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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 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. Condensed Consolidated Financial Statements (unaudited)
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31PART IIItem 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 6. Exhibits
    
    
    33Consent of Ryder Scott Company, L.P.Certification 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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PART I
 
 Item 1. Condensed Consolidated Financial Statements
 MARINER ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2008
    
    
    2007Current Assets:Cash and cash equivalents
    
    $
    3,872
    
    
    $
    18,589Receivables, net of allowances of $2,378 and $2,449
as of March 31, 2008 and December 31, 2007,
respectively
    
    
    208,415
    
    
    
    157,774Insurance receivables
    
    
    26,683
    
    
    
    26,683Derivative financial instruments
    
    
    
    
    
    
    11,863Intangible assets
    
    
    9,319
    
    
    
    17,209Prepaid expenses and other
    
    
    24,525
    
    
    
    10,630Deferred tax asset
    
    
    51,015
    
    
    
    6,232Total current assets
    
    
    323,829
    
    
    
    248,980Property and Equipment:Proved oil and gas properties, full-cost method
    
    
    3,516,241
    
    
    
    3,118,273Unproved properties, not subject to amortization
    
    
    122,323
    
    
    
    40,455Total oil and gas properties
    
    
    3,638,564
    
    
    
    3,158,728Other property and equipment
    
    
    65,301
    
    
    
    15,545Accumulated depreciation, depletion and amortization
    
    
    (868,388
    )
    
    
    (754,079
    )Total property and equipment, net
    
    
    2,835,477
    
    
    
    2,420,194Restricted Cash
    
    
    
    
    
    
    5,000Goodwill
    
    
    295,598
    
    
    
    295,598Insurance Receivables
    
    
    56,924
    
    
    
    56,924Derivative Financial Instruments
    
    
    
    
    
    
    691Other Assets, net of amortization
    
    
    65,442
    
    
    
    56,248TOTAL ASSETS
    
    $
    3,577,270
    
    
    $
    3,083,635Current Liabilities:Accounts payable
    
    $
    13,894
    
    
    $
    1,064Accrued liabilities
    
    
    105,531
    
    
    
    96,936Accrued capital costs
    
    
    165,018
    
    
    
    159,010Abandonment liability
    
    
    32,683
    
    
    
    30,985Accrued interest
    
    
    20,840
    
    
    
    7,726Derivative financial instruments
    
    
    132,546
    
    
    
    19,468Total current liabilities
    
    
    470,512
    
    
    
    315,189Long-Term Liabilities:Abandonment liability
    
    
    232,703
    
    
    
    191,021Deferred income tax
    
    
    378,953
    
    
    
    343,948Derivative financial instruments
    
    
    44,066
    
    
    
    25,343Long-term debt, bank credit facility
    
    
    430,000
    
    
    
    179,000Long-term debt, senior unsecured notes
    
    
    600,000
    
    
    
    600,000Other long-term liabilities
    
    
    45,104
    
    
    
    38,115Total long-term liabilities
    
    
    1,730,826
    
    
    
    1,377,427Commitments and Contingencies (see Note 8)Minority Interest
    
    
    91
    
    
    
    1Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at March 31, 2008 and December 31, 2007
    
    
    
    
    
    
    Common stock, $.0001 par value; 180,000,000 shares
authorized, 87,810,265 shares issued and
outstanding at March 31, 2008; 180,000,000 shares
authorized, 87,229,312 shares issued and
outstanding at December 31, 2007
    
    
    9
    
    
    
    9Additional paid-in capital
    
    
    1,057,039
    
    
    
    1,054,089Accumulated other comprehensive loss
    
    
    (112,829
    )
    
    
    (22,576
    )Accumulated retained earnings
    
    
    431,622
    
    
    
    359,496Total stockholders equity
    
    
    1,375,841
    
    
    
    1,391,018TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,577,270
    
    
    $
    3,083,635
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedMarch 31,2008
    
    
    2007Revenues:Natural gas
    
    $
    179,623
    
    
    $
    140,532Oil
    
    
    113,614
    
    
    
    60,451Natural gas liquids
    
    
    20,981
    
    
    
    9,149Other revenues
    
    
    1,679
    
    
    
    1,472Total revenues
    
    
    315,897
    
    
    
    211,604Costs and Expenses:Lease operating expense
    
    
    44,832
    
    
    
    32,054Severance and ad valorem taxes
    
    
    4,610
    
    
    
    2,990Transportation expense
    
    
    3,019
    
    
    
    1,902General and administrative expense
    
    
    11,926
    
    
    
    12,593Depreciation, depletion and amortization
    
    
    119,318
    
    
    
    98,855Other miscellaneous expense
    
    
    537
    
    
    
    168Total costs and expenses
    
    
    184,242
    
    
    
    148,562OPERATING INCOME
    
    
    131,655
    
    
    
    63,042Other Income (Expense):Interest income
    
    
    326
    
    
    
    291Interest expense, net of amounts capitalized
    
    
    (18,571
    )
    
