Mariner Energy Reports 1Q06 Results

Mariner Energy, Inc. (NYSE: ME) announced financial results for first quarter 2006 and provided an operational update.

As previously reported, on March 2, 2006 Mariner completed its acquisition of Forest Oil Corporation's Gulf of Mexico operations (the Forest Transaction), and on March 3 commenced trading on the NYSE under the symbol "ME." Beginning with March 2006, Mariner consolidated the results of the Forest Gulf of Mexico operations. Accordingly, the reported first quarter 2006 financial results include only one month of operations from the Forest assets.

Production and revenues in the first quarter 2006 increased from the first quarter 2005, primarily due to the addition of the Forest assets in the current quarter as described above. Production for the first quarter 2006 totaled 10.5 Bcfe, a 27% increase from first quarter 2005, and revenues totaled $80.3 million, a 44% increase from 2005. Net income totaled $11.1 million, a 37% decrease from 2005, primarily due to increased depreciation, depletion, and amortization and net interest expense resulting from the Forest Transaction, and increased stock compensation expense, offset by higher operating revenues. Basic and diluted earnings per share (EPS) for the first quarter 2006 were $0.22 and $0.21, respectively, compared to $0.58 for each measure in the first quarter of 2005.

Net cash flows from operations for the first quarter 2006 increased by 36% to $66.5 million from $49.0 million from the first quarter 2005. The increase was driven primarily by higher operating revenues.

OPERATIONAL UPDATE

Offshore -- Mariner drilled seven offshore wells in the first quarter of 2006 with five successes. Four wells budgeted for drilling in 2005 were postponed into the first quarter of 2006 because of impacts from the 2005 active hurricane season. Information regarding the five successful wells is shown below:

                                                    Expected
                              Working   Water   Date of Initial
                    Operator Interest Depth (Ft)  Production     Location
    1st Qtr 2006
    NW Nansen
     (EB 602 #11)  Kerr McGee   33%  3,507 feet       TBD       Deep Water
    Reliant
     (SS 26 #14)    Mariner     50%    12 feet   2nd Qtr 2006 Conventional
                                                                  Shelf
    West Cameron
     130 #3         Dominion    15%    38 feet   3rd Qtr 2006   Deep Shelf
    King Kong
     (GC473 #2ST1)    ENI       50%  3,842 feet   April 2006    Deep Water
    Brazos 491 #5   Mariner    100%    77 feet   2nd Qtr 2006  Conventional
                                                                  Shelf

Mariner commenced production at its Rigel (MC 296) and King Kong (GC 473) deep water fields in March and April 2006, respectively, at gross initial productive rates of approximately 85 MMcf and 32 MMcf of natural gas per day, respectively. Mariner owns a 22.5% working interest in the Rigel field and a 50% working interest in the King Kong discovery well.

Since March 31, 2006, the NW Nansen (EB 602 #12), High Island 131 #2 (King of the Hill), and Reliant (SS 26 #14) wells reached total depth and are successes. The NW Nansen (EB 602 #12) well is located at a water depth of approximately 3,500 feet and was drilled to a total depth of 9,994 feet. The well is the third discovery in the NW Nansen development project. Kerr-McGee is the operator, and Mariner owns a 33% working interest in the first three wells. Kerr-McGee also operates the fourth planned well in the project, NW Nansen (EB 558 #2), in which Mariner and Kerr-McGee each own a 50% working interest. The exploratory test well at High Island 131 #2 (King of the Hill) is located at a water depth of approximately 50 feet and was drilled to a total depth of 16,300 feet. Gryphon Exploration Company is the operator and Mariner owns a 25% working interest in the well, which is expected to commence production in the second quarter of 2006. Mariner's Reliant (SS 26 #14) well is located at a water depth of 12 feet and was included as a discovery in the first quarter of 2006 after drilling to a depth of 16,713 feet. The well has been successfully deepened to a total depth of 17,175 feet to access additional non-proved reserves. Mariner operates the field and owns a 50% working interest in the discovery well which should also commence production in the second quarter of 2006.

With these recent successes, Mariner has been successful in seven of the nine wells drilled to date through April 30 2006. As of April 30, 2006, five offshore drilling wells are in progress, including NW Nansen (EB 558 #2).

In addition, Mariner was the apparent high bidder on ten blocks in the Minerals Management Service (MMS) OCS Oil and Gas Lease Sale 198 held on March 15, with a net cost exposure of approximately $18 million. Two of the blocks are located in deepwater areas of the Gulf (depths greater than 400 meters). To date, Mariner has been awarded four of the blocks, one of which is in the deepwater.

Onshore -- In the first quarter of 2006, Mariner drilled 46 development wells in West Texas, all of which were successful. It currently has five rigs operating on its West Texas properties.

PRODUCTION

Production for the first quarter 2006 continued to be negatively effected by the lingering impact of the 2005 hurricane season. As of March 31, 2006 approximately 42 MMcfe per day of production associated with the Forest assets was shut-in awaiting repairs to pipelines, facilities and terminals, and approximately 20 MMcfe per day of production from Mariner development projects awaited completion of hurricane repairs. Mariner expects approximately two- thirds of the shut-in or deferred production to recommence by mid-year with the remainder flowing before year-end.

