e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
OR
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o |
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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)
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Delaware
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86-0460233 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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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
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
As of May 5, 2009, there were 89,966,286 shares issued and outstanding of the issuers common
stock, par value $0.0001 per share.
PART I
Item 1. Unaudited Condensed Consolidated Financial Statements
MARINER ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
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March 31, |
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December 31, |
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2009 |
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2008 |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
7,339 |
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$ |
3,251 |
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Receivables, net of allowances of $7,182 and $3,868 as of
March 31, 2009 and December 31, 2008, respectively |
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210,454 |
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219,920 |
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Insurance receivables |
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16,148 |
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13,123 |
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Derivative financial instruments |
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149,224 |
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121,929 |
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Intangible assets |
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1,805 |
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2,353 |
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Prepaid expenses and other |
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27,452 |
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14,377 |
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Total current assets |
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412,422 |
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374,953 |
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Property and Equipment: |
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Proved oil and gas properties, full-cost method |
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4,634,723 |
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4,448,146 |
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Unproved properties, not subject to amortization |
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192,738 |
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201,121 |
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Total oil and gas properties |
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4,827,461 |
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4,649,267 |
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Other property and equipment |
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53,612 |
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53,115 |
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Accumulated depreciation, depletion and amortization: |
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Proved oil and gas properties |
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(2,557,169 |
) |
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(1,767,028 |
) |
Other property and equipment |
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(6,163 |
) |
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(5,477 |
) |
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Total accumulated depreciation, depletion and amortization |
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(2,563,332 |
) |
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(1,772,505 |
) |
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Total property and equipment, net |
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2,317,741 |
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2,929,877 |
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Insurance Receivables |
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23,781 |
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22,132 |
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Other Assets, net of amortization |
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65,897 |
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65,831 |
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TOTAL ASSETS |
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$ |
2,819,841 |
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$ |
3,392,793 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable |
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$ |
2,490 |
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$ |
3,837 |
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Accrued liabilities |
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91,689 |
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107,815 |
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Accrued capital costs |
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152,290 |
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195,833 |
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Deferred income tax |
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12,594 |
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23,148 |
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Abandonment liability |
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109,718 |
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82,364 |
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Accrued interest |
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21,284 |
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12,567 |
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Total current liabilities |
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390,065 |
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425,564 |
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Long-Term Liabilities: |
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Abandonment liability |
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327,548 |
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325,880 |
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Deferred income tax |
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108,876 |
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319,766 |
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Long-term debt |
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1,240,000 |
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1,170,000 |
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Other long-term liabilities |
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29,400 |
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31,263 |
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Total long-term liabilities |
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1,705,824 |
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1,846,909 |
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Commitments and Contingencies (see Note 8) |
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Stockholders Equity: |
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Preferred stock, $.0001 par value; 20,000,000 shares
authorized, no shares issued and outstanding at March
31, 2009 and December 31, 2008 |
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Common stock, $.0001 par value; 180,000,000 shares
authorized, 90,006,593 shares issued and outstanding at
March 31, 2009; 180,000,000 shares authorized,
88,846,073 shares issued and outstanding at December 31,
2008 |
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9 |
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9 |
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Additional paid-in capital |
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1,077,677 |
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1,071,347 |
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Accumulated other comprehensive income |
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99,601 |
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78,181 |
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Accumulated deficit |
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(453,335 |
) |
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(29,217 |
) |
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Total stockholders equity |
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723,952 |
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1,120,320 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
2,819,841 |
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$ |
3,392,793 |
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The accompanying notes are an integral part of these condensed consolidated financial statements
3
MARINER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands except share data)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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Revenues: |
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Natural gas |
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$ |
153,338 |
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$ |
179,623 |
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Oil |
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60,925 |
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113,614 |
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Natural gas liquids |
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6,469 |
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20,981 |
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Other revenues |
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22,604 |
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1,679 |
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Total revenues |
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243,336 |
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315,897 |
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Costs and Expenses: |
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Lease operating expense |
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53,399 |
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45,647 |
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Severance and ad valorem taxes |
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3,532 |
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4,610 |
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Transportation expense |
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4,584 |
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3,019 |
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General and administrative expense |
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17,411 |
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11,111 |
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Depreciation, depletion and amortization |
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94,805 |
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|
119,318 |
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Full cost ceiling test impairment |
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704,731 |
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Other miscellaneous expense |
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8,009 |
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|
537 |
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Total costs and expenses |
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886,471 |
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184,242 |
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OPERATING (LOSS) INCOME |
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(643,135 |
) |
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131,655 |
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Other Income (Expense): |
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Interest income |
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85 |
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|
326 |
|
Interest expense, net of amounts capitalized |
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(14,402 |
) |
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(18,571 |
) |
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(Loss) Income Before Taxes |
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(657,452 |
) |
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113,410 |
|
Benefit (Provision) for Income Taxes |
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233,334 |
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(41,194 |
) |
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Net (Loss) Income |
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|
(424,118 |
) |
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|
72,216 |
|
Less: Net income attributable to noncontrolling interest |
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90 |
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NET (LOSS) INCOME ATTRIBUTABLE TO MARINER ENERGY, INC. |
|
$ |
(424,118 |
) |
|
$ |
72,126 |
