##### 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, 2008
 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PART IItem 1. Unaudited Consolidated Financial Statements:Consolidated
Balance Sheets at
September 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Operations
for the Three Months and Nine Months Ended September 30, 2008 and 2007
    
    
    4Consolidated Statement of Changes in Stockholders Equity
for the Nine Months Ended September 30, 2008
    
    
    5Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2008 and 2007
    
    
    6Notes to the Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4. Controls and Procedures
    
    
    39PART IIItem 1A. Risk Factors
    
    
    40Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 6. Exhibits
    
    
    41Items 1, 3, 4 and 5 are not applicable and have been omitted.EX-10.3EX-10.5EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I
 
 Item 1. Unaudited Consolidated Financial Statements
 MARINER ENERGY, INC.
 
 CONSOLIDATED BALANCE SHEETS
  September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    11,147
    
    
    $
    18,589Receivables, net of allowances of $2,659 and
$2,449 as of September 30, 2008 and December 31,
2007, respectively
    
    
    170,470
    
    
    
    157,774Insurance receivables
    
    
    7,433
    
    
    
    26,683Derivative financial instruments
    
    
    3,893
    
    
    
    11,863Intangible assets
    
    
    2,036
    
    
    
    17,209Prepaid expenses and other
    
    
    19,058
    
    
    
    10,630Deferred tax asset
    
    
    14,744
    
    
    
    6,232Total current assets
    
    
    228,781
    
    
    
    248,980Property and Equipment:Proved oil and gas properties, full-cost method
    
    
    4,034,532
    
    
    
    3,118,273Unproved properties, not subject to amortization
    
    
    199,937
    
    
    
    40,455Total oil and gas properties
    
    
    4,234,469
    
    
    
    3,158,728Other property and equipment
    
    
    67,300
    
    
    
    15,545Accumulated depreciation, depletion and amortization
    
    
    (1,113,718
    )
    
    
    (754,079
    )Total property and equipment, net
    
    
    3,188,051
    
    
    
    2,420,194Restricted Cash
    
    
    
    
    
    
    5,000Goodwill
    
    
    295,598
    
    
    
    295,598Insurance Receivables
    
    
    17,791
    
    
    
    56,924Derivative Financial Instruments
    
    
    84
    
    
    
    691Other Assets, net of amortization
    
    
    58,836
    
    
    
    56,248TOTAL ASSETS
    
    $
    3,789,141
    
    
    $
    3,083,635LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    3,514
    
    
    $
    1,064Accrued liabilities
    
    
    105,745
    
    
    
    96,936Accrued capital costs
    
    
    224,330
    
    
    
    159,010Abandonment liability
    
    
    38,520
    
    
    
    30,985Accrued interest
    
    
    21,431
    
    
    
    7,726Derivative financial instruments
    
    
    41,955
    
    
    
    19,468Total current liabilities
    
    
    435,495
    
    
    
    315,189Long-term Liabilities:Abandonment liability
    
    
    222,610
    
    
    
    191,021Deferred income tax
    
    
    489,024
    
    
    
    343,948Derivative financial instruments
    
    
    12,240
    
    
    
    25,343Long-term debt
    
    
    910,000
    
    
    
    779,000Other long-term liabilities
    
    
    70,604
    
    
    
    38,115Total long-term liabilities
    
    
    1,704,478
    
    
    
    1,377,427Commitments and Contingencies (see Note 8)Minority Interest
    
    
    
    
    
    
    1Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at September 30, 2008 and December 31, 2007
    
    
    
    
    
    
    Common stock, $.0001 par value; 180,000,000 shares
authorized, 88,853,638 shares issued and
outstanding at September 30, 2008; 180,000,000
shares authorized, 87,229,312 shares issued and
outstanding at December 31, 2007
    
    
    9
    
    
    
    9Additional paid-in capital
    
    
    1,062,357
    
    
    
    1,054,089Accumulated other comprehensive loss
    
    
    (32,901
    )
    
    
    (22,576
    )Accumulated retained earnings
    
    
    619,703
    
    
    
    359,496Total stockholders equity
    
    
    1,649,168
    
    
    
    1,391,018TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,789,141
    
    
    $
    3,083,635
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Natural gas
    
    $
    192,804
    
    
    $
    111,455
    
    
    $
    622,705
    
    
    $
    386,069Oil
    
    
    97,987
    
    
    
    69,842
    
    
    
    356,157
    
    
    
    196,971Natural gas liquids
    
    
    24,541
    
    
    
    14,317
    
    
    
    78,579
    
    
    
    34,879Other revenues
    
    
    2,558
    
    
    
    870
    
    
    
    5,798
    
    
    
    3,251Total revenues
    
    
    317,890
    
    
    
    196,484
    
    
    
    1,063,239
    
    
    
    621,170Costs and Expenses:Lease operating expense
    
    
    64,456
    
    
    
    33,034
    
    
    
    164,603
    
    
    
    105,106Severance and ad valorem taxes
    
    
    4,813
    
    
    
    3,085
    
    
    
    14,686
    
    
    
    8,963Transportation expense
    
    
    4,061
    
    
    
    2,215
    
    
    
    11,277
    
    
    
    5,520General and administrative expense
    
    
    12,963
    
    
    
    11,170
    
    
    
    39,249
    
    
    
    35,224Depreciation, depletion and amortization
    
    
    114,398
    
    
    
    91,136
    
    
    
    375,170
    
    
    
    283,791Other miscellaneous (income) expense
    
    
    (469
    )
    
    
    4,648
    
    
    
    745
    
    
    
    5,110Total costs and expenses
    
    
    200,222
    
    
    
    145,288
    
    
    
    605,730
    
    
    
    443,714OPERATING INCOME
    
    
    117,668
    
    
    
    51,196
    
    
    
    457,509
    
    
    
    177,456Other Income (Expense):Interest income
    
    
    369
    
    
    
    475
    
    
    
    976
    
    
    
    997Interest expense, net of amounts capitalized
    
    
    (17,507
    )
    
    
    (14,003
    )
    
    
    (53,641
    )
    
    
    (40,223
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,058Income Before Taxes and Minority Interest
    
    
    100,530
    
    
    
    37,668
    
    
    
    404,844
    
    
    
    143,288Provision for Income Taxes
    
    
    (35,839
    )
    
    
    (15,140
    )
    
    
    (144,449
    )
    
    
    (49,595
    )Minority Interest Expense
    
    
    
    
    
    
    
    
    
    
    (188
    )
    
    
    NET INCOME
    
    $
    64,691
    
    
    $
    22,528
    
    
    $
    260,207
    
    
    $
    93,693Earnings per share:Basic
    
    $
    0.74
    
    
    $
    0.26
    
    
    $
    2.98
    
    
    $
    1.09Diluted
    
    $
    0.73
    
    
    $
    0.26
    
    
    $
    2.95
    
    
    $
    1.09Weighted average shares outstanding:Basic
    
    
    87,595,792
    
    
    
    85,701,696
    
    
    
    87,447,280
    
    
    
    85,615,542Diluted
    
    
    88,183,715
    
    
    
    85,964,108
    
    
    
    88,239,859
    
    
    
    85,808,112
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
  AccumulatedOtherAdditional
    
    
    Comprehensive
    
    
    Accumulated
    
    
    TotalPaid-In-
    
    
    Income/
    
    
    Retained
    
    
    StockholdersCommon Stock
    
    
    Stock Amount
    
    
    Capital
    
    
    (Loss)
    
    
    Earnings
    
    
    EquityBalance at December 31, 2007
    
    
    87,229
    
    
    $
    9
    
    
    $
    1,054,089
    
    
    $
    (22,576
    )
    
    $
    359,496
    
    
    $
    1,391,018Common shares issued 
restricted stock
    
    
    1,729
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury stock bought and
cancelled on same day
    
    
    (137
    )
    
    
    
    
    
    
    (4,239
    )
    
    
    
    
    
    
    
    
    
    
    (4,239
    )Forfeiture of restricted stock
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned
compensation
    
    
    
    
    
    
    
    
    
    
    11,365
    
    
    
    
    
    
    
    
    
    
    
    11,365Share-based compensation
expense  stock options
    
    
    
    
    
    
    
    
    
    
    401
    
    
    
    
    
    
    
    
    
    
    
    401Stock options exercised
    
    
    56
    
    
    
    
    
    
    
    741
    
    
    
    
    
    
    
    
    
    
    
    741Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,207
    
    
    
    260,207Change in fair value of
derivative hedging
instruments  net of income
taxes of $25,790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,224
    
    
    
    
    
    
    
    69,224Hedge settlements
reclassified to income  net
of income taxes of ($43,980)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79,549
    )
    
    
    
    
    
    
    (79,549
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,325
    )
    
    
    260,207
    
    
    
    249,882Balance at September 30, 2008
    
    
    88,854
    
    
    $
    9
    
    
    $
    1,062,357
    
    
    $
    (32,901
    )
    
    $
    619,703
    
    
    $
    1,649,168
 The accompanying notes are an integral part of these consolidated financial statements
 5