    
    (12,347
    )Other income
    
    
    
    
    
    
    5,431Income Before Taxes and Minority Interest
    
    
    113,410
    
    
    
    56,417Provision for Income Taxes
    
    
    (41,194
    )
    
    
    (18,210
    )Minority Interest Expense
    
    
    (90
    )
    
    
    NET INCOME
    
    $
    72,126
    
    
    $
    38,207Earnings per share:Net income per sharebasic
    
    $
    0.83
    
    
    $
    0.45Net income per sharediluted
    
    $
    0.82
    
    
    $
    0.45Weighted average shares outstandingbasic
    
    
    87,293,730
    
    
    
    85,515,561Weighted average shares outstandingdiluted
    
    
    88,012,901
    
    
    
    85,704,529
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three MonthsEnded March 31,2008
    
    
    2007Operating Activities:Net income
    
    $
    72,126
    
    
    $
    38,207Adjustments to reconcile net income to net cash provided by operating activities:Allowance for doubtful receivables
    
    
    (71
    )
    
    
    (667
    )Deferred income tax
    
    
    40,400
    
    
    
    17,960Depreciation, depletion and amortization
    
    
    119,318
    
    
    
    98,855Amortization of deferred financing costs
    
    
    808
    
    
    
    585Ineffectiveness of derivative instruments
    
    
    3,924
    
    
    
    2,148Share-based compensation
    
    
    2,625
    
    
    
    1,567Minority interest
    
    
    90
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    (50,020
    )
    
    
    (6,834
    )Insurance receivables
    
    
    
    
    
    
    (7,058
    )Prepaid expenses and other
    
    
    (16,007
    )
    
    
    (1,695
    )Accounts payable and accrued liabilities
    
    
    40,978
    
    
    
    10,561Net cash provided by operating activities
    
    
    214,171
    
    
    
    153,629Investing Activities:Acquisitions and additions to oil and gas properties
    
    
    (437,565
    )
    
    
    (148,784
    )Additions to other property and equipment
    
    
    (47,648
    )
    
    
    (6
    )Property conveyances
    
    
    
    
    
    
    18Restricted cash designated for investment
    
    
    5,000
    
    
    
    31,830Net cash used in investing activities
    
    
    (480,213
    )
    
    
    (116,942
    )Financing Activities:Credit facility borrowings (repayments), net
    
    
    251,000
    
    
    
    (40,000
    )Repurchase of stock
    
    
    (366
    )
    
    
    Proceeds from exercise of stock options
    
    
    691
    
    
    
    45Net cash provided by (used in) financing activities
    
    
    251,325
    
    
    
    (39,955
    )Decrease in Cash and Cash Equivalents
    
    
    (14,717
    )
    
    
    (3,268
    )Cash and Cash Equivalents at Beginning of Period
    
    
    18,589
    
    
    
    9,579Cash and Cash Equivalents at End of Period
    
    $
    3,872
    
    
    $
    6,311Supplemental Disclosure of Cash Flow Information:Cash paid during the year for:Interest (net of amount capitalized)
    
    $
    3,757
    
    
    $
    6,429Income taxes
    
    $
    
    
    
    $
    250
 The accompanying notes are an integral part of these consolidated financial statements
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MARINER ENERGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Summary of Significant Accounting Policies
 Operations
 Interim Financial Statements
 Use of Estimates
 Principles of Consolidation
 Reclassifications
 Income Taxes
  Recent Accounting Pronouncements
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2. Acquisitions and Dispositions
 Gulf of Mexico Shelf Acquisition.
 Pro Forma Financial Information
 For the Three Months EndedMarch 31,2008
    
    2007(In thousands, except per share amounts)Pro Forma:Revenue
    
    $
    330,874
    
    
    $
    266,321Net income available to common stockholders
    
    $
    75,628
    
    
    $
    47,980Basic earnings per share
    
    $
    0.87
    
    
    $
    0.56Diluted earnings per share
    
    $
    0.86
    
    
    $
    0.56
 West Texas Acquisitions.
 Interest in Cottonwood
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3. Long-Term Debt
 Bank Credit Facility
    Senior Notes 1 2 1 2 1 2 1 2
 Capitalized Interest
 4. Oil and Gas Properties
   9




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5. Accrual for Future Abandonment Liabilities
    (In thousands)Abandonment liability as of December 31, 2007 (1)
    
    $
    222,006Liabilities Incurred
    
    
    129Liabilities Settled
    
    
    (8,117
    )Accretion Expense
    
    
    5,008Revisions to previous estimates
    
    
    1,940Liabilities from assets acquired
    
    
    44,420Abandonment Liability as of March 31, 2008 (2)
    
    $
    265,386
 
 (1)
    
    Includes $31.0 million classified as a current liability at December 31, 2007.(2)
    
    Includes $32.7 million classified as a current liability at March 31, 2008. 6. Stockholders Equity
   10




