##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
      þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

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
    incorporation or organization)

(I.R.S. Employer
    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)
      Securities registered pursuant to Section 12(b) of the
    Act:
   Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $.0001 par value

New York Stock Exchange   Securities
    registered pursuant to section 12(g) of the Act:
  None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated
    filer o     Accelerated
    filer o     Non-accelerated
    filer þ
  Rule 12b-2 o þ
    DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



TABLE OF
    CONTENTS
  PART IItems 1 and
    2.


Business and
    Properties


3Item 1A.


Risk
    Factors


19Item 1B.


Unresolved Staff
    Comments


30Item 3.


Legal
    Proceedings


30Item 4.


Submission of
    Matters to a Vote of Security Holders


30PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


33Item 6.


Selected Financial
    Data


35Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


38Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


54Item 8.


Financial
    Statements and Supplementary Data


57Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosures


103Item 9A.


Controls and
    Procedures


103Item 9B.


Other
    Information


103PART IIIItem 10.


Directors,
    Executive Officers and Corporate Governance


103Item 11.


Executive
    Compensation


103Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


103Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


103Item 14.


Principal
    Accounting Fees and Services


103PART IVItem 15.


Exhibits and
    Financial Statement Schedules


104Second Amended and Restated Stock Incentive PlanForm of Restricted Stock Agreement under Second Amended and Restated Stock Incentive PlanForm of Restricted Stock Agreement under Second Amended and Restated Stock Incentive PlanForm of Restricted Stock Agreement under Second Amended and Restated Stock Incentive PlanStatement Regarding Computation of Ratio of Earnings to Fixed ChargesSubsidiariesConsent of Deloitte & Touche LLPConsent 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    CAUTIONARY
    STATEMENT REGARDING FORWARD-LOOKING INFORMATION
   1




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
    the volatility of oil and natural gas prices;
    discovery, estimation, development and replacement of oil and
    natural gas reserves;
    cash flow, liquidity and financial position;
    business strategy;
    amount, nature and timing of capital expenditures, including
    future development costs;
    availability and terms of capital;
    timing and amount of future production of oil and natural gas;
    availability of drilling and production equipment;
    operating costs and other expenses;
    prospect development and property acquisitions;
    risks arising out of our hedging transactions;
    marketing of oil and natural gas;
    competition in the oil and natural gas industry;
    the impact of weather and the occurrence of natural events and
    natural disasters such as loop currents, hurricanes, fires,
    floods and other natural events, catastrophic events and natural
    disasters;
    governmental regulation of the oil and natural gas industry;
    environmental liabilities;
    developments in oil-producing and natural gas-producing
    countries;
    uninsured or underinsured losses in our oil and natural gas
    operations;
    risks related to our level of indebtedness; and
    our acquisition of Forest Oil Corporations Gulf of Mexico
    operations including strategic plans, expectations and
    objectives for future operations, and the realization of
    expected benefits from the transaction. 2




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PART I  Unless the context otherwise requires or indicates,
    references to Mariner, we,
    our, ours, and us refer to
    Mariner Energy, Inc. and its subsidiaries collectively. Certain
    oil and natural gas industry terms used in this annual report
    are defined in the Glossary of Oil and Natural Gas
    Terms set forth in Items 1 and 2 of this annual
    report.
 Items 1
    and 2.  Business and Properties.  General
    
    The shallow water, or shelf operations of the Gulf
    of Mexico, where we conduct operations in water depths up to
    1,300 feet and operate projects at subsurface depths up to
    20,000 total vertical feet. Conducting operations below
    subsurface depths of 15,000 feet entails more risk and
    expense than shallower operations due to geological and
    mechanical factors attendant to deeper projects. As a result, we
    categorize our shelf projects according to their targeted
    subsurface depth, referring to shallower projects at depths
    above 15,000 feet as conventional shelf
    projects and projects below 15,000 feet as deep
    shelf projects;
    The deepwater operations of the Gulf of Mexico, where we are an
    active operator of exploration and development projects in water
    depths up to 7,000 feet; and
    West Texas, where we are one of the most active drillers in the
    prolific Spraberry, Dean, and Wolfcamp trends in the Permian
    Basin.  (713) 954-5500
    $8.15/Mcfe.
  1-800-SEC-0330
 3




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##### Table of Contents



Balanced
    Growth Strategy
    
    Proven exploration prospect generation:  Our
    explorationists have a distinguished track record in the Gulf of
    Mexico and have made several significant discoveries in the
    shelf, deep shelf and deepwater.    
    Proactive operational management:  Our
    development engineers have demonstrated their ability to
    effectively develop new fields, redevelop legacy fields,
    rejuvenate production, reduce unit costs, and add incremental
    reserves at attractive finding costs in both onshore and
    offshore fields.    
    Opportunistic acquisition identification:  Our
    management team has substantial experience identifying and
    executing a wide variety of tactical and strategic transactions
    intended to maximize shareholder value. In 2005 we added
    significant proved reserves primarily through acquisitions in
    West Texas, and subsequently in March 2006, through the
    acquisition of Forests Gulf of Mexico operations. As part
    of our growth strategy, although not compelled to acquire, we
    expect to continue to acquire producing assets that have the
    potential to provide acceptable risk-adjusted rates of return
    and further increase our reserve base.
    Actively managed risk profile:  We seek to
    manage our risk profile by targeting a balanced exposure to
    development, exploitation and exploration opportunities. For
    example, we continue to develop and expand our West Texas asset
    base, which contributes stable cash flows and long-lived
    reserves to our portfolio as a counterbalance to our
    high-impact, high-production Gulf of Mexico assets. We often
    mitigate and diversify our risk in drilling projects by selling
    partial or entire interests in projects to industry partners or
    by entering into arrangements with partners in which they agree
    to pay a disproportionate share of drilling costs and compensate
    us for expenses incurred in prospect generation. We also enter
    into trades or farm-in transactions whereby we acquire interests
    in third-party generated prospects, thereby gaining exposure to
    a greater number of prospects. We expect to continue to pursue
    participation in these types of prospects in the future as a
    result of our larger scale and increased cash flow from the
    Forest Gulf of Mexico operations.  Our
    Competitive Strengths
    Our high-quality assets with geographic and geological
    diversity.
 4




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Our large inventory of prospects.
  Our successful track record of finding and developing oil and
    gas reserves.
  Our depth of operating experience.
  Our technology and production techniques. vintage 3-D
  Properties
    West
    Texas Operations
     5




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Gulf
    of Mexico Deepwater Operations
      Gulf
    of Mexico Shelf Operations
     6




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Estimated
    Proved Reserves
    As of the Year Ended December, 312006


2005


2004Estimated proved oil and
    natural gas reserves:Natural gas reserves (Bcf)


426.7



207.7



151.9Oil (MMbbls)


48.1



21.7



14.3Total proved oil and natural gas
    reserves (Bcfe)


715.5



337.6



237.5Total proved developed reserves
    (Bcfe)


408.7



167.4



109.4PV10 value ($ in
    millions):(1)Proved developed reserves

$
1,198.9


$
849.6


$
335.4Proved undeveloped reserves


362.6



432.2



332.6Total PV10 value

$
1,561.5


$
1,281.8


$
668.0Standardized measure

$
1,239.8


$
906.6


$
494.4Prices used in calculating end
    of period proved reserve measures (excluding effects of
    hedging):Natural gas ($/MMBtu)

$
5.62


$
10.05


$
6.15Oil ($/bbl)

$
61.06


$
61.04


$
43.45     Estimated ProvedReserve QuantitiesNaturalOil


Gas


Total


PV10 Value(1)


StandardizedGeographic Area

(MMbbls)


(Bcf)


(Bcfe)


Developed


Undeveloped


Total


Measure(In millions of dollars)(In millions)West Texas


29.9



77.8



257.3



327.6



80.1



407.7Gulf of Mexico Deepwater


6.6



90.1



130.0



223.0



91.4



314.4Gulf of Mexico Shelf


11.6



258.8



328.2



648.3



191.1



839.4Total


48.1



426.7



715.5



1,198.9



362.6



1,561.5


$
1,239.8Proved Developed Reserves


26.8



247.8



408.7     (1)
    
    PV10 Value (PV10) is a non-GAAP measure that differs
    from the corollary GAAP measure standardized measure of
    discounted future net cash flows in that PV10 is
    calculated without regard to future income taxes. Management
    believes that the presentation of PV10 values is relevant and
    useful to Mariners investors because it presents the
    discounted future net cash flows attributable to our proved
    reserves independent of Mariners individual income tax
    attributes, thereby isolating the intrinsic value of the
    estimated future cash flows attributable to our reserves.
    Because many factors that are unique to each individual company
    impact the amount of future income taxes to be paid, the use of
    a pre-tax measure provides greater comparability of assets when
    evaluating companies. For these reasons, management uses, and
    believes the industry generally uses, the PV10 measure in
    evaluating and comparing acquisition candidates and assessing
    the potential return on investment related to investments in oil
    and gas properties. 7




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PV10 is not a measure of financial or operating performance
    under GAAP, nor should it be considered in isolation or as a
    substitute for the standardized measure of discounted future net
    cash flows as defined under GAAP. For Mariners
    presentation of the standardized measure of discounted future
    net cash flows, please see Standardized Measure of
    Discounted Future Net Cash Flows in the notes to the
    consolidated financial statements in this report. The table
    below provides a reconciliation of PV10 to the standardized
    measure of discounted future net cash flows.  At December 31,Non-GAAP Reconciliation:

2006


2005


2004(In millions)Present value of estimated future
    net revenues (PV10)

$
1,561.5


$
1,281.8


$
668.0Future income taxes, discounted at
    10%


(321.7
)


(375.2
)


(173.6
)Standardized measure of discounted
    future net cash flows

$
1,239.8


$
906.6


$
494.4     Productive
    Wells
    Total Productive Wells atDecember 31,


December 31,2006


2005Gross


Net


Gross


NetOil


864



436.0



492



271.3Gas


257



143.0



37



10.7Total


1,121



579.0



529



282.0   Acreage
    At December 31, 2006Developed Acres(*)


Undeveloped AcresGross


Net


Gross


NetWest Texas(*)


59,974



31,186



659



659Gulf of Mexico Deepwater


91,980



36,026



299,520



209,502Gulf of Mexico Shelf


792,300



375,904



350,583



227,834Other Onshore


1,311



344



854



242Total


945,565



443,460



651,616



438,237     (*)
    
    Includes 31,933 gross and 11,883 net acres committed
    under the Tamarack/Spraberry
    drill-to-earn
    program. Under this program, upon drilling and completing
    150 wells, Mariner will obtain an approximate 35% working
    interest in all committed acreage. As of December 31, 2006,
    109 of the 150 obligation wells had been drilled and completed. 8




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##### Table of Contents



Undeveloped AcreageSubject to Expiration in the Year Ended December 31,2007


2008


2009Gross


Net


Gross


Net


Gross


NetGulf of Mexico Deepwater


40,320



21,006



69,120



43,200



28,800



25,632Gulf of Mexico Shelf


76,292



43,740



59,529



48,459



32,406



18,594Total


116,612



64,746



128,649



91,659



61,206



44,226   Drilling
    Activity
    Year Ended December 31,2006


2005


2004Gross


Net


Gross


Net


Gross


NetExploratory wells:Producing


14



5.83



3



1.13



7



3.34Dry


8



3.65



7



2.44



7



2.65Total


22



9.48



10



3.57



14



5.99Development wells:Producing


168



86.23



93



54.20



56



34.84Dry


















1



0.68Total


168



86.23



93



54.20



57



35.52Total wells:Producing


182



92.06



96



55.33



63



38.18Dry


8



3.65



7



2.44



8



3.33Total


190



95.71



103



57.77



71



41.51   Marketing
    and Customers
    Percentage of TotalRevenues forYear EndedDecember 31,Customer

2006


2005


2004BP Energy


14
%



*


12
%Bridgeline Gas Distributing
    Company(**)






15
%


27
%ChevronTexaco and affiliates(**)