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MARINER ENERGY, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine MonthsEnded September 30,2008
    
    
    2007Operating Activities:Net income
    
    $
    260,207
    
    
    $
    93,693Adjustments to reconcile net income to net cash provided by operating activities:Allowance for doubtful receivables
    
    
    210
    
    
    
    984Deferred income tax
    
    
    140,854
    
    
    
    48,164Depreciation, depletion and amortization
    
    
    375,170
    
    
    
    283,791Amortization of deferred financing costs
    
    
    2,329
    
    
    
    2,019Ineffectiveness of derivative instruments
    
    
    1,647
    
    
    
    2,645Share-based compensation
    
    
    11,953
    
    
    
    5,892Minority interest
    
    
    (1
    )
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    (12,356
    )
    
    
    (16,610
    )Insurance receivables
    
    
    64,378
    
    
    
    (27,140
    )Prepaid expenses and other
    
    
    1,640
    
    
    
    (9,654
    )Accounts payable and accrued liabilities
    
    
    15,777
    
    
    
    18,690Net cash provided by operating activities
    
    
    861,808
    
    
    
    402,474Investing Activities:Acquisitions and additions to oil and gas properties
    
    
    (952,105
    )
    
    
    (409,504
    )Additions to other property and equipment
    
    
    (49,647
    )
    
    
    (1,470
    )Property conveyances
    
    
    
    
    
    
    1,131Restricted cash designated for investment
    
    
    5,000
    
    
    
    31,830Net cash used in investing activities
    
    
    (996,752
    )
    
    
    (378,013
    )Financing Activities:Credit facility borrowings
    
    
    938,000
    
    
    
    264,000Credit facility repayments
    
    
    (807,000
    )
    
    
    (585,000
    )Proceeds from note offering
    
    
    
    
    
    
    300,000Deferred offering costs
    
    
    
    
    
    
    (6,685
    )Repurchase of stock
    
    
    (4,239
    )
    
    
    (1,421
    )Proceeds from exercise of stock options
    
    
    741
    
    
    
    648Net cash provided by (used in) financing activities
    
    
    127,502
    
    
    
    (28,458
    )Decrease in Cash and Cash Equivalents
    
    
    (7,442
    )
    
    
    (3,997
    )Cash and Cash Equivalents at Beginning of Period
    
    
    18,589
    
    
    
    9,579Cash and Cash Equivalents at End of Period
    
    $
    11,147
    
    
    $
    5,582Supplemental Disclosure of Cash Flow Information:Cash paid during the year for:Interest, net of amount capitalized
    
    $
    35,059
    
    
    $
    21,592Income taxes, net of refunds
    
    $
    2,906
    
    
    $
    550
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. Summary of Significant Accounting Policies
 Operations
 Interim Financial Statements
 Use of Estimates
 Principles of Consolidation
 Reclassifications
 Income Taxes
 7




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Recent Accounting Pronouncements
     8




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2. Acquisitions and Dispositions
 Gulf of Mexico Shelf Acquisition.
 Pro Forma Financial Information
 9




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For the Three Months Ended
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007(In thousands, except per share amounts)Pro Forma:Revenue
    
    $
    317,890
    
    
    $
    246,018
    
    
    $
    1,077,932
    
    
    $
    788,878Net income available to
common stockholders
    
    $
    64,670
    
    
    $
    30,072
    
    
    $
    263,806
    
    
    $
    122,692Basic earnings per share
    
    $
    0.74
    
    
    $
    0.35
    
    
    $
    3.02
    
    
    $
    1.43Diluted earnings per share
    
    $
    0.73
    
    
    $
    0.35
    
    
    $
    2.99
    
    
    $
    1.43
 Permian Basin Acquisitions.
 Interest in Cottonwood
 3. Long-Term Debt
  September 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Bank credit facility
    
    $
    310,000
    
    
    $
    179,0008% Senior Notes
    
    
    300,000
    
    
    
    300,00071/2% Senior Notes
    
    
    300,000
    
    
    
    300,000Total long-term debt
    
    $
    910,000
    
    
    $
    779,000
 Bank Credit Facility
 
    
    increase the facilitys maximum credit availability to $1.0 billion, including up to
$50.0 million in letters of credit,
    
    fix the borrowing base at $750.0 million as of January 31, 2008,
    
    extend the facilitys term to January 31, 2012,
    
    terminate a dedicated $40.0 million letter of credit facility due to Mariners
satisfaction of its obligations under a drill-to-earn program, and
    
    add as a permitted use of loan proceeds the funding of Mariners purchase of MGOM.
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Senior Notes 1 2 1 2 1 2
 Capitalized Interest
 4. Oil and Gas Properties
    11




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5. Accrual for Future Abandonment Liabilities
    (In thousands)Abandonment liability as of December 31, 2007 (1)
    
    $
    222,006Liabilities incurred
    
    
    14,899Liabilities settled
    
    
    (42,826
    )Accretion expense
    
    
    15,531Revisions to previous estimates
    
    
    7,100Liabilities from assets acquired
    
    
    44,420Abandonment liability as of September 30, 2008 (2)
    
    $
    261,130
 
 (1)
    
    Includes $31.0 million classified as a current liability at December 31, 2007.(2)
    
    Includes $38.5 million classified as a current liability at September 30, 2008. 6. Share-Based Compensation
    WeightedAverageExercise
    
    
    AggregateShares
    
    
    Price
    
    
    Intrinsic Value (1)(In thousands)Outstanding at beginning of year
    
    
    720,488
    
    
    $
    13.82
    
    
    $
    4,812Granted
    
    
    
    
    
    
    
    
    
    
    Exercised (2)
    
    
    (56,348
    )
    
    
    13.18
    
    
    
    (412
    )Forfeited
    
    
    (18,264
    )
    
    
    13.97
    
    
    
    (119
    )Outstanding at September 30, 2008
    
    
    645,876
    
    
    
    13.87
    
    
    $
    4,281
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(1)
    
    Based upon the difference between the closing price of the common stock on the last trading
date of the quarter ($20.50) and the exercise price of in-the-money options.(2)
    
    Options were exercised for cash proceeds of approximately $741,000.  Restricted Shares underStock Incentive PlanSeptember 30,2008
    
    
    2007Total unvested shares at beginning of period: January 1
    
    
    1,484,552
    
    
    
    875,380Shares granted (1)
    
    
    1,729,329
    
    
    
    876,954Shares vested
    
    
    (460,897
    )
    
    
    (228,691
    )Shares forfeited
    
    
    (23,383
    )
    
    
    (34,105
    )Total unvested shares at end of period: September 30
    
    
    2,729,601
    
    
    
    1,489,538Available for future grant as options or restricted stock
    
    
    2,522,823
    
    
    
    4,084,584
 
 (1)
    
    Current year activity includes 1,114,706 shares granted under the Stock Incentive Plans
Program (defined below). Long-Term Performance-Based Restricted Stock Program
  June 2008
    
    
    July 2008Weighted average fair value of grants
    
    $
    33.70
    
    
    $
    34.80Expected volatility
    
    
    42.29
    %
    
    
    42.43
    %Risk-free interest rate
    
    
    4.58
    %
    
    
    4.35
    %Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Expected life
    
    10 years
    
    10 years
  7. Derivative Financial Instruments and Hedging Activities
  13




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Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Cash (loss) gain on settlements
    
    $
    (46,968
    )
    
    $
    11,547
    
    
    $
    (121,882
    )
    
    $
    42,037Gain (loss) on hedge ineffectiveness (1)
    
    
    4,827
    
    
    
    (599
    )
    
    
    (1,647
    )
    
    
    (2,646
    )Total
    
    $
    (42,141
    )
    
    $
    10,948
    
    
    $
    (123,529
    )
    
    $
    39,391
 
 (1)
    
    Unrealized (loss) gain recognized in natural gas revenue related to the ineffective portion
of open contracts that are not eligible for deferral under SFAS 133 due primarily to the basis
differentials between the contract price and the indexed price at the point of sale.  Weighted Average
    
    Fair ValuePeriod
    
    Instrument Type
    
    Quantity
    
    
    Price
    
    Asset/(Liability)(In thousands)Natural Gas (MMbtus)2008October 1December 31
    
    Fixed Price Swaps
    
    
    8,121,944
    
    
    $8.36 Fixed
    
    $
    6,367October 1December 31
    
    Costless Collars
    
    
    2,760,000
    
    
    $7.83 Floor - $14.60 Ceiling
    
    
    372009January 1September 30
    
    Fixed Price Swaps
    
    
    25,116,524
    
    
    $8.47 Fixed
    
    
    11,633October 1December 31
    
    Fixed Price Swaps
    
    
    6,525,560
    
    
    $8.48 Fixed
    
    
    (637
    )Crude Oil (Bbls)2008October 1December 31
    
    Fixed Price Swaps
    
    
    483,920
    
    
    $78.69 Fixed
    
    
    (10,407
    )October 1December 31
    
    Costless Collars
    
    
    243,432
    
    
    $61.64 Floor - $86.80 Ceiling
    
    
    (3,757
    )2009January 1September 30
    
    Fixed Price Swaps
    
    
    1,715,890
    
    
    $76.22 Fixed
    
    
    (41,935
    )October 1December 31
    
    Fixed Price Swaps
    
    
    456,320
    
    
    $75.88 Fixed
    
    
    (11,519
    )Total
    
    
    