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Net (Loss) Income per share attributable to Mariner Energy, Inc.: |
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Basic |
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$ |
(4.77 |
) |
|
$ |
0.83 |
|
Diluted |
|
$ |
(4.77 |
) |
|
$ |
0.82 |
|
Weighted average shares outstanding: |
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|
|
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Basic |
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|
88,864,648 |
|
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|
87,293,730 |
|
Diluted |
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|
88,864,648 |
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|
88,012,901 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
4
MARINER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited)
(In thousands)
For the three months ended March 31, 2009 and 2008
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Accumulated |
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Other |
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Additional |
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Comprehensive |
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Total |
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Common |
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Stock |
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Paid-In- |
|
|
Income/ |
|
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Accumulated |
|
|
Stockholders |
|
|
|
Stock |
|
|
Amount |
|
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Capital |
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|
(Loss) |
|
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Deficit |
|
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Equity |
|
Balance at December 31, 2008 |
|
|
88,846 |
|
|
$ |
9 |
|
|
$ |
1,071,347 |
|
|
$ |
78,181 |
|
|
$ |
(29,217 |
) |
|
$ |
1,120,320 |
|
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|
|
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|
|
|
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|
|
|
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Common shares issued
restricted stock |
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|
1,213 |
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Treasury stock bought and
cancelled on same day |
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(52 |
) |
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(448 |
) |
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|
|
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(448 |
) |
Forfeiture of restricted stock |
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Share-based compensation |
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|
|
|
|
|
|
|
|
|
6,778 |
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|
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|
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|
6,778 |
|
Stock options exercised |
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Comprehensive
income (loss): |
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
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Net income (loss) |
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|
|
|
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|
|
|
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|
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|
(424,118 |
) |
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|
(424,118 |
) |
Change in fair value of
derivative hedging instruments
net of income taxes of $(10,398) |
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(19,496 |
) |
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(19,496 |
) |
Hedge settlements reclassified
to income net of income taxes
of $22,885 |
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|
40,916 |
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|
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|
40,916 |
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|
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|
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|
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|
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Total comprehensive income (loss) |
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|
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|
|
|
|
|
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|
21,420 |
|
|
|
(424,118 |
) |
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|
(402,698 |
) |
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|
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|
Balance at March 31, 2009 |
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|
90,007 |
|
|
$ |
9 |
|
|
$ |
1,077,677 |
|
|
$ |
99,601 |
|
|
$ |
(453,335 |
) |
|
$ |
723,952 |
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Accumulated |
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Total |
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Other |
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Mariner |
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Additional |
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Comprehensive |
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Accumulated |
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|
Energy, Inc. |
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Total |
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Common |
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|
Stock |
|
|
Paid-In- |
|
|
Income/ |
|
|
Retained |
|
|
Stockholders |
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|
Noncontrolling |
|
|
Stockholders |
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|
|
Stock |
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|
Amount |
|
|
Capital |
|
|
(Loss) |
|
|
Earnings |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
Balance at December 31, 2007 |
|
|
87,229 |
|
|
$ |
9 |
|
|
$ |
1,054,089 |
|
|
$ |
(22,576 |
) |
|
$ |
359,496 |
|
|
$ |
1,391,018 |
|
|
$ |
1 |
|
|
$ |
1,391,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued
restricted stock |
|
|
549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Treasury stock bought and
cancelled on same day |
|
|
(13 |
) |
|
|
|
|
|
|
(366 |
) |
|
|
|
|
|
|
|
|
|
|
(366 |
) |
|
|
|
|
|
|
(366 |
) |
Forfeiture of restricted stock |
|
|
(7 |
) |
|
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|
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|
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|
|
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Share-based compensation |
|
|
|
|
|
|
|
|
|
|
2,625 |
|
|
|
|
|
|
|
|
|
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|
2,625 |
|
|
|
|
|
|
|
2,625 |
|
Stock options exercised |
|
|
52 |
|
|
|
|
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
691 |
|
|
|
|
|
|
|
691 |
|
Comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,126 |
|
|
|
72,126 |
|
|
|
90 |
|
|
|
72,216 |
|
Change in fair value of
derivative hedging instruments
net of income taxes of $45,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,089 |
) |
|
|
|
|
|
|
(81,089 |
) |
|
|
|
|
|
|
(81,089 |
) |
Hedge settlements reclassified
to income net of income taxes
of $5,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,164 |
) |
|
|
|
|
|
|
(9,164 |
) |
|
|
|
|
|
|
(9,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90,253 |
) |
|
|
72,126 |
|
|
|
(18,127 |
) |
|
|
90 |
|
|
|
(18,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
|
87,810 |
|
|
$ |
9 |
|
|
$ |
1,057,039 |
|
|
$ |
(112,829 |
) |
|
$ |
431,622 |
|
|
$ |
1,375,841 |
|
|
$ |
91 |
|
|
$ |
1,375,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements
5
MARINER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(424,118 |
) |
|
$ |
72,216 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Deferred income tax |
|
|
(233,334 |
) |
|
|
40,400 |
|
Depreciation, depletion and amortization |
|
|
94,805 |
|
|
|
119,318 |
|
Ineffectiveness of derivative instruments |
|
|
179 |
|
|
|
3,924 |
|
Full cost ceiling test impairment |
|
|
704,731 |
|
|
|
|
|
Share-based compensation |
|
|
6,778 |
|
|
|
2,625 |
|
Derivative financial instruments |
|
|
(3,591 |
) |
|
|
|
|
Allowance for doubtful accounts and other |
|
|
(2,450 |
) |
|
|
737 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
|
12,784 |
|
|
|
(50,020 |
) |
Insurance receivables |
|
|
(4,674 |
) |
|
|
|
|
Cash from liquidation of hedges |
|
|
10,024 |
|
|
|
|
|
Prepaid expenses and other |
|
|
(13,457 |
) |
|
|
(16,007 |
) |
Accounts payable and accrued liabilities |
|
|
(21,720 |
) |
|
|
40,978 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
125,957 |
|
|
|
214,171 |
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Acquisitions and additions to oil and gas properties |
|
|
(190,880 |
) |
|
|
(437,565 |
) |
Additions to other property and equipment |
|
|
(524 |
) |
|
|
(47,648 |
) |
Restricted cash designated for investment |
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(191,404 |
) |
|
|
(480,213 |
) |
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Credit facility borrowings |
|
|
140,000 |
|
|
|
412,000 |
|
Credit facility repayments |
|
|
(70,000 |
) |
|
|
(161,000 |
) |
Repurchase of stock |
|
|
(448 |
) |
|
|
(366 |
) |
Debt redetermination costs |
|
|
(17 |
) |
|
|
|
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
691 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
69,535 |
|
|
|
251,325 |
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
4,088 |
|
|
|
(14,717 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
3,251 |
|
|
|
18,589 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
7,339 |
|
|
$ |
3,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest (net of amount capitalized) |
|
$ |
6,836 |
|
|
$ |
3,757 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
6
MARINER ENERGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Summary of Significant Accounting Policies
Operations Mariner Energy, Inc. (Mariner or the Company) is an independent oil and gas
exploration, development and production company with principal operations in the Permian Basin and
in the Gulf of Mexico, both shelf and deepwater. Unless otherwise indicated, references to
Mariner, the Company, we, our, ours and us refer to Mariner Energy, Inc. and its
subsidiaries collectively.
Interim Financial Statements The accompanying unaudited condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and footnote disclosures normally included in financial
statements prepared in conformity with generally accepted accounting principles in the United
States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, all adjustments (consisting of a normal and recurring nature)
considered necessary for a fair presentation have been included. Operating results for interim
periods are not necessarily indicative of the results that may be expected for the entire year.
These unaudited condensed consolidated financial statements included herein should be read in
conjunction with the Financial Statements and Notes included in the Companys Annual Report on Form
10-K for the year ended December 31, 2008, as amended.
Use of Estimates The preparation of the condensed consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates
of the financial statements, and the reported amounts of revenues and expenses during the reporting
periods. The Companys most significant financial estimates are based on remaining proved natural
gas and oil reserves. Estimates of proved reserves are key components of Mariners depletion rate
for natural gas and oil properties, its unevaluated properties and its full cost ceiling test. In
addition, estimates are used in computing taxes, preparing accruals of operating costs and
production revenues, asset retirement obligations, fair value and effectiveness of derivative
instruments and fair value of stock options and the related compensation expense. Because of the
inherent nature of the estimation process, actual results could differ materially from these
estimates.
Principles of Consolidation Mariners condensed consolidated financial statements as of
March 31, 2009 and consolidated financial statements as of December 31, 2008 include its accounts
and the accounts of its subsidiaries. All inter-company balances and transactions have been
eliminated.
Reclassifications Certain prior period amounts have been reclassified to conform to current
year presentation. Amounts for producing well overhead were presented as General and
administrative expense in the Companys Condensed Consolidated Statements of Operations for the
three months ended March 31, 2008. These amounts are presented herein as Lease operating expense
for comparability to 2008 presentation. Other reclassifications are insignificant in nature. These
reclassifications had no effect on total operating income or net income.
Income Taxes The Companys provision for taxes includes both federal and state taxes. The
Company records its federal income taxes using an asset and liability approach which results in the
recognition of deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the book carrying amounts and the tax bases of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences and carryforwards are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount more likely
than not to be recovered.
There were no significant changes to the Companys uncertain tax positions during the three
months ended March 31, 2009. For a detail of the Companys uncertain tax positions, please refer to
Note 10 Income Taxes to the Companys Consolidated Financial Statements included in its Annual
Report on Form 10-K for the year ended December 31, 2008, as amended.