23
%


24
%


18
%Louis Dreyfus Energy


10
%


7
%


*Plains Marketing LP


11
%


10
%


     *
    
    Less than 1%**
    
    Bridgeline Gas Distributing Company is an affiliate of
    ChevronTexaco
    
    No activity in the period 9




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Title to
    Properties
      Competition
  large 3-D
  Royalty
    Relief
    Water Depth

Royalty Relief200-400
    meters

no royalty payable on the first
    105 Bcfe produced400-800
    meters

no royalty payable on the first
    315 Bcfe produced800 meters or deeper

no royalty payable on the first
    525 Bcfe produced      10




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Regulation
    Transportation
    and Sale of Natural Gas
     11




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##### Table of Contents



Regulation
    of Production
       12




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Environmental
    and Safety Regulations
    
    require acquisition of a permit before drilling commences;
    restrict the types, quantities and concentrations of various
    materials that can be released into the environment in
    connection with drilling and production activities; and
    limit or prohibit construction or drilling activities in certain
    ecologically sensitive and other protected areas.    Spills and Releases.
  clean-up
  The Oil Pollution Act or OPA.
 13




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clean-up.
    Water Discharges.
    Air Emissions.
    Waste Handling.
 14




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Safety. right-to-know
  Employees
    Insurance
    Matters
  Hurricanes
    Katrina and Rita (2005)
         15




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Hurricane
    Ivan (2004)
    Current
    Insurance Against Hurricanes
      Glossary
    of Oil and Natural Gas Terms
   16




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Rule 4-10(a)(2-4) Regulation S-X. http://www.sec.gov/about/forms/forms-x.pdf.
  3-D
    seismic data. 3-D
  Appraisal well.
  Bbl.
  Bcf.
  Bcfe.
  Block.
  Btu or British Unit.
  Completion.
  Condensate.
  Deep shelf well.
  Deepwater.
  Developed acreage.
  Development costs. Rule 4-10(a)(2-4) Regulation S-X. http://www.sec.gov/about/forms/forms-x.pdf.
  Development well.
  Dry hole.
  Dry hole costs.
  Exploitation.
  Exploration costs. Rule 4-10(a)(2-4) Regulation S-X. http://www.sec.gov/about/forms/forms-x.pdf.
 17




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Exploratory well.
  Farm-in or farm-out.
  Field. and/or
  Gross acres or gross wells.
  Lease operating expenses.
  Mbbls.
  Mcf.
  Mcfe.
  MMBls.
  MMBtu.
  MMcf.
  MMcfe.
  Net acres or net wells.
  Net revenue interest.
  Payout.
  PV10 or present value of estimated future net
    revenues.
  Productive well.
 18




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Prospect.
  Proved developed non-producing
    reserves.
  Proved developed producing reserves.
  Proved developed reserves. Rule 4-10(a)(2-4) Regulation S-X. http://www.sec.gov/about/forms/forms-x.pdf.
  Proved reserves. Rule 4-10(a)(2-4) Regulation S-X. http://www.sec.gov/about/forms/forms-x.pdf.
  Proved undeveloped reserves. Rule 4-10(a)(2-4) Regulation S-X. http://www.sec.gov/about/forms/forms-x.pdf.
  Reservoir. and/or
  Shelf.
  Subsea tieback.
  Subsea trees.
  Undeveloped acreage.
  Working interest.
  Item 1A.
    Risk
    Factors.  Risks
    Relating to the Oil and Natural Gas Industry and to Our
    Business
  Oil
    and natural gas prices are volatile, and a decline in oil and
    natural gas prices would reduce our revenues, profitability and
    cash flow and impede our growth.
   19




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
    domestic and foreign supply of oil and natural gas;
    price and quantity of foreign imports;
    actions of the Organization of Petroleum Exporting Countries and
    other state-controlled oil companies relating to oil price and
    production controls;
    level of consumer product demand;
    domestic and foreign governmental regulations;
    political conditions in or affecting other oil-producing and
    natural gas-producing countries, including the current conflicts
    in the Middle East and conditions in South America and Russia;
    weather conditions;
    technological advances affecting oil and natural gas consumption;
    overall U.S. and global economic conditions; and
    price and availability of alternative fuels.    Reserve
    estimates depend on many assumptions that may turn out to be
    inaccurate. Any material inaccuracies in these reserve estimates
    or underlying assumptions will affect materially the quantities
    and present value of our reserves, which may lower our bank
    borrowing base and reduce our access to capital.
     20




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In
    estimating future net revenues from proved reserves, we assume
    that future prices and costs are fixed and apply a fixed
    discount factor. If any such assumption or the discount factor
    is materially inaccurate, our revenues, profitability and cash
    flow could be materially less than our estimates.
      If oil
    and natural gas prices decrease, we may be required to
    write-down the carrying value
    and/or the
    estimates of total reserves of our oil and natural gas
    properties.
    We
    need to replace our reserves at a faster rate than companies
    whose reserves have longer production periods. Our failure to
    replace our reserves would result in decreasing reserves and
    production over time.
   21




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Approximately
    62% of our total estimated proved reserves are either developed
    non-producing or undeveloped and those reserves may not
    ultimately be produced or developed.
    Any
    production problems related to our Gulf of Mexico properties
    could reduce our revenue, profitability and cash flow
    materially.
    Our
    exploration and development activities may not be commercially
    successful.
    
    unexpected drilling conditions;
    pressure or irregularities in formations;
    equipment failures or accidents;
    adverse weather conditions, including hurricanes, which are
    common in the Gulf of Mexico during certain times of the year;
    compliance with governmental regulations;
    unavailability or high cost of drilling rigs, equipment or labor;
    reductions in oil and natural gas prices; and
    limitations in the market for oil and natural gas.    Our
    exploratory drilling projects are based in part on seismic data,
    which is costly and cannot ensure the commercial success of the
    project.
  3-D 3-D 3-D
 22




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Oil
    and gas drilling and production involve many business and
    operating risks, any one of which could reduce our levels of
    production, cause substantial losses or prevent us from
    realizing profits.
    
    fires;
    explosions;
    blow-outs and surface cratering;
    uncontrollable flows of underground natural gas, oil and
    formation water;
    natural events and natural disasters, such as loop currents, and
    hurricanes and other adverse weather conditions;
    pipe or cement failures;
    casing collapses;
    lost or damaged oilfield drilling and service tools;
    abnormally pressured formations; and
    environmental hazards, such as natural gas leaks, oil spills,
    pipeline ruptures and discharges of toxic gases.  clean-up
  Our
    offshore operations involve special risks that could increase
    our cost of operations and adversely affect our ability to
    produce oil and gas.
     23




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Our
    hedging transactions may not protect us adequately from
    fluctuations in oil and natural gas prices and may limit future
    potential gains from increases in commodity prices or result in
    losses.
    Properties
    we acquire (including the Forest Gulf of Mexico properties we
    acquired in March 2006) may not produce as projected, and
    we may be unable to determine reserve potential, identify
    liabilities associated with the properties or obtain protection
    from sellers against such liabilities.
    Market
    conditions or transportation impediments may hinder our access
    to oil and natural gas markets or delay our
    production.
    The
    unavailability or high cost of drilling rigs, equipment,
    supplies or personnel could affect adversely our ability to
    execute on a timely basis our exploration and development plans
    within budget, which could have a material adverse effect on our
    financial condition and results of operations.
   24




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Competition
    in the oil and natural gas industry is intense, and many of our
    competitors have resources that are greater than ours giving
    them an advantage in evaluating and obtaining properties and
    prospects.
    Financial
    difficulties encountered by our farm-out partners or third-party
    operators could adversely affect our ability to timely complete
    the exploration and development of our prospects.
    We
    cannot control the timing or scope of drilling and development
    activities on properties we do not operate, and therefore we may
    not be in a position to control the associated costs or the rate
    of production of the reserves.
    Compliance
    with environmental and other government regulations could be
    costly and could affect production negatively.
   25




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##### Table of Contents



clean-up
  Compliance
    with MMS regulations could significantly delay or curtail our
    operations or require us to make material expenditures, all of
    which could have a material adverse effect on our financial
    condition or results of operations.
    Our
    insurance may not protect us against our business and operating
    risks.
     26




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Risks
    Relating to Our Acquisition of Forests Gulf of Mexico
    Operations
  The
    integration of the Forest Gulf of Mexico operations may be
    difficult and may divert our managements attention away
    from our normal operations.
    
    the challenge of integrating the Forest Gulf of Mexico
    operations while carrying on the ongoing operations of our
    business;
    the challenge of managing a significantly larger company, with
    more than twice the PV10 of Mariner prior to the acquisition;
    the possibility of faulty assumptions underlying our
    expectations;
    the difficulty associated with coordinating geographically
    separate organizations;
    the challenge of integrating the business cultures of the two
    companies;
    attracting and retaining personnel associated with the Forest
    Gulf of Mexico operations following the acquisition; and
    the challenge and cost of integrating the information technology
    systems of the two companies.    If we
    fail to realize the anticipated benefits of the acquisition, our
    results of operations may be lower than we expect.
    In
    order to preserve the tax-free treatment of the spin-off of
    Forest Energy Resources, we are required to abide by potentially
    significant restrictions which could limit our ability to
    undertake certain corporate actions that otherwise could be
    advantageous.
     27




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Risks
    Relating to Financings
  We
    will require additional capital to fund our future activities.
    If we fail to obtain additional capital, we may not be able to
    implement fully our business plan, which could lead to a decline
    in reserves.
      We may
    not be able to generate enough cash flow to meet our debt
    obligations.
      
    refinancing or restructuring our debt;
    selling assets;
    reducing or delaying capital investments; or
    seeking to raise additional capital.   28




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Our
    debt level and the covenants in the agreements governing our
    debt could negatively impact our financial condition, results of
    operations and business prospects and prevent us from fulfilling
    our obligations under our debt obligations.
    
    making it more difficult for us to satisfy our debt obligations
    and increasing the risk that we may default on our debt
    obligations;
    requiring us to dedicate a substantial portion of our cash flow
    from operations to required payments on debt, thereby reducing
    the availability of cash flow for working capital, capital
    expenditures and other general business activities;
    limiting our ability to obtain additional financing in the
    future for working capital, capital expenditures, acquisitions
    and general corporate and other activities;
    limiting managements discretion in operating our business;
    limiting our flexibility in planning for, or reacting to,
    changes in our business and the industry in which we operate;
    detracting from our ability to withstand successfully a downturn
    in our business or the economy generally;
    placing us at a competitive disadvantage against less leveraged
    competitors; and
    making us vulnerable to increases in interest rates, because
    debt under our bank credit facility will, in some cases, vary
    with prevailing interest rates.       29




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments.    Item 3.
    Legal
    Proceedings.      and/or
  Item 4.
    Submission
    of Matters to a Vote of Security Holders.   30




---



##### Table of Contents



Executive
    Officers of the Registrant
    Name

Age

Position with CompanyScott D. Josey


49


Chairman of the Board, Chief
    Executive Officer and PresidentDalton F. Polasek


55


Chief Operating OfficerJohn H. Karnes


45


Senior Vice President, Chief
    Financial Officer and TreasurerJesus G. Melendrez


48


Senior Vice President 
    Corporate DevelopmentMike C. van den Bold


44


Senior Vice President and Chief
    Exploration OfficerTeresa G. Bushman


57


Senior Vice President, General
    Counsel and SecretaryJudd A. Hansen


51


Senior Vice President 
    Shelf and OnshoreCory L. Loegering


51


Senior Vice President 
    DeepwaterRichard A. Molohon


52


Vice President 
    Reservoir Engineering   Scott D. Josey
  Dalton F. Polasek
  John H. Karnes
 31




---



##### Table of Contents



Jesus G. Melendrez
  Mike C. van den Bold
  Teresa G. Bushman
  Judd A. Hansen
  Cory L. Loegering
  Richard A. Molohon
 32




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.    Period Ended

High


LowPeriod from March 3, 2006
    to December 31, 2006Period EndedMarch 31, 2006

$
21.00


$
18.05Quarter EndedJune 30, 2006

$
20.65


$
14.81September 30, 2006


19.68



15.94December 31, 2006


21.36



17.68Year Ending December 31,
    2007First quarter (through
    March 23, 2007)

$
20.55


$
16.88      33




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##### Table of Contents



Performance
    Graph
    COMPARISON
    OF CUMULATIVE TOTAL RETURN AMONG
 MARINER ENERGY, INC., THE S&P 500 INDEX, AND A DEFINED
    PEER GROUP (1), (2)
  
    Cumulative Total Return(1)Initial

12/31/06Mariner Energy, Inc.

