##### 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 June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 Commission file number 1-32747
 
 MARINER ENERGY, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    86-0460233(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 One BriarLake Plaza, Suite 2000
2000 West Sam Houston Parkway South
Houston, Texas 77042  (Address of principal executive offices and zip code)
 (713) 954-5500  (Registrants telephone number, including area code)
 
 þ o
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
 PART IItem 1. Condensed Consolidated Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    35PART IIItem 1A. Risk Factors
    
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 6. Exhibits
    
    
    38Compensation of Non-Employee DirectorsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I
 
 Item 1. Condensed Consolidated Financial Statements
 MARINER ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2007
    
    
    2006Current Assets:Cash and cash equivalents
    
    $
    9,147
    
    
    $
    9,579Receivables, net of allowances of $1,566 and $726
as of June 30, 2007 and December 31, 2006,
respectively
    
    
    165,619
    
    
    
    149,692Insurance receivables
    
    
    81,126
    
    
    
    61,001Derivative asset
    
    
    21,781
    
    
    
    54,488Prepaid seismic
    
    
    27,561
    
    
    
    20,835Prepaid expenses and other
    
    
    13,604
    
    
    
    12,846Total current assets
    
    
    318,838
    
    
    
    308,441Property and Equipment:Proved oil and gas properties, full-cost method
    
    
    2,620,098
    
    
    
    2,345,041Unproved properties, not subject to amortization
    
    
    90,099
    
    
    
    40,246Total oil and gas properties
    
    
    2,710,197
    
    
    
    2,385,287Other property and equipment
    
    
    14,429
    
    
    
    13,512Accumulated depreciation, depletion and amortization
    
    
    (570,591
    )
    
    
    (386,737
    )Total property and equipment, net
    
    
    2,154,035
    
    
    
    2,012,062Restricted cash
    
    
    
    
    
    
    31,830Goodwill
    
    
    288,504
    
    
    
    288,504Derivative asset
    
    
    2,440
    
    
    
    17,153Other Assets, net of amortization
    
    
    28,796
    
    
    
    22,163TOTAL ASSETS
    
    $
    2,792,613
    
    
    $
    2,680,153Current Liabilities:Accounts payable
    
    $
    1,658
    
    
    $
    1,822Accrued liabilities
    
    
    111,618
    
    
    
    74,880Accrued capital costs
    
    
    173,148
    
    
    
    99,028Deferred income tax
    
    
    4,199
    
    
    
    26,857Derivative liability
    
    
    2,207
    
    
    
    Abandonment liability
    
    
    31,459
    
    
    
    29,660Accrued interest
    
    
    9,487
    
    
    
    7,480Total current liabilities
    
    
    333,776
    
    
    
    239,727Long-Term Liabilities:Abandonment liability
    
    
    175,087
    
    
    
    188,310Derivative liability
    
    
    5,666
    
    
    
    Deferred income tax
    
    
    299,744
    
    
    
    262,888Long-term debt, bank credit facility
    
    
    
    
    
    
    354,000Long-term debt, senior unsecured notes
    
    
    600,000
    
    
    
    300,000Other long-term liabilities
    
    
    34,406
    
    
    
    32,637Total long-term liabilities
    
    
    1,114,903
    
    
    
    1,137,835Commitments and Contingencies (see Note 7)Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at June 30, 2007 and December 31, 2006
    
    
    
    
    
    
    Common stock, $.0001 par value; 180,000,000 shares
authorized, 87,140,509 shares issued and
outstanding at June 30, 2007; 180,000,000 shares
authorized, 86,375,840 shares issued and
outstanding at December 31, 2006
    
    
    9
    
    
    
    9Additional paid-in-capital
    
    
    1,047,966
    
    
    
    1,043,923Accumulated other comprehensive income
    
    
    9,232
    
    
    
    43,097Accumulated retained earnings
    
    
    286,727
    
    
    
    215,562Total stockholders equity
    
    
    1,343,934
    
    
    
    1,302,591TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,792,613
    
    
    $
    2,680,153
 The accompanying notes are an integral part of these consolidated financial statements
 3




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MARINER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Oil
    
    $
    66,678
    
    
    $
    51,493
    
    
    $
    127,129
    
    
    $
    81,675Natural gas
    
    
    134,082
    
    
    
    105,607
    
    
    
    274,614
    
    
    
    149,762Natural gas liquids
    
    
    11,413
    
    
    
    9,631
    
    
    
    20,562
    
    
    
    14,865Other revenues
    
    
    908
    
    
    
    936
    
    
    
    2,341
    
    
    
    1,623Total revenues
    
    
    213,081
    
    
    
    167,667
    
    
    
    424,646
    
    
    
    247,925Costs and Expenses:Lease operating expense
    
    
    40,297
    
    
    
    22,627
    
    
    
    75,053
    
    
    
    34,119Severance and ad valorem taxes
    
    
    2,888
    
    
    
    1,757
    
    
    
    5,878
    
    
    
    3,448Transportation expense
    
    
    1,403
    
    
    
    1,548
    
    
    
    3,305
    
    
    
    2,277General and administrative expense
    
    
    11,376
    
    
    
    6,964
    
    
    
    21,517
    
    
    
    17,473Depreciation, depletion and amortization
    
    
    93,899
    
    
    
    76,982
    
    
    
    192,633
    
    
    
    109,806Total costs and expenses
    
    
    149,863
    
    
    
    109,878
    
    
    
    298,386
    
    
    
    167,123OPERATING INCOME
    
    
    63,218
    
    
    
    57,789
    
    
    
    126,260
    
    
    
    80,802Other Income (Expense):Interest income
    
    
    231
    
    
    
    136
    
    
    
    522
    
    
    
    249Interest expense, net of amounts capitalized
    
    
    (13,873
    )
    
    
    (8,663
    )
    
    
    (26,220
    )
    
    
    (14,668
    )Other
    
    
    (373
    )
    
    
    
    
    
    
    5,058
    
    
    
    Income before taxes
    
    
    49,203
    
    
    
    49,262
    
    
    
    105,620
    
    
    
    66,383Provision for income taxes
    
    
    (16,245
    )
    
    
    (18,557
    )
    
    
    (34,455
    )
    
    
    (24,549
    )NET INCOME
    
    $
    32,958
    
    
    $
    30,705
    
    
    $
    71,165
    
    
    $
    41,834Earnings per share:Net income per sharebasic
    
    $
    0.38
    
    
    $
    0.36
    
    
    $
    0.83
    
    
    $
    0.62Net income per sharediluted
    
    $
    0.38
    
    
    $
    0.36
    
    
    $
    0.83
    
    
    $
    0.62Weighted average shares outstandingbasic
    
    
    85,627,433
    
    
    
    84,720,331
    
    
    
    85,585,072
    
    
    
    67,244,331Weighted average shares outstandingdiluted
    
    
    85,905,296
    
    
    
    85,027,561
    
    
    