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WeightedAverage
    
    
    Aggregate IntrinsicExercise
    
    
    Value (1)Shares
    
    
    Price
    
    
    (In thousands)Outstanding at beginning of year
    
    
    720,488
    
    
    $
    13.82
    
    
    $
    9,503Granted
    
    
    
    
    
    
    
    
    
    
    Exercised (2)
    
    
    (52,130
    )
    
    
    13.26
    
    
    
    (717
    )Forfeited
    
    
    (18,000
    )
    
    
    14.00
    
    
    
    (234
    )Outstanding at March 31, 2008
    
    
    650,358
    
    
    
    13.86
    
    
    
    8,552
 
 (1)
    
    Based upon the difference between the market price of the common stock on the last trading
date of the quarter ($27.01) and the option exercise price of in-the-money options.(2)
    
    Options were exercised for cash proceeds of approximately $691,000.  Restricted Shares underStock Incentive PlanMarch 31,2008
    
    2007Total unvested shares at beginning of period: January 1
    
    
    1,484,552
    
    
    
    875,380Shares granted
    
    
    548,864
    
    
    
    Shares vested
    
    
    (40,844
    )
    
    
    (48,608
    )Shares forfeited
    
    
    (6,708
    )
    
    
    (7,850
    )Total unvested shares at end of period: March 31
    
    
    1,985,864
    
    
    
    818,922Available for future grant as options or restricted stock
    
    
    3,561,978
    
    
    
    4,880,706
 7. Derivative Financial Instruments and Hedging Activities
   Three Months Ended March 31,2008
    
    
    2007(In thousands)Cash Gain (Loss) on Settlements
    
    $
    (10,307
    )
    
    $
    23,622Loss on Hedge Ineffectiveness (1)
    
    
    (3,924
    )
    
    
    (2,148
    )Total
    
    $
    (14,231
    )
    
    $
    21,474
 
 (1)
    
    Unrealized gain (loss) 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. 11




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March 31,Weighted Average
    
    
    2008 Fair ValueFixed Price Swaps
    
    Quantity
    
    
    Fixed Price
    
    
    Liability(In thousands)Natural Gas (MMbtus)April 1December 31, 2008
    
    
    28,257,260
    
    
    $
    8.43
    
    
    $
    (50,641
    )January 1December 31, 2009
    
    
    31,642,084
    
    
    $
    8.48
    
    
    
    (39,571
    )Crude Oil (Bbls)April 1December 31, 2008
    
    
    1,616,724
    
    
    $
    78.93
    
    
    
    (32,727
    )January 1December 31, 2009
    
    
    2,172,210
    
    
    $
    76.15
    
    
    
    (40,137
    )Total
    
    
    
    
    
    
    
    
    
    $
    (163,076
    )
 March 31,Weighted Average
    
    
    Weighted Average
    
    
    2008 Fair ValueCostless Collars
    
    Quantity
    
    
    Floor
    
    
    Cap
    
    
    Liability(In thousands)Natural Gas (MMbtus)April 1December 31, 2008
    
    
    8,889,000
    
    
    $
    7.83
    
    
    $
    14.60
    
    
    $
    (1,339
    )Crude Oil (Bbls)April 1December 31, 2008
    
    
    836,136
    
    
    $
    61.65
    
    
    $
    86.80
    
    
    
    (12,197
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (13,536
    )
  8. Commitments and Contingencies
 Minimum Future Lease Payments
 (In thousands)2009
    
    $
    2,2172010
    
    
    2,4892011
    
    
    2,4992012
    
    
    2,4142013 and thereafter
    
    
    11,961
 Other Commitments
 MMS Proceedings
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Insurance Matters
 Current Insurance Against Hurricanes
    Hurricanes Katrina and Rita (2005)
   13




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Hurricane Ivan (2004)
  Litigation
 Letters of Credit
   9. Earnings per Share
  Three Months EndedMarch 31,2008
    
    
    2007(In thousands, except per sharedata)Numerator:Net Income
    
    $
    72,126
    
    
    $
    38,207Denominator:Weighted average shares outstanding
    
    
    87,294
    
    
    
    85,516Add dilutive securities
    
    
    719
    
    
    
    189Total weighted average shares outstanding and dilutive securities
    
    $
    88,013
    
    
    $
    85,705Earnings per sharebasic:
    
    $
    0.83
    
    
    $
    0.45Earnings per sharediluted:
    
    $
    0.82
    
    
    $
    0.45
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10. Comprehensive Income
  Three Months EndedMarch 31,2008
    
    
    2007(in thousands)Net Income
    
    $
    72,126
    
    
    $
    38,207Other comprehensive (loss) income:Derivative contracts settled and reclassified,
net of income taxes of ($5,067) and $7,534
    
    
    (9,164
    )
    
    
    13,940Change in unrealized mark-to-market losses
arising during period, net of income taxes of
($45,111) and ($27,123)
    
    
    (81,089
    )
    
    
    (48,194
    )Change in accumulated other comprehensive loss
    
    
    (90,253
    )
    