    
    
    
    
    
    
    $
    (50,218
    )
  14




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##### Table of Contents



8. Commitments and Contingencies
 Minimum Future Lease Payments
 (In thousands)2009
    
    $
    2,2602010
    
    
    2,5322011
    
    
    2,4992012
    
    
    2,4142013 and thereafter
    
    
    11,961
 Other Commitments
 MMS Proceedings
   Insurance Matters
  Hurricane Ike (2008)
  15




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##### Table of Contents



Hurricanes Katrina and Rita (2005)
   Hurricane Ivan (2004)
  Litigation MMS Proceedings
 Letters of Credit
   9. Earnings per Share
  16




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Numerator:Net Income
    
    $
    64,691
    
    
    $
    22,528
    
    
    $
    260,207
    
    
    $
    93,693Denominator:Weighted average shares outstanding
    
    
    87,596
    
    
    
    85,702
    
    
    
    87,447
    
    
    
    85,616Add dilutive securitiesOptions
    
    
    246
    
    
    
    175
    
    
    
    265
    
    
    
    169Restricted Stock
    
    
    342
    
    
    
    87
    
    
    
    528
    
    
    
    23Total weighted average shares
outstanding and dilutive
securities
    
    $
    88,184
    
    
    $
    85,964
    
    
    $
    88,240
    
    
    $
    85,808Earnings per shareBasic
    
    $
    0.74
    
    
    $
    0.26
    
    
    $
    2.98
    
    
    $
    1.09Diluted
    
    $
    0.73
    
    
    $
    0.26
    
    
    $
    2.95
    
    
    $
    1.09
   10. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)
    
    
    (in thousands)Net Income
    
    $
    64,691
    
    
    $
    22,528
    
    
    $
    260,207
    
    
    $
    93,693Other comprehensive (loss) income:Derivative contracts settled
and reclassified, net of
income taxes of ($15,003),
$3,841, ($43,980) and $13,820
    
    
    (27,138
    )
    
    
    7,107
    
    
    
    (79,549
    )
    
    
    25,571Change in unrealized
mark-to-market gains/(losses)
arising during period, net of
income taxes of $150,590,
($4,375), $25,790 and
($33,733)
    
    
    272,381
    
    
    
    (8,094
    )
    
    
    69,224
    
    
    
    (60,423
    )Change in accumulated other
comprehensive (loss) gain
    
    
    245,243
    
    
    
    (987
    )
    
    
    (10,325
    )
    
    
    (34,852
    )Comprehensive income
    
    $
    309,934
    
    
    $
    21,541
    
    
    $
    249,882
    
    
    $
    58,841
 11. Fair Value Measurement
   17




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##### Table of Contents



As of September 30, 2008Fair Value Measurements Using:SignificantQuoted Prices
    
    
    other
    
    
    Significantin Active
    
    
    Observable
    
    
    UnobservableCarrying
    
    
    Total Fair
    
    
    Markets
    
    
    Inputs
    
    
    InputsDerivative Financial Instruments
    
    Amount
    
    
    Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(In thousands)Natural gas and crude oil fixed
price swaps and costless
collars  Short Term
    
    $
    (38,062
    )
    
    $
    (38,062
    )
    
    $
    
    
    
    $
    (34,342
    )
    
    $
    (3,720
    )Natural gas and crude oil fixed
price swaps and costless
collars  Long Term
    
    
    (12,156
    )
    
    
    (12,156
    )
    
    
    
    
    
    
    (12,156
    )
    
    
    Total
    
    $
    (50,218
    )
    
    $
    (50,218
    )
    
    $
    
    
    
    $
    (46,498
    )
    
    $
    (3,720
    )
  Level 2 Fair Value Measurements
  Level 3 Fair Value Measurements
  18




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##### Table of Contents



Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 For the Three
    
    
    For the NineMonths Ended
    
    
    Months EndedSeptember 30, 2008
    
    
    September 30, 2008(In thousands)Fair value of costless collars, beginning of period
    
    $
    (31,886
    )
    
    $
    (4,058
    )Total gains/(losses):Included in natural gas and oil revenues (realized/unrealized)
    
    
    (8,716
    )
    
    
    (24,419
    )Included in other comprehensive loss (realized/unrealized)
    
    
    28,166
    
    
    
    338Purchases, issuances, and settlements, net
    
    
    8,716
    
    
    
    24,419Transfers in and/or out of Level 3
    
    
    
    
    
    
    Fair value of costless collars, end of period
    
    $
    (3,720
    )
    
    $
    (3,720
    )The amount of net gains/(losses) for the period included in
earnings attributable to the change in net unrealized losses
relating to costless collars still held at the reporting date
    
    $
    184
    
    
    $
    (152
    )
 12. Segment Information
   13. Supplemental Guarantor Information
 1 2
   19




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##### Table of Contents



MARINER ENERGY, INC.
CONSOLIDATING BALANCE SHEET (Unaudited)
September 30, 2008
(In thousands except share data)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Current Assets:Cash and cash equivalents
    
    $
    10,747
    
    
    $
    400
    
    
    $
    
    
    
    $
    11,147Receivables, net of allowances
    
    
    68,416
    
    
    
    102,054
    
    
    
    
    
    
    
    170,470Insurance receivables
    
    
    155
    
    
    
    7,278
    
    
    
    
    
    
    
    7,433Derivative financial instruments
    
    
    3,893
    
    
    
    
    
    
    
    
    
    
    
    3,893Intangible assets
    
    
    2,000
    
    
    
    36
    
    
    
    
    
    
    
    2,036Prepaid expenses and other
    
    
    16,756
    
    
    
    2,302
    
    
    
    
    
    
    
    19,058Deferred tax asset
    
    
    14,744
    
    
    
    
    
    
    
    
    
    
    
    14,744Total current assets
    
    
    116,711
    
    
    
    112,070
    
    
    
    
    
    
    
    228,781Property and Equipment:Proved oil and gas properties, full-cost method
    
    
    1,960,267
    
    
    
    2,074,265
    
    
    
    
    
    
    
    4,034,532Unproved properties, not subject to amortization
    
    
    185,580
    
    
    
    14,357
    
    
    
    
    
    
    
    199,937Total oil and gas properties
    
    
    2,145,847
    
    
    
    2,088,622
    
    
    
    
    
    
    
    4,234,469Other property and equipment
    
    
    32,632
    
    
    
    34,668
    
    
    
    
    
    
    
    67,300Accumulated depreciation, depletion and amortization
    
    
    (596,462
    )
    
    
    (517,256
    )
    
    
    
    
    
    
    (1,113,718
    )Total property and equipment, net
    
    
    1,582,017
    
    
    
    1,606,034
    
    
    
    
    
    
    
    3,188,051Investment in Subsidiaries
    
    
    1,225,624
    
    
    
    
    
    
    
    (1,225,624
    )
    
    
    Intercompany Receivables
    
    
    139,116
    
    
    
    120,523
    
    
    
    (259,639
    )
    
    
    Intercompany Note Receivable
    
    
    176,200
    
    
    
    
    
    
    
    (176,200
    )
    
    
    Goodwill
    
    
    
    
    
    
    295,598
    
    
    
    
    
    
    
    295,598Insurance Receivables
    
    
    
    
    
    
    17,791
    
    
    
    
    
    
    
    17,791Derivative Financial Instruments
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    84Other Assets, net of amortization
    
    
    57,946
    
    
    
    890
    
    
    
    
    
    
    
    58,836TOTAL ASSETS
    
    $
    3,297,698
    
    
    $
    2,152,906
    
    
    $
    (1,661,463
    )
    
    $
    3,789,141Current Liabilities:Accounts payable
    
    $
    3,514
    
    
    $
    
    
    
    $
    
    
    
    $
    3,514Accrued liabilities
    
    
    69,080
    
    
    
    36,665
    
    
    
    
    
    
    
    105,745Accrued capital costs
    
    
    167,385
    
    
    
    56,945
    
    
    
    
    
    
    
    224,330Abandonment liability
    
    
    1,553
    
    
    
    36,967
    
    
    
    
    
    
    
    38,520Accrued interest
    
    
    21,431
    
    
    
    
    
    
    
    
    
    
    
    21,431Derivative financial instruments
    
    
    41,955
    
    
    
    
    
    
    
    
    
    
    
    41,955Total current liabilities
    
    
    304,918
    
    
    
    130,577
    
    
    
    
    
    
    
    435,495Long-Term Liabilities:Abandonment liability
    
    
    55,916
    
    
    
    166,694
    
    
    
    
    
    
    
    222,610Deferred income tax
    
    
    181,743
    
    
    
    307,281
    
    
    
    
    
    
    
    489,024Intercompany payables
    
    
    120,523
    
    
    
    139,116
    
    
    