    85,767,175
    
    
    
    67,829,117
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six MonthsEnded June 30,2007
    
    
    2006Operating Activities:Net income
    
    $
    71,165
    
    
    $
    41,834Adjustments to reconcile net income to net cash provided by operating
activities:Deferred income tax
    
    
    34,205
    
    
    
    24,549Depreciation, depletion and amortization
    
    
    193,922
    
    
    
    111,851Ineffectiveness of derivative instruments
    
    
    2,047
    
    
    
    1,082Stock compensation
    
    
    3,414
    
    
    
    7,891Changes in operating assets and liabilities:Receivables
    
    
    (15,927
    )
    
    
    13,382Insurance receivables
    
    
    (20,125
    )
    
    
    (42,128
    )Prepaid expenses and other
    
    
    (198
    )
    
    
    (1,134
    )Other assets
    
    
    (1,974
    )
    
    
    (5,150
    )Accounts payable and other liabilities
    
    
    17,365
    
    
    
    (59,630
    )Net realized loss on derivative contracts acquired
    
    
    
    
    
    
    3,548Net cash provided by operating activities
    
    
    283,894
    
    
    
    96,095Investing Activities:Additions to properties and equipment
    
    
    (258,311
    )
    
    
    (185,997
    )Property conveyances
    
    
    2,017
    
    
    
    2,012Purchase price adjustment
    
    
    
    
    
    
    (20,808
    )Restricted cash designated for investment
    
    
    31,830
    
    
    
    Net cash used in investing activities
    
    
    (224,464
    )
    
    
    (204,793
    )Financing Activities:Repayment of term note
    
    
    
    
    
    
    (4,000
    )Credit facility (repayments) borrowings, net
    
    
    (354,000
    )
    
    
    5,000Debt and working capital acquired from Forest Energy Resources, Inc.
    
    
    
    
    
    
    (176,200
    )Proceeds from note offering
    
    
    300,000
    
    
    
    300,000Deferred offering costs
    
    
    (6,491
    )
    
    
    (12,129
    )Net realized loss on derivative contracts acquired
    
    
    
    
    
    
    (3,548
    )Proceeds from exercise of stock options
    
    
    629
    
    
    
    675Net cash (used in) provided by financing activities
    
    
    (59,862
    )
    
    
    109,798(Decrease) Increase in Cash and Cash Equivalents
    
    
    (432
    )
    
    
    1,100Cash and Cash Equivalents at Beginning of Period
    
    
    9,579
    
    
    
    4,556Cash and Cash Equivalents at End of Period
    
    $
    9,147
    
    
    $
    5,656
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Summary of Significant Accounting Policies
 Operations
 Interim Financial Statements
 Use of Estimates
 Principles of Consolidation
 Reclassifications
 Income Taxes
  6




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Recent Accounting Pronouncements
   2. Acquisitions and Dispositions
 Forest Gulf of Mexico Operations
 7




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##### Table of Contents



(In millions)Oil and natural gas properties
    
    $
    1,211.4Abandonment liabilities
    
    
    (165.2
    )Long-term debt
    
    
    (176.2
    )Fair value of oil and natural gas derivatives
    
    
    (17.5
    )Deferred tax liability
    
    
    (199.4
    )Other assets and liabilities
    
    
    (24.5
    )Goodwill
    
    
    261.4Net Assets Acquired
    
    $
    890.0
    Interest in Cottonwood
 8




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3. Long-Term Debt
 Bank Credit Facility
      
    
    maintain a ratio of consolidated current assets plus the unused borrowing base to
consolidated current liabilities of not less than 1.0 to 1.0; and
    
    maintain a ratio of total debt to EBITDA, as defined in the credit agreement, of not
more than 2.5 to 1.0.
  9




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Senior Notes 1 2 1 2 1 2 1 2
 1 2
   1 2 1 2
 1 2
 71/2% Notes
    
    8% NotesApril 15, 2010 at 103.750%
    
    May 15, 2012 at 104.000%April 15, 2011 at 101.875%
    
    May 15, 2013 at 102.667%April 15, 2012 and thereafter at 100.000%
    
    May 15, 2014 at 101.333%May 15, 2015 and thereafter at 100.000%
 1 2 1 2
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
    
    make investments;
    
    incur additional indebtedness or issue preferred stock;
    
    create certain liens;
    
    sell assets;
    
    enter into agreements that restrict dividends or other payments from its subsidiaries to itself;
    
    consolidate, merge or transfer all or substantially all of its assets;
    
    engage in transactions with affiliates;
    
    pay dividends or make other distributions on capital stock or subordinated indebtedness; and
    
    create unrestricted subsidiaries.
 1 2
 JEDI Term Promissory Note
 Cash
Interest Expense
 Bank Debt Issuance Costs
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4. Oil and Gas Properties
   5. Accrual for Future Abandonment Costs
   (In millions)Abandonment
liability as of December 31, 2006 (1)
    
    $
    218.0Liabilities Incurred
    
    
    1.3Liabilities Settled
    
    
    (15.6
    )Accretion Expense
    
    
    8.7Revisions to previous estimates
    
    
    (5.9
    )Abandonment Liability as of June 30, 2007 (2)
    
    $
    206.5
 
 (1)
    
    Includes $29.7 million classified as a current accrued liability at December 31, 2006.(2)
    
    Includes $31.5 million classified as a current accrued liability at June 30, 2007. 6. Stockholders Equity
  12




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WeightedAverage
    
    Aggregate IntrinsicExercise
    
    Value (1)Shares
    
    Price
    
    (In thousands)Outstanding at beginning of year
    
    
    802,322
    
    
    $
    13.77Granted
    
    
    
    
    
    
    Exercised (2)
    
    
    (48,637
    )
    
    $
    12.94Forfeited
    
    
    (11,752
    )
    
    
    Outstanding at June 30, 2007
    
    
    741,933
    
    
    $
    13.80
    
    
    $
    7,751
 
 (1)
    
    Based upon the difference between the market price of the common stock on the last trading
date of the quarter and the option exercise price of in-the-money options.(2)
    
    Options were exercised for cash proceeds of $629,000.  Restricted Shares underStock Incentive PlanJune 30,2007
    
    2006Total unvested shares at beginning of period: January 1
    
    
    875,380
    
    
    
    Shares granted
    
    
    799,694
    
    
    
    762,483Shares vested
    
    
    (207,053
    )
    
    
    Shares forfeited
    
    
    (24,266
    )
    
    
    (12,338
    )Total unvested shares at end of period: June 30
    
    
    1,443,755
    
    
    
    750,145Available for future grant as options or restricted stock
    
    
    4,146,100
    
    
    
    4,949,855A summary of the activity for unvested restricted stock awards under the Companys Equity
Participation Plan, as amended (which expired May 31, 2006), as of June 30, 2007 and 2006,
respectively, and changes during the six-month periods is as follows:Restricted Shares underEquity Participation PlanJune 30,2007
    