7
Recent Accounting Pronouncements In April 2009, the FASB issued three FASB Staff Positions
(FSPs) to provide additional application guidance and enhance disclosures regarding fair value
measurements and impairments of securities. FSP FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS No. 157. FSP FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments, enhances consistency in financial reporting
by increasing the frequency of fair value disclosures. FSP FAS 115-2 and FAS 124-2, Recognition
and Presentation of Other-Than-Temporary Impairments, provides additional guidance designed to
create greater clarity and consistency in accounting for and presenting impairment losses on
securities. These three FSPs are effective for interim and annual periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15, 2009. We adopted the
provisions of these FSPs for the period ending March 31, 2009. The adoption of these FSPs did not
have a material impact on the Companys financial position, cash
flows or results of operations.
On December 31, 2008, the SEC issued the final rule, Modernization of Oil and Gas Reporting
(Final Rule), which adopts revisions to the SECs oil and gas reporting disclosure requirements
and is effective for annual reports on Forms 10-K for years ending on or after December 31, 2009.
Early adoption of the Final Rule is prohibited. The revisions are intended to provide investors
with a more meaningful and comprehensive understanding of oil and gas reserves to help investors
evaluate their investments in oil and gas companies. The amendments are also designed to modernize
the oil and gas disclosure requirements to align them with current practices and changes in
technology. Revised requirements in the SECs Final Rule include, but are not limited to:
|
|
|
Oil and gas reserves must be reported using average prices over the prior 12 month
period, rather than year-end prices; |
|
|
|
|
Companies will be allowed to report, on an optional basis, probable and possible
reserves; |
|
|
|
|
Non-traditional reserves, such as oil and gas extracted from coal and shales, will
be included in the definition of oil and gas producing activities; |
|
|
|
|
Companies will be permitted to use new technologies to determine proved reserves, as
long as those technologies have been demonstrated empirically to lead to reliable
conclusions with respect to reserve volumes; |
|
|
|
|
Companies will be required to disclose, in narrative form, additional details on
their proved undeveloped reserves (PUDs), including the total quantity of PUDs at year
end, any material changes to PUDs that occurred during the year, investments and
progress made to convert PUDs to developed oil and gas reserves and an explanation of
the reasons why material concentrations of PUDs in individual fields or countries have
remained undeveloped for five years or more after disclosure as PUDs; |
|
|
|
|
Companies will be required to report the qualifications and measures taken to assure
the independence and objectivity of any business entity or employee primarily
responsible for preparing or auditing the reserves estimates. |
The Company is currently evaluating the potential impact of adopting the Final Rule. The SEC
is discussing the Final Rule with the FASB staff to align FASB accounting standards with the new
SEC rules. These discussions may delay the required compliance date. Absent any change in the
effective date, Mariner will begin complying with the disclosure requirements in its annual report
on Form 10-K for the year ended December 31, 2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of Accounting Research Bulletin No. 51 (SFAS 160), which
establishes accounting and reporting standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net income attributable to the parent and
to the noncontrolling interest, changes in a parents ownership interest and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also
establishes reporting requirements that provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the noncontrolling owners.
SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company adopted SFAS
160 beginning January 1, 2009. The adoption of this statement
did not have a material impact on the
Companys financial position, cash flows or results of operations. However, it did impact the presentation and
disclosure of noncontrolling (minority) interests in the Companys condensed consolidated financial
statements.
In September 2006, the FASB issued Statement of Financial Accounting Standard
(SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes
criteria to be considered when
8
measuring fair value and expands disclosures about fair value measurements. SFAS 157 is
effective for all recurring measures of financial assets and financial liabilities (e.g.
derivatives and investment securities) for fiscal years beginning after November 15, 2007. The
Company adopted the provisions of SFAS 157 for all recurring measures of financial assets and
liabilities on January 1, 2008. In February 2008, the FASB issued Staff Position No. 157-2,
"Effective Date of FASB Statement No. 157 (FSP 157-2), which granted a one-year deferral of the
effective date of SFAS 157 as it applies to non-financial assets and liabilities that are
recognized or disclosed at fair value on a nonrecurring basis (e.g. those measured at fair value in
a business combination and asset retirement obligations). Beginning January 1, 2009, Mariner
applied SFAS 157 to non-financial assets and liabilities. The adoption of SFAS 157 did not have a
material impact on the Companys financial position, cash flows or results of operations.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133 (SFAS 161). This statement requires
enhanced disclosures about the Companys derivative and hedging activities. This statement is
effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company adopted the disclosure requirements of SFAS 161 beginning January 1,
2009. See Note 7 Derivative Financial Instruments and Hedging Activities for additional
disclosures. The adoption of this statement did not have a material impact on the Companys financial
position, cash flows or results of operations.
2. Acquisitions and Dispositions
Gulf of Mexico Shelf Acquisition. On January 31, 2008, Mariner acquired 100% of the equity in
a subsidiary of Hydro Gulf of Mexico, Inc. pursuant to a Membership Interest Purchase Agreement
executed on December 23, 2007. The acquired subsidiary, now known as Mariner Gulf of Mexico LLC
(MGOM), was an indirect subsidiary of StatoilHydro ASA and owns substantially all of its former
Gulf of Mexico shelf operations. Mariner paid $228.8 million for the acquisition of MGOM.
Pro Forma Financial Information The pro forma information set forth below gives effect to
the acquisition of MGOM as if it had been consummated as of the beginning of the applicable period.
The pro forma information has been derived from the historical Consolidated Financial Statements of
the Company and the statements of revenues and direct operating expenses of MGOM. The pro forma
information is for illustrative purposes only. The financial results may have been different had
MGOM been an independent company and had the companies always been combined. You should not rely on
the pro forma financial information as being indicative of the historical results that would have
been achieved had the acquisition occurred in the past or the future financial results that the
Company will achieve after the acquisition.
|
|
|
|
|
|
|
For the Three Months |
|
|
Ended March 31, 2008 |
|
|
(In thousands, except per |
|
|
share amounts) |
Pro Forma: |
|
|
|
|
Revenue |
|
$ |
330,874 |
|
Net income available to common stockholders |
|
$ |
75,628 |
|
Basic earnings per share |
|
$ |
0.87 |
|
Diluted earnings per share |
|
$ |
0.86 |
|
Permian Basin Acquisitions. On February 29, 2008 and December 1, 2008, Mariner acquired
additional working interests in certain of its existing properties in the Spraberry field in the
Permian Basin. Mariner operates substantially all of the assets. The purchase prices were $23.5
million for the February 2008 acquisition and $19.4 million for the December 2008 acquisition,
subject to customary purchase price adjustments.
Bass Lite On December 19, 2008, Mariner acquired additional working interests in its
existing property, Atwater Valley Block 426 (Bass Lite), for approximately $30.6 million, subject
to customary purchase price adjustments, increasing its working interest by 11.6% to 53.8%. Mariner
internally estimated proved reserves attributable to the acquisition of approximately 17.6 Bcfe
(100% natural gas).