    (259,639
    )
    
    
    Derivative financial instruments
    
    
    12,240
    
    
    
    
    
    
    
    
    
    
    
    12,240Long-term debt
    
    
    910,000
    
    
    
    
    
    
    
    
    
    
    
    910,000Other long-term liabilities
    
    
    63,190
    
    
    
    7,414
    
    
    
    
    
    
    
    70,604Intercompany note payable
    
    
    
    
    
    
    176,200
    
    
    
    (176,200
    )
    
    
    Total long-term liabilities
    
    
    1,343,612
    
    
    
    796,705
    
    
    
    (435,839
    )
    
    
    1,704,478Commitments and Contingencies (see Note 8)Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at September 30, 2008Common stock, $.0001 par value; 180,000,000 shares
authorized, 88,820,553 shares issued and
outstanding at September 30, 2008
    
    
    9
    
    
    
    5
    
    
    
    (5
    )
    
    
    9Additional paid-in capital
    
    
    1,062,357
    
    
    
    886,142
    
    
    
    (886,142
    )
    
    
    1,062,357Partner capital
    
    
    
    
    
    
    30,646
    
    
    
    (30,646
    )
    
    
    Accumulated other comprehensive loss
    
    
    (32,901
    )
    
    
    
    
    
    
    
    
    
    
    (32,901
    )Accumulated retained earnings
    
    
    619,703
    
    
    
    308,831
    
    
    
    (308,831
    )
    
    
    619,703Total stockholdersequity
    
    
    1,649,168
    
    
    
    1,225,624
    
    
    
    (1,225,624
    )
    
    
    1,649,168TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,297,698
    
    
    $
    2,152,906
    
    
    $
    (1,661,463
    )
    
    $
    3,789,141
 20




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##### Table of Contents



MARINER ENERGY, INC.
CONSOLIDATING BALANCE SHEET (Unaudited)
December 31, 2007
(In thousands except share data)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Current Assets:Cash and cash equivalents
    
    $
    18,589
    
    
    $
    
    
    
    $
    
    
    
    $
    18,589Receivables, net of allowances
    
    
    64,727
    
    
    
    93,047
    
    
    
    
    
    
    
    157,774Insurance receivables
    
    
    3,950
    
    
    
    22,733
    
    
    
    
    
    
    
    26,683Derivative financial instruments
    
    
    11,863
    
    
    
    
    
    
    
    
    
    
    
    11,863Intangible assets
    
    
    16,209
    
    
    
    1,000
    
    
    
    
    
    
    
    17,209Prepaid expenses and other
    
    
    9,092
    
    
    
    1,538
    
    
    
    
    
    
    
    10,630Deferred tax asset
    
    
    6,232
    
    
    
    
    
    
    
    
    
    
    
    6,232Total current assets
    
    
    130,662
    
    
    
    118,318
    
    
    
    
    
    
    
    248,980Property and Equipment:Proved oil and gas properties, full-cost method
    
    
    1,469,989
    
    
    
    1,648,284
    
    
    
    
    
    
    
    3,118,273Unproved properties, not subject to amortization
    
    
    40,025
    
    
    
    430
    
    
    
    
    
    
    
    40,455Total oil and gas properties
    
    
    1,510,014
    
    
    
    1,648,714
    
    
    
    
    
    
    
    3,158,728Other property and equipment
    
    
    15,495
    
    
    
    50
    
    
    
    
    
    
    
    15,545Accumulated depreciation, depletion and amortization
    
    
    (403,159
    )
    
    
    (350,920
    )
    
    
    
    
    
    
    (754,079
    )Total property and equipment, net
    
    
    1,122,350
    
    
    
    1,297,844
    
    
    
    
    
    
    
    2,420,194Investment in Subsidiaries
    
    
    1,014,548
    
    
    
    
    
    
    
    (1,014,548
    )
    
    
    Intercompany Receivables
    
    
    46,015
    
    
    
    
    
    
    
    (46,015
    )
    
    
    Intercompany Note Receivable
    
    
    176,200
    
    
    
    
    
    
    
    (176,200
    )
    
    
    Restricted Cash
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    5,000Goodwill
    
    
    
    
    
    
    295,598
    
    
    
    
    
    
    
    295,598Insurance Receivables
    
    
    2,663
    
    
    
    54,261
    
    
    
    
    
    
    
    56,924Derivative Financial Instruments
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    691Other Assets, net of amortization
    
    
    55,607
    
    
    
    641
    
    
    
    
    
    
    
    56,248TOTAL ASSETS
    
    $
    2,548,736
    
    
    $
    1,771,662
    
    
    $
    (1,236,763
    )
    
    $
    3,083,635Current Liabilities:Accounts payable
    
    $
    1,064
    
    
    $
    
    
    
    $
    
    
    
    $
    1,064Accrued liabilities
    
    
    70,467
    
    
    
    26,469
    
    
    
    
    
    
    
    96,936Accrued capital costs
    
    
    85,839
    
    
    
    73,171
    
    
    
    
    
    
    
    159,010Abandonment liability
    
    
    4,383
    
    
    
    26,602
    
    
    
    
    
    
    
    30,985Accrued interest
    
    
    7,726
    
    
    
    
    
    
    
    
    
    
    
    7,726Derivative financial instruments
    
    
    19,468
    
    
    
    
    
    
    
    
    
    
    
    19,468Total current liabilities
    
    
    188,947
    
    
    
    126,242
    
    
    
    
    
    
    
    315,189Long-Term Liabilities:Abandonment liability
    
    
    49,827
    
    
    
    141,194
    
    
    
    
    
    
    
    191,021Deferred income tax
    
    
    80,095
    
    
    
    263,853
    
    
    
    
    
    
    
    343,948Derivative financial instruments
    
    
    25,343
    
    
    
    
    
    
    
    
    
    
    
    25,343Intercompany payables
    
    
    
    
    
    
    46,015
    
    
    
    (46,015
    )
    
    
    Long-term debt
    
    
    779,000
    
    
    
    
    
    
    
    
    
    
    
    779,000Other long-term liabilities
    
    
    34,506
    
    
    
    3,609
    
    
    
    
    
    
    
    38,115Intercompany note payable
    
    
    
    
    
    
    176,200
    
    
    
    (176,200
    )
    
    
    Total long-term liabilities
    
    
    968,771
    
    
    
    630,871
    
    
    
    (222,215
    )
    
    
    1,377,427Commitments and Contingencies (see Note 8)Minority Interest
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, $.0001 par value; 180,000,000 shares
authorized, 87,229,312 shares issued and
outstanding at December 31, 2007
    
    
    9
    
    
    
    5
    
    
    
    (5
    )
    
    
    9Additional paid-in capital
    
    
    1,054,089
    
    
    
    886,142
    
    
    
    (886,142
    )
    
    
    1,054,089Partner capital
    
    
    
    
    
    
    6,000
    
    
    
    (6,000
    )
    
    
    Accumulated other comprehensive loss
    
    
    (22,576
    )
    
    
    
    
    
    
    
    
    
    
    (22,576
    )Accumulated retained earnings
    
    
    359,496
    
    
    
    122,401
    
    
    
    (122,401
    )
    
    
    359,496Total stockholdersequity
    
    
    1,391,018
    
    
    
    1,014,548
    
    
    
    (1,014,548
    )
    
    
    1,391,018TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,548,736
    
    
    $
    1,771,662
    
    
    $
    (1,236,763
    )
    
    $
    3,083,635
 21




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##### Table of Contents



MARINER ENERGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended September 30, 2008
(In thousands)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Natural gas
    
    $
    92,898
    
    
    $
    99,906
    
    
    $
    
    
    
    $
    192,804Oil
    
    
    48,814
    
    
    
    49,173
    
    
    
    
    
    
    
    97,987Natural gas liquids
    
    
    13,055
    
    
    
    11,486
    
    
    
    
    
    
    
    24,541Other revenues
    
    
    1,198
    
    
    
    1,360
    
    
    
    
    
    
    
    2,558Total revenues
    
    
    155,965
    
    
    
    161,925
    
    
    
    
    
    
    
    317,890Costs and Expenses:Operating expenses
    
    
    36,462
    
    
    
    36,868
    
    
    
    
    
    
    
    73,330General and administrative expense
    
    
    11,971
    
    
    
    992
    
    
    
    
    
    
    
    12,963Depreciation, depletion and amortization
    
    
    60,365
    
    
    
    54,033
    
    
    
    
    
    
    
    114,398Other miscellaneous expense
    
    
    (218
    )
    
    
    (251
    )
    
    
    
    
    
    
    (469
    )Total costs and expenses
    
    
    108,580
    
    
    
    91,642
    
    
    
    
    
    
    
    200,222OPERATING INCOME
    
    
    47,385
    
    
    
    70,283
    
    
    
    
    
    
    
    117,668Earnings of Affiliates
    
    
    52,556
    
    
    
    
    
    
    
    (52,556
    )
    
    
    Other Income (Expense):Interest income
    
    
    2,522
    
    
    
    62
    
    
    
    (2,215
    )
    