    2006Total unvested shares at beginning of period: January 1
    
    
    
    
    
    
    2,267,270Shares granted
    
    
    
    
    
    
    Shares vested
    
    
    
    
    
    
    (2,267,270
    )Shares forfeited
    
    
    
    
    
    
    Total unvested shares at end of period: June 30
    
    
    
    
    
    
    Available for future grant under Equity Participation Plan
    
    
    
    
    
    
    
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7. Commitments And Contingencies
 Minimum Future Lease Payments
 (In millions)2008
    
    $
    1.52009
    
    
    1.32010
    
    
    1.62011
    
    
    1.52012 and thereafter
    
    
    1.5
 Hedging Program
   June 30,Weighted Average
    
    
    2007 Fair ValueFixed Price Swaps
    
    Quantity
    
    
    Fixed Price
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)July 1December 31, 2007
    
    
    627,900
    
    
    $
    69.20
    
    
    $
    (1.3
    )January 1December 31, 2008
    
    
    992,350
    
    
    $
    69.34
    
    
    
    (3.0
    )January 1December 31, 2009
    
    
    1,280,750
    
    
    $
    68.93
    
    
    
    (4.4
    )Natural Gas (MMbtus)July 1December 31, 2007
    
    
    10,661,236
    
    
    $
    8.75
    
    
    
    15.7January 1December 31, 2008
    
    
    10,833,979
    
    
    $
    8.87
    
    
    
    4.9January 1December 31, 2009
    
    
    8,052,820
    
    
    $
    8.30
    
    
    
    (2.4
    )Total
    
    
    
    
    
    
    
    
    
    $
    9.5
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June 30,Weighted Average
    
    
    Weighted Average
    
    
    2007 Fair ValueCostless Collars
    
    Quantity
    
    
    Floor
    
    
    Cap
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)July 1December 31, 2007
    
    
    889,824
    
    
    $
    59.43
    
    
    $
    83.52
    
    
    $
    (2.6
    )January 1December 31, 2008
    
    
    1,195,495
    
    
    $
    61.66
    
    
    $
    86.80
    
    
    
    1.0Natural Gas (MMbtus)July 1December 31, 2007
    
    
    8,197,200
    
    
    $
    6.98
    
    
    $
    12.19
    
    
    
    2.0January 1December 31, 2008
    
    
    12,347,000
    
    
    $
    7.83
    
    
    $
    14.60
    
    
    
    6.4Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6.8
   Other Commitments
 MMS Proceedings
    15




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Kerr-McGee Oil & Gas Corp. v. Burton
 Insurance Matters Hurricanes Katrina and Rita (2005)
      16




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Hurricane Ivan (2004)
  Litigation
 Letters of Credit
   8. Net Income per Share
  Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per share data)Numerator:Net Income
    
    $
    32,958
    
    
    $
    30,705
    
    
    $
    71,165
    
    
    $
    41,834Denominator:Weighted average shares outstanding
    
    
    85,627
    
    
    
    84,720
    
    
    
    85,585
    
    
    
    67,244Add dilutive securities
    
    
    278
    
    
    
    308
    
    
    
    182
    
    
    
    585Total weighted average shares
outstanding and dilutive
securities
    
    
    85,905
    
    
    
    85,028
    
    
    
    85,767
    
    
    
    67,829Earnings per sharebasic:
    
    $
    0.38
    
    
    $
    0.36
    
    
    $
    0.83
    
    
    $
    0.62Earnings per sharediluted:
    
    $
    0.38
    
    
    $
    0.36
    
    
    $
    0.83
    
    
    $
    0.62
  17




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9. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)
    
    
    (in thousands)Net Income
    
    $
    32,958
    
    
    $
    30,705
    
    
    $
    71,165
    
    
    $
    41,834Other comprehensive income (loss):Derivative contracts settled
and reclassified, net of
income taxes of $2,445, $375,
$9,979 and ($3,124)
    
    
    4,523
    
    
    
    696
    
    
    
    18,464
    
    
    
    (5,802
    )Change in unrealized mark to
market (losses) gains arising
during period, net of income
taxes of ($2,235), $8,436,
($29,358) and $22,111
    
    
    (4,134
    )
    
    
    16,930
    
    
    
    (52,329
    )
    
    
    40,124Change in accumulated
other comprehensive income
(loss)
    
    
    389
    
    
    
    17,626
    
    
    
    (33,865
    )
    
    
    34,322Comprehensive income
    
    $
    33,347
    
    
    $
    48,331
    
    
    $
    37,300
    
    
    $
    76,156
 10. Supplemental Guarantor Information
 1 2
   18




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2007
(In thousands except share data)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Current Assets:Cash and cash equivalents
    
    $
    9,147
    
    
    $
    
    
    
    $
    
    
    
    $
    9,147Receivables, net
    
    
    73,660
    
    
    
    91,959
    
    
    
    
    
    
    
    165,619Insurance receivables
    
    
    3,970
    
    
    
    77,156
    
    
    
    
    
    
    
    81,126Derivative asset
    
    
    21,781
    
    
    
    
    
    
    
    
    
    
    
    21,781Prepaid seismic
    
    
    27,561
    
    
    
    
    
    
    
    
    
    
    
    27,561Prepaid expenses and other
    
    
    11,534
    
    
    
    2,070
    
    
    
    
    
    
    
    13,604Total current assets
    
    
    147,653
    
    
    
    171,185
    
    
    
    
    
    
    
    318,838Property and Equipment:Proved oil and gas properties, full-cost method
    
    
    1,113,618
    
    
    
    1,506,480
    
    
    
    
    
    
    
    2,620,098Unproved
properties, not subject to amortization
    
    
    89,633
    
    
    
    466
    
    
    
    
    
    
    
    90,099Total oil
and gas properties
    
    
    1,203,251
    
    
    
    1,506,946
    
    
    
    
    
    
    
    2,710,197Other property and equipment
    
    
    14,379
    
    
    
    50
    
    
    
    
    
    
    
    14,429Accumulated depreciation, depletion and amortization
    
    
    (315,978
    )
    
    
    (254,613
    )
    
    
    
    
    
    
    (570,591
    )Total property and equipment, net
    
    
    901,652
    
    
    
    1,252,383
    
    
    
    
    
    
    
    2,154,035Investment in subsidiaries
    
    
    915,704
    
    
    
    
    
    
    
    (915,704
    )
    
    
    Intercompany receivable
    
    
    99,709
    
    
    
    
    
    
    
    (99,709
    )
    
    
    Intercompany note receivable
    
    
    176,200
    
    
    
    
    
    
    
    (176,200
    )
    
    
    Goodwill
    
    
    
    
    
    
    288,504
    
    
    
    
    
    
    
    288,504Derivative asset
    
    
    2,440
    
    
    
    
    
    
    
    
    
    
    