    
    (34,254
    )Comprehensive (loss) income
    
    $
    (18,127
    )
    
    $
    3,953
 11. Fair Value Measurement
     As of March 31, 2008Fair Value Measurements Using:SignificantQuoted Prices
    
    other
    
    SignificantCarrying
    
    Total Fair
    
    in Active
    
    Observable
    
    UnobservableAmount
    
    Value
    
    Markets
    
    Inputs
    
    InputsDerivative Financial Instruments
    
    (In thousands)
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Oil and Gas price
swaps and collars 
Short Term
    
    $
    (132,546
    )
    
    $
    (132,546
    )
    
    $
    
    
    
    $
    (119,010
    )
    
    $
    (13,536
    )Oil and Gas price
swaps and collars 
Long Term
    
    
    (44,066
    )
    
    
    (44,066
    )
    
    
    
    
    
    
    (44,066
    )
    
    
    
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Level 2 Fair Value Measurements
  Level 3 Fair Value Measurements
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
 (In thousands)Fair value of collars at December 31, 2007
    
    $
    (4,058
    )Total gains / (losses):Included in Natural gas and Oil Revenues (realized/unrealized)
    
    
    (4,006
    )Included in other comprehensive income (realized/unrealized)
    
    
    (9,478
    )Purchases, issuances, and settlements, net
    
    
    4,006Transfers in and/or out of Level 3
    
    
    Fair value of collars at March 31, 2008
    
    $
    (13,536
    )The amount of net losses for the period included in earnings
attributable to the change in net unrealized gains relating to assets
still held at the reporting date
    
    $
    
 12. Segment Information
   13. Supplemental Guarantor Information
 1 2
  16




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CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2008
(In thousands except share data)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Current Assets:Cash and cash equivalents
    
    $
    3,475
    
    
    $
    397
    
    
    $
    
    
    
    $
    3,872Receivables, net of allowances
    
    
    99,813
    
    
    
    108,602
    
    
    
    
    
    
    
    208,415Insurance receivables
    
    
    3,950
    
    
    
    22,733
    
    
    
    
    
    
    
    26,683Intangible assets
    
    
    8,444
    
    
    
    875
    
    
    
    
    
    
    
    9,319Prepaid expenses and other
    
    
    22,888
    
    
    
    1,637
    
    
    
    
    
    
    
    24,525Deferred tax asset
    
    
    51,015
    
    
    
    
    
    
    
    
    
    
    
    51,015Total current assets
    
    
    189,585
    
    
    
    134,244
    
    
    
    
    
    
    
    323,829Property and Equipment:Proved oil and gas properties, full-cost method
    
    
    1,572,284
    
    
    
    1,943,957
    
    
    
    
    
    
    
    3,516,241Unproved properties, not subject to amortization
    
    
    107,926
    
    
    
    14,397
    
    
    
    
    
    
    
    122,323Total oil and gas properties
    
    
    1,680,210
    
    
    
    1,958,354
    
    
    
    
    
    
    
    3,638,564Other property and equipment
    
    
    15,842
    
    
    
    49,459
    
    
    
    
    
    
    
    65,301Accumulated depreciation, depletion and amortization
    
    
    (462,130
    )
    
    
    (406,258
    )
    
    
    
    
    
    
    (868,388
    )Total property and equipment, net
    
    
    1,233,922
    
    
    
    1,601,555
    
    
    
    
    
    
    
    2,835,477Investment in Subsidiaries
    
    
    1,082,909
    
    
    
    
    
    
    
    (1,082,909
    )
    
    
    Intercompany Receivables / (Payables)
    
    
    377,503
    
    
    
    (377,503
    )
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    295,598
    
    
    
    
    
    
    
    295,598Insurance receivables
    
    
    2,663
    
    
    
    54,261
    
    
    
    
    
    
    
    56,924Other Assets, net of amortization
    
    
    64,270
    
    
    
    1,172
    
    
    
    
    
    
    
    65,442TOTAL ASSETS
    
    $
    2,950,852
    
    
    $
    1,709,327
    
    
    $
    (1,082,909
    )
    
    $
    3,577,270Current Liabilities:Accounts payable
    
    $
    11,273
    
    
    $
    2,621
    
    
    $
    
    
    
    $
    13,894Accrued liabilities
    
    
    62,923
    
    
    
    42,608
    
    
    
    
    
    
    
    105,531Accrued capital costs
    
    
    78,768
    
    
    
    86,250
    
    
    
    
    
    
    
    165,018Abandonment liability
    
    
    5,692
    
    
    
    26,991
    
    
    
    
    
    
    
    32,683Accrued interest
    
    
    20,840
    
    
    
    
    
    
    
    
    
    
    
    20,840Derivative financial instruments
    
    
    132,546
    
    
    
    
    
    
    
    
    
    
    
    132,546Total current liabilities
    
    
    312,042
    
    
    
    158,470
    
    
    