9
3. Long-Term Debt
As of March 31, 2009 and December 31, 2008 the Companys long-term debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Bank credit facility |
|
$ |
640,000 |
|
|
$ |
570,000 |
|
7 1/2% Senior Notes, due April 15, 2013 |
|
|
300,000 |
|
|
|
300,000 |
|
8% Senior Notes, due May 15, 2017 |
|
|
300,000 |
|
|
|
300,000 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
1,240,000 |
|
|
$ |
1,170,000 |
|
|
|
|
|
|
|
|
Bank Credit Facility The Company has a secured revolving credit facility with a group of
banks pursuant to an amended and restated credit agreement dated March 2, 2006, as further amended,
with the latest amendment made as of March 24, 2009. The credit facility matures January 31, 2012
and is subject to a borrowing base which is redetermined periodically. The outstanding principal
balance of loans under the credit facility may not exceed the borrowing base. Pursuant to the March
2009 amendment, the borrowing base was affirmed at $850.0 million. In addition, Mariner agreed to
initiate the next scheduled borrowing base determination process by July 31, 2009 and requested
that the amount of the next borrowing base be $800.0 million. The intended effects are to
accelerate the next borrowing base redetermination to August 2009 and require 100% lender approval
if the resulting borrowing base exceeds $800.0 million. The March 2009 amendment increased by 1.0%
the interest rate on outstanding borrowings and increased to 0.5% per annum the commitment fee on
unused capacity.
As of March 31, 2009, maximum credit availability under the facility was $1.0 billion,
including up to $50.0 million in letters of credit, subject to a borrowing base of $850.0 million.
As of March 31, 2009, there were $640.0 million in advances outstanding under the credit facility
and four letters of credit outstanding totaling $4.7 million, of which $4.2 million is required for
plugging and abandonment obligations at certain of the Companys offshore fields. As of March 31,
2009, after accounting for the $4.7 million of letters of credit, the Company had $205.3 million
available to borrow under the credit facility.
During the quarter ended March 31, 2009, the commitment fee on unused capacity was 0.250% to
0.375% per year through March 23, 2009 and 0.5% thereafter. Commitment fees are included in
Accrued interest in the Condensed Consolidated Balance Sheets in Item 1 of Part I of this
Quarterly Report. Borrowings under the bank credit facility bear interest at either a LIBOR-based
rate or a prime-based rate, at the Companys option, plus a specified margin. As of March 31, 2009,
the interest rate was 3.57%.
The credit facility subjects the Company to various restrictive covenants and contains other
usual and customary terms and conditions, including limits on additional debt, cash dividends and
other restricted payments, liens, investments, asset dispositions, mergers and speculative hedging.
Financial covenants under the credit facility require the Company to, among other things:
|
|
|
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. |
The Company was in compliance with the financial covenants under the bank credit facility as of
March 31, 2009.
The Companys payment and performance of its obligations under the credit facility (including
any obligations under commodity and interest rate hedges entered into with facility lenders) are
secured by liens upon substantially all of the assets of the Company and its subsidiaries, and
guaranteed by its subsidiaries, other than Mariner Energy Resources, Inc. which is a co-borrower.
Senior Notes In 2007, the Company sold and issued $300.0 million aggregate principal amount
of its 8% Senior Notes due 2017 (the 8% Notes). In 2006, the Company sold and issued $300.0
million aggregate principal amount of its 71/2% Senior Notes due 2013 (the
71/2% Notes and together with the 8% Notes, the Notes). The Notes are
senior unsecured obligations of the Company. The 8% Notes mature on May 15, 2017 with interest
payable on May 15 and November 15 of each year. The 71/2% Notes mature on
April 15, 2013 with interest payable
10
on April 15 and October 15 of each year. There is no sinking fund for the Notes. The Company
and its restricted subsidiaries are subject to certain financial and non-financial covenants under
each of the indentures governing the Notes. The Company was in
compliance with the financial covenants under the Notes as of
March 31, 2009.
Capitalized Interest For the three-month periods ended March 31, 2009 and 2008, capitalized
interest totaled $2.2 million and $0.2 million, respectively.
4. Oil and Gas Properties
The Companys oil and gas properties are accounted for using the full-cost method of
accounting. All direct costs and certain indirect costs associated with the acquisition,
exploration and development of oil and gas properties are capitalized, including eligible general
and administrative costs (G&A). G&A costs associated with production, operations, marketing and
general corporate activities are expensed as incurred. These capitalized costs, coupled with the
Companys estimated asset retirement obligations recorded in accordance with Statement of Financial
Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations (SFAS 143),
are included in the amortization base and amortized to expense using the unit-of-production method.
Amortization is calculated based on estimated proved oil and gas reserves. Proceeds from the sale
or disposition of oil and gas properties are applied to reduce net capitalized costs unless the
sale or disposition causes a significant change in the relationship between costs and the estimated
value of proved reserves. For the three-month periods ended March 31, 2009 and 2008, capitalized
G&A totaled $5.0 million and $4.6 million, respectively.
Capitalized costs (net of accumulated depreciation, depletion and amortization and deferred
income taxes) of proved oil and gas properties are subject to a full-cost ceiling limitation. The
ceiling limits these costs to an amount equal to the present value, discounted at 10%, of estimated
future net cash flows from estimated proved reserves less estimated future operating and
development costs, abandonment costs (net of salvage value) and estimated related future income
taxes. The full-cost ceiling limitation is calculated using natural gas and oil prices in effect as
of the balance sheet date and is adjusted for basis or location differentials. Price is held
constant over the life of the reserves. The Company uses derivative financial instruments that
qualify for cash flow hedge accounting under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, (SFAS 133) to hedge against the volatility of oil and natural gas
prices. In accordance with SEC guidelines, Mariner includes estimated future cash flows from its
hedging program in the ceiling test calculation. If net capitalized costs related to proved
properties exceed the ceiling limit, the excess is impaired and recorded in the Condensed
Consolidated Statement of Operations.
At March 31, 2009, the net capitalized cost of proved oil and gas properties exceeded the
ceiling limit and the Company recorded a non-cash ceiling test impairment of $704.7 million
($454.6 million, net of tax) for the first quarter. The impairment
would have been $808.0 million ($521.3 million, net of tax) if the Company had not used hedge adjusted prices for the volumes that were subject to
hedges. The ceiling limit of its proved reserves was calculated based upon quoted market prices of
$3.63 per Mcf for gas and $49.65 per barrel for oil, adjusted for market differentials for the
three-month period ended March 31, 2009. At March 31, 2008 the ceiling limit exceeded the net
capitalized costs of the Companys proved oil and gas properties and no impairment was recorded.
5. Accrual for Future Abandonment Liabilities
In accordance with SFAS 143, the Company records the fair value of a liability for the legal
obligation to retire an asset in the period in which it is incurred with the corresponding cost
capitalized by increasing the carrying amount of the related long-lived asset. Upon adoption of
SFAS 143, the Company recorded an asset retirement obligation to reflect the Companys legal
obligations related to future plugging and abandonment of its oil and natural gas wells. The
liability is accreted to its then present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. If the liability is settled for an amount
other than the recorded amount, the difference is recognized in proved oil and gas properties.
To estimate the fair value of an asset retirement obligation, the Company employs a present
value technique, which reflects certain assumptions, including its credit-adjusted risk-free
interest rate, the estimated settlement date of the liability and the estimated current cost to
settle the liability. Changes in timing or to the original estimate of cash flows will result in
changes to the carrying amount of the liability.