$
100.00


$
96.69S&P 500 Index

$
100.00


$
110.18Peer Group(2)

$
100.00


$
97.93   (1)
    
    Total return assuming reinvestment of dividends. Assumes $100
    invested on March 3, 2006 in our common stock, S&P 500
    Index, and a peer group of companies. Initial data is taken from
    March 3, 2006, which corresponds to when Mariner began
    regular way trading on the New York Stock Exchange.(2)
    
    Composed of the following seven (7) independent oil and gas
    exploration and production companies: ATP Oil & Gas
    Corporation, Bois dArc Energy, Inc., Callon Petroleum Co.,
    Energy Partners, Ltd., Plains Exploration & Production
    Company, Stone Energy Corporation, and W&T Offshore, Inc.  The above information under the caption Performance
    Graph shall not be deemed to be soliciting
    material and shall not be deemed to be incorporated by
    reference by any general statement incorporating by reference
    this
    Form 10-K
    into any filing under the Securities Act of 1933, as amended, or
    the Securities Exchange Act of 1934, as amended, and shall not
    otherwise be deemed filed under such acts.
 34




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##### Table of Contents



Issuer
    Purchases of Equity Securities
  Total Number of


Maximum NumberShares


(or Approximate(or Units)


Dollar Value) ofTotal Number


Average


Purchased as


Shares (or Units)of Shares


Price Paid


Part of Publicly


that May Yet Be(or Units)


per Share


Announced Plans or


Purchased Under thePeriod

Purchased


(or Unit)


Programs


Plans or ProgramsOctober 1, 2006 to
    October 31, 2006(1)


326


$
18.06







November 1, 2006 to
    November 30, 2006(1)


42



19.86







December 1, 2006 to
    December 31, 2006














Total


368



18.96







     (1)
    
    These shares were withheld upon the vesting of employee
    restricted stock grants in connection with payment of required
    withholding taxes.  Item 6.
    Selected
    Financial Data.      non-U.S. persons
 35




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##### Table of Contents



36




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##### Table of Contents



Post-2004 Merger



Pre-2004 MergerPeriod from



Period fromMarch 3,



January 1,2004



2004through



throughYear Ended December 31,


December 31,



March 2,


Year Ended December 31,2006


2005


2004



2004


2003


2002(in millions, except per share data)Statement of Operations
    Data:Total revenues(1)

$
659.5


$
199.7


$
174.4



$
39.8


$
142.5


$
158.2Lease operating expense


91.6



24.9



19.3




3.5



23.2



25.2Severance and ad valorem taxes
    Severance and ad valorem taxes


9.0



5.0



2.1




0.6



1.5



0.9Transportation expenses


5.1



2.3



1.9




1.1



6.3



10.5Depreciation, depletion and
    amortization


292.2



59.4



54.3




10.6



48.3



70.8Impairment of production equipment
    held for use






1.8



1.0












Derivative settlement



















3.2



Impairment of Enron related
    receivables























3.2General and administrative expense


34.1



37.1



7.6




1.1



8.1



7.7Operating income


227.5



69.2



88.2




22.9



51.9



39.9Interest income


1.0



0.8



0.2




0.1



0.8



0.4Interest expense, net of amounts
    capitalized


(39.7
)


(8.2
)


(6.0
)







(7.0
)


(10.3
)Income before taxes


188.8



61.8



82.4




23.0



45.7



30.0Provision for income taxes


(67.3
)


(21.3
)


(28.8
)



(8.1
)


(9.4
)


Income before cumulative effect of
    change in accounting method net of tax effects


121.5



40.5



53.6




14.9



36.3



30.0Cumulative effect of changes in
    accounting method



















1.9



Net income

$
121.5


$
40.5


$
53.6



$
14.9


$
38.2


$
30.0Earnings per common share:Basic:Income before cumulative effect of
    changes in accounting method per common share

$
1.59


$
1.24


$
1.80



$
0.50


$
1.22


$
1.01Cumulative effect of changes in
    accounting method



















.07



Net income per common
    share  basic

$
1.59


$
1.24


$
1.80



$
0.50


$
1.29


$
1.01Diluted:Income before cumulative effect of
    changes in accounting method per common share

$
1.58


$
1.20


$
1.80



$
0.50


$
1.22


$
1.01Cumulative effect of changes in
    accounting method



















.07



Net income per common
    share  diluted

$
1.58


$
1.20


$
1.80



$
0.50


$
1.29


$
1.01     (1)
    
    Includes effects of hedging. 37




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##### Table of Contents



Post-2004 Merger



Pre-2004 MergerDecember 31,



December 31,2006


2005


2004



2003


2002(in millions)Balance Sheet
    Data:(1)Property and equipment, net,
    full-cost method

$
2,012.1


$
515.9


$
303.8



$
207.9


$
287.6Total assets


2,680.2



665.5



376.0




312.1



360.2Long-term debt, less current
    maturities


654.0



156.0



115.0








99.8Stockholders equity


1,302.6



213.3



133.9




218.2



170.1Working capital (deficit)(2)


41.1



(46.4
)


(18.7
)



38.3



(24.4
)Other Financial DataRatio of earnings to fixed
    charges(3)


5.66



7.88



17.17




6.83



3.56     (1)
    
    Balance sheet data as of December 31, 2004 reflects
    purchase accounting adjustments to oil and gas properties, total
    assets and stockholders equity resulting from the
    acquisition of our former indirect parent on March 2, 2004.(2)
    
    Working capital (deficit) excludes current derivative assets and
    liabilities and deferred tax assets and liabilities.(3)
    
    For the purposes of determining the ratio of earnings to fixed
    charges, earnings consist of income before taxes, plus fixed
    charges, less capitalized interest, and fixed charges consist of
    interest expense (net of capitalized interest), plus capitalized
    interest, plus amortized discounts related to indebtedness. See
    Exhibit 12 to this annual report.  Post-2004 Merger



Pre-2004 MergerPeriod from



Period fromMarch 3,



January 1,2004



2004through



throughYear Ended December 31,


December 31,



March 2,


Year Ended December 31,2006


2005


2004



2004


2003


2002(in millions)Cash Flow Data:Net cash provided by operating
    activities

$
277.2


$
165.4


$
135.2



$
20.3


$
88.9


$
60.3Net cash (used) provided by
    investing activities


(561.4
)


(247.8
)


(133.0
)



(15.3
)


52.9



(53.8
)Net cash (used) provided by
    financing activities


289.3



84.4



(64.9
)







(100.0
)


   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  Overview
     38




---



##### Table of Contents



non-U.S. persons
      Critical
    Accounting Policies and Estimates
   39




---



##### Table of Contents



Oil
    and Gas Properties
  unit-of-production
    Proved
    Reserves
    Unproved
    Properties
  3-D
 40




---



##### Table of Contents



Goodwill
    Income
    Taxes
        Abandonment
    Liability
     41




---



##### Table of Contents



Hedging
    Program
    mark-to-market
        Revenue
    Recognition
   42




---



##### Table of Contents



over-and-under marked-to-market
    Stock
    Compensation Expense
    Reclassifications
    and Use of Estimates in the Preparation of Financial
    Statements
      Principles
    of Consolidation
    Recent
    Accounting Pronouncements
  No. 06-03, 06-03
     43




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##### Table of Contents



44




---



##### Table of Contents



Results
    of Operations
  Year
    Ended December 31, 2006 compared to Year Ended
    December 31, 2005
  Operating
    and Financial Results for the Year Ended December 31,
    2006
    Compared to the Year Ended December 31, 2005
  Year Ended December 31,2006


2005(In thousands, except average sales price)Summary Operating Information
    (1):Net production:Oil (MBbls)


4,075



1,791Natural gas (MMcf)


56,064



18,354Total (MMcfe)


80,512



29,100Average daily production (MMcfe/d)


221



80Hedging activities:Oil revenues gain (loss)

$
90


$
(18,671
)Gas revenues gain (loss)


32,881



(30,613
)Total hedging revenues gain (loss)

$
32,971


$
(49,284
)Average sales prices:Oil (per Bbl) realized(2)

$
59.70


$
41.23Oil (per Bbl) unhedged


59.68



51.66Natural gas (per Mcf) realized(2)


7.37



6.66Natural gas (per Mcf) unhedged


6.78



8.33Total natural gas equivalent
    ($/Mcfe) realized(2)


8.15



6.74Total natural gas equivalent
    ($/Mcfe) unhedged


7.74



8.43Oil and gas revenues:Oil sales

$
243,251


$
73,831Gas sales


412,967



122,291Total oil and gas revenues


656,218



196,122Other revenues


3,287



3,588Lease operating expenses


91,663



24,882Severance and ad valorem taxes


8,998



5,000Transportation expenses


5,077



2,336Depreciation, depletion and
    amortization


292,162



59,426General and administrative expenses


34,135



37,053Impairment of production equipment
    held for use






1,845Net interest expense


38,664



7,393Income before taxes


188,806



61,775Provision for income taxes


67,344



21,294Net income

$
121,462


$
40,481     (1)
    
    In 2006, NGLs were combined with oil. In 2005, an immaterial
    amount of NGLs representing approximately 4% of our net
    production was combined with natural gas.(2)
    
    Average realized prices include the effects of hedges. 45




---



##### Table of Contents



Net Production:
      Oil and gas revenues:
  $0.02/Bbl
    Lease operating expense per-unit
  Severance and ad valorem taxes
  Transportation expense
 46




---



##### Table of Contents



Depreciation, depletion, and amortization
    (DD&A) expense unit-of-production
  General and administrative (G&A) expense
  Net interest expense 110/111
  Income before income taxes
  Provision for income taxes
 47




---



##### Table of Contents



Year
    Ended December 31, 2005 compared to Year Ended
    December 31, 2004
  Operating
    and Financial Results for the Year Ended December 31,
    2005
    Compared to the Year Ended December 31, 2004
  Post-Merger



Pre-MergerPeriod from



Period fromMarch 3, 2004



January 1,Non-GAAP Combined



through



2004 throughYear Ended December 31,



December 31,



March 2,Summary Operating Information (1):

2005


2004



2004



2004(in thousands, except average sales price)Net production:Oil (MBbls)


1,791



2,298




1,885




413Natural gas (MMcf)


18,354



23,782




19,549




4,233Total (MMcfe)


29,100



37,569




30,856




6,713Average daily production (MMcfe/d)


80



103




101




112Hedging activities:Oil revenues (loss)

$
(18,671
)

$
(12,300
)


$
(11,614
)


$
(686
)Gas revenues (loss)


(30,613
)


(7,498
)



(8,929
)



1,431Total hedging revenues (loss)

$
(49,284
)

$
(19,798
)


$
(20,543
)


$
745Average sales prices:Oil (per Bbl) realized(2)

$
41.23


$
33.17



$
33.69



$
30.75Oil (per Bbl) unhedged


51.66



38.52




39.86




32.41Natural gas (per Mcf) realized(2)


6.66



5.80




5.67




6.39Natural gas (per Mcf) unhedged


8.33



6.12




6.13




6.05Total natural gas equivalent
    ($/Mcfe) realized(2)