    
    
    
    
    470,512Long-Term Liabilities:Abandonment liability
    
    
    50,117
    
    
    
    182,586
    
    
    
    
    
    
    
    232,703Deferred income tax
    
    
    98,168
    
    
    
    280,785
    
    
    
    
    
    
    
    378,953Derivative financial instruments
    
    
    44,066
    
    
    
    
    
    
    
    
    
    
    
    44,066Long-term debt, bank credit facility
    
    
    430,000
    
    
    
    
    
    
    
    
    
    
    
    430,000Long-term debt, senior unsecured notes
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    600,000Other long-term liabilities
    
    
    40,618
    
    
    
    4,486
    
    
    
    
    
    
    
    45,104Total long-term liabilities
    
    
    1,262,969
    
    
    
    467,857
    
    
    
    
    
    
    
    1,730,826Commitments and Contingencies (see Note 8)Minority Interest
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    91Stockholders Equity:Preferred stock, $.0001 par value; 20,000,000
shares authorized, no shares issued and outstanding
at March 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock, $.0001 par value; 180,000,000 shares
authorized, 87,810,265 shares issued and
outstanding at March 31, 2008
    
    
    9
    
    
    
    5
    
    
    
    (5
    )
    
    
    9Additional paid-in capital
    
    
    1,057,039
    
    
    
    886,142
    
    
    
    (886,142
    )
    
    
    1,057,039Partner capital
    
    
    
    
    
    
    29,173
    
    
    
    (29,173
    )
    
    
    Accumulated other comprehensive loss
    
    
    (112,829
    )
    
    
    
    
    
    
    
    
    
    
    (112,829
    )Accumulated retained earnings
    
    
    431,622
    
    
    
    167,589
    
    
    
    (167,589
    )
    
    
    431,622Total stockholders equity
    
    
    1,375,841
    
    
    
    1,082,909
    
    
    
    (1,082,909
    )
    
    
    1,375,841TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,950,852
    
    
    $
    1,709,327
    
    
    $
    (1,082,909
    )
    
    $
    3,577,270
 18




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2007
(In thousands except share data)
(Unaudited)
 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 / (Payables)
    
    
    222,215
    
    
    
    (222,215
    )
    
    
    
    
    
    
    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
    
    
    $
    1,549,447
    
    
    $
    (1,014,548
    )
    
    $
    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
    
    
    
    
    
    
    
    
    
    
    
    25,343Long-term debt, bank credit facility
    
    
    179,000
    
    
    
    
    
    
    
    
    
    
    
    179,000Long-term debt, senior unsecured notes
    
    
    600,000
    
    
    
    
    
    
    
    
    
    
    
    600,000Other long-term liabilities
    
    
    34,506
    
    
    
    3,609
    
    
    
    
    
    
    
    38,115Total long-term liabilities
    
    
    968,771
    
    
    
    408,656
    
    
    
    
    
    
    
    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
    
    
    $
    1,549,447
    
    
    $
    (1,014,548
    )
    
    $
    3,083,635
 19




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2008
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Natural gas
    
    $
    85,533
    
    
    $
    94,090
    
    
    $
    
    
    
    $
    179,623Oil
    
    
    61,931
    
    
    
    51,683
    
    
    
    
    
    
    
    113,614Natural gas liquids
    
    
    11,743
    
    
    
    9,238
    
    
    
    
    
    
    
    20,981Other revenues
    
    
    334
    
    
    
    1,345
    
    
    
    
    
    
    
    1,679Total revenues
    
    
    159,541
    
    
    
    156,356
    
    
    
    
    
    
    
    315,897Costs and Expenses:Operating expenses
    
    
    21,106
    
    
    
    31,355
    
    
    
    
    
    
    
    52,461General and
administrative expense
    
    
    11,227
    
    
    
    699
    
    
    
    
    
    
    
    11,926Depreciation, depletion and amortization
    
    
    60,155
    
    
    
    59,163
    
    
    
    
    
    
    
    119,318Other miscellaneous expense
    
    
    521
    
    
    
    16
    
    
    
    
    
    
    
    537Total costs and expenses
    
    
    93,009
    
    
    
    91,233
    
    
    
    
    
    
    
    184,242OPERATING INCOME
    
    
    66,532
    
    
    
    65,123
    
    
    
    
    
    
    
    131,655Earnings of Affiliates
    
    
    45,188
    
    
    
    
    
    
    
    (45,188
    )
    
    
    Other Income (Expense):Interest income
    
    
    3,043
    
    
    
    7
    
    
    
    (2,724
    )
    
    
    326Interest expense, net of amounts capitalized
    
    
    (18,374
    )
    
    
    (2,921
    )
    
    
    2,724
    
    
    
    (18,571
    )Income Before Taxes and Minority Interest
    
    
    96,389
    
    
    
    62,209
    
    
    
    (45,188
    )
    
    
    113,410Provision for Income Taxes
    
    
    (24,263
    )
    