The following roll forward is provided as a reconciliation of the beginning and ending
aggregate carrying amounts of the asset retirement obligation:
11
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Abandonment liability as of January 1, 2009 (1) |
|
$ |
408,244 |
|
Liabilities incurred |
|
|
10,502 |
|
Liabilities settled |
|
|
(10,516 |
) |
Accretion expense |
|
|
8,708 |
|
Revisions to previous estimates |
|
|
20,328 |
|
|
|
|
|
Abandonment Liability as of March 31, 2009 (2) |
|
$ |
437,266 |
|
|
|
|
|
|
|
|
(1) |
|
Includes $82.4 million classified as a current liability at December 31, 2008. |
|
(2) |
|
Includes $109.7 million classified as a current liability at March 31, 2009. |
6. Share-Based Compensation
Mariner has a stockholder-approved Stock Incentive Plan, as amended and restated from time to
time (the Stock Incentive Plan), pursuant to which the Board of Directors (or a committee
thereof) can grant to Mariners directors and employees restricted shares of its common stock or
options to purchase common stock on terms determined in the Boards discretion. Restricted common
stock and option grants are outstanding under the Stock Incentive Plan. Options to purchase Mariner
common stock granted to certain employees in connection with a March 2006 merger transaction also
are outstanding but are not governed by the Stock Incentive Plan (Rollover Options).
The Company recorded total compensation expense related to restricted stock and stock options
of $6.8 million and $2.6 million for the three-month periods ended March 31, 2009 and 2008,
respectively. Under the Stock Incentive Plan, unrecognized compensation expense at March 31, 2009
for the unvested portion of restricted stock granted was $60.4 million and for unvested options was
$0.
The following table presents a summary of stock option activity under the Stock Incentive Plan
and under Rollover Options for the three months ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Aggregate Intrinsic |
|
|
|
|
|
|
|
Exercise |
|
|
Value (1) |
|
|
|
Shares |
|
|
Price |
|
|
(In thousands) |
|
Outstanding at January 1, 2009 |
|
|
645,348 |
|
|
$ |
13.88 |
|
|
$ |
(3,956 |
) |
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at March 31, 2009 |
|
|
645,348 |
|
|
$ |
13.88 |
|
|
$ |
(3,956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based upon the difference between the closing price per share
of the common stock on the New York Stock Exchange on the last trading
date of the quarter of $7.75 and the option exercise price of in-the-money options. |
A
summary of the activity for unvested restricted stock awards under
the Stock Incentive Plan as of March 31, 2009 and 2008,
respectively, and changes during the three-month periods is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted Shares under |
|
|
Stock Incentive Plan |
|
|
March 31, |
|
|
2009 |
|
2008 |
Total unvested shares at beginning of period: January 1 |
|
|
2,697,926 |
|
|
|
1,484,552 |
|
Shares granted (1) |
|
|
1,212,654 |
|
|
|
548,864 |
|
Shares vested |
|
|
(170,724 |
) |
|
|
(40,844 |
) |
Shares forfeited |
|
|
|
|
|
|
(6,708 |
) |
|
|
|
|
|
|
|
|
|
Total unvested shares at end of period: March 31 |
|
|
3,739,856 |
|
|
|
1,985,864 |
|
|
|
|
|
|
|
|
|
|
Available for future grant as options or restricted stock |
|
|
1,369,868 |
|
|
|
3,561,978 |
|
|
|
|
(1) |
|
Current year activity includes 4,741 shares granted under the Stock Incentive Plans 2008
Long-Term Performance-Based Restricted Stock Program discussed below during the three months
ended March 31, 2009. |
12
The following table summarizes the status under the provisions of SFAS 123(R) of the Companys
restricted stock, including long-term performance based restricted stock, at March 31, 2009 and the
changes during the quarter then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
Average |
|
|
|
Equity |
|
|
Weighted |
|
|
Intrinsic |
|
|
Remaining |
|
|
|
Instruments |
|
|
Average |
|
|
Value |
|
|
Contractual |
|
|
|
(thousands) |
|
|
Fair Value |
|
|
($ thousands) |
|
|
Life (Years) |
|
Unvested at January 1, 2009 |
|
|
2,697,926 |
|
|
$ |
28.22 |
|
|
$ |
76,127 |
|
|
|
|
|
Granted |
|
|
1,212,654 |
|
|
|
10.94 |
|
|
|
13,266 |
|
|
|
|
|
Vested |
|
|
(170,724 |
) |
|
|
25.69 |
|
|
|
(4,386 |
) |
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2009 |
|
|
3,739,856 |
|
|
|
22.73 |
|
|
$ |
85,007 |
|
|
|
6.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Performance-Based Restricted Stock Program In June 2008, Mariners Board of
Directors adopted a Long-Term Performance-Based Restricted Stock Program (the Program) under the
Stock Incentive Plan. Shares of restricted common stock subject to the Program were granted in 2008
and 2009. Vesting of these shares is contingent, begins upon satisfaction of specified thresholds
of $38.00 and $46.00 for the market price per share of Mariners common stock, and continues in
installments over five to seven years thereafter, assuming, in most instances, continued employment
by Mariner. The fair value of restricted stock grants made under the Program is estimated using a
Monte Carlo simulation. Stock-based compensation expense related to these restricted stock grants
totaled $2.9 million for the three months ended March 31, 2009.
Weighted average fair values and valuation assumptions used to value Program grants for the
quarter ended March 31, 2009 are as follows:
|
|
|
|
|
|
|
Quarter Ended |
|
|
March 31, |
|
|
2009 |
Weighted average fair value of grants |
|
$ |
33.73 |
|
Expected volatility |
|
|
42.29 |
% |
Risk-free interest rate |
|
|
4.57 |
% |
Dividend yield |
|
|
0.00 |
% |
Expected life |
|
10 years |
|
Expected volatility is calculated based on the average historical stock price volatility of
Mariner and a peer group as of March 31, 2009. The peer group consisted of the following seven
independent oil and gas exploration and production companies: ATP Oil & Gas Corporation, Callon
Petroleum Co., Energy Partners, Ltd., McMoRan Exploration Co., Plains Exploration & Production
Company, Stone Energy Corporation, and W&T Offshore, Inc. The risk-free interest rate is determined
at the grant date and is based on 10-year, zero-coupon government bonds with maturity equal to the
contractual term of the awards, converted to a continuously compounded rate. The expected life is
based upon the contractual terms of the restricted stock grants under the Program.
7. Derivative Financial Instruments and Hedging Activities
The energy markets historically have been very volatile, and Mariner expects oil and gas
prices will be subject to wide fluctuations in the future. In an effort to reduce the effects of
the volatility of the price of oil and natural gas on the Companys operations, management has
elected to hedge oil and natural gas prices from time to time through the use of commodity price
swap agreements and costless collars. While the use of these hedging arrangements limits the
downside risk of adverse price movements, it also limits future gains from favorable movements. In
addition, forward price curves and estimates of future volatility are used to assess and measure
the ineffectiveness of the Companys open contracts at the end of each period.
For derivative contracts that are designated and qualify as cash flow hedges pursuant to SFAS
133, the portion of the gain or loss on the derivative instrument that is effective in offsetting
the variable cash flows associated with the
13
hedged forecasted transaction is reported as a component of other comprehensive income and
reclassified into earnings in the same line item associated with the forecasted transaction in the
same period or periods during which the hedged transaction affects earnings (e.g., in revenues
when the hedged transactions are commodity sales). The remaining gain or loss on the derivative
contract in excess of the cumulative change in the present value of future cash flows of the hedged
item, if any (i.e., the ineffective portion) is recognized in earnings during the current period.
The Company currently does not exclude any component of the derivative contracts gain or loss from
the assessment of hedge effectiveness.