6.74



5.70




5.65




5.92Total natural gas equivalent
    ($/Mcfe) unhedged


8.43



6.23




6.32




5.81Oil and gas revenues:Oil sales

$
73,831


$
76,207



$
63,498



$
12,709Gas sales


122,291



137,980




110,925




27,055Total oil and gas revenues


196,122



214,187




174,423




39,764Other revenues


3,588













Lease operating expenses


24,882



22,806




19,248




3,558Severance and ad valorem taxes


5,000



2,678




2,115




563Transportation expenses


2,336



3,029




1,959




1,070Depreciation, depletion and
    amortization


59,426



64,911




54,281




10,630General and administrative


37,053



8,772




7,641




1,131Impairment of production equipment
    held for use


1,845



957




957




Net interest expense (income)


7,393



5,734




5,820




(86
)Income before taxes


61,775



105,300




82,402




22,898Provision for income taxes


21,294



36,855




28,783




8,072Net income

$
40,481


$
68,445



$
53,619



$
14,826     (1)
    
    In 2005 and 2004, an immaterial amount of NGLs representing
    approximately 4% and 2%, respectively, of our net production was
    combined with natural gas.(2)
    
    Average realized prices include the effects of hedges. 48




---



##### Table of Contents



Net production
        Hedging activities
  Oil and gas revenues
  Other revenues
  Lease operating expense
  Severance and ad valorem taxes
 49




---



##### Table of Contents



Transportation expense
  DD&A expense unit-of-production
  G&A expense,
  Impairment of production equipment held for use
  Net interest expense
  Income before income taxes
  Provision for income taxes
  Liquidity
    and Capital Resources
  2006 Uses of Capital.
  
    funding capital expenditures (excluding hurricane repairs and
    acquisitions) of approximately $513.6 million;
    funding hurricane repairs and hurricane-related abandonment
    expenditures of approximately $84.3 million;
    financing the West Cameron
    110/111
    preferential right acquisition of approximately
    $70.9 million;
    refinancing of approximately $176.2 million of debt assumed
    in connection with our acquisition of Forests Gulf of
    Mexico operations;
    paying debt service obligations of approximately
    $28.8 million; and
    paying routine operating and administrative expenses. 50




---



##### Table of Contents



2006 Capital Expenditures.
  Year Ended


Year EndedDecember 31,


December 31,2006


2005Capital expenditures(1):Leasehold acquisitions

$
22.4


$
11.5Oil and natural gas exploration


165.7



50.0Oil and natural gas development


359.7



121.7Proceeds from property
    conveyances(2)


(33.8
)


Acquisitions


70.9



53.4Other items (primarily gathering
    system, capitalized overhead and interest)


15.0



16.1Total capital expenditures, net of
    proceeds from property conveyances

$
599.9


$
252.7     (1)
    
    The Forest Energy Resources, Inc. merger is excluded.(2)
    
    Proceeds from sale of Cottonwood project (Garden Banks
    244) of $31.8 million are recorded as restricted cash
    (See  Note 1, Significant Accounting
    Policies  Restricted Cash).  2006 Hurricane Expenditures.
  2006 Sources of Liquidity.
  
    cash flow from operations;
    increase in borrowings under our bank credit facility discussed
    below; and
    issuance of $300 million of
    71/2% Senior
    Notes due 2013 discussed below.  Bank Credit Facility
  drill-to-earn
   51




---



##### 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.    71/2% Senior
    Notes due 2013 1 2
          
    make investments;
    incur additional indebtedness or issue preferred stock;
    create certain liens;
    sell assets;
    enter into agreements that restrict dividends or other payments
    from its subsidiaries to itself;
    consolidate, merge or transfer all or substantially all of its
    assets;
    engage in transactions with affiliates;
    pay dividends or make other distributions on capital stock or
    subordinated indebtedness; and
    create unrestricted subsidiaries. 52




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##### Table of Contents



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.
  Contractual
    Commitments
    Less








MoreThan








ThanOne


1-3


3-5


5Total


Year


Years


Years


Years(In millions)Debt obligations(1)

$
654.0


$



$



$
354.0


$
300.0Interest obligations(2)


146.3



27.2



45.0



45.0



29.1Operating leases


7.6



1.5



3.7



2.4



Abandonment liabilities


218.0



29.7



55.3



54.0



79.0MMS Royalty liabilities


38.9



10.3



28.6







Seismic obligations


24.1



20.1



4.0







Capital accrual obligations


99.0



99.0











Other liabilities


46.3



46.3











Total contractual cash commitments

$
1,234.2


$
234.1


$
136.6


$
455.4


$
408.1     (1)
    
    As of December 31, 2006, we had incurred debt obligations
    under our bank credit facility and the senior unsecured notes
    that are due on March 2, 2010 and April 15, 2013,
    respectively.(2)
    
    Interest obligations represent interest due on the senior
    unsecured notes at 7.5%. Future interest obligations under our
    bank credit facility are uncertain, due to the variable interest
    rate on fluctuating balances. Based on a 8.0% weighted average
    interest rate on amounts outstanding under our bank credit
    facility as of December 31, 2006, $31.1 million,
    $56.6 million and $4.9 million would be due under the
    bank credit facility in less than one year, 1-3 years and
    3-5 years, respectively.  Future Capital Resources.
  
    cash flow from operations in future periods;
    proceeds under our bank credit facility; 53




---



##### Table of Contents




    proceeds from insurance policies relating to hurricane
    repairs; and
    proceeds from future capital markets transactions as needed.      Off-Balance
    Sheet Arrangements
  Letters of Credit drill-to-earn
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.  Commodity
    Prices and Related Hedging Activities
     54




---



##### Table of Contents



December 31,Weighted-Average


2006 FairFixed Price Swaps

Quantity


Fixed Price


Value Gain/(Loss)(In millions)Natural Gas (MMBtus)January 1 
    December 31, 2007


15,846,323


$
9.67


$
47.9January 1 
    September 30, 2008


3,059,689


$
9.58



4.3Total









$
52.2   December 31,2006 FairCostless Collars

Quantity


Floor


Cap


Value Gain/(Loss)(In millions)Crude Oil (Bbls)January 1 
    December 31, 2007


2,032,689


$
59.84


$
84.21


$
0.7January 1 
    December 31, 2008


1,195,495


$
61.66


$
86.80



3.4Natural Gas (MMBtus)January 1 
    December 31, 2007


14,106,750


$
6.87


$
11.82



5.9January 1 
    December 31, 2008


12,347,000


$
7.83


$
14.60



9.4Total













$
19.4     Weighted-


December 31,Average


2005 FairFixed Price Swaps

Quantity


Fixed Price


Value Gain/(Loss)(In millions)Crude Oil (Bbls)January 1 
    December 31, 2006


140,160


$
29.56


$
(4.7
)Natural Gas (MMBtus)January 1 
    December 31, 2006


1,827,547


$
5.53



(9.9
)Total









$
(14.6
)   December 31,2005 FairCostless Collars

Quantity


Floor


Cap


Value Gain/(Loss)(In millions)Crude Oil (Bbls)January 1 
    December 31, 2006


251,850


$
32.65


$
41.52


$
(5.3
)January 1 
    December 31, 2007


202,575


$
31.27


$
39.83



(4.7
)Natural Gas (MMBtus)January 1 
    December 31, 2006


7,347,450


$
5.78


$
7.85



(22.3
)January 1 
    December 31, 2007


5,310,750


$
5.49


$
7.22



(16.9
)Total













$
(49.2
)  55




---



##### Table of Contents



Weighted-AverageFixed Price Swaps

Quantity


Fixed PriceCrude Oil (Bbls)June 1 
    December 31, 2007


627,900


$
69.20January 1 
    December 31, 2008


992,350


$
69.34       Year Ended December 31,2006


2005


2004Natural GasQuantity settled (MMBtus)


30,547,997



15,917,159



18,823,063Gain (Loss) on Natural Gas
    contracts settled (in thousands)

$
11,182


$
(33,010
)

$
(10,792
)Crude OilQuantity settled (Mbbls)


1,645



836



1,554Gain (Loss) on Crude Oil contracts
    settled (in thousands)

$
90


$
(20,789
)

$
(16,907
)   mark-to-market
  Interest
    Rates
   56




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data.  Index to
    Financial Statements
  Report of
    Independent Registered Public Accounting Firm


58Consolidated
    Balance Sheets at December 31, 2006 and 2005


59Consolidated
    Statements of Operations for the years ended December 31,
    2006 and 2005; the period from March 3, 2004 through
    December 31, 2004; and the period from January 1, 2004
    through March 2, 2004


60Consolidated
    Statements of Stockholders Equity and Comprehensive Income
    for the years ended December 31, 2006 and 2005; the period
    from March 3, 2004 through December 31, 2004; and the
    period from January 1, 2004 through March 2,
    2004


61Consolidated
    Statements of Cash Flows for the years ended December 31,
    2006 and 2005; the period from March 3, 2004 through
    December 31, 2004; and the period from January 1, 2004
    through March 2, 2004


62Notes to the
    Financial Statements


63  57




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM              DELOITTE &
    TOUCHE LLP
    58




---



##### Table of Contents



MARINER
    ENERGY, INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,


December 31,2006


2005(in thousands exceptshare data)Current Assets:Cash and cash equivalents

$
9,579


$
4,556Receivables, net of allowances of
    $726 and $500 as of December 31, 2006 and 2005, respectively


149,692



84,109Insurance receivables


61,001



4,542Derivative financial instruments


54,488



Prepaid seismic


20,835



6,542Prepaid expenses and other


12,846



15,666Deferred tax asset






26,017Total current assets


308,441



141,432Property and
    Equipment:Proved oil and gas properties,
    full-cost method


2,345,041



574,725Unproved properties, not subject
    to amortization


40,246



40,176Total Oil and Gas Properties


2,385,287



614,901Other property and equipment


13,512



11,048Accumulated depreciation,
    depletion and amortization


(386,737
)


(110,006
)Total property and equipment, net


2,012,062



515,943Restricted cash


31,830



Goodwill


288,504



Derivative financial
    instruments


17,153



Other Assets, net of
    amortization


22,163



8,161TOTAL ASSETS

$
2,680,153


$
665,536Current Liabilities:Accounts payable

$
1,822


$
37,530Accrued liabilities


74,880



75,324Accrued capital costs


99,028



37,006Deferred income tax


26,857



Abandonment liability


29,660



11,359Accrued interest


7,480



614Derivative financial instruments






42,173Total current liabilities


239,727



204,006Long-Term
    Liabilities:Abandonment liability


188,310



38,176Deferred income tax


262,888



25,886Derivative financial instruments






21,632Long term debt, bank credit
    facility


354,000



152,000Long term debt, senior unsecured
    notes


300,000



Note payable






4,000Other long-term liabilities


32,637



6,500Total long-term liabilities


1,137,835



248,194Commitments 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 and December 31, 2005






Common stock, $.0001 par
    value; 180,000,000 shares authorized,
    86,375,840 shares issued and outstanding at
    December 31, 2006; 70,000,000 shares authorized,
    35,615,400 shares issued and outstanding at
    December 31, 2005


9



4Additional
    paid-in-capital


1,043,923



160,705Accumulated other comprehensive
    income/(loss)


43,097



(41,473
)Accumulated retained earnings


215,562



94,100Total stockholders equity


1,302,591



213,336TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY

$
2,680,153


$
665,536  59




---



##### Table of Contents



MARINER
    ENERGY, INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Post-Merger



Pre-MergerPeriod



Periodfrom



fromMarch 3,



January 1,Year


Year


2004



2004Ended


Ended


through



throughDecember 31,


December 31,


December 31,



March 2,2006


2005


2004



2004(In thousands except share data)Revenues:Oil sales

$
243,251


$
73,831


$
63,498



$
12,709Gas sales


412,967



122,291



110,925




27,055Other revenues


3,287



3,588








Total revenues


659,505



199,710



174,423




39,764Costs and Expenses:Lease operating expense


91,663



24,882



19,248




3,558Severance and ad valorem taxes


8,998



5,000



2,115




563Transportation expense


5,077



2,336



1,959




1,070General and administrative expense


34,135



37,053



7,641




1,131Depreciation, depletion and
    amortization


292,162



59,426



54,281




10,630Impairment of production equipment
    held for use






1,845



957




Total costs and expenses


432,035



130,542



86,201




16,952OPERATING INCOME


227,470



69,168



88,222




22,812Interest:Income


985



779



225




91Expense, net of amounts capitalized


(39,649
)