    2,440Other Assets, Net of Amortization
    
    
    28,796
    
    
    
    
    
    
    
    
    
    
    
    28,796TOTAL ASSETS
    
    $
    2,272,154
    
    
    $
    1,712,072
    
    
    $
    (1,191,613
    )
    
    $
    2,792,613Current Liabilities:Accounts payable
    
    $
    1,658
    
    
    $
    
    
    
    $
    
    
    
    $
    1,658Accrued liabilities
    
    
    105,129
    
    
    
    6,489
    
    
    
    
    
    
    
    111,618Accrued capital costs
    
    
    113,202
    
    
    
    59,946
    
    
    
    
    
    
    
    173,148Deferred income tax
    
    
    4,199
    
    
    
    
    
    
    
    
    
    
    
    4,199Derivative liability
    
    
    2,207
    
    
    
    
    
    
    
    
    
    
    
    2,207Abandonment liability
    
    
    8,597
    
    
    
    22,862
    
    
    
    
    
    
    
    31,459Accrued interest
    
    
    9,487
    
    
    
    
    
    
    
    
    
    
    
    9,487Total current liabilities
    
    
    244,479
    
    
    
    89,297
    
    
    
    
    
    
    
    333,776Long-Term Liabilities:Abandonment liability
    
    
    47,450
    
    
    
    127,637
    
    
    
    
    
    
    
    175,087Derivative liability
    
    
    5,666
    
    
    
    
    
    
    
    
    
    
    
    5,666Deferred income tax
    
    
    58,766
    
    
    
    240,978
    
    
    
    
    
    
    
    299,744Intercompany payable
    
    
    
    
    
    
    99,709
    
    
    
    (99,709
    )
    
    
    Long-term debt, bank credit facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt, senior unsecured notes
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    600,000Other long-term liabilities
    
    
    30,820
    
    
    
    3,586
    
    
    
    
    
    
    
    34,406Intercompany note payable
    
    
    
    
    
    
    176,200
    
    
    
    (176,200
    )
    
    
    Total long-term liabilities
    
    
    742,702
    
    
    
    648,110
    
    
    
    (275,909
    )
    
    
    1,114,903Commitments and Contingencies (see Note 7)Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at June 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, $.0001 par value; 180,000,000 shares
authorized, 87,140,509 shares issued and
outstanding at June 30, 2007
    
    
    9
    
    
    
    5
    
    
    
    (5
    )
    
    
    9Additional paid-in-capital
    
    
    1,047,966
    
    
    
    886,142
    
    
    
    (886,142
    )
    
    
    1,047,966Accumulated other comprehensive income
    
    
    9,232
    
    
    
    
    
    
    
    
    
    
    
    9,232Accumulated retained earnings
    
    
    227,766
    
    
    
    88,518
    
    
    
    (29,557
    )
    
    
    286,727Total stockholders equity
    
    
    1,284,973
    
    
    
    974,665
    
    
    
    (915,704
    )
    
    
    1,343,934TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,272,154
    
    
    $
    1,712,072
    
    
    $
    (1,191,613
    )
    
    $
    2,792,613
 19




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##### Table of Contents



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




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2007
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Oil
    
    $
    32,129
    
    
    $
    34,549
    
    
    $
    
    
    
    $
    66,678Natural gas
    
    
    60,368
    
    
    
    73,714
    
    
    
    
    
    
    
    134,082Natural gas liquids
    
    
    7,284
    
    
    
    4,129
    
    
    
    
    
    
    
    11,413Other revenues
    
    
    908
    
    
    
    
    
    
    
    
    
    
    
    908Total revenues
    
    
    100,689
    
    
    
    112,392
    
    
    
    
    
    
    
    213,081Costs and Expenses:Lease operating expense
    
    
    8,815
    
    
    
    31,482
    
    
    
    
    
    
    
    40,297Severance and ad valorem taxes
    
    
    1,890
    
    
    
    998
    
    
    
    
    
    
    
    2,888Transportation expense
    
    
    789
    
    
    
    614
    
    
    
    
    
    
    
    1,403General and administrative expense
    
    
    10,849
    
    
    
    527
    
    
    
    
    
    
    
    11,376Depreciation, depletion and amortization
    
    
    45,392
    
    
    
    48,507
    
    
    
    
    
    
    
    93,899Total costs and expenses
    
    
    67,735
    
    
    
    82,128
    
    
    
    
    
    
    
    149,863OPERATING INCOME
    
    
    32,954
    
    
    
    30,264
    
    
    
    
    
    
    
    63,218Earnings of Affiliates
    
    
    17,183
    
    
    
    
    
    
    
    (17,183
    )
    
    
    Other Income (Expense):Interest income
    
    
    3,872
    
    
    
    1
    
    
    
    (3,642
    )
    
    
    231Interest expense, net of amounts capitalized
    
    
    (13,818
    )
    
    
    (3,697
    )
    
    
    3,642
    
    
    
    (13,873
    )Other
    
    
    
    
    
    
    (373
    )
    
    
    
    
    
    
    (373
    )Income before taxes
    
    
    40,191
    
    
    
    26,195
    
    
    
    (17,183
    )
    
    
    49,203Provision for income taxes
    
    
    (7,233
    )
    
    
    (9,012
    )
    
    
    
    
    
    
    (16,245
    )NET INCOME
    
    $
    32,958
    
    
    $
    17,183
    
    
    $
    (17,183
    )
    
    $
    32,958
 21




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2006
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Oil
    
    $
    29,874
    
    
    $
    21,619
    
    
    $
    
    
    
    $
    51,493Natural gas
    
    
    38,705
    
    
    
    66,902
    
    
    
    
    
    
    
    105,607Natural gas liquids
    
    
    4,868
    
    
    
    4,763
    
    
    
    
    
    
    
    9,631Other revenues
    
    
    936
    
    
    
    
    
    
    
    
    
    
    
    936Total revenues
    
    
    74,383
    
    
    
    93,284
    
    
    
    
    
    
    
    167,667Costs and Expenses:Lease operating expense
    
    
    8,796
    
    
    
    13,831
    
    
    
    
    
    
    
    22,627Severance and ad valorem taxes
    
    
    1,757
    
    
    
    
    
    
    
    
    
    
    
    1,757Transportation expense
    
    
    1,054
    
    
    
    494
    
    
    
    
    
    
    
    1,548General and administrative expense
    
    
    6,569
    
    
    
    395
    
    
    
    
    
    
    
    6,964Depreciation, depletion and amortization
    
    
    31,520
    
    
    
    45,462
    
    
    
    
    
    
    
    76,982Total costs and expenses
    
    
    49,696
    
    
    
    60,182
    
    
    
    
    
    
    
    109,878OPERATING INCOME
    
    
    24,687
    
    
    
    33,102
    
    
    
    
    
    
    
    57,789Earnings of Affiliates
    
    
    30,121
    
    
    
    
    
    
    