    
    369Interest expense, net of amounts capitalized
    
    
    (17,637
    )
    
    
    (2,085
    )
    
    
    2,215
    
    
    
    (17,507
    )Income Before Taxes
    
    
    84,826
    
    
    
    68,260
    
    
    
    (52,556
    )
    
    
    100,530Provision for Income Taxes
    
    
    (20,135
    )
    
    
    (15,704
    )
    
    
    
    
    
    
    (35,839
    )NET INCOME
    
    $
    64,691
    
    
    $
    52,556
    
    
    $
    (52,556
    )
    
    $
    64,691
 22




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##### Table of Contents



MARINER ENERGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended September 30, 2007
(In thousands)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Natural gas
    
    $
    56,985
    
    
    $
    54,470
    
    
    $
    
    
    
    $
    111,455Oil
    
    
    36,293
    
    
    
    33,549
    
    
    
    
    
    
    
    69,842Natural gas liquids
    
    
    8,462
    
    
    
    5,855
    
    
    
    
    
    
    
    14,317Other revenues
    
    
    870
    
    
    
    
    
    
    
    
    
    
    
    870Total revenues
    
    
    102,610
    
    
    
    93,874
    
    
    
    
    
    
    
    196,484Costs and Expenses:Operating expenses
    
    
    14,036
    
    
    
    24,298
    
    
    
    
    
    
    
    38,334General and administrative expense
    
    
    10,557
    
    
    
    613
    
    
    
    
    
    
    
    11,170Depreciation, depletion and amortization
    
    
    41,892
    
    
    
    49,244
    
    
    
    
    
    
    
    91,136Other miscellaneous expense
    
    
    363
    
    
    
    4,285
    
    
    
    
    
    
    
    4,648Total costs and expenses
    
    
    66,848
    
    
    
    78,440
    
    
    
    
    
    
    
    145,288OPERATING INCOME
    
    
    35,762
    
    
    
    15,434
    
    
    
    
    
    
    
    51,196Earnings of Affiliates
    
    
    8,174
    
    
    
    
    
    
    
    (8,174
    )
    
    
    Other Income (Expense):Interest income
    
    
    4,108
    
    
    
    
    
    
    
    (3,633
    )
    
    
    475Interest expense, net of amounts capitalized
    
    
    (13,900
    )
    
    
    (3,736
    )
    
    
    3,633
    
    
    
    (14,003
    )Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income Before Taxes
    
    
    34,144
    
    
    
    11,698
    
    
    
    (8,174
    )
    
    
    37,668Provision for Income Taxes
    
    
    (11,616
    )
    
    
    (3,524
    )
    
    
    
    
    
    
    (15,140
    )NET INCOME
    
    $
    22,528
    
    
    $
    8,174
    
    
    $
    (8,174
    )
    
    $
    22,528
 23




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##### Table of Contents



MARINER ENERGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
Nine Months Ended September 30, 2008
(In thousands)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Natural gas
    
    $
    289,336
    
    
    $
    333,369
    
    
    $
    
    
    
    $
    622,705Oil
    
    
    186,960
    
    
    
    169,197
    
    
    
    
    
    
    
    356,157Natural gas liquids
    
    
    50,339
    
    
    
    28,240
    
    
    
    
    
    
    
    78,579Other revenues
    
    
    1,573
    
    
    
    4,225
    
    
    
    
    
    
    
    5,798Total revenues
    
    
    528,208
    
    
    
    535,031
    
    
    
    
    
    
    
    1,063,239Costs and Expenses:Operating expenses
    
    
    89,337
    
    
    
    101,229
    
    
    
    
    
    
    
    190,566General and administrative expense
    
    
    37,387
    
    
    
    1,862
    
    
    
    
    
    
    
    39,249Depreciation, depletion and amortization
    
    
    196,945
    
    
    
    178,225
    
    
    
    
    
    
    
    375,170Other miscellaneous expense
    
    
    943
    
    
    
    (198
    )
    
    
    
    
    
    
    745Total costs and expenses
    
    
    324,612
    
    
    
    281,118
    
    
    
    
    
    
    
    605,730OPERATING INCOME
    
    
    203,596
    
    
    
    253,913
    
    
    
    
    
    
    
    457,509Earnings of Affiliates
    
    
    186,430
    
    
    
    
    
    
    
    (186,430
    )
    
    
    Other Income (Expense):Interest income
    
    
    8,056
    
    
    
    84
    
    
    
    (7,164
    )
    
    
    976Interest expense, net of amounts capitalized
    
    
    (53,444
    )
    
    
    (7,361
    )
    
    
    7,164
    
    
    
    (53,641
    )Income Before Taxes and Minority Interest
    
    
    344,638
    
    
    
    246,636
    
    
    
    (186,430
    )
    
    
    404,844Provision for Income Taxes
    
    
    (84,431
    )
    
    
    (60,018
    )
    
    
    
    
    
    
    (144,449
    )Minority Interest Expense
    
    
    
    
    
    
    (188
    )
    
    
    
    
    
    
    (188
    )NET INCOME
    
    $
    260,207
    
    
    $
    186,430
    
    
    $
    (186,430
    )
    
    $
    260,207
 24




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##### Table of Contents



MARINER ENERGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
Nine Months Ended September 30, 2007
(In thousands)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Natural gas
    
    $
    192,901
    
    
    $
    193,168
    
    
    $
    
    
    
    $
    386,069Oil
    
    
    100,525
    
    
    
    96,446
    
    
    
    
    
    
    
    196,971Natural gas liquids
    
    
    20,545
    
    
    
    14,334
    
    
    
    
    
    
    
    34,879Other revenues
    
    
    3,111
    
    
    
    140
    
    
    
    
    
    
    
    3,251Total revenues
    
    
    317,082
    
    
    
    304,088
    
    
    
    
    
    
    
    621,170Costs and Expenses:Operating expenses
    
    
    41,039
    
    
    
    78,550
    
    
    
    
    
    
    
    119,589General and administrative expense
    
    
    31,962
    
    
    
    3,262
    
    
    
    
    
    
    
    35,224Depreciation, depletion and amortization
    
    
    127,382
    
    
    
    156,409
    
    
    
    
    
    
    
    283,791Other miscellaneous expense
    
    
    1,401
    
    
    
    3,709
    
    
    
    
    
    
    
    5,110Total costs and expenses
    
    
    201,784
    
    
    
    241,930
    
    
    
    
    
    
    
    443,714OPERATING INCOME
    
    
    115,298
    
    
    
    62,158
    
    
    
    
    
    
    
    177,456Earnings of Affiliates
    
    
    37,731
    
    
    
    
    
    
    
    (37,731
    )
    
    
    Other Income (Expense):Interest income
    
    
    11,877
    
    
    
    1
    
    
    
    (10,881
    )
    
    
    997Interest expense, net of amounts capitalized
    
    
    (39,932
    )
    
    
    (11,172
    )
    
    
    10,881
    
    
    
    (40,223
    )Other income
    
    
    
    
    
    
    5,058
    
    
    
    
    
    
    
    5,058Income Before Taxes
    
    
    124,974
    
    
    
    56,045
    
    
    
    (37,731
    )
    
    
    143,288Provision for Income Taxes
    
    
    (31,281
    )
    
    
    (18,314
    )
    
    
    
    
    
    
    (49,595
    )NET INCOME
    
    $
    93,693
    
    
    $
    37,731
    
    
    $
    (37,731
    )
    
    $
    93,693
 25




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##### Table of Contents



MARINER ENERGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 2008
(In thousands)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Net cash provided by operating activities
    
    $
    611,124
    
    
    $
    437,114
    
    
    $
    (186,430
    )
    
    $
    861,808Cash flow from investing activities:Acquisitions and additions to oil and gas properties
    
    
    (520,363
    )
    
    
    (431,742
    )
    
    
    
    
    
    
    (952,105
    )Additions to other property and equipment
    
    
    (15,029
    )
    
    
    (34,618
    )
    
    
    
    
    
    
    (49,647
    )Restricted cash designated for investment
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    5,000Net cash used in investing activities
    
    
    (535,392
    )
    
    
    (461,360
    )
    
    
    
    
    
    
    (996,752
    )Cash flow from financing activities:Credit facility borrowings
    
    
    938,000
    
    
    
    
    
    
    
    
    
    
    
    938,000Credit facility repayments
    
    
    (807,000
    )
    
    
    
    
    
    
    
    
    
    
    (807,000
    )Other financing activities
    
    
    (28,144
    )
    
    
    24,646
    
    
    
    
    
    
    
    (3,498
    )Net activity in investment from subsidiaries
    
    
    (186,430
    )
    
    
    
    
    
    
    186,430
    
    
    
    Net cash provided by financing activities
    
    
    (83,574
    )
    
    
    24,646
    
    
    
    186,430
    
    
    
    127,502(Decrease) Increase in Cash and Cash Equivalents
    
    
    (7,842
    )
    
    
    400
    
    
    
    
    
    
    
    (7,442
    )Cash and Cash Equivalents at Beginning of Period
    
    
    18,589
    
    
    