(8,172
)


(6,045
)



(5
)Income before taxes


188,806



61,775



82,402




22,898Provision for income
    taxes


(67,344
)


(21,294
)


(28,783
)



(8,072
)NET INCOME

$
121,462


$
40,481


$
53,619



$
14,826Earnings per share:Net income per
    share  basic

$
1.59


$
1.24


$
1.80



$
0.50Net income per
    share  diluted

$
1.58


$
1.20


$
1.80



$
0.50Weighted average shares
    outstanding  basic


76,352,666



32,667,582



29,748,130




29,748,130Weighted average shares
    outstanding  diluted


76,810,466



33,766,577



29,748,130




29,748,130   The accompanying notes are an integral part of these
    financial statements
 60




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##### Table of Contents



MARINER
    ENERGY, INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
    INCOME
  AccumulatedOther


AccumulatedAdditional


Comprehensive


Retained


TotalCommon


Stock


Paid-In


Income


Earnings


StockholdersShares


Amount


Capital


(Loss)


(Deficit)


Equity(In thousands)Balance at December 31,
    2003


29,748


$
1


$
227,318


$
(4,360
)

$
(4,802
)

$
218,157Pre-Merger Net Income


















14,826



14,826Change in fair value of derivative
    hedging instruments














(7,312
)






(7,312
)Hedge settlements reclassified to
    income














(745
)






(745
)Total comprehensive income














(8,057
)


14,826



6,769Pre-Merger Balance at March 2,
    2004


29,748


$
1


$
227,318


$
(12,417
)

$
10,024


$
224,926Post-MergerDividend


















(166,432
)


(166,432
)Merger adjustments










(135,401
)


12,417



156,408



33,424Balance at March 3,
    2004


29,748


$
1


$
91,917


$



$



$
91,918Net income


















53,619



53,619Change in fair value of derivative
    hedging instruments  net of income taxes of ($17,323)














(32,171
)






(32,171
)Hedge settlements reclassified to
    income  net of income taxes of $11,061














20,541







20,541Total comprehensive income (loss)














(11,630
)


53,619



41,989Balance at December 31,
    2004


29,748


$
1


$
91,917


$
(11,630
)

$
53,619


$
133,907Common shares issued 
    private equity offering


3,600



2



44,331











44,333Common shares issued 
    restricted stock


2,267



1



(1
)










Amortization of unearned
    compensation










25,129











25,129Stock compensation
    expense  stock options










594











594Contributed capital 
    Mariner Energy, LLC and Mariner Holdings, Inc.










3,057











3,057Merger adjustments










(4,322
)










(4,322
)Comprehensive income:Net income


















40,481



40,481Other comprehensive income (loss):Change in fair value of derivative
    hedging instruments  net of income taxes of ($33,318)














(61,878
)






(61,878
)Hedge settlements reclassified to
    income  net of income taxes of $17,249














32,035







32,035Total comprehensive income (loss)














(29,843
)


40,481



10,638Balance at December 31,
    2005


35,615


$
4


$
160,705


$
(41,473
)

$
94,100


$
213,336Common shares issued 
    Forest transaction


50,637


$
5



886,142











886,147Common shares issued 
    restricted stock


907



















Treasury stock bought and cancelled
    on same day


(808
)






(14,028
)










(14,028
)Forfeiture of restricted stock


(27
)


















Amortization of unearned
    compensation










9,248











9,248Stock compensation
    expense  stock options










980











980Stock options exercised


52







718











718Merger adjustments










158











158Comprehensive income:Net income


















121,462



121,462Other comprehensive income:Change in fair value of derivative
    hedging instruments  net of income taxes of $35,930














63,139







63,139Hedge settlements reclassified to
    income  net of income taxes of $11,540














21,431







21,431Total comprehensive income














84,570



121,462



206,032Balance at December 31,
    2006


86,376


$
9


$
1,043,923


$
43,097


$
215,562


$
1,302,591   The accompanying notes are an integral part of these
    financial statements
 61




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##### Table of Contents



MARINER
    ENERGY, INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Post-Merger



Pre-MergerPeriod



Periodfrom



fromMarch 3,



January 1,2004



2004Year Ended


Year Ended


through



throughDecember 31,


December 31,


December 31,



March 2,2006


2005


2004



2004(In thousands)Operating Activities:Net income

$
121,462


$
40,481


$
53,619



$
14,826Adjustments to reconcile net loss
    to net cash provided by operating activities:Deferred income tax


67,344



21,294



27,162




8,072Depreciation, depletion and
    amortization


295,292



60,640



55,067




10,630Ineffectiveness of derivative
    instruments


(4,175
)











Stock compensation


10,229



25,726








Impairment of production equipment
    held for use






1,845



957




Changes in operating assets and
    liabilities:Receivables


(12,746
)


(32,916
)


(10,615
)



(8,847
)Insurance receivables


(55,690
)


(4,542
)







Prepaid expenses and other


15,774



(5,201
)


(965
)



551Other assets


2,852



4,358



321




(963
)Accounts payable and accrued
    liabilities


(169,819
)


53,759



9,697




(3,974
)Net realized loss on derivative
    contracts acquired


6,638












Net cash provided by operating
    activities


277,161



165,444



135,243




20,295Investing Activities:Acquisitions and additions to
    property and equipment


(542,581
)


(247,817
)


(133,597
)



(15,342
)Property conveyances


33,829



18








Purchase price adjustment


(20,808
)






620




1Restricted cash designated for
    investment


(31,830
)











Net cash used in investing
    activities


(561,390
)


(247,799
)


(132,977
)



(15,341
)Financing Activities:Initial borrowings from bank credit
    facility, net of fees










131,579




Debt and working capital acquired
    from Forest Energy Resources, Inc.


(176,200
)











Repayment of term note


(4,000
)


(6,000
)







Credit facility borrowings
    (repayments), net


202,000



47,000



(30,000
)



Proceeds from private equity
    offering






44,331








Proceeds from note offering


300,000












Repurchase of stock


(14,027
)











Net realized loss on derivative
    contracts acquired


(6,638
)











Proceeds from exercise of stock
    options


718












Deferred offering costs


(12,601
)


(3,840
)







Capital contribution from affiliates






2,879








Dividend to Mariner Energy LLC










(166,432
)



Net cash provided by (used in)
    financing activities


289,252



84,370



(64,853
)



Increase (Decrease) in Cash and
    Cash Equivalents


5,023



2,015



(62,587
)



4,954Cash and Cash Equivalents at
    Beginning of Period


4,556



2,541



65,128




60,174Cash and Cash Equivalents at End
    of Period

$
9,579


$
4,556


$
2,541



$
65,128   The accompanying notes are an integral part of these
    financial statements
 62




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##### Table of Contents



MARINER
    ENERGY, INC.NOTES TO THE FINANCIAL STATEMENTSFor the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
  1.
    Summary
    of Significant Accounting Policies  Operations
  Organization
      Mariner Energy, Inc. bank loan
    proceeds

$
135.0Note payable issued by Mariner
    Energy, Inc. to former parent


10.0Equity from new owners


100.0Distributions from Mariner Energy,
    Inc.


31.2Assignment by Mariner Energy, Inc.
    of receivables


1.9Total

$
278.1Repayment of former parent debt
    obligation

$
197.6Merger consideration to
    stockholders and warrant holders


73.5Acquisition costs and other
    expenses


7.0Total

$
278.1    63




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
      ALLOCATION
    OF PURCHASE PRICE TO MARINER ENERGY, INC.
  March 2,2004(In millions)Oil and natural gas
    properties-proved

$
203.5Oil and natural gas
    properties-unproved


25.2Other property and equipment and
    other assets


0.7Current assets


83.2Deferred tax asset(1)


9.1Other assets


4.6Accounts payable and accrued
    expenses


(62.2
)Long-Term Liability


(14.7
)Fair value of oil and natural gas
    derivatives


(12.4
)Debt


(145.0
)Total Allocation

$
92.0     (1)
    
    Represents deferred income taxes recorded at the date of the
    Merger due to differences between the book basis and the tax
    basis of assets. For book purposes, we had a
    step-up in
    basis related to purchase accounting while our existing tax
    basis carried over.    Twelve MonthsEndingDecember 31,2004(In millions)Revenues and other income

$
214.2Income before taxes and change in
    accounting method


103.0Net income


67.0    64




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
      Significant
    Accounting Policies
  Cash and Cash Equivalents
  Restricted Cash
  Receivables
  Insurance receivables
  Oil and Gas Properties unit-of-production
   65




---



##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    Unproved Properties 3-D
  Other Property and Equipment
  Prepaid Expenses and Other
  Other Assets
  Goodwill
 66




---



##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    Income Taxes
      Abandonment Liability
      67




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
  (In millions)Abandonment Liability as of
    December 31, 2004

$
24.0Liabilities Incurred


28.6Liabilities Settled


(5.5
)Accretion Expense


2.4Abandonment Liability as of
    December 31, 2005(1)

$
49.5Liabilities Incurred


29.6Liabilities Settled


(31.1
)Accretion Expense


15.3Revisions to previous estimates


(10.5
)Liabilities incurred from assets
    acquired(2)


165.2Abandonment Liability as of
    December 31, 2006(3)

$
218.0     (1)
    
    Includes $11.4 million classified as a current accrued
    liability at December 31, 2005.(2)
    
    Represents the fair value of the asset retirement obligation
    acquired through the Forest Merger.(3)
    
    Includes $29.7 million classified as a current accrued
    liability at December 31, 2006.  Hedging Program
  mark-to-market
     68




---



##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
      Financial Instruments
  Revenue Recognition over-and-under marked-to-market
    Concentration of Credit Risk
  Operating Costs
 69




---



##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
          General and Administrative Costs and Expense
    Accounting for Stock Options and Restricted
    Stock
  Capitalized Interest Costs
  Reclassifications and Use of Estimates in the Preparation of
    Financial Statements
   70




---



##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
   Principles of Consolidation
  Net Income per Share
  Post-Merger



Pre-MergerPeriod



Periodfrom



fromMarch 3,



January 1,2004



2004Year Ended


Year Ended


through



throughDecember 31,


December 31,


December 31,



March 2,2006


2005


2004



2004(In thousands except per share data)Numerator:Net income

$
121,462


$
40,481


$
53,619



$
14,826Denominator:Weighted average shares outstanding


76,353



32,668



29,748




29,748Add dilutive securities


457



1,099








Total weighted average shares
    outstanding and dilutive securities


76,810



33,767



29,748




29,748Net income per share 
    basic:

$
1.59


$
1.24


$
1.80



$
.50Net income per share 
    diluted:

$
1.58


$
1.20


$
1.80



$
.50      71




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
   Comprehensive Income
  Post-Merger



Pre-MergerPeriod



Periodfrom



fromMarch 3,



January 1,2004



2004Year Ended


Year Ended


through



throughDecember 31,


December 31,


December 31,



March 2,2006


2005


2004



2004(In thousands)Net Income

$
121,462


$
40,481


$
53,619



$
14,826Other comprehensive income (loss),
    net of tax
    Derivative contracts settled and reclassified, net of tax


21,431



32,035



20,541




(745
)Change in unrealized mark to
    market gains/(losses) arising during period, net of tax


63,139



(61,878
)


(32,171
)



(7,312
)Change in accumulated other
    comprehensive income (loss)


84,570



(29,843
)


(11,630
)



(8,057
)Comprehensive income

$
206,032


$
10,638


$
41,989



$
6,769   Major Customers
  Percentage of TotalRevenues for Year EndedDecember 31,Customer

2006


2005


2004BP Energy


14
%



*


12
%Bridgeline Gas Distributing
    Company(**)






15
%


27
%ChevronTexaco and affiliates(**)