    
    (16,931
    )
    
    
    
    
    
    
    (41,194
    )Minority Interest Expense
    
    
    
    
    
    
    (90
    )
    
    
    
    
    
    
    (90
    )NET INCOME
    
    $
    72,126
    
    
    $
    45,188
    
    
    $
    (45,188
    )
    
    $
    72,126
 20




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended March 31, 2007
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    
    
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Eliminations
    
    
    Energy, Inc.Revenues:Natural gas
    
    $
    75,548
    
    
    $
    64,984
    
    
    $
    
    
    
    $
    140,532Oil
    
    
    32,103
    
    
    
    28,348
    
    
    
    
    
    
    
    60,451Natural gas liquids
    
    
    4,799
    
    
    
    4,350
    
    
    
    
    
    
    
    9,149Other revenues
    
    
    1,332
    
    
    
    140
    
    
    
    
    
    
    
    1,472Total revenues
    
    
    113,782
    
    
    
    97,822
    
    
    
    
    
    
    
    211,604Costs and Expenses:Operating expenses
    
    
    16,145
    
    
    
    20,801
    
    
    
    
    
    
    
    36,946General and
administrative expense
    
    
    9,990
    
    
    
    2,603
    
    
    
    
    
    
    
    12,593Depreciation, depletion and amortization
    
    
    40,098
    
    
    
    58,757
    
    
    
    
    
    
    
    98,855Other miscellaneous expense
    
    
    967
    
    
    
    (799
    )
    
    
    
    
    
    
    168Total costs and expenses
    
    
    67,200
    
    
    
    81,362
    
    
    
    
    
    
    
    148,562OPERATING INCOME
    
    
    46,582
    
    
    
    16,460
    
    
    
    
    
    
    
    63,042Earnings of Affiliates
    
    
    12,374
    
    
    
    
    
    
    
    (12,374
    )
    
    
    Other Income (Expense):Interest income
    
    
    3,897
    
    
    
    
    
    
    
    (3,606
    )
    
    
    291Interest expense, net of amounts capitalized
    
    
    (12,214
    )
    
    
    (3,739
    )
    
    
    3,606
    
    
    
    (12,347
    )Other income
    
    
    
    
    
    
    5,431
    
    
    
    
    
    
    
    5,431Income Before Taxes and Minority Interest
    
    
    50,639
    
    
    
    18,152
    
    
    
    (12,374
    )
    
    
    56,417Provision for Income Taxes
    
    
    (12,432
    )
    
    
    (5,778
    )
    
    
    
    
    
    
    (18,210
    )NET INCOME
    
    $
    38,207
    
    
    $
    12,374
    
    
    $
    (12,374
    )
    
    $
    38,207
 21




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2008
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Energy, Inc.Net cash (used in) provided by operating activities
    
    $
    (66,066
    )
    
    $
    280,237
    
    
    $
    214,171Cash flow from investing activities:Acquisitions and additions to oil and gas properties
    
    
    (176,853
    )
    
    
    (260,712
    )
    
    
    (437,565
    )Additions to other property and equipment
    
    
    (347
    )
    
    
    (47,301
    )
    
    
    (47,648
    )Restricted cash designated for investment
    
    
    
    
    
    
    5,000
    
    
    
    5,000Net cash used in investing activities
    
    
    (177,200
    )
    
    
    (303,013
    )
    
    
    (480,213
    )Cash flow from financing activities:Credit facility borrowings, net
    
    
    251,000
    
    
    
    
    
    
    
    251,000Other financing activities
    
    
    (22,848
    )
    
    
    23,173
    
    
    
    325Net cash provided by financing activities
    
    
    228,152
    
    
    
    23,173
    
    
    
    251,325(Decrease) Increase in Cash and Cash Equivalents
    
    
    (15,114
    )
    
    
    397
    
    
    
    (14,717
    )Cash and Cash Equivalents at Beginning of Period
    
    
    18,589
    
    
    
    
    
    
    
    18,589Cash and Cash Equivalents at End of Period
    
    $
    3,475
    
    
    $
    397
    
    
    $
    3,872
 22




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##### Table of Contents



MARINER ENERGY, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2007
(In thousands)
(Unaudited)
 ConsolidatedParent
    
    
    Subsidiary
    
    
    MarinerCompany
    
    
    Guarantors
    
    
    Energy, Inc.Net cash provided by operating activities
    
    $
    79,534
    
    
    $
    74,095
    
    
    $
    153,629Cash flow from investing activities:Acquisitions and additions to oil and gas properties
    
    
    (94,592
    )
    
    
    (54,192
    )
    
    
    (148,784
    )Additions to other property and equipment
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Restricted cash designated for investment
    
    
    31,830
    
    
    
    
    
    
    
    31,830Other investing activities
    
    
    18
    
    
    
    
    
    
    
    18Net cash used in investing activities
    
    
    (62,750
    )
    
    
    (54,192
    )
    
    
    (116,942
    )Cash flow from financing activities:Credit facility repayments, net
    