    
    
    
    
    
    
    
    
    18,589Cash and Cash Equivalents at End of Period
    
    $
    10,747
    
    
    $
    400
    
    
    $
    
    
    
    $
    11,147
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 2007
(In thousands)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Net cash provided by (used in) operating activities
    
    $
    251,476
    
    
    $
    188,729
    
    
    $
    (37,731
    )
    
    $
    402,474Cash flow from investing activities:Acquisitions and additions to oil and gas properties
    
    
    (313,566
    )
    
    
    (95,938
    )
    
    
    
    
    
    
    (409,504
    )Additions to other property and equipment
    
    
    (1,470
    )
    
    
    
    
    
    
    
    
    
    
    (1,470
    )Restricted cash designated for investment
    
    
    31,830
    
    
    
    
    
    
    
    
    
    
    
    31,830Other investing activities
    
    
    18
    
    
    
    1,113
    
    
    
    
    
    
    
    1,131Net cash used in investing activities
    
    
    (283,188
    )
    
    
    (94,825
    )
    
    
    
    
    
    
    (378,013
    )Cash flow from financing activities:Credit facility borrowings
    
    
    264,000
    
    
    
    
    
    
    
    
    
    
    
    264,000Credit facility repayments
    
    
    (585,000
    )
    
    
    
    
    
    
    
    
    
    
    (585,000
    )Proceeds from note offering
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Other financing activities
    
    
    (7,458
    )
    
    
    
    
    
    
    
    
    
    
    (7,458
    )Net activity in investment from subsidiaries
    
    
    56,173
    
    
    
    (93,904
    )
    
    
    37,731
    
    
    
    Net cash (used in) provided by financing activities
    
    
    27,715
    
    
    
    (93,904
    )
    
    
    37,731
    
    
    
    (28,458
    )Decrease in Cash and Cash Equivalents
    
    
    (3,997
    )
    
    
    
    
    
    
    
    
    
    
    (3,997
    )Cash and Cash Equivalents at Beginning of Period
    
    
    9,579
    
    
    
    
    
    
    
    
    
    
    
    9,579Cash and Cash Equivalents at End of Period
    
    $
    5,582
    
    
    $
    
    
    
    $
    
    
    
    $
    5,582
 26




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##### Table of Contents



14. Subsequent Event
      27




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
  Overview
   Hurricane Gustav
  Hurricane Ike
   28




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##### Table of Contents



Acquisitions
  
    
    Ryder Scott Company, L.P. estimated proved oil and gas reserves of 49.7 Bcfe, 93% of
which are developed;
    
    interests in 36 (16 net) producing wells producing approximately 53 MMcfe per day net
to MGOMs interest, 76% of which Mariner now operates;
    
    gas gathering systems comprised of 31 miles of 10-inch, 12-inch and 16-inch pipelines;
and
    
    approximately 106,000 net acres of developed leasehold and 256,000 net acres of
undeveloped leasehold.
   Third Quarter 2008 Highlights
  
    
    Total revenues for third quarter 2008 increased 62% to $317.9 million, up from the
$196.5 million reported for third quarter 2007.
    
    Net cash provided by operations for the ninemonth period ended September 30, 2008
increased 114% to $861.8 million, up from $402.5 million for the same period in 2007.
    
    Hurricanes Gustav and Ike struck the Gulf of Mexico in September resulting in shut-ins
that postponed an estimated 7 to 9 Bcfe (approximately 75 to 100 MMcfe/d) of production and
the loss of three minor Mariner-operated producing platforms, as well as numerous hurricane
damage repairs that we expect are covered by our insurance. In addition, Hurricane Ike resulted in
a delay of initial production at Garden Banks 462 #1, known as Geauxpher, which now is expected
during first quarter 2009.
    
    Estimated average daily production for third quarter 2008 increased to 294 MMcfe per
day, compared to 252 MMcfe per day for third quarter 2007.
 Operational Update
 Offshore
 29




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##### Table of Contents



Well Name
    
    Operator
    
    Working Interest
    
    
    Water Depth (Ft)
    
    
    LocationGarden Banks 462 #2
    
    Mariner
    
    
    60
    %
    
    
    2815
    
    
    DeepwaterVermillion 380 A21
    
    Mariner
    
    
    100
    %
    
    
    340
    
    
    Conventional ShelfEast Cameron 14#13
    
    Mariner
    
    
    50
    %
    
    
    34
    
    
    Conventional Shelf
   Onshore 
 Results of Operations
 Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
  Three Months EndedSeptember 30,
    
    
    IncreaseSummary Operating Information:
    
    2008
    
    
    2007
    
    
    (Decrease)
    
    
    % Change(In thousands, except net production, average sales prices, average unitcosts per Mcfe and % change)Net Production:Natural gas (MMcf)
    
    
    18,357
    
    
    
    15,520
    
    
    
    2,837
    
    
    
    18
    %Oil (MBbls)
    
    
    1,054
    
    
    
    988
    
    
    
    66
    
    
    
    7
    %Natural gas liquids (MBbls)
    
    
    402
    
    
    
    292
    
    
    
    110
    
    
    
    38
    %Total natural gas equivalent (MMcfe)
    
    
    27,091
    
    
    
    23,201
    
    
    
    3,890
    
    
    
    17
    %Average daily production (MMcfe/d)
    
    
    294
    
    
    
    252
    
    
    
    42
    
    
    
    17
    %Hedging Activities:Natural gas revenue (loss) gain
    
    $
    (12,275
    )
    
    $
    14,750
    
    
    $
    (27,025
    )
    
    
    (183
    )%Oil revenue loss
    
    
    (29,866
    )
    
    
    (3,802
    )
    
    
    (26,064
    )
    
    
    (686
    )%Total hedging revenue (loss) gain
    
    $
    (42,141
    )
    
    $
    10,948
    
    
    $
    (53,089
    )
    
    
    (485
    )%Average Sales Prices:Natural gas (per Mcf) realized(1)
    
    $
    10.50
    
    
    $
    7.18
    
    
    $
    3.32
    
    
    
    46
    %Natural gas (per Mcf) unhedged
    
    
    11.17
    
    
    
    6.23
    
    
    
    4.94
    
    
    
    79
    %Oil (per Bbl) realized(1)
    
    
    92.97
    
    
    
    70.68
    
    
    
    22.29
    
    
    
    32
    %Oil (per Bbl) unhedged
    
    
    121.30
    
    
    
    74.53
    
    
    
    46.77
    
    
    
    63
    %Natural gas liquids (per Bbl) realized(1)
    
    
    61.05
    
    
    
    49.02
    
    
    
    12.03
    
    
    
    25
    %Natural gas liquids (per Bbl) unhedged
    
    
    61.05
    
    
    
    49.02
    
    
    
    12.03
    
    
    
    25
    %Total natural gas equivalent ($/Mcfe)
realized(1)
    
    
    11.64
    
    
    
    8.43
    
    
    
    3.21
    
    
    
    38
    %Total natural gas equivalent ($/Mcfe)
unhedged
    
    
    13.20
    
    
    
    7.96
    
    
    
    5.24
    
    
    
    66
    %Summary of Financial Information:Natural gas revenue
    
    $
    192,804
    
    
    $
    111,455
    
    
    $
    81,349
    
    
    
    73
    %Oil revenue
    
    
    97,987
    
    
    
    69,842
    
    
    
    28,145
    
    
    
    40
    %Natural gas liquids revenue
    
    
    24,541
    
    
    
    14,317
    
    
    
    10,224
    
    
    
    71
    %Other revenues
    
    
    2,558
    
    
    
    870
    
    
    
    1,688
    
    
    
    194
    %Lease operating expense
    
    
    64,456
    
    
    
    33,034
    
    
    
    31,422
    
    
    
    95
    %Severance and ad valorem taxes
    
    
    4,813
    
    
    
    3,085
    
    
    
    1,728
    
    
    
    56
    %Transportation expense
    
    
    4,061
    
    
    
    2,215
    
    
    
    1,846
    
    
    
    83
    %General and administrative expense
    
    
    12,963
    
    
    
    11,170
    
    
    
    1,793
    
    
    
    16
    %Depreciation, depletion and amortization
    
    
    114,398
    
    
    
    91,136
    
    
    
    23,262
    
    
    
    26
    %Other miscellaneous expense
    
    
    (469
    )
    
    
    4,648
    
    
    
    (5,117
    )
    
    
    (110
    )%Net interest expense
    
    
    17,138
    
    
    
    13,528
    
    
    
    3,610
    
    
    
    27
    %
 30




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##### Table of Contents



Three Months EndedSeptember 30,
    
    
    IncreaseSummary Operating Information:
    
    2008
    
    
    2007
    
    
    (Decrease)
    
    
    % Change(In thousands, except net production, average sales prices, average unitcosts per Mcfe and % change)Income before taxes and minority interest
    
    
    100,530
    
    
    
    37,668
    
    
    
    62,862
    
    
    
    167
    %Provision for income taxes
    
    
    35,839
    
    
    
    15,140
    
    
    