23
%


24
%


18
%Louis Dreyfus Energy


10
%


7
%


*Plains Marketing LP


11
%


10
%


     *
    
    Less than 1%**
    
    Bridgeline Gas Distributing Company is an affiliate of
    ChevronTexaco
    
    No activity in the period  Recent Accounting Pronouncements No. 06-03, 06-03
 72




---



##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
            2.
    Related
    Party Transactions  Organization and Ownership of the Company
 73




---



##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
        3.
    Acquisitions
    and Dispositions  Forest Gulf of Mexico Operations
   74




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
     (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         Pro Forma Financial Information
  75




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
  Year EndedDecember 31.2006


2005(Unaudited)(In thousands, except per share amounts)Pro Forma:Revenue

$
725,321


$
591,982Net income available to common
    stockholders

$
134,428


$
57,952Basic earnings per share

$
1.76


$
0.70Diluted earnings per share

$
1.75


$
0.69   West Cameron
    110/111
  Interest in Cottonwood
  4.
    Long-Term
    Debt  Bank Credit Facility
    Amendments of Bank Credit Facility
 76




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
  drill-to-earn
      
    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.        Private Offering of
    71/2% Senior
    Notes due 2013 1 2
 77




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
           
      
    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; 78




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
   
    pay dividends or make other distributions on capital stock or
    subordinated indebtedness; and
    create unrestricted subsidiaries.    JEDI Term Promissory Note
  Cash Interest Expense
  Bank Debt Issuance Costs
  5.
    Stockholders
    Equity  Increase in Number of Shares Authorized
  Equity Participation Plan
 79




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    Stock Incentive Plan
      Rollover Options
 80




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
   Accounting for Stock Options and Restricted
    Stock SFAS No. 123-Revised Share-Based Payment, 12-month
    WeightedAverage


Aggregate IntrinsicExercise


Value (1)Shares


Price


($000)Outstanding at beginning of year


809,000


$
14.02Granted(2)


156,626


$
11.99Exercised


(51,458
)

$
13.96Forfeited(3)


(111,846
)

$
13.01Outstanding at end of year


802,322


$
13.77


$
4,678Vested and expected to vest


706,871


$
14.00



3,959Outstanding exercisable at end of
    year


372,721


$
13.86



2,140Available for future grant as
    options or restricted stock


4,862,132







     (1)
    
    Based upon the difference between the market price of the common
    stock on the last trading date of the year and the option
    exercise price of
    in-the-money
    options.(2)
    
    The options exercisable for an aggregate 156,626 shares
    were Rollover Options granted pursuant to the Forest Transaction
    merger agreement. The options exercisable for an aggregate
    809,000 shares were granted under the Stock Incentive Plan.(3)
    
    Rollover Options exercisable for an aggregate 61,366 shares
    and options exercisable for 41,480 shares granted under the
    Stock Incentive Plan were forfeited due to terminations of
    employment, but are not indicative of a historical forfeiture
    rate.
    In-the-money
    options exercisable for an aggregate 9,000 shares granted
    under the Stock Incentive Plan to two directors of the Company
    were cancelled on March 31, 2006 and replaced by restricted
    stock grants.   81




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
     Options Outstanding


Options ExercisableWeightedAverage





WeightedRemaining





AverageShares


Contractual





SharesExercise Price

Outstanding


Life (Years)


Expected Term


Exercisable$ 8.81


1,056



6.16



6.00



$ 9.48


5,283



7.15



6.00



$ 9.67


1,321



7.08



6.00



$11.44


4,952



7.88



6.00



1,651$11.59


71,226



7.94



6.00



23,173$14.00


706,880



8.31



6.00



347,216$15.50














(3,000
)$16.86


10,564



8.62



6.00



2,641$17.00


1,040



8.72



6.00



1,040     Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


Life (Years)


Price


Exercisable


Price$14.00  $17.00


809,000



9.5


$
14.02







     12 Months Ended December 31,2006


2005Stock Incentive





Stock IncentiveBlack-Scholes Assumptions

Plan Options(1)


Rollover Options(2)


Plan OptionsExpected Term (years)


6.0



4.7



3.0Risk Free Interest Rate


4.80
%


4.79
%


3.79
%Expected Volatility


35
%


35
%


38
%Dividend Yield


0.00
%


0.00
%


0.00
%     (1)
    
    Stock Incentive Plan as amended and restated(2)
    
    There were no Rollover Options in 2005   82




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    12-month
  Restricted Shares under the Amended and Restated Stock
    Incentive PlanDecember 31,2006


2005Total unvested shares at beginning
    of period: January 1






Shares granted


907,371



Shares vested


(4,500
)


Shares forfeited


(27,491
)


Total unvested shares at end of
    period: December 31


875,380



Total vested shares at end of
    period: December 31


4,500



Available for future grant as
    options or restricted stock


4,862,132



Average fair value of shares
    granted during the period

$
19.54


$
   12-month
  Restricted Shares under the Equity Participation Plan
    December 31,2006


2005Total unvested shares at beginning
    of period: January 1


2,267,270



Shares granted






2,267,270Shares vested


(2,267,270
)


Shares forfeited






Total unvested shares at end of
    period: December 31






2,267,270Total vested shares at end of
    period: December 31


2,267,270



Available for future grant under
    Equity Participation Plan






Average fair value of shares
    granted during the period

$



$
14.00   Private Equity Placement.
  6.
    Employee
    Benefit and Royalty Plans  Employee Capital Accumulation Plan
 83




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    Overriding Royalty Interests
  7.
    Commitments
    and Contingencies  Minimum Future Lease Payments
  2007

$
1,4592008


1,3172009


1,0862010


1,3282011 and thereafter


2,371     Hedging Program
   84




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
      December 31,Weighted-Average


2006 Fair ValueFixed Price Swaps

Quantity


Fixed Price


Gain/(Loss)(In millions)Natural Gas (Mmbtus)January 1 
    December 31, 2007


15,846,323


$
9.67


$
47.9January 1 
    December 31, 2008


3,059,689


$
9.58



4.3Total









$
52.2     December 31,2006 FairCostless Collars

Quantity


Floor


Cap


Value Gain/(Loss)(In millions)Crude Oil (Bbls)January 1 
    December 31, 2007


2,032,689


$
59.84


$
84.21


$
0.7January 1 
    December 31, 2008


1,195,495


$
61.66


$
86.80



3.4Natural Gas (MMBtus)January 1 
    December 31, 2007


14,106,750


$
6.87


$
11.82



5.9January 1 
    December 31, 2008


12,347,000


$
7.83


$
14.60



9.4Total













$
19.4     December 31,Weighted-Average


2005 FairFixed Price Swaps

Quantity


Fixed Price


Value Gain/(Loss)(In millions)Crude Oil (Bbls)January 1 
    December 31, 2006


140,160


$
29.56


$
(4.7
)Natural Gas (MMBtus)January 1 
    December 31, 2006


1,827,547


$
5.53



(9.9
)Total









$
(14.6
)  85




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    December 31,2005 Fair ValueCostless Collars

Quantity


Floor


Cap


Gain/(Loss)(In millions)Crude Oil (Bbls)January 1 
    December 31, 2006


251,850


$
32.65


$
41.52


$
(5.3
)January 1 
    December 31, 2007


202,575


$
31.27


$
39.83



(4.7
)Natural Gas (MMbtus)January 1 
    December 31, 2006


7,347,450


$
5.78


$
7.85



(22.3
)January 1 
    December 31, 2007


5,310,750


$
5.49


$
7.22



(16.9
)Total













$
(49.2
)     Weighted-AverageFixed Price Swaps

Quantity


Fixed PriceCrude Oil (Bbls)June 1 
    December 31, 2007


627,900


$
69.20January 1 
    December 31, 2008


992,350


$
69.34       Post-Merger



Pre-MergerPeriod from



Period fromMarch 3,



January 1,2004



2004Year Ended


Year Ended


through



throughDecember 31,


December 31,


December 31,



March 2,2006


2005


2004



2004(Dollars in thousands except per share data)Natural GasQuantity hedged (MMbtu)


30,547,997



15,917,159



16,723,063




2,100,000Gain (Loss) on Natural Gas
    contracts settled (in thousands)

$
11,182


$
(33,010
)

$
(12,223
)


$
1,431Crude OilQuantity hedged (MBbls)


1,645



836



1,375




179Gain (Loss) on Crude Oil contracts
    settled (in thousands)

$
90


$
(20,789
)

$
(16,221
)


$
(686
)    86




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    Other Commitments
  MMS Proceedings
    Insurance
    Matters
  Hurricanes
    Katrina and Rita (2005)
     87




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
          Hurricane
    Ivan (2004)
   88




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
   Current
    Insurance Against Hurricanes
      Litigation and/or
  Letters of Credit drill-to-earn
   89




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
   8.
    Income
    Taxes    Post-Merger



Pre-MergerPeriod fromMarch 3,



Period from2004



January 1Year Ending


Year Ending


through



throughDecember 31,


December 31,


December 31,



March 2,2006


2005


2004



2004(In thousands)Current

$



$



$




$
Deferred


67,344



21,294



28,783




8,072Total

$
67,344


$
21,294


$
28,783



$
8,072     Post-Merger



Pre-MergerPeriod from






Period fromMarch 3, 2004






January 1Year Ending


Year Ending


through






throughDecember 31,


December 31,


December 31,






March 2,2006


2005


2004






2004(In thousands except percentages)Income before income taxes
    including change in accounting in 2003

$
188,806






$
61,775






$
82,402







$
22,898Income tax expense computed at
    statutory rates

$
66,081



35
%

$
21,621



35
%

$
28,841



35
%


$
8,014



35
%State tax expense, net of the
    federal benefit


946



1
%























Other


317







(327
)


(1
)%


(58
)







58



Tax Expense

$
67,344



36
%

$
21,294



34
%

$
28,783



35
%


$
8,072



35
%    90




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
     December 31,2006


2005(In thousands)Deferred Tax Assets:Net operating loss carry forwards

$
114,650


$
45,171Alternative minimum Tax Credit


1,606



1,606Differences between book and tax
    basis of receivables






Other comprehensive
    income-derivative instruments






22,332Valuation allowance


(468
)


(5,909
)Employee stock compensation


1,420



9,004Other






671Total net deferred tax assets

$
117,208


$
72,875Current Deferred Tax
    Liabilities:Deferred gain

$
(9,158
)

$
Other comprehensive
    income-derivative instruments


(19,119
)


Other


35



Total current deferred tax
    liabilities

($
28,242
)

$
0Long Term Deferred Tax
    Liabilities:Other comprehensive
    income-derivative instruments


(6,019
)


Differences between book and tax
    basis properties


(372,771
)


(72,744
)Total long term deferred tax
    liabilities

$
(378,790
)

$
(72,744
)Total net deferred (liability)
    asset

$
(289,824
)

$
131      91




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
     9.
    Segment Information
    project-by-project
  10.
    Quarterly
    Financial Information (Unaudited)    2006 Quarter EndedDecember


September


June


March31


30


30


31(In thousands, except share data)Total revenues

$
221,114


$
190,466


$
167,665


$
80,260Operating income

$
78,955


$
67,713


$
57,787


$
23,015Income before income taxes

$
66,197


$
56,226


$
49,260


$
17,123Provision for income taxes


22,959



19,836



18,556



5,993Net income

$
43,238


$
36,390


$
30,704


$
11,130Earnings per share:(1)Net income per share 
    basic

$
0.51


$
0.43


$
0.36


$
0.22Net income per share 
    diluted

$
0.50


$
0.43


$
0.36


$
0.21Weighted average shares
    outstanding  basic


85,499,227



85,493,237



84,720,331



49,615,479Weighted average shares
    outstanding  diluted


85,750,225



85,581,108



85,027,561



51,844,610   92




---



##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
  2005 Quarter EndedDecember