On January 29, 2009,
the Company liquidated crude oil fixed price swaps that previously had
been designated as cash flow hedges for accounting purposes in respect of 977,000 barrels of crude
oil in exchange for a cash payment to Mariner of $10.0 million and installment payments of
$13.5 million to be paid monthly to Mariner through 2009. Since the forecasted sales of crude oil
volumes are still expected to occur, the accumulated gains through January 29, 2009 on the related
derivative contracts remained in accumulated other comprehensive income, and will not be
reclassified into earnings until the physical transactions occur. Any changes in the value of these
derivative contracts subsequent to January 29, 2009 will no longer be deferred in other
comprehensive income, but rather will impact current period income.
Derivative gains and losses are recorded by commodity type in oil and gas revenues in the
Condensed Consolidated Statements of Operations. The effects on the Companys oil and gas revenues
from its hedging activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Cash Gain (Loss) on Settlements (1) |
|
$ |
57,457 |
|
|
$ |
(10,307 |
) |
Gains on
liquidated swaps (2) |
|
|
6,523 |
|
|
|
|
|
Loss on Hedge Ineffectiveness (3) |
|
|
(179 |
) |
|
|
(3,924 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
63,801 |
|
|
$ |
(14,231 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Designated as cash flow hedges pursuant to SFAS 133. |
|
(2) |
|
Crude oil fixed price swaps liquidated on January 29, 2009 that do not qualify for hedge
accounting. Includes $2.6 million, net of premium, related to
the $10.0 million cash liquidation, and $3.9 million, net
of discount, related to the $13.5 million installment
liquidation. |
|
(3) |
|
Unrealized loss recognized in natural gas revenue related to the ineffective portion of open
contracts that are not eligible for deferral under SFAS 133 due primarily to the basis
differentials between the contract price and the indexed price at the point of sale. |
As of March 31, 2009, the Company had the following hedge contracts outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Fair Value |
|
Fixed Price Swaps |
|
Quantity |
|
|
Fixed Price |
|
|
Asset |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Natural Gas (MMbtus) |
|
|
|
|
|
|
|
|
|
|
|
|
April 1December 31, 2009 |
|
|
36,923,804 |
|
|
$ |
7.57 |
|
|
$ |
121,718 |
|
Crude Oil (Bbls) |
|
|
|
|
|
|
|
|
|
|
|
|
April 1December 31, 2009 |
|
|
769,485 |
|
|
$ |
76.56 |
|
|
|
16,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
138,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has reviewed the financial strength of its counterparties and believes the credit
risk associated with these swaps to be minimal. Hedges with counterparties that are lenders under
the Companys bank credit facility are secured under the bank credit facility.
For derivative instruments that are not designated as a hedge for accounting purposes, all
realized and unrealized gains and losses are recognized in the statement of income during the
current period. This will result in non-cash gains or losses being reported in Mariners operating
results.
As of March 31, 2009, the Company expects to realize within the next 12 months approximately
$138.2 million in net gains resulting from hedging activities
and $17.5 million resulting from liquidated fixed price swaps that are currently recorded in
accumulated other comprehensive income. These hedging gains are expected to be realized as an
increase of $34.0 million to oil revenues and an increase of $121.7 million to natural gas
revenues.
14
As of May 5, 2009, we have entered into the following hedge transactions subsequent to March
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
Fixed Price Swaps |
|
Quantity |
|
Fixed Price |
Natural Gas (MMbtus) |
|
|
|
|
|
|
|
|
January 1December 31, 2010 |
|
|
12,775,000 |
|
|
$ |
5.84 |
|
January 1June 30, 2011 |
|
|
4,525,000 |
|
|
$ |
6.65 |
|
Crude Oil (Bbls) |
|
|
|
|
|
|
|
|
January 1December 31, 2010 |
|
|
1,277,500 |
|
|
$ |
62.28 |
|
January 1June 30, 2011 |
|
|
452,500 |
|
|
$ |
65.65 |
|
Additional Disclosures about Derivative Instruments and Hedging Activities
At March 31, 2009, the Company had derivative financial instruments under SFAS 133 recorded in
its balance sheet as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Contracts |
|
|
|
Asset Derivatives |
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Balance sheet |
|
|
|
|
|
Balance sheet |
|
|
|
|
|
Location |
|
Fair value |
|
|
Location |
|
Fair value |
|
|
|
|
|
|
Derivatives designated as cash flow hedging contracts under SFAS 133 |
|
|
|
|
Fixed Price Swaps
|
|
Current Assets: Derivative
Financial
Instruments
|
|
$ |
138.2 |
|
|
Current Assets: Derivative
Financial Instruments
|
|
$ |
121.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as cash flow hedging contracts under SFAS 133 |
|
|
|
|
Fixed Price Swaps
|
|
Current Assets: Derivative
Financial
Instruments
|
|
|
11.0 |
|
|
Current Assets: Derivative
Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$ |
149.2 |
|
|
|
|
$ |
121.9 |
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, the effect on income of derivative financial
instruments under SFAS 133 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
Location of |
|
Amount of gain/(loss) |
|
|
|
|
|
|
|
|
gain/(loss) |
|
|
gain/(loss) |
|
reclassified from |
|
|
|
|
Amount of (loss) |
|
Derivatives |
|
recognized in OCI |
|
|
reclassified from |
|
Accumulated OCI into |
|
|
|
|
recognized in income |
|
designated as cash |
|
on derivative |
|
|
Accumulated OCI |
|
income (effective |
|
|
Location of (loss) |
|
on derivative |
|
flow hedging |
|
(effective portion) |
|
|
into income |
|
portion) |
|
|
recognized in income |
|
(ineffective portion) |
|
contracts under |
|
First Quarter |
|
|
(effective |
|
First Quarter |
|
|
on derivative |
|
First Quarter |
|
SFAS 133 |
|
2009 |
|
|
2008 |
|
|
portion) |
|
2009 |
|
|
2008 |
|
|
(ineffective portion) |
|
2009 |
|
|
2008 |
|
Fixed Price Swaps
|
|
$ |
138.2 |
|
|
$ |
(163.1 |
) |
|
Revenues-Natural Gas
|
|
$ |
43,145 |
|
|
$ |
5,860 |
|
|
Revenues-Natural Gas
|
|
$ |
(179 |
) |
|
$ |
(3,924 |
) |
Fixed
Price Collars
|
|
|
|
|
|
|
(13.5 |
) |
|
Revenues-Crude Oil
|
|
|
14,312 |
|
|
|
(16,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
138.2 |
|
|
$ |
(176.6 |
) |
|
Total
|
|
$ |
57,457 |
|
|
$ |
(10,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain/(loss) recognized |
|
|
Location of gain/(loss) |
|
in income on derivative |
Derivatives not designated as cash flow hedging contracts |
|
recognized in income on |
|
First Quarter |
|
First Quarter |
under SFAS 133 |
|
derivative |
|
2009 |
|
2008 |
Fixed Price Swaps |
|
Revenues-Crude Oil |
|
$ |
6,523 |
|
|
|
|
|
15
8. Commitments and Contingencies
Minimum Future Lease Payments The Company leases certain office facilities and other
equipment under long-term operating lease arrangements. Minimum future lease obligations under the
Companys operating leases in effect at March 31, 2009 are as follows:
|
|
|
|
|
|
|
(In thousands) |
2010 |
|
$ |
2,532 |
|
2011 |
|
|
2,499 |
|
2012 |
|
|
2,414 |
|
2013 |
|
|
2,084 |
|
2014 and thereafter |
|
|
9,877 |
|
Other Commitments In the ordinary course of business, the Company enters into long-term
commitments to purchase seismic data. The minimum annual payments under these contracts are $0.7
million in 2010. At March 31, 2009, the Company also had a long-term commitment for contracted
drilling services for $183.9 million of which $59.4 million is due in 2010 regardless of whether the
Company uses the services.