    20,699
    
    
    
    137
    %Net Income
    
    
    64,691
    
    
    
    22,528
    
    
    
    42,163
    
    
    
    187
    %Average Unit Costs per Mcfe:Lease operating expense
    
    $
    2.38
    
    
    $
    1.42
    
    
    $
    0.96
    
    
    
    68
    %Severance and ad valorem taxes
    
    
    0.18
    
    
    
    0.13
    
    
    
    0.05
    
    
    
    38
    %Transportation expense
    
    
    0.15
    
    
    
    0.10
    
    
    
    0.05
    
    
    
    50
    %General and administrative expense
    
    
    0.48
    
    
    
    0.48
    
    
    
    
    
    
    
    Depreciation, depletion and amortization
    
    
    4.22
    
    
    
    3.93
    
    
    
    0.29
    
    
    
    7
    %
 
 (1)
    
    Average sales prices include the effects of hedging Net Income
 Net Production
 Natural gas, oil and NGL revenues
   HedgingRealized
    
    
    Unhedged
    
    
    (Loss) Gain
    
    
    % ChangeThird quarter 2008:Natural gas (per Mcf)
    
    $
    10.50
    
    
    $
    11.17
    
    
    $
    (0.67
    )
    
    
    (6
    )%Oil (per Bbl)
    
    
    92.97
    
    
    
    121.30
    
    
    
    (28.33
    )
    
    
    (23
    )%Third quarter 2007:Natural gas (per Mcf)
    
    $
    7.18
    
    
    $
    6.23
    
    
    $
    0.95
    
    
    
    15
    %Oil (per Bbl)
    
    
    70.68
    
    
    
    74.53
    
    
    
    (3.85
    )
    
    
    (5
    )%
 Other revenues
 31




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##### Table of Contents



Lease operating expense LOE
 Severance and ad valorem tax
 Transportation expense
 General and administrative (G&A) expense
 Depreciation, depletion, and amortization (DD&A) expense
 Net interest expense
 Income before taxes and minority interest
 Provision for income taxes
 Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
  32




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##### Table of Contents



Nine Months EndedSeptember 30,
    
    
    IncreaseSummary Operating Information:
    
    2008
    
    
    2007
    
    
    (Decrease)
    
    
    % Change(In thousands, except net production, average sales prices, averageunit costs per Mcfe and % change)Net Production:Natural gas (MMcf)
    
    
    63,672
    
    
    
    49,388
    
    
    
    14,284
    
    
    
    29
    %Oil (MBbls)
    
    
    3,905
    
    
    
    3,116
    
    
    
    789
    
    
    
    25
    %Natural gas liquids (MBbls)
    
    
    1,290
    
    
    
    851
    
    
    
    439
    
    
    
    52
    %Total natural gas equivalent (MMcfe)
    
    
    94,840
    
    
    
    73,186
    
    
    
    21,654
    
    
    
    30
    %Average daily production (MMcfe/d)
    
    
    346
    
    
    
    268
    
    
    
    78
    
    
    
    29
    %Hedging Activities:Natural gas revenue (loss) gain
    
    $
    (39,177
    )
    
    $
    42,723
    
    
    $
    (81,900
    )
    
    
    (192
    )%Oil revenue loss
    
    
    (84,352
    )
    
    
    (3,332
    )
    
    
    (81,020
    )
    
    
    (2,432
    )%Total hedging revenue (loss) gain
    
    $
    (123,529
    )
    
    $
    39,391
    
    
    $
    (162,920
    )
    
    
    (414
    )%Average Sales Prices:Natural gas (per Mcf) realized(1)
    
    $
    9.78
    
    
    $
    7.82
    
    
    $
    1.96
    
    
    
    25
    %Natural gas (per Mcf) unhedged
    
    
    10.40
    
    
    
    6.95
    
    
    
    3.45
    
    
    
    50
    %Oil (per Bbl) realized(1)
    
    
    91.21
    
    
    
    63.22
    
    
    
    27.99
    
    
    
    44
    %Oil (per Bbl) unhedged
    
    
    112.81
    
    
    
    64.29
    
    
    
    48.52
    
    
    
    75
    %Natural gas liquids (per Bbl) realized(1)
    
    
    60.91
    
    
    
    41.00
    
    
    
    19.91
    
    
    
    49
    %Natural gas liquids (per Bbl) unhedged
    
    
    60.91
    
    
    
    41.00
    
    
    
    19.91
    
    
    
    49
    %Total natural gas equivalent ($/Mcfe)
realized(1)
    
    
    11.15
    
    
    
    8.44
    
    
    
    2.71
    
    
    
    32
    %Total natural gas equivalent ($/Mcfe)
unhedged
    
    
    12.45
    
    
    
    7.90
    
    
    
    4.55
    
    
    
    58
    %Summary of Financial Information:Natural gas revenue
    
    $
    622,705
    
    
    $
    386,069
    
    
    $
    236,636
    
    
    
    61
    %Oil revenue
    
    
    356,157
    
    
    
    196,971
    
    
    
    159,186
    
    
    
    81
    %Natural gas liquids revenue
    
    
    78,579
    
    
    
    34,879
    
    
    
    43,700
    
    
    
    125
    %Other revenues
    
    
    5,798
    
    
    
    3,251
    
    
    
    2,547
    
    
    
    78
    %Lease operating expense
    
    
    164,603
    
    
    
    105,106
    
    
    
    59,497
    
    
    
    57
    %Severance and ad valorem taxes
    
    
    14,686
    
    
    
    8,963
    
    
    
    5,723
    
    
    
    64
    %Transportation expense
    
    
    11,277
    
    
    
    5,520
    
    
    
    5,757
    
    
    
    104
    %General and administrative expense
    
    
    39,249
    
    
    
    35,224
    
    
    
    4,025
    
    
    
    11
    %Depreciation, depletion and amortization
    
    
    375,170
    
    
    
    283,791
    
    
    
    91,379
    
    
    
    32
    %Other miscellaneous expense
    
    
    745
    
    
    
    5,110
    
    
    
    (4,365
    )
    
    
    (85
    )%Net interest expense
    
    
    52,665
    
    
    
    39,226
    
    
    
    13,439
    
    
    
    34
    %Other income (expense)
    
    
    
    
    
    
    5,058
    
    
    
    (5,058
    )
    
    
    (100
    )%Income before taxes and minority interest
    
    
    404,844
    
    
    
    143,288
    
    
    
    261,556
    
    
    
    183
    %Provision for income taxes
    
    
    144,449
    
    
    
    49,595
    
    
    
    94,854
    
    
    
    191
    %Net Income
    
    
    260,207
    
    
    
    93,693
    
    
    
    166,514
    
    
    
    178
    %Average Unit Costs per Mcfe:Lease operating expense
    
    $
    1.74
    
    
    $
    1.44
    
    
    $
    0.30
    
    
    
    21
    %Severance and ad valorem taxes
    
    
    0.15
    
    
    
    0.12
    
    
    
    0.03
    
    
    
    25
    %Transportation expense
    
    
    0.12
    
    
    
    0.08
    
    
    
    0.04
    
    
    
    50
    %General and administrative expense
    
    
    0.41
    
    
    
    0.48
    
    
    
    (0.07
    )
    
    
    (15
    )%Depreciation, depletion and amortization
    
    
    3.96
    
    
    
    3.88
    
    
    
    0.08
    
    
    
    2
    %
 
 (1)
    
    Average sales prices include the effects of hedging Net Income
 Net Production
 33




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##### Table of Contents



Natural gas, oil and NGL revenues
   HedgingRealized
    
    
    Unhedged
    
    
    (Loss) Gain
    
    
    % ChangeNine Months Ended September 30, 2008:Natural gas (per Mcf)
    
    $
    9.78
    
    
    $
    10.40
    
    
    $
    (0.62
    )
    
    
    (6
    )%Oil (per Bbl)
    
    
    91.21
    
    
    
    112.81
    
    
    
    (21.60
    )
    
    
    (19
    )%Nine Months Ended September 30, 2007:Natural gas (per Mcf)
    
    $
    7.82
    
    
    $
    6.95
    
    
    $
    0.87
    
    
    
    13
    %Oil (per Bbl)
    
    
    63.22
    
    
    
    64.29
    
    
    
    (1.07
    )
    
    
    (2
    )%
 Other revenues
 Lease operating expense
 Severance and ad valorem tax
 Transportation expense
 General and administrative expense
 34




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##### Table of Contents



Depreciation, depletion, and amortization expense
 Net interest expense
 Other income
 Income before taxes and minority interest
 Provision for income taxes
 Liquidity and Capital Resources
     35




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##### Table of Contents



Capital Expenditures 
 In thousands
    
    
    PercentageCapital Expenditures:Offshore natural gas and oil development
    
    $
    343,475
    
    
    
    31
    %Acquisitions
    
    
    254,391
    
    
    
    23
    %Natural gas and oil exploration
    
    
    226,991
    
    
    
    21
    %Leasehold Acquisitions
    
    
    148,771
    
    
    