September


June


March31


30


30


31(In thousands, except share data)Total revenues

$
48,465


$
43,662


$
51,776


$
55,807Operating income

$
10,471


$
12,263


$
18,070


$
28,364Income before income taxes

$
7,798


$
10,549


$
16,382


$
27,046Provision for income taxes


2,880



3,606



5,537



9,271Net income

$
4,918


$
6,943


$
10,845


$
17,775Earnings per share:(1)Net income per share 
    basic

$
0.15


$
0.21


$
0.33


$
0.58Net income per share 
    diluted

$
0.14


$
0.20


$
0.32


$
0.58Weighted average shares
    outstanding  basic(2)


33,348,130



33,348,130



33,348,130



30,558,130Weighted average shares
    outstanding  diluted


35,189,290



34,806,842



33,822,079



30,599,152     (1)
    
    The sum of quarterly net income per share may not agree with
    total year net income per share, as each quarterly computation
    is based on the weighted average shares outstanding.(2)
    
    Restated for the 1,380 to 29,748,130 stock split, effective
    March 3, 2005.  11.
    Supplemental
    Guarantor Information (Unaudited)  1 2
   93




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    94




---



##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
  MARINER
    ENERGY, INC. AND SUBSIDIARIES
  CONSOLIDATING
    BALANCE SHEET
    December 31, 2006
    (In thousands except share data)
    (Unaudited)
  ConsolidatedParent


Subsidiary





MarinerCompany


Guarantors


Eliminations


Energy, Inc.Current Assets:Cash and cash equivalents

$
9,579


$



$



$
9,579Receivables, net


51,118



98,574







149,692Insurance receivables


4,673



56,328







61,001Derivative financial instruments


54,488











54,488Prepaid seismic


19,468



1,367







20,835Prepaid expenses and other


10,927



1,919







12,846Total current assets


150,253



158,188







308,441Property and
    Equipment:Oil and gas properties, full-cost
    method: Proved


922,385



1,422,656







2,345,041Unproved, not subject to
    amortization


39,885



361







40,246Total


962,270



1,423,017







2,385,287Other property and equipment


13,444



68







13,512Accumulated depreciation, depletion
    and amortization


(233,087
)


(153,650
)






(386,737
)Total property and equipment, net


742,627



1,269,435







2,012,062Investment in subsidiaries


945,108







(945,108
)


Intercompany receivable


153,793







(153,793
)


Intercompany note receivable


176,200







(176,200
)


Restricted cash


31,830











31,830Goodwill






288,504







288,504Derivative financial instruments


17,153











17,153Other Assets, Net of Amortization


22,163











22,163TOTAL ASSETS

$
2,239,127


$
1,716,127


$
(1,275,101
)

$
2,680,153Current Liabilities:Accounts payable

$
1,822


$



$



$
1,822Accrued liabilities


61,779



13,101







74,880Accrued capital costs


60,146



38,882







99,028Deferred income tax


26,857











26,857Abandonment liability


9,312



20,348







29,660Accrued interest


7,355



125







7,480Total current liabilities


167,271



72,456







239,727Long-Term Liabilities:Abandonment liability


48,509



139,801







188,310Deferred income tax


36,701



226,187







262,888Intercompany payable






153,793



(153,793
)


Long term debt, bank credit facility


354,000











354,000Long term debt, senior unsecured
    notes


300,000











300,000Other long-term liabilities


30,055



2,582







32,637Intercompany note payable






176,200



(176,200
)


Total long-term liabilities


769,265



698,563



(329,993
)


1,137,835Commitments and Contingencies
    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  95




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
  MARINER
    ENERGY, INC. AND SUBSIDIARIES
  CONSOLIDATING
    STATEMENT OF OPERATIONS
    Year Ended December 31, 2006
    (In thousands)
    (Unaudited)
  ConsolidatedParent


Subsidiary





MarinerCompany


Guarantors


Eliminations


Energy, Inc.Revenues:Oil sales

$
141,862


$
101,389


$



$
243,251Gas sales


185,175



227,792







412,967Other revenues


3,287











3,287Total revenues


330,324



329,181







659,505Costs and Expenses:Lease operating expense


34,728



56,935







91,663Severance and ad valorem taxes


7,294



1,704







8,998Transportation expense


3,341



1,736







5,077General and administrative expense


32,422



1,713







34,135Depreciation, depletion and
    amortization


128,410



163,752







292,162Total costs and expenses


206,195



225,840







432,035OPERATING INCOME


124,129



103,341







227,470Earnings of
    Affiliates


58,961







(58,961
)


Interest:Income


8,737



1



(7,753
)


985Expense, net of amounts capitalized


(35,714
)


(11,688
)


7,753



(39,649
)Income before taxes


156,113



91,654



(58,961
)


188,806Provision for income
    taxes


(34,651
)


(32,693
)






(67,344
)NET INCOME

$
121,462


$
58,961


$
(58,961
)

$
121,462  96




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
  MARINER
    ENERGY, INC. AND SUBSIDIARIES
  CONSOLIDATING
    STATEMENT OF CASH FLOWS
    Year Ended December 31, 2006
    (In thousands)
    (Unaudited)
 ConsolidatedParent


Subsidiary


MarinerCompany


Guarantors


Energy, Inc.Operating Activities:Net income

$
62,501


$
58,961


$
121,462Adjustments to reconcile net loss
    to net cash provided by operating activities:Deferred income tax


18,409



48,935



67,344Depreciation, depletion and
    amortization


131,554



163,738



295,292Ineffectiveness of derivative
    instruments


(4,175
)






(4,175
)Stock compensation


10,229







10,229Changes in operating assets and
    liabilities:Receivables


32,991



(45,737
)


(12,746
)Insurance receivables


(131
)


(55,559
)


(55,690
)Prepaid expenses and other


6,686



9,088



15,774Other assets


(6,230
)


9,082



2,852Accounts payable and accrued
    liabilities


(60,609
)


(109,210
)


(169,819
)Net realized loss on derivative
    contracts acquired






6,638



6,638Net cash provided by operating
    activities


191,225



85,936



277,161Investing Activities:Acquisitions and additions to
    property and equipment


(330,298
)


(212,283
)


(542,581
)Property conveyances


33,829







33,829Purchase price adjustment






(20,808
)


(20,808
)Restricted cash designated for
    investment


(31,830
)






(31,830
)Net cash used in investing
    activities


(328,299
)


(233,091
)


(561,390
)Financing Activities:Repayment of term note


(4,000
)






(4,000
)Credit facility repayments, net


202,000







202,000Debt and working capital acquired
    from Forest Energy Resources, Inc.






(176,200
)


(176,200
)Proceeds from note offering


300,000







300,000Repurchase of stock


(14,027
)






(14,027
)Deferred offering costs


(12,601
)






(12,601
)Net realized loss on derivative
    contracts acquired






(6,638
)


(6,638
)Proceeds from exercise of stock
    options


718







718Net activity in investments from
    subsidiaries


(329,993
)


329,993



Net cash provided by financing
    activities


142,097



147,155



289,252Increase in Cash and Cash
    Equivalents


5,023







5,023Cash and Cash Equivalents at
    Beginning of Period


4,556







4,556Cash and Cash Equivalents at
    End of Period

$
9,579


$



$
9,579   12.
    Subsequent
    Events   97




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
   13.  Oil
    and Gas Producing Activities and Capitalized Costs
    (Unaudited)
    Year Ending December 31,2006


2005


2004(In thousands)Oil and gas sales

$
656,218


$
196,122


$
214,187Lease operating costs


(91,663
)


(24,882
)


(22,806
)Severance and ad valorem taxes


(8,998
)


(5,000
)


(2,678
)Transportation


(5,077
)


(2,336
)


(3,029
)Depreciation, depletion and
    amortization


(292,162
)


(59,426
)


(64,911
)Results of operations

$
258,318


$
104,478


$
120,763     As of December 31,2006


2005


2004(In thousands)Unevaluated properties, not
    subject to amortization

$
40,246


$
40,176


$
36,245Properties subject to amortization


2,345,041



574,725



319,553Capitalized costs


2,385,287



614,901



355,798Accumulated depreciation,
    depletion and amortization


(384,948
)


(109,183
)


(52,680
)Net capitalized costs

$
2,000,339


$
505,718


$
303,118     Year Ending December 31,2006


2005


2004(In thousands)Property acquisition costsUnproved properties

$
47,655


$
12,366


$
4,844Unproved properties 
    Forest Acquisition


116,699







Proved properties 
    Forest Acquisition(1)


1,094,712







Proved properties  West
    Cameron
    110/111


70,928







Proved properties  Other






52,503



4,863Exploration costs


143,054



50,049



43,022Development costs


323,843



121,685



88,626Capitalized internal costs


14,471



6,016



7,334Total costs incurred

$
1,811,362


$
242,619


$
148,689Depreciation, depletion and
    amortization rate per equivalent Mcf

$
3.63


$
2.04


$
1.73     (1)
    
    In conjunction with the acquisition, includes asset retirement
    cost of approximately $165.2   98




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
      Period Incurred


Total atYear Ended December 31,





December 31,2006


2005


2004


Prior


2006Unproved leasehold acquisition and
    geological and geophysical costs

$
22,734


$
7,619


$
2,300


$
4,460


$
37,113Unevaluated exploration and
    development costs


2,500



(23
)


171







2,648Capitalized interest


185



128



104



68



485Total

$
25,419


$
7,724


$
2,575


$
4,528


$
40,246     14.
    Supplemental
    Oil and Gas Reserve and Standardized Measure Information
    (Unaudited)     99




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    ESTIMATED
    QUANTITIES OF PROVED RESERVES
  Natural Gas


Natural GasOil (Mbbl)


(MMcf)


Equivalent (MMcfe)December 31,
    2003


13,079



127,584



206,060Revisions of previous estimates


1,249



19,797



27,291Extensions, discoveries and other
    additions


2,225



28,334



41,684Sale of reserves in place










Production


(2,298
)


(23,782
)


(37,570
)December 31,
    2004


14,255



151,933



237,465Revisions of previous estimates


835



963



5,971Extensions, discoveries and other
    additions


1,167



22,307



29,309Purchases of reserves in place


7,181



50,837



93,923Sales of reserves in place










Production


(1,791
)


(18,354
)


(29,100
)December 31,
    2005


21,647



207,686



337,568Revisions of previous estimates


8,685



(58,055
)


(5,947
)Extensions, discoveries and other
    additions


9,823



93,112



152,050Purchases of reserves in place


12,410



244,741



319,201Sales of reserves in place


(354
)


(4,733
)


(6,857
)Production


(4,075
)


(56,064
)


(80,512
)December 31,
    2006


48,136



426,687



715,503   ESTIMATED
    QUANTITIES OF PROVED DEVELOPED RESERVES
  Natural Gas


Natural GasOil (Mbbl)


(MMcf)


Equivalent (MMcfe)December 31, 2003


5,951



60,881



96,587December 31, 2004


6,339



71,361



109,395December 31, 2005


9,564



110,011



167,395December 31, 2006


26,807



247,821



408,663    100




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    STANDARDIZED
    MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
  Year Ending December 31,2006


2005


2004(In thousands)Future cash inflows

$
4,858,420


$
3,451,321


$
1,601,240Future production costs


(1,278,228
)


(687,583
)


(308,190
)Future development costs


(1,016,519
)


(386,497
)


(193,689
)Future income taxes


(528,135
)


(695,921
)


(285,701
)Future net cash flows


2,035,538



1,681,320



813,660Discount of future net cash flows
    at 10% per annum


(795,677
)


(774,755
)


(319,278
)Standardized measure of discounted
    future net cash flows

$
1,239,861


$
906,565


$
494,382    101




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##### Table of Contents



MARINER
    ENERGY, INC.
    NOTES TO THE FINANCIAL
    STATEMENTS  (Continued)
    For the Years Ended December 31, 2006 and 2005,
    for the Period from March 3, 2004 through December 31,
    2004 (Post-Merger),
    and for the Period from January 1, 2004 through
    March 2, 2004 (Pre-Merger)
    Year Ending December 31,2006


2005


2004(In thousands)Sales and transfers of oil and gas
    produced, net of production costs