Insurance Matters
Current Insurance Against Hurricanes
Mariner is a member of OIL Insurance, Ltd. (OIL), an energy industry insurance cooperative,
which provides the Companys primary layer of physical damage and windstorm insurance coverage.
Mariners coverage is subject to a $10.0 million per-occurrence deductible for its assets and a
$250.0 million per-occurrence loss limit. However, if a single event causes losses to all
OIL-insured assets in excess of $750.0 million, amounts covered for such losses will be reduced on
a pro-rata basis among OIL members.
In addition to Mariners primary coverage through OIL, it also maintains commercial
difference in conditions insurance that would apply (with no additional deductible) once its
limits with OIL are exhausted, as well as partial business interruption insurance covering certain
of its significant producing fields as well as certain other fields situated in hurricane prone
areas. Mariners business interruption coverage begins to provide benefits after a 60-day waiting
period once the designated field is shut-in due to a covered event and is limited to 35% of the
forecast cash flow from each designated property. Mariners commercial policy expires annually on
June 1, and is subject to a general limit of $100.0 million per occurrence and in the case of named
windstorms, a combined annual aggregate limit of $100.0 million covering both property damage and
business interruption.
As of March 31, 2009, approximately $36.0 million was accrued for an OIL premium contingency.
As part of its OIL membership, the Company is obligated to pay a withdrawal premium if it elects to
withdraw from OIL. Mariner does not anticipate withdrawing from OIL; however, due to the
contingency, OIL calculates a potential withdrawal premium annually based on past losses and
Mariner accrues a liability for the potential premium. OIL requires smaller members to provide a
letter of credit or other acceptable security in favor of OIL to secure payment of the withdrawal
premium. Acceptable security has included a letter of credit or a security agreement pursuant to
which a member grants OIL a security interest in certain claim proceeds payable by OIL to the
member. Mariner anticipates that it will enter into such a security agreement, granting to OIL a
security interest in a portion of Mariners Hurricane Ike claim proceeds payable by OIL. Mariner
would have the ability to replace the security agreement with a letter of credit or other
acceptable security in favor of OIL.
Hurricane Ike (2008)
In 2008, the Companys operations were adversely affected by Hurricane Ike. The hurricane
resulted in shut-in and delayed production as well as facility repairs and replacement expenses.
The Company estimates that repairs and plugging and abandonment costs resulting from Hurricane Ike
will total approximately $140.0 million net to Mariners interest. With
respect to Hurricane Ike, Mariners OIL coverage has a $10.0 million per occurrence deductible and
a $250.0 million per occurrence limit, subject to an industry-wide loss limit of $750.0 million per
occurrence. OIL has advised the Company that industry-wide damages from Hurricane Ike are expected to
substantially exceed OILs $750.0 million limit and that OIL expects to prorate the payout of all OIL
members Hurricane Ike claims at approximately 68%, subject to further adjustment. Mariner expects
that this shortfall in its primary coverage will be covered in full under its commercial excess
coverage.
16
Although Mariner expects to begin receiving payment in respect of its Hurricane Ike claims
in 2009, due to the magnitude of the storm and the complexity of the insurance claims being
processed by the insurance industry, Mariner expects to maintain a potentially significant
insurance receivable through 2010 while it actively pursues settlement of its Hurricane Ike claims
to minimize the impact to its working capital and liquidity.
Hurricanes Katrina and Rita (2005)
In 2005, the Companys operations were adversely affected by Hurricanes Katrina and Rita,
resulting in substantial shut-in and delayed production, as well as necessitating extensive
facility repairs and hurricane-related abandonment operations. Since 2005, the Company has incurred
approximately $194.6 million in hurricane expenditures resulting from Hurricanes Katrina and Rita,
of which $128.4 million were capitalized expenditures and $66.2 million were hurricane-related
abandonment costs.
Applicable insurance for the Companys Hurricane Katrina and Rita claims with respect to the
Gulf of Mexico assets acquired from Forest Oil Corporation in March 2006 is provided by OIL.
Mariners coverage for such properties is subject to a deductible of $5.0 million per occurrence
and a $1.0 billion industry-wide loss limit per occurrence. OIL has advised the Company that the
aggregate claims resulting from each of Hurricanes Katrina and Rita are expected to exceed the
$1.0 billion per occurrence loss limit and that therefore; Mariners insurance recovery is expected
to be reduced pro-rata (approximately 46% for Katrina and 64% for
Rita) with all other competing claims from the storms. During 2008, the Company
settled its Katrina and Rita claims with its excess insurers for a one-time cash payment of $48.5
million. The insurance coverage for Mariners legacy properties is subject to a $3.75 million
deductible.
As of March 31, 2009, the Company had recovered $14.6 million from OIL and $48.5 million from
its commercial carriers in respect of Hurricanes Katrina and Rita, and the insurance receivable
balance for the Companys claims for those hurricanes was approximately $25.5 million, of which
$16.1 million is classified as Insurance Receivables in Current
Assets in the Condensed Consolidated Balance Sheet.
Due to the magnitude of the storms and the complexity of the insurance claims being processed by
the insurance industry, the timing of the Companys ultimate insurance recovery cannot be assured.
However, Mariner expects to recover substantially all of its outstanding OIL claims in respect of
Hurricanes Katrina and Rita by 2010. Any differences between insurance recoveries and insurance
receivables will be recorded as adjustments to oil and natural gas properties.
Litigation The Company, in the ordinary course of business, is a claimant and/or a defendant
in various legal proceedings, including proceedings as to which the Company has insurance coverage
and those that may involve the filing of liens against the Company or its assets. The Company does
not consider its exposure in these proceedings, individually or in the aggregate, to be material.
Letters of Credit Mariners bank credit facility has a letter of credit subfacility of up to
$50 million that is included as a use of the borrowing base. As of March 31, 2009, four such
letters of credit totaling $4.7 million were outstanding of which $4.2 million is required for
plugging and abandonment obligations at certain of Mariners offshore fields.
9. Earnings per Share
Basic earnings per share does not include dilution and is computed by dividing net income or
loss attributed to common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflect the potential dilution that could occur upon
vesting of restricted common stock or exercise of options to purchase common stock.
17
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except per share data) |
|
Numerator: |
|
|
|
|
|
|
|
|
Net (Loss) Income |
|
$ |
(424,118 |
) |
|
$ |
72,216 |
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
88,865 |
|
|
|
87,294 |
|
Add dilutive securities |
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
260 |
|
Restricted stock |
|
|
|
|
|
|
459 |
|
|
|
|
|
|
|
|
Total weighted average shares outstanding and dilutive securities |
|
|
88,865 |
|
|
|
88,013 |
|
|
|
|
|
|
|
|
Net (Loss) Income per share: |
|
|
|
|
|
|
|
|
Basic: |
|
$ |
(4.77 |
) |
|
$ |
0.83 |
|
Diluted: |
|
$ |
(4.77 |
) |
|
$ |
0.82 |
|
Shares issuable upon exercise of options to purchase common stock and unvested shares of
restricted stock that would have been anti-dilutive are excluded from the computation of diluted
earnings per share. Due to the Companys net loss for the quarter ended March 31, 2009, all of the
Companys shares issuable upon exercise of stock options and unvested shares of restricted stock
(approximately 645,000 and 2,992,000, respectively) were excluded from the computation of diluted
earnings per share because the effect was anti-dilutive. For the three months ended March 31, 2008,
approximately 390,000 shares issuable upon exercise of stock options and 48,000 unvested shares of
restricted stock were excluded from the computation of diluted earnings per share because the
effect was anti-dilutive.