    13
    %Onshore natural gas and oil development
    
    
    78,387
    
    
    
    7
    %Other items (primarily capitalized overhead)
    
    
    51,888
    
    
    
    5
    %Total capital expenditures
    
    $
    1,103,903
    
    
    
    100
    %
  Bank Credit Facility
  Future Uses of Capital.
 
    
    funding future capital expenditures;
    
    funding hurricane repairs and hurricane-related abandonment operations;
    
    financing any future acquisitions that we may identify;
    
    paying routine operating and administrative expenses; and
    
    paying other commitments comprised largely of cash settlement of hedging obligations
and debt service.
 2008 Capital Expenditures.
 Future Capital Resources.
 
    
    cash flow from operations in future periods,
 36




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##### Table of Contents




    
    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
  Fair Value Measurement
    37




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##### Table of Contents



Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Commodity Prices and Related Hedging Activities
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Cash (loss) gain on settlements
    
    $
    (46,968
    )
    
    $
    11,547
    
    
    $
    (121,882
    )
    
    $
    42,037(Loss) Gain on hedge ineffectiveness (1)
    
    
    4,827
    
    
    
    (599
    )
    
    
    (1,647
    )
    
    
    (2,646
    )Total
    
    $
    (42,141
    )
    
    $
    10,948
    
    
    $
    (123,529
    )
    
    $
    39,391
 
 (1)
    
    Unrealized (loss) gain recognized in natural gas revenue related to the ineffective portion
of open contracts that are not eligible for deferral under SFAS 133 due primarily to the basis
differentials between the contract price and the indexed price at the point of sale. 38




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##### Table of Contents



Weighted Average
    
    Fair ValuePeriod
    
    Instrument Type
    
    Quantity
    
    
    Price
    
    Asset/(Liability)(In thousands)Natural Gas (MMbtus)2008October 1December 31
    
    Fixed Price Swaps
    
    
    8,121,944
    
    
    $8.36 Fixed
    
    $
    6,367October 1December 31
    
    Costless Collars
    
    
    2,760,000
    
    
    $7.83 Floor - $14.60 Ceiling
    
    
    372009January 1September 30
    
    Fixed Price Swaps
    
    
    25,116,524
    
    
    $8.47 Fixed
    
    
    11,633October 1December 31
    
    Fixed Price Swaps
    
    
    6,525,560
    
    
    $8.48 Fixed
    
    
    (637
    )Crude Oil (Bbls)2008October 1December 31
    
    Fixed Price Swaps
    
    
    483,920
    
    
    $78.69 Fixed
    
    
    (10,407
    )October 1December 31
    
    Costless Collars
    
    
    243,432
    
    
    $61.64 Floor - $86.80 Ceiling
    
    
    (3,757
    )2009January 1September 30
    
    Fixed Price Swaps
    
    
    1,715,890
    
    
    $76.22 Fixed
    
    
    (41,935
    )October 1December 31
    
    Fixed Price Swaps
    
    
    456,320
    
    
    $75.88 Fixed
    
    
    (11,519
    )Total
    
    
    
    
    
    
    
    
    
    $
    (50,218
    )
  Interest Rate Market Risk 
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
 39




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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 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;
 40




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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; and
    
    risks related to significant acquisitions or other strategic transactions, such as
failure to realize expected benefits or objectives for future operations.
 
 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, 2008 to July 31, 2008 (1)
    
    
    1,656
    
    
    $
    36.97
    
    
    
    
    
    
    
    August 1, 2008 to August 31, 2008 (1)
    
    
    601
    
    
    $
    28.18
    
    
    
    
    
    
    
    September 1, 2008 to September 30,
2008 (1)
    
    
    5,690
    
    
    $
    25.84
    
    
    
    
    
    
    
    Total
    
    
    7,947
    
    
    $
    28.34
    
    
    
    
    
    
    
    
 
 (1)
    
    These shares were withheld upon the vesting of employee restricted stock grants in connection
with payment of required withholding taxes. 
 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. 333-137441) filed on September 19,
2006).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. amending the transaction agreements
(incorporated by reference to Exhibit 2.2 to Mariners Registration Statement on Form S-4 (File
No. 333-137441) filed on September 19, 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).2.5*
    
    Membership Interest Purchase Agreement by and between Hydro Gulf of Mexico, Inc. and Mariner
Energy, Inc., executed December 23, 2007 (incorporated by reference to Exhibit 2.1 to Mariners
Form 8-K filed on February 5, 2008).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*
    
    Certificate of Designations of Series A Junior Participating Preferred Stock of Mariner Energy,
Inc. (incorporated by reference to Exhibit 3.1 to Mariners Form 8-K filed on October 14, 2008).
 41




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##### Table of Contents



Number
    
    Description3.3*
    
    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*
    
    Rights Agreement, dated as of October 12, 2008, between Mariner Energy, Inc. and Continental Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Mariners
Form 8-K filed on October 14, 2008).4.5*
    
    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).4.6*
    
    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).4.7*
    
    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).4.8*
    
    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
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on April 24, 2007).4.9*
    
    Amendment No. 4, dated as of August 24, 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 (incorporated by
reference to Exhibit 4.1 to Mariners Form 8-K filed on August 27, 2007).4.10*
    
    Amendment No. 5 and Agreement, dated as of January 31, 2008, 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 February 5, 2008).4.11*
    
    Master Assignment, Agreement and Amendment No. 6, dated as of June 2, 2008, 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 June 3, 2008).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).10.3+
    
    Form of Restricted Stock Agreement for grants made after August 24, 2008 as part of 2008 Long-Term
Performance-Based Restricted Stock Program under Mariner Energy, Inc. Second Amended and Restated
Stock Incentive Plan.10.4*+
    
    Form of Restricted Stock Agreement for grants made before August 25, 2008 as part of 2008
Long-Term Performance-Based Restricted Stock Program under Mariner Energy, Inc. Second Amended and
Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Mariners Form 8-K
filed on June 19, 2008).
 42




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##### Table of Contents



Number
    
    Description10.5+
    
    Amendment, dated as of August 25, 2008, to outstanding Restricted Stock Agreements covering grants
made before August 25, 2008 as part of 2008 Long-Term Performance-Based Restricted Stock Program
under Mariner Energy, Inc. Second Amended and Restated Stock Incentive Plan.23.1
    
    Consent of Ryder Scott Company, L.P.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.+
    
    Management contract, plan or arrangement.  43




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##### Table of Contents



SIGNATURES
  Mariner Energy, Inc.By:
    /s/ Scott D. JoseyScott D. Josey,Chairman of the Board, Chief Executive Officer
and PresidentBy:
    /s/ John H. KarnesJohn H. Karnes,Senior Vice President, Chief Financial Officer
and Treasurer 44




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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. 333-137441) filed on September 19,
2006).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. amending the transaction agreements
(incorporated by reference to Exhibit 2.2 to Mariners Registration Statement on Form S-4 (File
No. 333-137441) filed on September 19, 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).2.5*
    
    Membership Interest Purchase Agreement by and between Hydro Gulf of Mexico, Inc. and Mariner
Energy, Inc., executed December 23, 2007 (incorporated by reference to Exhibit 2.1 to Mariners
Form 8-K filed on February 5, 2008).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*
    
    Certificate of Designations of Series A Junior Participating Preferred Stock of Mariner Energy,
Inc. (incorporated by reference to Exhibit 3.1 to Mariners Form 8-K filed on October 14, 2008).3.3*
    
    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*
    
    Rights Agreement, dated as of October 12, 2008, between Mariner Energy, Inc. and Continental Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Mariners
Form 8-K filed on October 14, 2008).4.5*
    
    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).4.6*
    
    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).4.7*
    
    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).4.8*
    
    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
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on April 24, 2007).




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##### Table of Contents



Number
    
    Description4.9*
    
    Amendment No. 4, dated as of August 24, 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 (incorporated by
reference to Exhibit 4.1 to Mariners Form 8-K filed on August 27, 2007).4.10*
    
    Amendment No. 5 and Agreement, dated as of January 31, 2008, 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 February 5, 2008).4.11*
    
    Master Assignment, Agreement and Amendment No. 6, dated as of June 2, 2008, 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 June 3, 2008).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).10.3+
    
    Form of Restricted Stock Agreement for grants made after August 24, 2008 as part of 2008 Long-Term
Performance-Based Restricted Stock Program under Mariner Energy, Inc. Second Amended and Restated
Stock Incentive Plan.10.4*+
    
    Form of Restricted Stock Agreement for grants made before August 25, 2008 as part of 2008
Long-Term Performance-Based Restricted Stock Program under Mariner Energy, Inc. Second Amended and
Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Mariners Form 8-K
filed on June 19, 2008).10.5+
    
    Amendment, dated as of August 25, 2008, to outstanding Restricted Stock Agreements covering grants
made before August 25, 2008 as part of 2008 Long-Term Performance-Based Restricted Stock Program
under Mariner Energy, Inc. Second Amended and Restated Stock Incentive Plan.23.1
    
    Consent of Ryder Scott Company, L.P.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.+
    
    Management contract, plan or arrangement.