$
(553,766
)

$
(213,189
)

$
(185,673
)Net changes in prices and
    production costs


(434,364
)


425,317



27,767Extensions and discoveries, net of
    future development and production costs


311,077



119,501



88,167Purchases of reserves in place


568,576



189,782



14,738Development costs during period
    and net change in development costs


245,050



46,632



44,417Revision of previous quantity
    estimates


101,331



16,323



89,814Sales of reserves in place


(10,642
)






Net change in income taxes


53,549



(201,647
)


(27,634
)Accretion of discount before
    income taxes


90,656



49,438



41,816Changes in production rates
    (timing) and other


(38,172
)


(19,974
)


(17,189
)Net change

$
333,295


$
412,183


$
76,223  102




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosures.    Item 9A.
    Controls
    and Procedures.  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(e) 15d-15(e) Form 10-K.
  Changes
    in Internal Controls Over Financial Reporting.
  Form 10-K
  Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance.  Form 10-K, Form 10-K.
  Item 11.
    Executive
    Compensation.  Form 10-K.
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.  Form 10-K.
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.  Form 10-K.
  Item 14.
    Principal
    Accounting Fees and Services.  Form 10-K.
 103




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.  Financial Statements:
    Financial Statement Schedules:
    Exhibits:
   104




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##### Table of Contents



SIGNATURES
      By:
    /s/  Scott
    D. Josey  Name:
    Scott D. Josey  Title:
    Chairman of the Board, Chief Executive 
    Officer and President    Signature

Title/s/  Scott
    D. JoseyScott
    D. Josey

Chairman of the Board, Chief
    Executive Officer and President
    (Principal Executive Officer)/s/  John
    H. KarnesJohn
    H. Karnes

Senior Vice President, Chief
    Financial Officer and Treasurer
    (Principal Financial and Accounting Officer)/s/  Bernard
    AronsonBernard
    Aronson

Director/s/  Alan
    R.
    Crain, Jr.Alan
    R. Crain, Jr.

Director/s/  Jonathan
    GinnsJonathan
    Ginns

Director/s/  John
    F. GreeneJohn
    F. Greene

Director/s/  H.
    Clayton
    PetersonH.
    Clayton Peterson

Director/s/  John
    L. SchwagerJohn
    L. Schwager

Director  105




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##### Table of Contents



INDEX TO
    EXHIBITS
  ExhibitNumber

Description of Document2
.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.
    amending 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. amending the
    transaction agreements (incorporated by reference to
    Exhibit 2.1 to Mariners
    Form 8-K
    filed on April 13, 2006).3
.1*

Second Amended and Restated
    Certificate of Incorporation of Mariner Energy, Inc., as amended
    (incorporated by reference to Exhibit 3.1 to Mariners
    Registration Statement on
    Form S-8
    (File
    No. 333-132800)
    filed on March 29, 2006).3
.2*

Fourth Amended and Restated Bylaws
    of Mariner Energy, Inc. (incorporated by reference to
    Exhibit 3.2 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-129096)
    filed on October 18, 2005).4
.1*

Indenture, dated as of
    April 24, 2006, among Mariner Energy, Inc., the guarantors
    party thereto and Wells Fargo Bank, N.A., as trustee
    (incorporated by reference to Exhibit 4.1 to Mariners
    Form 8-K
    filed on April 25, 2006).4
.2*

Exchange and Registration Rights
    Agreement, dated as of April 24, 2006, among Mariner
    Energy, Inc., the guarantors party thereto and the initial
    purchasers party thereto (incorporated by reference to
    Exhibit 4.2 to Mariners
    Form 8-K
    filed on April 25, 2006).4
.3*

Amended and Restated Credit
    Agreement, dated as of March 2, 2006, among Mariner Energy,
    Inc. and Mariner Energy Resources, Inc., as Borrowers, the
    Lenders party thereto from time to time, as Lenders, and Union
    Bank of California, N.A., as Administrative Agent and as Issuing
    Lender (incorporated by reference to Exhibit 4.1 to
    Mariners
    Form 8-K
    filed on March 3, 2006).4
.4*

Amendment No. 1 and Consent,
    dated as of April 7, 2006, among Mariner Energy, Inc. and
    Mariner Energy Resources, Inc., as Borrowers, the Lenders party
    thereto, and Union Bank of California, N.A., as Administrative
    Agent for such Lenders and as Issuing Lender for such Lenders
    (incorporated by reference to Exhibit 4.1 to Mariners
    Form 8-K
    filed on April 13, 2006).4
.5*

Credit Agreement among Mariner
    Energy Inc., the Lenders party thereto and Union Bank of
    California, N.A., dated as of March 2, 2004 (incorporated
    by reference to Exhibit 4.5 to Mariners Registration
    Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).4
.6*

Amendment No. 1 and
    Assignment Agreement among Mariner Energy, Inc., Mariner
    Holdings, Inc., Mariner Energy LLC, the Lenders party thereto,
    and Union Bank of California, N.A., dated as of July 14,
    2004 (incorporated by reference to Exhibit 4.6 to
    Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).4
.7*

Waiver and Consent among Mariner
    Energy, Inc., Mariner Holdings, Inc., Mariner Energy LLC, the
    Union Bank of California, N.A. and the Lenders party thereto,
    dated December 29, 2004 (incorporated by reference to
    Exhibit 4.7 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).4
.8*

Amendment No. 2 and Consent
    among Mariner Energy, Inc., Mariner Holdings, Inc., Mariner
    Energy LLC, the Lenders party thereto, and the Union Bank of
    California, N.A., dated February 7, 2005 (incorporated by
    reference to Exhibit 4.8 to Mariners Registration
    Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).4
.9*

Amendment No. 3 and Consent
    among Mariner Energy, Inc., Mariner LP LLC, Mariner Energy Texas
    LP, the Lenders party thereto, and the Union Bank of California,
    N.A., dated March 3, 2005 (incorporated by reference to
    Exhibit 4.9 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).




---



##### Table of Contents



ExhibitNumber

Description of Document4
.10*

Amendment No. 4 among Mariner
    Energy, Inc., Mariner LP LLC, Mariner Energy Texas LP, the
    Lenders party thereto, and Union Bank of California, N.A., dated
    as of July 14, 2005 (incorporated by reference to
    Exhibit 4.10 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).4
.11*

Amendment No. 5 among Mariner
    Energy, Inc., Mariner LP LLC, Mariner Energy Texas LP, the
    Lenders party thereto, and Union Bank of California, N.A., dated
    as of August 5, 2005 (incorporated by reference to
    Exhibit 4.11 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).4
.12*

Amendment No. 6, Waiver and
    Agreement among Mariner Energy, Inc., Mariner LP LLC, Mariner
    Energy Texas LP, the Lenders party thereto, and Union Bank of
    California, N.A., dated as of January 20, 2006
    (incorporated by reference to Exhibit 4.12 to
    Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.1*

Purchase Agreement, dated as of
    April 19, 2006, among Mariner Energy, Inc., Mariner LP LLC,
    Mariner Energy Resources, Inc., Mariner Energy Texas LP and the
    initial purchasers party thereto (incorporated by reference to
    Exhibit 10.1 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.2*

Form of Indemnification Agreement
    between Mariner Energy, Inc. and each of its directors and
    officers (incorporated by reference to Exhibit 10.2 to
    Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.3

Mariner Energy, Inc. Second
    Amended and Restated Stock Incentive Plan, effective as of
    February 6, 2007.10
.4*

Form of Non-Qualified Stock Option
    Agreement, Mariner Energy, Inc. Amended and Restated Stock
    Incentive Plan for employees without employment agreements
    (incorporated by reference to Exhibit 10.5 to
    Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.5*

Form of Non-Qualified Stock Option
    Agreement, Mariner Energy, Inc. Amended and Restated Stock
    Incentive Plan for employees with employment agreements
    (incorporated by reference to Exhibit 10.6 to
    Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.6

Form of Restricted Stock Agreement
    (directors) under Mariner Energy, Inc. Second Amended and
    Restated Stock Incentive Plan.10
.7

Form of Restricted Stock Agreement
    (employee with employment agreement) under Mariner Energy, Inc.
    Second Amended and Restated Stock Incentive Plan.10
.8

Form of Restricted Stock Agreement
    (employee without employment agreement) under Mariner Energy,
    Inc. Second Amended and Restated Stock Incentive Plan.10
.9*

Mariner Energy, Inc. Equity
    Participation Plan, effective March 11, 2005 (incorporated
    by reference to Exhibit 10.10 to Mariners
    Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.10*

First Amendment to Mariner Energy,
    Inc. Equity Participation Plan, effective as of March 16,
    2006 (incorporated by reference to Exhibit 10.11 to
    Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.11*

Form of Restricted Stock
    Agreement, Mariner Energy, Inc. Equity Participation Plan for
    employees with employment agreements (incorporated by reference
    to Exhibit 10.12 to Mariners Registration Statement
    on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.12*

Form of Restricted Stock
    Agreement, Mariner Energy, Inc. Equity Participation Plan for
    employees without employment agreements (incorporated by
    reference to Exhibit 10.13 to Mariners Registration
    Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.13*

Form of Nonstatutory Stock Option
    Agreement for certain employees of Mariner Energy, Inc. or
    Mariner Energy Resources, Inc. who formerly held unvested
    options issued by Forest Oil Corporation (incorporated by
    reference to Exhibit 10.14 to Mariners Registration
    Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.14*

Employment Agreement by and
    between Mariner Energy, Inc. and Scott D. Josey, dated
    February 7, 2005 (incorporated by reference to
    Exhibit 10.15 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).




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##### Table of Contents



ExhibitNumber

Description of Document10
.15*

Employment Agreement by and
    between Mariner Energy, Inc. and Dalton F. Polasek, dated
    February 7, 2005 (incorporated by reference to
    Exhibit 10.16 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.16*

Employment Agreement by and
    between Mariner Energy, Inc. and Michiel C. van den Bold, dated
    February 7, 2005 (incorporated by reference to
    Exhibit 10.17 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.17*

Amendment to Employment Agreement
    by and between Mariner Energy, Inc. and Michiel C. van den Bold,
    dated as of June 8, 2006 (incorporated by reference to
    Exhibit 10.18 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.18*

Second Amended and Restated
    Employment Agreement by and between Mariner Energy, Inc.,
    Mariner Energy Resources, Inc. and Judd Hansen, dated
    June 8, 2006 (incorporated by reference to
    Exhibit 10.19 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.19*

Employment Agreement by and
    between Mariner Energy, Inc. and Teresa Bushman, dated
    February 7, 2005 (incorporated by reference to
    Exhibit 10.20 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.20*

Amendment to Employment Agreement
    by and between Mariner Energy, Inc. and Teresa G. Bushman, dated
    as of June 8, 2006 (incorporated by reference to
    Exhibit 10.21 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.21*

Employment Agreement by and
    between Mariner Energy, Inc. and Ricky G. Lester, dated
    February 7, 2005 (incorporated by reference to
    Exhibit 10.22 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.22*

Consulting Agreement between
    Mariner Energy, Inc. and Ricky G. Lester, dated effective
    August 16, 2006 (incorporated by reference to
    Exhibit 10.23 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.23*

Registration Rights Agreement
    among Mariner Energy, Inc. and each of the investors identified
    therein, dated March 11, 2005 (incorporated by reference to
    Exhibit 10.24 to Mariners Registration Statement on
    Form S-4
    (File
    No. 333-137441)
    filed on September 19, 2006).10
.24*

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
    current report on
    Form 8-K
    filed on October 18, 2006).10
.25*

Employment Agreement, by and
    between Mariner Energy, Inc. and John H. Karnes, dated as of
    October 16, 2006 (incorporated by reference to
    Exhibit 10.1 to Mariners current report on
    Form 8-K
    filed on October 18, 2006).12


Statement regarding Computation of
    Ratio of Earnings to Fixed Charges.21


List of subsidiaries.23
.1

Consent of Deloitte &
    Touche LLP.23
.2

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.  33-8238,