    (30,121
    )Other Income (Expense):Interest income
    
    
    594
    
    
    
    
    
    
    
    (458
    )
    
    
    136Interest expense, net of amounts capitalized
    
    
    (6,140
    )
    
    
    (2,981
    )
    
    
    458
    
    
    
    (8,663
    )Income before taxes
    
    
    49,262
    
    
    
    30,121
    
    
    
    (30,121
    )
    
    
    49,262Provision for income taxes
    
    
    (18,557
    )
    
    
    
    
    
    
    
    
    
    
    (18,557
    )NET INCOME
    
    $
    30,705
    
    
    $
    30,121
    
    
    $
    (30,121
    )
    
    $
    30,705
 22




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2007
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Oil
    
    $
    64,232
    
    
    $
    62,897
    
    
    $
    
    
    
    $
    127,129Natural gas
    
    
    135,916
    
    
    
    138,698
    
    
    
    
    
    
    
    274,614Natural gas liquids
    
    
    12,083
    
    
    
    8,479
    
    
    
    
    
    
    
    20,562Other revenues
    
    
    2,241
    
    
    
    100
    
    
    
    
    
    
    
    2,341Total revenues
    
    
    214,472
    
    
    
    210,174
    
    
    
    
    
    
    
    424,646Costs and Expenses:Lease operating expense
    
    
    23,335
    
    
    
    51,718
    
    
    
    
    
    
    
    75,053Severance and ad valorem taxes
    
    
    3,979
    
    
    
    1,899
    
    
    
    
    
    
    
    5,878Transportation expense
    
    
    1,815
    
    
    
    1,490
    
    
    
    
    
    
    
    3,305General and administrative expense
    
    
    20,317
    
    
    
    1,200
    
    
    
    
    
    
    
    21,517Depreciation, depletion and amortization
    
    
    85,490
    
    
    
    107,143
    
    
    
    
    
    
    
    192,633Total costs and expenses
    
    
    134,936
    
    
    
    163,450
    
    
    
    
    
    
    
    298,386OPERATING INCOME
    
    
    79,536
    
    
    
    46,724
    
    
    
    
    
    
    
    126,260Earnings of Affiliates
    
    
    29,557
    
    
    
    
    
    
    
    (29,557
    )
    
    
    Other Income (Expense):Interest income
    
    
    7,769
    
    
    
    1
    
    
    
    (7,248
    )
    
    
    522Interest expense, net of amounts capitalized
    
    
    (26,032
    )
    
    
    (7,436
    )
    
    
    7,248
    
    
    
    (26,220
    )Other
    
    
    
    
    
    
    5,058
    
    
    
    
    
    
    
    5,058Income before taxes
    
    
    90,830
    
    
    
    44,347
    
    
    
    (29,557
    )
    
    
    105,620Provision for income taxes
    
    
    (19,665
    )
    
    
    (14,790
    )
    
    
    
    
    
    
    (34,455
    )NET INCOME
    
    $
    71,165
    
    
    $
    29,557
    
    
    $
    (29,557
    )
    
    $
    71,165
 23




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2006
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Oil
    
    $
    54,234
    
    
    $
    27,441
    
    
    $
    
    
    
    $
    81,675Natural gas
    
    
    61,294
    
    
    
    88,468
    
    
    
    
    
    
    
    149,762Natural gas liquids
    
    
    8,814
    
    
    
    6,051
    
    
    
    
    
    
    
    14,865Other revenues
    
    
    1,623
    
    
    
    
    
    
    
    
    
    
    
    1,623Total revenues
    
    
    125,965
    
    
    
    121,960
    
    
    
    
    
    
    
    247,925Costs and Expenses:Lease operating expense
    
    
    15,898
    
    
    
    18,221
    
    
    
    
    
    
    
    34,119Severance and ad valorem taxes
    
    
    3,448
    
    
    
    
    
    
    
    
    
    
    
    3,448Transportation expense
    
    
    1,527
    
    
    
    750
    
    
    
    
    
    
    
    2,277General and administrative expense
    
    
    16,666
    
    
    
    807
    
    
    
    
    
    
    
    17,473Depreciation, depletion and amortization
    
    
    48,127
    
    
    
    61,679
    
    
    
    
    
    
    
    109,806Total costs and expenses
    
    
    85,666
    
    
    
    81,457
    
    
    
    
    
    
    
    167,123OPERATING INCOME
    
    
    40,299
    
    
    
    40,503
    
    
    
    
    
    
    
    80,802Earnings of Affiliates
    
    
    36,384
    
    
    
    
    
    
    
    (36,384
    )
    
    
    Other Income (Expense):Interest income
    
    
    707
    
    
    
    
    
    
    
    (458
    )
    
    
    249Interest expense, net of amounts capitalized
    
    
    (11,007
    )
    
    
    (4,119
    )
    
    
    458
    
    
    
    (14,668
    )Income before taxes
    
    
    66,383
    
    
    
    36,384
    
    
    
    (36,384
    )
    
    
    66,383Provision for income taxes
    
    
    (24,549
    )
    
    
    
    
    
    
    
    
    
    
    (24,549
    )NET INCOME
    
    $
    41,834
    
    
    $
    36,384
    
    
    $
    (36,384
    )
    
    $
    41,834
 24




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2007
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Net cash provided by operating activities
    
    $
    196,520
    
    
    $
    116,931
    
    
    $
    (29,557
    )
    
    $
    283,894Investing Activities:Additions to properties and equipment
    
    
    (193,465
    )
    
    
    (64,846
    )
    
    
    
    
    
    
    (258,311
    )Property conveyances
    
    
    18
    
    
    
    1,999
    
    
    
    
    
    
    
    2,017Restricted cash designated for investment
    
    
    31,830
    
    
    
    
    
    
    
    
    
    
    
    31,830Net cash used in investing activities
    
    
    (161,617
    )
    
    
    (62,847
    )
    
    
    
    
    
    
    (224,464
    )Financing Activities:Credit facility repayments, net
    
    
    (354,000
    )
    
    
    
    
    
    
    
    
    
    
    (354,000
    )Proceeds from note offering
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Deferred offering costs
    
    
    (6,491
    )
    
    
    
    
    
    
    
    
    
    
    (6,491
    )Proceeds from exercise of stock options
    
    
    629
    
    
    
    
    
    
    
    
    
    
    
    629Net activity in investment from subsidiaries
    
    
    24,527
    
    
    
    (54,084
    )
    
    
    29,557
    
    
    
    Net cash used in financing activities
    
    
    (35,335
    )
    
    
    (54,084
    )
    
    
    29,557
    
    
    
    (59,862
    )Decrease in Cash and Cash Equivalents
    
    
    (432
    )
    
    
    
    
    
    
    
    
    
    
    (432
    )Cash and Cash Equivalents at Beginning of Period
    
    
    9,579
    
    
    
    
    
    
    
    
    
    
    