For the first quarter 2006, production increased 27% to 10.5 Bcfe compared to 8.3 Bcfe for the first quarter 2005. Natural gas and oil production totaled 6.9 Bcf and 0.6 million Bbls, respectively, in the first quarter 2006 compared to 5.3 Bcf and 0.5 million Bbls, respectively, for the first quarter of 2005. Approximately 2.1 Bcfe of the first quarter 2006 production was generated by Mariner's West Texas operations and approximately 8.4 Bcfe by its offshore operations, compared to approximately 1.3 Bcfe in West Texas and approximately 7.0 bcfe offshore in the first quarter 2005.

REVENUES AND PRICING

For the first quarter 2006, Mariner generated total natural gas revenues of $48.1 million compared to $34.9 million for first quarter 2005. Total oil revenues for first quarter 2006 were $31.5 million, compared to $19.1 million in the first quarter 2005. Total oil and gas revenues increased approximately 48% to $79.6 million in the first quarter 2006 compared to $54.0 million in the first quarter 2005.

Prices for the first quarter of 2006 averaged $7.96/Mcf for natural gas and $57.38/Bbl for oil, compared to $6.52/Mcf and $46.57/Bbl, respectively, for the first quarter 2005. The impact of hedges reduced average pricing in the first quarter 2006 by $1.00/Mcf for natural gas and $5.08/Bbl for oil to $6.96/Mcf and $52.30/Bbl, respectively. This compares to an increase in natural gas pricing of $0.02/Mcf and a decrease in oil pricing of $7.96/Bbl, to $6.54/Mcf and $38.61/Bbl, respectively, in the first quarter 2005. Hedge losses in the first quarter 2006 were $10.0 million compared to $3.9 million in the first quarter 2005.

HEDGING ACTIVITY

Subsequent to March 31, 2006, Mariner has hedged natural gas and crude oil production as follows:

    Natural Gas                     MMBtu    Indexed Price/MMBtu
    June 1, 2006-March 31, 2007   7,372,000  $9.30 (Swap)

    April 1-December 31, 2007     8,796,000  $7.70 - $14.60 (Costless Collar)
    January 1-December 31, 2008  12,347,000  $7.83 - $14.60 (Costless Collar)

    Crude Oil                        Bbls    Indexed Price/Bbl
    June 1-December 31, 2006        992,600  $75.26 (Swap)
    January 1-December 31, 2007   1,331,200  $63.38 - $89.4 (Costless Collar)
    January 1-December 31, 2008   1,080,020  $61.63 - $86.80 (Costless Collar)


    OPERATING AND GENERAL & ADMINISTRATIVE EXPENSES

Lease Operating Expenses: Lease operating expenses (including severance, ad valorem taxes and workover expenses) for the first quarter 2006 were $13.2 million compared to $6.2 million in the first quarter 2005. The increase primarily was caused by consolidation of the Forest assets and increased costs attributable to the addition of new productive wells at Mariner's West Texas fields. On a per unit basis, lease operating costs rose to $1.25/Mcfe in the first quarter 2006 from $0.74/Mcfe in the first quarter 2005. Continued shut- in production from the impact of the 2005 hurricanes contributed to the increased per unit operating costs.

General & Administrative Expenses: General and administrative ("G&A") expenses totaled $10.5 million in the first quarter 2006 compared to $5.2 million in the first quarter 2005. Reported G&A expenses are net of $1.8 million and $1.0 million of overhead reimbursements billed or received from other working interest owners in the first quarter 2006 and the first quarter 2005, respectively. The first quarter 2006 includes $6.4 million of stock compensation expense which primarily resulted from the amortization of the cost of restricted stock granted at the closing of Mariner's private equity placement in March 2005 in consideration of past performance, compared to $1.3 million of similar expenses in the first quarter 2005. Salaries and wages in the first quarter 2006 increased by $2.6 million compared to the first quarter of 2005 as a result of increased staffing, partially related to the Forest Transaction. The first quarter 2005 also included $2.3 million in payments to Mariner's former stockholders to terminate a services agreement.

NET INCOME AND EARNINGS PER SHARE

First quarter 2006 net income was $11.1 million compared to $17.8 million for the first quarter 2005. The decrease in net income from the first quarter 2005 is primarily due to increased depreciation, depletion, and amortization and net interest expense resulting from the Forest Transaction, and increased stock compensation expense, offset by higher operating revenues.

Basic and fully diluted earnings per share for first quarter 2006 was $0.22 and $0.21, respectively, compared to $0.58 for each measure in the first quarter 2005.

CASH FLOWS FROM OPERATIONS AND EBITDA

Net cash flows from operations for the first quarter 2006 were $66.5 million compared to $49.0 million for the first quarter 2005. Capital expenditures in the first quarter 2006 totaled $101.2 million compared to $42.1 million in the first quarter 2005.

EBITDA for the first quarter 2006 was $55.8 million compared to $43.5 million for the first quarter 2005. EBITDA for the first quarter 2006 and 2005 includes charges of $6.4 million and $1.3 million for non-cash stock compensation expense, respectively.

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