
    7.83
    
    
    
    14.60
    
    
    
    9.1Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12.0
  Interest Rate Market Risk 
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  32




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors.
   
    
    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 disasters such as hurricanes,
fires, floods and other catastrophic events and natural disasters;
    
    governmental regulation of the oil and natural gas industry;
    
    environmental liabilities;
 33




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##### Table of Contents




    
    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;
    
    our merger with Forest Energy Resources, including strategic plans, expectations and
objectives for future operations, and the realization of expected benefits from the
transaction; and
    
    disruption from the merger with Forest Energy Resources making it more difficult to
manage our business.
 
 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
    
    ProgramsJuly 1, 2006 to July 31, 2006 (1)
    
    
    164
    
    
    $
    17.32
    
    
    
    
    
    
    
    August 1, 2006 to August 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1, 2006 to September 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    164
    
    
    $
    17.32
    
    
    
    
    
    
    
    
 
 (1)
    
    These shares were withheld upon the vesting of employee restricted stock grants in connection
with payment of required withholding taxes. 
 Item 5. Other Information.
 UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
    34




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##### Table of Contents



ForestEnergy
    
    
    
    
    
    
    MarinerMariner
    
    
    Resources,
    
    
    Merger
    
    
    Pro FormaHistorical(1)
    
    
    Inc.(2)
    
    
    Adjustments(3)
    
    
    CombinedRevenues
    
    $
    213,988
    
    
    $
    291,885
    
    
    
    
    
    
    $
    505,873Costs and ExpensesLease Operating Expenses
    
    
    27,089
    
    
    
    51,765
    
    
    
    
    
    
    
    78,854Severance
and ad valorem taxes
    
    
    5,205
    
    
    
    1,203
    
    
    
    
    
    
    
    6,408Transportation Expenses
    
    
    2,728
    
    
    
    1,458
    
    
    
    
    
    
    
    4,186G&A Expenses
    
    
    23,872
    
    
    
    809
    
    
    
    
    (4)
    
    
    24,681DD&A
    
    
    82,194
    
    
    
    
    
    
    
    136,797
    (5)
    
    
    218,991Total Costs and Expenses
    
    
    141,088
    
    
    
    55,235
    
    
    
    136,797
    
    
    
    333,120Operating Income
    
    
    72,900
    
    
    
    236,650
    
    
    
    (136,797
    )
    
    
    172,753Interest:Income
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    487Expense
    
    
    (17,693
    )
    
    
    
    
    
    
    (10,786
    )(6)
    
    
    (28,479
    )Income before taxes
    
    
    55,694
    
    
    
    236,650
    
    
    
    (147,583
    )
    
    
    144,761Provision for income taxes
    
    
    (20,966
    )
    
    
    
    
    
    
    (31,173
    )(7)
    
    
    (52,139
    )Net Income
    
    $
    34,728
    
    
    $
    236,650
    
    
    $
    (178,756
    )
    
    $
    92,622Earnings per Share:Net income per share  basic
    
    $
    1.02
    
    
    
    
    
    
    
    
    
    
    $
    1.09Net income per share  diluted
    
    
    1.00
    
    
    
    
    
    
    
    
    
    
    
    1.09Weighted average shares outstanding  basic
    
    
    34,133,279
    
    
    
    
    
    
    
    50,637,010
    
    
    
    84,770,289Weighted average shares outstanding  diluted
    
    
    34,557,697
    
    
    
    
    
    
    
    50,687,850
    
    
    
    85,245,547
 
 (1)
    
    The Historical Mariner presented excludes the activity related to the Forest assets as the
merger was consummated on March 2, 2006.(2)
    
    The Forest Gulf of Mexico operations historically have been operated as part of Forests
total oil and gas operations. No historical GAAP-basis financial statements exist for the
Forest Gulf of Mexico operations on a stand-alone basis; however, statements of revenues and
direct operating expenses are presented for the nine months ended September 30, 2006.(3)
    
    Transaction costs consisting of accounting, consulting and legal fees are anticipated to be
approximately $10.3 million. These costs are directly attributable to the transaction and have
been excluded from the pro forma financial statements as they represent material nonrecurring
charges.(4)
    
    The pro forma general and administrative expenses do not include costs associated with the
Forest Gulf of Mexico assets. Mariner believes the overhead costs associated with these
operations in 2006 will approximate $6.4 million, net of capitalized amounts.(5)
    
    To adjust depreciation, depletion and amortization expense to give effect to the acquisition
of the Forest Gulf of Mexico operations and their step-up in value using the unit of
production method under the full cost method of accounting.(6)
    
    To adjust interest expense to give effect to the financing activities in connection with the
organization of Forest Energy Resources, Inc. assuming an interest rate of 6.375% based on the
terms of the senior bank credit facility obtained by Forest Energy Resources, Inc. The
interest rates used reflect 30-day LIBOR plus 1.50%, or 6.375% as of September 30, 2006. A
change in interest rates of approximately 10% would result in a change in pro forma combined
interest of approximately $0.9 million at September 30, 2006.(7)
    
    To record income tax expense on the combined company results of operations based on a
statutory federal tax rate of 35%. 35




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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 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).4.2*
    
    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).4.3*
    
    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).4.4*
    
    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).4.5*
    
    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).4.6*
    
    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).4.7*
    
    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).
 36




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##### Table of Contents



Number
    
    Description4.8*
    
    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).4.9*
    
    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).4.10*
    
    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).4.11*
    
    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.)4.12*
    
    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*
    
    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).10.2*
    
    Consulting Agreement between Mariner Energy, Inc. and Ricky G.
Lester, dated effective August 16, 2006 (incorporated by
reference to Exhibit 10.1 to Mariners Form 8-K filed on August
17, 2006).10.3*
    
    Employment Agreement, by and between Mariner Energy, Inc. and
John H. Karnes, dated as of October 16, 2006 (incorporated by
reference to Exhibit 10.1 to Mariners Form 8-K filed on
October 18, 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.  37




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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 38




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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 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).4.2*
    
    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).4.3*
    
    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).4.4*
    
    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).4.5*
    
    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).4.6*
    
    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).4.7*
    
    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).4.8*
    
    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
 39




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##### Table of Contents



Number
    
    Descriptionby reference to Exhibit 10.3 to Mariners Registration Statement on Form S-4 (File
No. 333-129096) filed on October 18, 2005).4.9*
    
    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).4.10*
    
    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).4.11*
    
    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.)4.12*
    
    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*
    
    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).10.2*
    
    Consulting Agreement between Mariner Energy, Inc. and Ricky G. Lester, dated effective August 16,
2006 (incorporated by reference to Exhibit 10.1 to Mariners Form 8-K filed on August 17, 2006).10.3*
    
    Employment Agreement, by and between Mariner Energy, Inc. and John H. Karnes, dated as of October
16, 2006 (incorporated by reference to Exhibit 10.1 to Mariners Form 8-K filed on October 18,
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