    9,579Cash and Cash Equivalents at End of Period
    
    $
    9,147
    
    
    $
    
    
    
    $
    
    
    
    $
    9,147
 
 MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2006
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Net cash provided by operating activities
    
    $
    121,462
    
    
    $
    11,017
    
    
    $
    (36,384
    )
    
    $
    96,095Investing Activities:Additions to properties and equipment
    
    
    (143,156
    )
    
    
    (42,841
    )
    
    
    
    
    
    
    (185,997
    )Property conveyances
    
    
    2,012
    
    
    
    
    
    
    
    
    
    
    
    2,012Purchase price adjustment
    
    
    
    
    
    
    (20,808
    )
    
    
    
    
    
    
    (20,808
    )Net cash used in investing activities
    
    
    (141,144
    )
    
    
    (63,649
    )
    
    
    
    
    
    
    (204,793
    )Financing Activities:Repayment of term note
    
    
    (4,000
    )
    
    
    
    
    
    
    
    
    
    
    (4,000
    )Credit facility (repayments) borrowings, net
    
    
    (152,000
    )
    
    
    157,000
    
    
    
    
    
    
    
    5,000Debt and working capital acquired from Forest
Energy Resources, Inc.
    
    
    
    
    
    
    (176,200
    )
    
    
    
    
    
    
    (176,200
    )Proceeds from note offering
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Deferred offering costs
    
    
    (12,129
    )
    
    
    
    
    
    
    
    
    
    
    (12,129
    )Net realized loss on derivative contracts acquired
    
    
    
    
    
    
    (3,548
    )
    
    
    
    
    
    
    (3,548
    )Proceeds from exercise of stock options
    
    
    675
    
    
    
    
    
    
    
    
    
    
    
    675Net activity in investments from subsidiaries
    
    
    (111,764
    )
    
    
    75,380
    
    
    
    36,384
    
    
    
    Net cash provided by financing activities
    
    
    20,782
    
    
    
    52,632
    
    
    
    36,384
    
    
    
    109,798Increase in Cash and Cash Equivalents
    
    
    1,100
    
    
    
    
    
    
    
    
    
    
    
    1,100Cash and Cash Equivalents at Beginning of Period
    
    
    4,556
    
    
    
    
    
    
    
    
    
    
    
    4,556Cash and Cash Equivalents at End of Period
    
    $
    5,656
    
    
    $
    
    
    
    $
    
    
    
    $
    5,656
 25




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
    Results of Operations
 Offshore
 Well Name
    
    Operator
    
    Working Interest
    
    Water Depth (Ft)
    
    LocationHI A467 A1ST1
    
    Mariner
    
    100%
    
    185
    
    Conventional ShelfWC 252 #1
    
    EPL
    
    25%
    
    82
    
    Conventional ShelfBA A24 #1
    
    Hydro
    
    20%
    
    142
    
    Deep ShelfHI A467 A17
    
    Mariner
    
    100%
    
    185
    
    Conventional ShelfVR 261 A4ST1
    
    Mariner
    
    86.4%
    
    157
    
    Conventional ShelfEI 354 A6ST1
    
    Devon
    
    17%
    
    265
    
    Conventional Shelf
  Onshore 
 26




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##### Table of Contents



Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006 and the Six Months
Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
  Operating and Financial Results for the Three Months Ended June 30, 2007 Compared to Three Months
Ended June 30, 2006 and the Six Months Ended June 30, 2007 Compared to Six Months Ended June 30,
2006
 Three Months Ended June 30,
    
    Six Months Ended June 30,Summary Operating Information:
    
    2007
    
    2006
    
    2007
    
    2006(In thousands, except average sales prices and production volumes)Net Production:Oil (MBbls)
    
    
    1,080.8
    
    
    
    794.8
    
    
    
    2,127.3
    
    
    
    1,358.4Natural gas (MMcf)
    
    
    16,390.9
    
    
    
    14,807.7
    
    
    
    33,868.7
    
    
    
    21,227.3Natural gas liquids (MBbls)
    
    
    281.8
    
    
    
    286.2
    
    
    
    558.7
    
    
    
    406.6Total natural gas equivalent (MMcfe)
    
    
    24,566.5
    
    
    
    21,293.3
    
    
    
    49,984.9
    
    
    
    31,817.3Average daily production (MMcfe/d)
    
    
    270.0
    
    
    
    233.9
    
    
    
    276.2
    
    
    
    175.8Average sales prices:Oil (per Bbl) (1)
    
    $
    61.69
    
    
    $
    64.79
    
    
    $
    59.76
    
    
    $
    60.13Natural gas (per Mcf) (1)
    
    
    8.18
    
    
    
    7.13
    
    
    
    8.11
    
    
    
    7.06Natural gas liquids (per Mcf) (1)
    
    
    40.51
    
    
    
    33.66
    
    
    
    36.81
    
    
    
    36.56Total natural gas equivalent ($/Mcfe) (1)
    
    
    8.64
    
    
    
    7.83
    
    
    
    8.45
    
    
    
    7.74Oil and gas revenues:Oil
    
    $
    66,678
    
    
    $
    51,493
    
    
    $
    127,129
    
    
    $
    81,675Natural gas
    
    
    134,082
    
    
    
    105,607
    
    
    
    274,614
    
    
    
    149,762Natural gas liquids
    
    
    11,413
    
    
    
    9,631
    
    
    
    20,562
    
    
    
    14,865Total oil and gas revenues
    
    
    212,173
    
    
    
    166,731
    
    
    
    422,305
    
    
    
    246,302Other revenues
    
    
    908
    
    
    
    936
    
    
    
    2,341
    
    
    
    1,623Lease operating expense
    
    
    40,297
    
    
    
    22,627
    
    
    
    75,053
    
    
    
    34,119Severance and ad valorem taxes
    
    
    2,888
    
    
    
    1,757
    
    
    
    5,878
    
    
    
    3,448Transportation expense
    
    
    1,403
    
    
    
    1,548
    
    
    
    3,305
    
    
    
    2,277General and administrative expense
    
    
    11,376
    
    
    
    6,964
    
    
    
    21,517
    
    
    
    17,473Depreciation, depletion and amortization
    
    
    93,899
    
    
    
    76,982
    
    
    
    192,633
    
    
    
    109,806Net interest expense
    
    
    13,642
    
    
    
    8,527
    
    
    
    25,698
    
    
    
    14,419Other income (expense)
    
    
    (373
    )
    
    
    
    
    
    
    5,058
    
    
    
    Income before taxes
    
    
    49,203
    
    
    
    49,262
    
    
    
    105,620
    
    
    
    66,383Provision for income taxes
    
    
    16,245
    
    
    
    18,557
    
    
    
    34,455
    
    
    
    24,549Net Income
    
    
    32,958
    
    
    
    30,705
    
    
    
    71,165
    
    
    
    41,834
 
 (1)
    