    
    (40,000
    )
    
    
    
    
    
    
    (40,000
    )Other financing activities
    
    
    19,948
    
    
    
    (19,903
    )
    
    
    45Net cash used in financing activities
    
    
    (20,052
    )
    
    
    (19,903
    )
    
    
    (39,955
    )Decrease in Cash and Cash Equivalents
    
    
    (3,268
    )
    
    
    
    
    
    
    (3,268
    )Cash and Cash Equivalents at Beginning of Period
    
    
    9,579
    
    
    
    
    
    
    
    9,579Cash and Cash Equivalents at End of Period
    
    $
    6,311
    
    
    $
    
    
    
    $
    6,311
 23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
   First Quarter 2008 Highlights
   
    
    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.
  24




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##### Table of Contents



Operational Update
 Offshore
 Well Name
    
    Operator
    
    Working Interest
    
    Water Depth (Ft)
    
    LocationEugene Island 342 C16BP1
    
    Mariner
    
    
    50
    %
    
    
    287
    
    
    Conventional ShelfVermilion 380 A20
    
    Mariner
    
    
    100
    %
    
    
    340
    
    
    Conventional ShelfVermilion 380 A20ST1
    
    Mariner
    
    
    100
    %
    
    
    340
    
    
    Conventional ShelfSouth Marsh 76 F-1
    
    Mariner
    
    
    100
    %
    
    
    138
    
    
    Conventional Shelf
    Onshore 
 Results of Operations
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
  Three Months EndedMarch 31,
    
    
    IncreaseSummary Operating Information:
    
    2008
    
    
    2007
    
    
    (Decrease)
    
    
    % Change(In thousands, except net production, average sales prices and % change)Net Production:Natural gas (MMcf)
    
    
    20,956
    
    
    
    17,478
    
    
    
    3,478
    
    
    
    20
    %Oil (MBbls)
    
    
    1,350
    
    
    
    1,047
    
    
    
    303
    
    
    
    29
    %Natural gas liquids (MBbls)
    
    
    377
    
    
    
    277
    
    
    
    100
    
    
    
    36
    %Total natural gas equivalent (MMcfe)
    
    
    31,315
    
    
    
    25,418
    
    
    
    5,897
    
    
    
    22
    %Average daily production (MMcfe/d)
    
    
    344
    
    
    
    282
    
    
    
    62
    
    
    
    22
    %Hedging Activities:Natural gas revenue gain
    
    
    1,936
    
    
    
    19,787
    
    
    
    (17,851
    )
    
    
    (90
    )%Oil revenue gain (loss)
    
    
    (16,167
    )
    
    
    1,687
    
    
    
    (17,854
    )
    
    
    > (100
    )%Total hedging revenue gain (loss)
    
    
    (14,231
    )
    
    
    21,474
    
    
    
    (35,705
    )
    
    
    > (100
    )%Average Sales Prices:Natural gas (per Mcf) realized(1)
    
    $
    8.57
    
    
    $
    8.04
    
    
    $
    0.53
    
    
    
    7
    %Natural gas (per Mcf) unhedged
    
    
    8.48
    
    
    
    6.91
    
    
    
    1.57
    
    
    
    23
    %Oil (per Bbl) realized(1)
    
    
    84.16
    
    
    
    57.76
    
    
    
    26.40
    
    
    
    46
    %Oil (per Bbl) unhedged
    
    
    96.13
    
    
    
    56.15
    
    
    
    39.98
    
    
    
    71
    %
 25




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##### Table of Contents



Three Months EndedMarch 31,
    
    
    IncreaseSummary Operating Information:
    
    2008
    
    
    2007
    
    
    (Decrease)
    
    
    % Change(In thousands, except net production, average sales prices and % change)Natural gas liquids (per Bbl) realized(1)
    
    
    55.65
    
    
    
    33.04
    
    
    
    22.61
    
    
    
    68
    %Natural gas liquids (per Bbl) unhedged
    
    
    55.65
    
    
    
    33.04
    
    
    
    22.61
    
    
    
    68
    %Total natural gas equivalent ($/Mcfe) realized(1)
    
    
    10.03
    
    
    
    8.27
    
    
    
    1.76
    
    
    
    21
    %Total natural gas equivalent ($/Mcfe) unhedged
    
    
    10.49
    
    
    
    7.42
    
    
    
    3.07
    
    
    
    41
    %Summary of Financial Information:Natural gas revenue
    
    $
    179,623
    
    
    $
    140,532
    
    
    $
    39,091
    
    
    
    28
    %Oil revenue
    
    
    113,614
    
    
    
    60,451
    
    
    
    53,163
    
    
    
    88
    %Natural gas liquids revenue
    
    
    20,981
    
    
    
    9,149
    
    
    
    11,832
    
    
    
    129
    %Other revenues
    
    
    1,679
    
    
    
    1,472
    
    
    
    207
    
    
    
