Mariner Energy Sees Increase in 3Q06 Numbers



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

Production, revenues and net income for the third quarter 2006 increased significantly from results reported a year ago primarily as a result of consolidation of assets acquired in the merger transaction with Forest Oil Corporation that closed March 2, 2006.

-- Production totaled 22.7 billion cubic feet gas equivalent (Bcfe) for the third quarter 2006, an increase of 274% from the third quarter 2005.

-- Revenues totaled $190.5 million for the third quarter 2006, an increase of 336% from the third quarter 2005.

-- Net income totaled $36.4 million for the third quarter 2006, an increase of 424% from the third quarter 2005.

-- Basic and diluted earnings per share (EPS) for the third quarter 2006 were each $0.43. This compares to $0.21 basic EPS and $0.20 diluted EPS in the third quarter 2005.

Following is more detailed information regarding Mariner's third quarter 2006 operational and financial results. Operating results include consolidation of the Forest assets beginning March 2, 2006.

OPERATIONAL UPDATE

    Offshore -- Mariner drilled six offshore wells in the third quarter 2006,
all of which were successful. Information regarding the six successful wells
is shown below:

Expected date Working Water of Initial Well Name Operator Interest Depth (Ft) Production Location GB 195 #1 (Zloty) Mariner 70% 686 feet TBD Shelf GB 244#2ST3 (Cottonwood) Petrobras 20% 2,119 feet 1st Quarter 2007 Deepwater EI 337 A10 (Mercury) Devon 17% 268 feet 1st Quarter 2007 Shelf HI 116 #5ST1 Mariner 100% 43 feet 4th Quarter 2006 Shelf HI 46#1 ST1 (Green Pepper) Mariner 31.5% 28 feet 1st Quarter 2007 Shelf WC 132 #1 (Five Forks) El Paso 20% 36 feet TBD Shelf

Mariner has been successful in 17 of the 22 offshore wells drilled from January 1, 2006 through September 30, 2006. As of September 30, 2006, three offshore wells were drilling.

MMS Update -- Mariner has been awarded all six blocks on which it was the high bidder in the Minerals Management Service (MMS) OCS Oil and Gas Lease Sale 198 held on August 16, 2006. Our cost for the approximately 25,000 net acres covered by the six blocks is approximately $4.4 million.

Onshore -- In the third quarter of 2006, Mariner drilled 44 development wells in West Texas, all of which were successful. Mariner currently has five rigs operating on its West Texas properties.

PRODUCTION

Production for the third quarter 2006 averaged 247 MMcfe/d, totaling 22.7 Bcfe, compared to average daily production of 66 MMcfe/d for the third quarter 2005, which totaled 6.1 Bcfe. Production in the Gulf of Mexico for the third quarter 2006 totaled 20.3 Bcfe, an increase of 369% over the comparable period in 2005. Onshore production for the third quarter 2006 totaled 2.3 Bcfe, an increase of 35% over the comparable period in 2005. Natural gas production comprised 73% of Mariner's total production for the third quarter 2006.

The increased Gulf of Mexico production levels in the third quarter 2006 resulted primarily from the acquisition of the Forest assets. Approximately 12 MMcfe per day of production remains shut-in awaiting repairs to pipelines, facilities, terminals, and host facilities. Most of the deferred production is expected to recommence by the end of the year and the balance in 2007, except for an immaterial amount of production which is not expected to recommence.

REVENUES AND PRICING

Total revenues for the third quarter 2006 increased 336% over the comparable period in 2005 to $190.5 million. Natural gas revenues comprised 66% of total revenues for the third quarter 2006.

Natural gas prices (excluding the effects of hedging) for the third quarter 2006 averaged $6.92 per thousand cubic feet (/Mcf), compared to $8.67/Mcf for the third quarter 2005. Oil prices (excluding the effects of hedging) for the third quarter 2006 averaged $63.54 per barrel (/Bbl), compared to $60.33/Bbl for the third quarter 2005. The impact of hedges during the third quarter 2006 increased average natural gas pricing by $0.68/Mcf to $7.60/Mcf and reduced average oil pricing by $0.86/Bbl to $62.68/Bbl, resulting in a net hedging gain of $10.4 million.

HEDGING ACTIVITY

During the third quarter of 2006, Mariner entered into the following hedging transactions:

    Fixed Price Swaps                         Quantity     Fixed Price
    Crude Oil (Bbls)
      October 1 - December 31, 2006            260,360        $72.35

    Natural Gas (MMbtus)
      October 1 - December 31, 2006          5,451,000        $ 9.16
      January 1, 2007 - December 31, 2007   12,156,323          9.79
      January 1, 2008 - September 30, 2008   3,059,689          9.58

    Costless Collars                         Quantity     Floor      Cap
    Crude Oil (Bbls)
      January 1-December 31, 2007            498,914     $62.00    $88.40
      January 1-December 31, 2008            115,475      62.00     86.85

    To date, no additional hedges have been entered into.

OPERATING AND GENERAL & ADMINISTRATIVE EXPENSES

Lease Operating Expenses -- Lease operating expenses (including workover expenses) for the third quarter 2006 were $28.7 million, compared to $5.9 million in the third quarter 2005. The increase was primarily attributable to the acquisition of the Forest assets and increased costs attributable to the addition of new productive wells onshore. On a per-unit basis, average lease operating costs rose to $1.27/Mcfe in the third quarter 2006 from an average of $0.97/Mcfe in the third quarter 2005. Continued shut-in production from the impact of the 2005 hurricanes contributed to the increased per-unit operating costs.

Severance and Ad Valorem Taxes -- Severance and ad valorem taxes were $2.3 million in the third quarter 2006, compared to $1.1 million in the third quarter 2005. The increase was primarily attributable to the acquisition of the Forest assets and the resulting increased production. On a per-unit basis, average severance and ad valorem taxes decreased to $0.10/Mcfe in the third quarter 2006 from an average of $0.18 in third quarter 2005.

General & Administrative Expenses -- General and administrative ("G&A") expenses totaled $7.6 million in the third quarter 2006, compared to $11.3 million in the third quarter 2005. For the third quarter 2006, G&A expense includes charges for stock compensation expense of $1.1 million, compared to $8.1 million in the third quarter 2005.

G&A expense for the third quarter 2006 includes approximately $0.1 million for severance, retention, relocation, and transition costs related to the Forest transaction. Salaries and wages in the third quarter 2006 increased compared to third quarter 2005 primarily as a result of staffing additions related to the Forest transaction.

G&A expenses in the third quarter 2006 are net of $4.4 million of overhead reimbursements billed or received from other working interest owners, compared to $0.7 million of similar reimbursements for the third quarter 2005.

NET INCOME AND EARNINGS PER SHARE

Net income for the third quarter 2006 was $36.4 million compared to $6.9 million for the third quarter 2005. Basic and diluted EPS for the third quarter 2006 were $0.43 for each measure compared to $0.21 basic EPS and $0.20 diluted EPS in the third quarter 2005.

EBITDA

Earnings before interest, tax, depreciation, depletion, amortization, and impairments (EBITDA) for the third quarter 2006 was $150.1 million compared to $25.2 million for the third quarter 2005. EBITDA for third quarter 2006 and 2005 includes charges of $1.1 million and $8.1 million, respectively, for non-cash stock compensation expense. A definition and reconciliation of EBITDA can be found in the table below titled "EBITDA RECONCILIATION".

Capital expenditures for the third quarter 2006 totaled $240.1 million compared to $50.9 million for the third quarter 2005.

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