Mariner Energy Issues Q2 Results, Operational Update
Production, revenues and net income for the second 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 Corp. that closed March 2, 2006.
--Production totaled 21.3 billion cubic feet gas equivalent (Bcfe) for the second quarter 2006, an increase of 161% from the second quarter 2005. --Revenues totaled $167.7 million for the second quarter 2006, an increase of 224% from the second quarter 2005. --Net income totaled $30.7 million for the second quarter 2006, an increase of 183% from the second quarter 2005. --Basic and diluted earnings per share (EPS) for the second quarter 2006 were each $0.36. This compares to $0.33 basic EPS and $0.32 diluted EPS in the second quarter 2005.
More detailed information regarding Mariner's second quarter 2006 operational and financial results follows. Operating results include consolidation of the Forest assets beginning March 2, 2006.
Offshore--Mariner drilled seven offshore exploratory wells in the second quarter 2006 with four successes. Information regarding the four successful wells is shown below:
Well Working Water Expected Date of Location Operator Interest Depth(Ft) Initial Production NW Nansen (EB 602 #12) Kerr McGee 33% 3,507 feet 2007 Deep Water NW Nansen (EB 558 - 2) Kerr McGee 50% 3,475 feet 2007 Deep Water King of the Hill (HI 131) Woodside 25% 50 feet 3rd Qtr 2006 Deep Shelf Capricorn (HI A341-B2) Mariner 60% 240 feet 3rd Qtr 2006 Shelf
As previously reported, Mariner commenced production at its Green Canyon 473 (King Kong) discovery well in the second quarter at a rate of approximately 35 million cubic feet gas equivalent per day (MMcfe/d). The exploratory well at Green Canyon 472 reached total depth in the second quarter and was not successful.
With these recent results, Mariner has been successful in ten of the fifteen offshore wells drilled from January 1, 2006 through June 30, 2006. Subsequent to June 30, 2006, Mariner drilled a successful shelf development well at Main Pass 166, which it operates with a 100% working interest, and is participating in the drilling of seven offshore wells in various stages of progress.
In addition, Mariner has been awarded nine of the ten blocks on which it was the high bidder in the Minerals Management Service (MMS) OCS Oil and Gas Lease Sale 198 held on March 15, 2006 with a net cost exposure of approximately $16.5 million. Two of the blocks are located in deepwater areas of the Gulf (depths greater than 400 meters). The remaining Mariner bid was subject to a MMS minimum bid threshold and was not awarded.
Onshore-- the second quarter of 2006, Mariner drilled 34 development wells in West Texas, all of which were successful. Mariner currently has five rigs operating on its West Texas properties.
Production for the second quarter 2006 averaged 234 MMcfe/d, totaling 21.3 Bcfe, compared to average daily production of 90 MMcfe/d for the second quarter 2005, which totaled 8.2 Bcfe. Production in the Gulf of Mexico for the second quarter 2006 totaled 18.9 Bcfe, an increase of 189% compared to the comparable period in 2005. Onshore production for the second quarter 2006 totaled 2.4 Bcfe, an increase of 48% compared to the comparable period in 2005. Natural gas production comprised 74% of Mariner's total production for the second quarter 2006. The total daily production as of June 30, 2006 was approximately 245 MMcfe/d.
The increased Gulf of Mexico production levels in the second quarter 2006 resulted primarily from the acquisition of the Forest assets. Approximately 43 MMcfe per day of production (of which approximately 23 MMcfe per day is associated with the Forest assets) remains shut-in awaiting repairs to pipelines, facilities, terminals, and host facilities. Most of the deferred production is expected to recommence in the third quarter 2006.
REVENUES AND PRICING
Total revenues for the second quarter 2006 increased 224% over the comparable period in 2005 to $167.7 million. Natural gas revenues comprised 66% of total revenues for the second quarter 2006.
Natural gas prices (excluding the effects of hedging) for the second quarter 2006 averaged $6.78 per thousand cubic feet (/Mcf), compared to $6.86/Mcf for the second quarter 2005. Oil prices (excluding the effects of hedging) for the second quarter 2006 averaged $63.69 per barrel (/Bbl), compared to $46.63/Bbl for the second quarter 2005. The impact of hedges during the second quarter 2006 increased average natural gas pricing by $0.23/Mcf to $7.01/Mcf and reduced average oil pricing by $2.75/Bbl to $60.94/Bbl, resulting in a net hedging gain of $1.1 million.
Commodity hedges were placed in the second quarter as reported in Mariner's Form 10-Q for the period ended March 31, 2006. As of August 7, 2006, no commodity hedges have been placed subsequent to those previously reported.
OPERATING AND GENERAL & ADMINISTRATIVE EXPENSES
Lease Operating Expenses:
Lease operating expenses (including severance, ad valorem taxes and workover expenses) for the second quarter 2006 were $24.4 million, compared to $7.0 million in the second 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 $1.15/Mcfe in the second quarter 2006 from an average of $0.86/Mcfe in the second 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 $7.0 million in the second quarter 2006, compared to $10.2 million in the second quarter 2005.
For the second quarter 2006, G&A expense includes charges for stock compensation expense of $1.5 million, compared to $8.2 million in the second quarter 2005. For the second quarter 2006 and 2005, an expense of $0.7 million and $7.9 million, respectively, resulted from amortization of the cost of restricted stock granted at the closing of Mariner's private equity placement in March 2005. The stock has fully vested, and there will be no future charges related to those stock grants. New restricted stock grants were made in the second quarter 2006 with vesting periods of three to four years.
G&A expense for the second quarter 2006 includes approximately $2.2 million for severance, retention, relocation, and transition costs related to the Forest transaction. Salaries and wages in the second quarter 2006 increased compared to second quarter 2005 primarily as a result of staffing additions related to the Forest transaction.
G&A expenses in the second quarter 2006 are net of $6.0 million of overhead reimbursements billed or received from other working interest owners, compared to $1.4 million of similar reimbursements for the second quarter 2005.
NET INCOME AND EARNINGS PER SHARE
Net income for the second quarter 2006 was $30.7 million compared to $10.8 million for the second quarter 2005. Basic and diluted EPS for the second quarter 2006 were $0.36 for each measure compared to $0.33 basic EPS and $0.32 diluted EPS in the second quarter 2005.
Earnings before interest, tax, depreciation, depletion, amortization, and impairments (EBITDA) for the second quarter 2006 was $134.8 million compared to $34.0 million for the second quarter 2005. EBITDA for second quarter 2006 and 2005 includes charges of $1.5 million and $8.2 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 second quarter 2006 totaled $171.7 million compared to $37.4 million for the second quarter 2005.
Mariner Energy, Inc. is an independent oil and gas exploration, development and production company with principal operations in the Gulf of Mexico and West Texas.