    14
    %Lease operating expense
    
    
    44,832
    
    
    
    32,054
    
    
    
    12,778
    
    
    
    40
    %Severance and ad valorem taxes
    
    
    4,610
    
    
    
    2,990
    
    
    
    1,620
    
    
    
    54
    %Transportation expense
    
    
    3,019
    
    
    
    1,902
    
    
    
    1,117
    
    
    
    59
    %Depreciation, depletion and amortization
    
    
    119,318
    
    
    
    98,855
    
    
    
    20,463
    
    
    
    21
    %General and administrative expense
    
    
    11,926
    
    
    
    12,593
    
    
    
    (667
    )
    
    
    (5
    %)Net interest expense
    
    
    18,245
    
    
    
    12,056
    
    
    
    6,189
    
    
    
    51
    %Other income
    
    
    
    
    
    
    5,431
    
    
    
    (5,431
    )
    
    
    (100
    %)Income before taxes and minority interest
    
    
    113,410
    
    
    
    56,417
    
    
    
    56,993
    
    
    
    101
    %Provision for income taxes
    
    
    41,194
    
    
    
    18,210
    
    
    
    22,984
    
    
    
    126
    %Net Income
    
    
    72,126
    
    
    
    38,207
    
    
    
    33,919
    
    
    
    89
    %
 
 (1)
    
    Average sales prices include the effects of hedging Net Income
 Net Production
  Natural gas, oil and NGL revenues
   26




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##### Table of Contents



Other revenues
 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
 Other income
 Income before taxes and minority interest
 Provision for income taxes
 Liquidity and Capital Resources
  27




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##### Table of Contents



Capital Expenditures 
 Bank Credit Facility
  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.
 2008 Capital Expenditures.
 28




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##### 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
   Fair Value Measurement
  29




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
 Commodity Prices and Related Hedging Activities
   Three Months Ended March 31,2008
    
    
    2007(In thousands)Cash Gain (Loss) on Settlements
    
    $
    (10,307
    )
    
    $
    23,622Loss on Hedge Ineffectiveness (1)
    
    
    (3,924
    )
    
    
    (2,148
    )Total
    
    $
    (14,231
    )
    
    $
    21,474
 
 (1)
    
    Unrealized gain (loss) recognized in natural gas revenue related to the ineffective portion
of open contracts that are not eligible for deferral under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities due primarily to the basis differentials
between the contract price and the indexed price at the point of sale. 30




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##### Table of Contents



March 31,Weighted Average
    
    
    2008 Fair ValueFixed Price Swaps
    
    Quantity
    
    
    Fixed Price
    
    
    Liability(In thousands)Natural Gas (MMbtus)April 1December 31, 2008
    
    
    28,257,260
    
    
    $
    8.43
    
    
    $
    (50,641
    )January 1December 31, 2009
    
    
    31,642,084
    
    
    $
    8.48
    
    
    
    (39,571
    )Crude Oil (Bbls)April 1December 31, 2008
    
    
    1,616,724
    
    
    $
    78.93
    
    
    
    (32,727
    )January 1December 31, 2009
    
    
    2,172,210
    
    
    $
    76.15
    
    
    
    (40,137
    )Total
    
    
    
    
    
    
    
    
    
    $
    (163,076
    )
 March 31,Weighted Average
    
    
    Weighted Average
    
    
    2008 Fair ValueCostless Collars
    
    Quantity
    
    
    Floor
    
    
    Cap
    
    
    Liability(In thousands)Natural Gas (MMbtus)April 1December 31, 2008
    
    
    8,889,000
    
    
    $
    7.83
    
    
    $
    14.60
    
    
    $
    (1,339
    )Crude Oil (Bbls)April 1December 31, 2008
    
    
    836,136
    
    
    $
    61.65
    
    
    $
    86.80
    
    
    
    (12,197
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (13,536
    )
  Interest Rate Market Risk 
 
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls Over Financial Reporting
  31




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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;
    
    developments in oil-producing and natural gas-producing countries;
 32




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##### Table of Contents




    
    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
    
    ProgramsJanuary 1, 2008 to January 31, 2008 (1)
    
    
    578
    
    
    $
    24.33
    
    
    
    
    
    
    
    February 1, 2008 to February 29, 2008 (1)
    
    
    1,614
    
    
    $
    26.55
    
    
    
    
    
    
    
    March 1, 2008 to March 31, 2008 (1)
    
    
    11,141
    
    
    $
    27.68
    
    
    
    
    
    
    
    Total
    
    
    13,333
    
    
    $
    26.19
    
    
    
    
    
    
    
    
 
 (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*
    
    
    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).
 33




---



##### Table of Contents



Number
    
    Description4.1*
    
    
    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).4.8*
    
    
    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).4.9*
    
    
    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).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).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.




34



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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. KarnesSenior Vice President, Chief Financial
Officer and Treasurer 35




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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*
    
    
    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).4.8*
    
    
    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).4.9*
    
    
    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).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).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.
  36