    Average prices include the effects of hedging Net Production:
  27




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##### Table of Contents



Oil and gas revenues:
     28




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##### Table of Contents



Other revenues
 Lease operating expense LOE
 Severance and ad valorem taxes
 Transportation expense
 General and administrative (G&A) expense
  Depreciation,
depletion, and amortization (DD&A) expense
 Net interest expense
 29




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##### Table of Contents



Other income (expense) Business Combinations .
 Income before taxes
 Provision for income taxes
 Liquidity and Capital Resources
    Capital
Expenditures 
 Bank Credit Facility
   30




---



##### Table of Contents




    
    maintain a ratio of consolidated current assets plus the unused borrowing base to
consolidated current liabilities of not less than 1.0 to 1.0; and
    
    maintain a ratio of total debt to EBITDA, as defined in the credit agreement, of not
more than 2.5 to 1.0.
  8% Senior Notes due 2017.
 1 2
    31




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##### Table of Contents




    
    make investments;
 
    
    incur additional indebtedness or issue preferred stock;
 
    
    create certain liens;
 
    
    sell assets;
 
    
    enter into agreements that restrict dividends or other payments from its subsidiaries to itself;
 
    
    consolidate, merge or transfer all or substantially all of its assets;
 
    
    engage in transactions with affiliates;
 
    
    pay dividends or make other distributions on capital stock or subordinated indebtedness; and
 
    
    create unrestricted subsidiaries.
  Future Uses of Capital.
 
    
    funding future capital expenditures;
    
    funding hurricane repairs and hurricane-related abandonment operations;
    
    financing any future acquisitions that Mariner may identify;
    
    paying routine operating and administrative expenses; and
    
    paying other commitments comprised largely of cash settlement of hedging obligations and debt service.
 2007 Capital Expenditures.
 32




---



##### Table of Contents



Future Capital Resources.
 
    
    cash flow from operations in future periods;
    
    proceeds under our bank credit facility;
    
    proceeds from insurance policies relating to hurricane repairs; and
    
    proceeds from future capital markets transactions as needed.
   Off-Balance Sheet Arrangements
 Letters of Credit
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Commodity Prices and Related Hedging Activities
  33




---



##### Table of Contents



June 30,Weighted Average
    
    
    2007 Fair ValueFixed Price Swaps
    
    Quantity
    
    
    Fixed Price
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)July 1December 31, 2007
    
    
    627,900
    
    
    $
    69.20
    
    
    $
    (1.3
    )January 1December 31, 2008
    
    
    992,350
    
    
    $
    69.34
    
    
    
    (3.0
    )January 1December 31, 2009
    
    
    1,280,750
    
    
    $
    68.93
    
    
    
    (4.4
    )Natural Gas (MMbtus)July 1December 31, 2007
    
    
    10,661,236
    
    
    $
    8.75
    
    
    
    15.7January 1December 31, 2008
    
    
    10,833,979
    
    
    $
    8.87
    
    
    
    4.9January 1December 31, 2009
    
    
    8,052,820
    
    
    $
    8.30
    
    
    
    (2.4
    )Total
    
    
    
    
    
    
    
    
    
    $
    9.5
 June 30,Weighted Average
    
    
    Weighted Average
    
    
    2007 Fair ValueCostless Collars
    
    Quantity
    
    
    Floor
    
    
    Cap
    
    
    Gain/(Loss)(In millions)Crude Oil (Bbls)July 1December 31, 2007
    
    
    889,824
    
    
    $
    59.43
    
    
    $
    83.52
    
    
    $
    (2.6
    )January 1December 31, 2008
    
    
    1,195,495
    
    
    $
    61.66
    
    
    $
    86.80
    
    
    
    1.0Natural Gas (MMbtus)July 1December 31, 2007
    
    
    8,197,200
    
    
    $
    6.98
    
    
    $
    12.19
    
    
    
    2.0January 1December 31, 2008
    
    
    12,347,000
    
    
    $
    7.83
    
    
    $
    14.60
    
    
    
    6.4Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6.8
   34




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##### Table of Contents



Interest Rate Market Risk 
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1A. Risk Factors.
   
    
    the volatility of oil and natural gas prices;
    
    discovery, estimation, development and replacement of oil and natural gas reserves;
 35




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##### Table of Contents




    
    cash flow, liquidity and financial position;
    
    business strategy;
    
    amount, nature and timing of capital expenditures, including future development costs;
    
    availability and terms of capital;
    
    timing and amount of future production of oil and natural gas;
    
    availability of drilling and production equipment;
    
    operating costs and other expenses;
    
    prospect development and property acquisitions;
    
    risks arising out of our hedging transactions;
    
    marketing of oil and natural gas;
    
    competition in the oil and natural gas industry;
    
    the impact of weather and the occurrence of natural events and natural disasters such
as loop currents, hurricanes, fires, floods and other natural events, catastrophic events
and natural disasters;
    
    governmental regulation of the oil and natural gas industry;
    
    environmental liabilities;
    
    developments in oil-producing and natural gas-producing countries;
    
    uninsured or underinsured losses in our oil and natural gas operations;
    
    risks related to our level of indebtedness; and
    
    our acquisition of Forest Oil Corporations Gulf of Mexico operations including
strategic plans, expectations and objectives for future operations, and the realization of
expected benefits from the transaction.
 
 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
    
    ProgramsApril 1, 2007 to April 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1, 2007 to May 31, 2007(1)
    
    
    46,879
    
    
    $
    23.52
    
    
    
    
    
    
    
    June 1, 2007 to June 30, 2007(1)
    
    
    1,793
    
    
    $
    24.43
    
    
    
    
    
    
    
    Total
    
    
    48,672
    
    
    $
    23.98
    
    
    
    
    
    
    
    
 36




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##### Table of Contents



(1)
    
    These shares were withheld upon the vesting of employee restricted stock grants in
connection with payment of required withholding taxes. 
 Item 4. Submission of Matters to a Vote of Security Holders
   For
    
    WithholdH. Clayton Peterson (term expires in 2009)
    
    
    62,545,863
    
    
    
    16,281,651Alan R. Crain, Jr. (term expires in 2010)
    
    
    63,401,404
    
    
    
    15,426,110John F. Greene (term expires in 2010)
    
    
    63,512,554
    
    
    
    15,314,960
  37




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##### Table of Contents



Item 6. Exhibits
 Number
    
    Description2.1*
    
    Agreement and Plan of Merger, dated as of September 9, 2005, among Forest Oil Corporation, SML
Wellhead Corporation, Mariner Energy, Inc. and MEI Sub, Inc. (incorporated by reference to Exhibit
2.1 to Mariners Registration Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005).2.2*
    
    Letter Agreement, dated as of February 3, 2006, among Forest Oil Corporation, Forest Energy
Resources, Inc., Mariner Energy, Inc., and MEI Sub, Inc. amended the transaction agreements
(incorporated by reference to Exhibit 2.2 to Amendment No. 3 to Mariners Registration Statement
on Form S-4 (File No. 333-129096) filed on February 8, 2006).2.3*
    
    Letter Agreement, dated as of February 28, 2006, among Forest Oil Corporation, Forest Energy
Resources, Inc., Mariner Energy, Inc. and MEI Sub, Inc. amended the transaction agreements
(incorporated by reference to Exhibit 2.1 to Mariners Form 8-K filed on March 3, 2006).2.4*
    
    Letter Agreement, dated April 12, 2006, among Forest Oil Corporation, Mariner Energy Resources,
Inc. and Mariner Energy, Inc. amended the transaction agreements (incorporated by reference to
Exhibit 2.1 to Mariners Form 8-K filed on April 13, 2006).3.1*
    
    Second Amended and Restated Certificate of Incorporation of Mariner Energy, Inc., as amended
(incorporated by reference to Exhibit 3.1 to Mariners Registration Statement on Form S-8 (File
No. 333-132800) filed on March 29, 2006).3.2*
    
    Fourth Amended and Restated Bylaws of Mariner Energy, Inc. (incorporated by reference to Exhibit
3.2 to Mariners Registration Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005).4.1*
    
    Indenture, dated as of April 30, 2007, among Mariner Energy, Inc., the guarantors party thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Mariners Form
8-K filed on May 1, 2007).4.2*
    
    Indenture, dated as of April 24, 2006, among Mariner Energy, Inc., the guarantors party thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Mariners Form
8-K filed on April 25, 2006).4.3*
    
    Exchange and Registration Rights Agreement, dated as of April 24, 2006, among Mariner Energy,
Inc., the guarantors party thereto and the initial purchasers party thereto (incorporated by
reference to Exhibit 4.2 to Mariners Form 8-K filed on April 25, 2006).4.4*
    
    Amended and Restated Credit Agreement, dated as of March 2, 2006, among Mariner Energy, Inc. and
Mariner Energy Resources, Inc., as Borrowers, the Lenders party thereto from time to time, as
Lenders, and Union Bank of California, N.A., as Administrative Agent and as Issuing Lender
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on March 3, 2006).4.5*
    
    Amendment No. 1 and Consent, dated as of April 7, 2006, among Mariner Energy, Inc. and Mariner
Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender for such Lenders
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on April 13, 2006).4.6*
    
    Amendment No. 2, dated as of October 13, 2006, among Mariner Energy, Inc. and Mariner Energy
Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California, N.A., as
Administrative Agent for such Lenders and as Issuing Lender for such Lenders (incorporated by
reference to Exhibit 4.1 to Mariners Form 8-K filed on October 18, 2006).4.7*
    
    Amendment No. 3 and Consent, dated as of April 23, 2007, among Mariner Energy, Inc. and Mariner
Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender for such Lenders
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on April 24, 2007).
 38




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##### Table of Contents



Number
    
    Description10.1*
    
    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
    
    Compensation of Non-Employee Directors of Mariner Energy, Inc.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.  39




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##### Table of Contents



SIGNATURES
  Mariner Energy, Inc.By:
    /s/ Scott D. JoseyName:
    
    Scott D. JoseyTitle:
    
    Chairman of the Board,Chief Executive Officer and PresidentBy:
    /s/ John H. KarnesName:
    
    John H. KarnesTitle:
    
    Senior Vice President, Chief Financial Officer and Treasurer
 40




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##### Table of Contents



Number
    
    Description2.1*
    
    Agreement and Plan of Merger, dated as of September 9, 2005, among Forest Oil Corporation, SML
Wellhead Corporation, Mariner Energy, Inc. and MEI Sub, Inc. (incorporated by reference to Exhibit
2.1 to Mariners Registration Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005).2.2*
    
    Letter Agreement, dated as of February 3, 2006, among Forest Oil Corporation, Forest Energy
Resources, Inc., Mariner Energy, Inc., and MEI Sub, Inc. amended the transaction agreements
(incorporated by reference to Exhibit 2.2 to Amendment No. 3 to Mariners Registration Statement
on Form S-4 (File No. 333-129096) filed on February 8, 2006).2.3*
    
    Letter Agreement, dated as of February 28, 2006, among Forest Oil Corporation, Forest Energy
Resources, Inc., Mariner Energy, Inc. and MEI Sub, Inc. amended the transaction agreements
(incorporated by reference to Exhibit 2.1 to Mariners Form 8-K filed on March 3, 2006).2.4*
    
    Letter Agreement, dated April 12, 2006, among Forest Oil Corporation, Mariner Energy Resources,
Inc. and Mariner Energy, Inc. amended the transaction agreements (incorporated by reference to
Exhibit 2.1 to Mariners Form 8-K filed on April 13, 2006).3.1*
    
    Second Amended and Restated Certificate of Incorporation of Mariner Energy, Inc., as amended
(incorporated by reference to Exhibit 3.1 to Mariners Registration Statement on Form S-8 (File
No. 333-132800) filed on March 29, 2006).3.2*
    
    Fourth Amended and Restated Bylaws of Mariner Energy, Inc. (incorporated by reference to Exhibit
3.2 to Mariners Registration Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005).4.1*
    
    Indenture, dated as of April 30, 2007, among Mariner Energy, Inc., the guarantors party thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Mariners Form
8-K filed on May 1, 2007).4.2*
    
    Indenture, dated as of April 24, 2006, among Mariner Energy, Inc., the guarantors party thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Mariners Form
8-K filed on April 25, 2006).4.3*
    
    Exchange and Registration Rights Agreement, dated as of April 24, 2006, among Mariner Energy,
Inc., the guarantors party thereto and the initial purchasers party thereto (incorporated by
reference to Exhibit 4.2 to Mariners Form 8-K filed on April 25, 2006).4.4*
    
    Amended and Restated Credit Agreement, dated as of March 2, 2006, among Mariner Energy, Inc. and
Mariner Energy Resources, Inc., as Borrowers, the Lenders party thereto from time to time, as
Lenders, and Union Bank of California, N.A., as Administrative Agent and as Issuing Lender
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on March 3, 2006).4.5*
    
    Amendment No. 1 and Consent, dated as of April 7, 2006, among Mariner Energy, Inc. and Mariner
Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender for such Lenders
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on April 13, 2006).4.6*
    
    Amendment No. 2, dated as of October 13, 2006, among Mariner Energy, Inc. and Mariner Energy
Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California, N.A., as
Administrative Agent for such Lenders and as Issuing Lender for such Lenders (incorporated by
reference to Exhibit 4.1 to Mariners Form 8-K filed on October 18, 2006).4.7*
    
    Amendment No. 3 and Consent, dated as of April 23, 2007, among Mariner Energy, Inc. and Mariner
Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender for such Lenders
(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
    
    Description10.1*
    
    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
    
    Compensation of Non-Employee Directors of Mariner Energy, Inc.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.