10. Comprehensive Income
Comprehensive income includes net income and certain items recorded directly to stockholders
equity and classified as other comprehensive income. The table below summarizes comprehensive
income and provides the components of the change in accumulated other comprehensive income for the
three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Net (Loss) Income |
|
$ |
(424,118 |
) |
|
$ |
72,216 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
Change in fair value of derivative hedging instruments, net of income taxes
of $(10,398) and $(45,111) |
|
|
(19,496 |
) |
|
|
(81,089 |
) |
Derivative contracts settled and reclassified, net of income taxes of $22,885
and $(5,067) |
|
|
40,916 |
|
|
|
(9,164 |
) |
|
|
|
|
|
|
|
Change in accumulated other comprehensive (loss) income |
|
|
21,420 |
|
|
|
(90,253 |
) |
|
|
|
|
|
|
|
Comprehensive loss |
|
|
(402,698 |
) |
|
|
(18,037 |
) |
Comprehensive income attributable to noncontrolling interest |
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Mariner Energy, Inc. |
|
$ |
(402,698 |
) |
|
$ |
(18,127 |
) |
|
|
|
|
|
|
|
11. Fair Value Measurement
Certain of Mariners assets and liabilities are reported at fair value in the accompanying
Condensed Consolidated Balance Sheets. Such assets and liabilities include amounts for both
financial and nonfinancial instruments. The carrying values of cash and cash equivalents, accounts
receivable and accounts payable (including income taxes payable and accrued expenses) approximated
fair value at March 31, 2009 and December 31, 2008. These assets and liabilities are not included
in the following tables.
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. As presented in the table below, the hierarchy consists of
three broad levels. Level 1 inputs on the hierarchy consist of unadjusted quoted prices in active
markets for identical assets and liabilities and have the highest priority. Level 2 inputs are
market-based and are directly or indirectly observable but not considered Level 1 quoted prices,
including quoted prices for similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; or valuation techniques whose inputs are
observable. Where observable
18
inputs are available, directly or indirectly, for substantially the full term of the asset or
liability, the instrument is categorized in Level 2. Level 3 inputs are unobservable (meaning they
reflect Mariners own assumptions regarding how market participants would price the asset or
liability based on the best available information) and therefore have the lowest priority. A
financial instruments level within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. Mariner believes it uses appropriate
valuation techniques based on the available inputs to measure the fair values of its assets and
liabilities.
SFAS 157 requires a credit adjustment for non-performance in calculating the fair value of
financial instruments. The credit adjustment for derivatives in an asset position is determined
based on the credit rating of the counterparty and the credit adjustment for derivatives in a
liability position is determined based on Mariners credit rating.
The following table provides fair value measurement information for the Companys derivative
financial instruments as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
|
other |
|
|
Significant |
|
|
|
|
|
|
|
in Active |
|
|
Observable |
|
|
Unobservable |
|
|
|
Total Fair |
|
|
Markets |
|
|
Inputs |
|
|
Inputs |
|
Derivative Financial Instruments |
|
Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(In thousands) |
|
Natural gas and crude oil fixed
price swaps Short Term |
|
$ |
149,224 |
|
|
$ |
|
|
|
$ |
149,224 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas and crude oil fixed
price swaps Long Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
149,224 |
|
|
$ |
|
|
|
$ |
149,224 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following methods and assumptions were used to estimate the fair values of Mariners
derivative financial instruments in the table above.
Level 2 Fair Value Measurements
The fair values of the natural gas and crude oil fixed price swaps are estimated using
internal discounted cash flow calculations based upon forward commodity price curves, terms of each
contract, and a credit adjustment based on the credit rating of the Company and its counterparties
as of March 31, 2009.
Level 3 Fair Value Measurements
The Company had no Level 3 financial instruments as of March 31, 2009.
12. Segment Information
The FASB issued SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information (SFAS 131), which establishes standards for reporting information about operating
segments. Operating segments are defined as components of an enterprise that engage in activities
from which it may earn revenues and incur expenses. Separate financial information is available and
this information is regularly evaluated by the chief decision maker for the purpose of allocating
resources and assessing performance.
The Company measures financial performance as a single enterprise, allocating capital
resources on a project-by-project basis across its entire asset base to maximize profitability.
Mariner utilizes a company-wide management team that administers all enterprise operations
encompassing the exploration, development and production of natural gas and oil. Since Mariner
follows the full cost method of accounting and all of its oil and gas properties and operations are
located in the United States, the Company has determined that it has one reporting unit. Inasmuch
as Mariner is one enterprise, the Company does not maintain comprehensive financial statement
information by area but does track basic operational data by area.
19
13. Supplemental Guarantor Information
On April 30, 2007, the Company sold and issued $300.0 million aggregate principal amount of
its 8% Notes. On April 24, 2006, the Company sold and issued to eligible purchasers $300.0 million
aggregate principal amount of its 71/2% Notes. The Notes are jointly and
severally guaranteed on a senior unsecured basis by the Companys existing and certain of its
future domestic subsidiaries (Subsidiary Guarantors). The guarantees are full and unconditional,
and the guarantors are wholly-owned. In the future, the guarantees may be released or terminated
under certain circumstances.
The following information sets forth Mariners Consolidating Balance Sheets as of March 31,
2009 and December 31, 2008, its Condensed Consolidating Statements of Operations for the three
months ended March 31, 2009 and 2008, and its Condensed Consolidating Statements of Cash Flows for
the three months ended March 31, 2009 and 2008.
Mariner accounts for investments in its subsidiaries using the equity method of accounting;
accordingly, entries necessary to consolidate Mariner, the parent company, and its Subsidiary
Guarantors are reflected in the eliminations column.
20
MARINER ENERGY, INC.
CONSOLIDATING BALANCE SHEET (Unaudited)
March 31, 2009
(In thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiary |
|
|
|
|
|
|
Mariner |
|
|
|
Company |
|
|
Guarantors |
|
|
Eliminations |
|
|
Energy, Inc. |
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7,339 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,339 |
|
Receivables, net of allowances |
|
|
156,802 |
|
|
|
53,652 |
|
|
|
|
|
|
|
210,454 |
|
Insurance receivables |
|
|
185 |
|
|
|
15,963 |
|
|
|
|
|
|
|
16,148 |
|
Derivative financial instruments |
|
|
149,224 |
|
|
|
|
|
|
|
|
|
|
|
149,224 |
|
Intangible assets |
|
|
1,737 |
|
|
|
68 |
|
|
|
|
|
|
|
1,805 |
|
Prepaid expenses and other |
|
|
25,899 |
|
|
|
1,553 |
|
|
|
|
|
|
|
27,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
341,186 |
|
|
|
71,236 |
|
|
|
|
|
|
|
412,422 |
|
Property and Equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved oil and gas properties, full-cost method |
|
|
2,268,384 |
|
|
|
2,366,339 |
|
|
|
|
|
|
|
4,634,723 |
|
Unproved properties, not subject to amortization |
|
|
178,971 |
|
|
|
13,767 |
|
|
|
|
|
|
|
192,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil and gas properties |
|
|
2,447,355 |
|
|
|
2,380,106 |
|
|
|
|
|
|
|
4,827,461 |
|
Other property and equipment |
|
|
33,847 |
|
|
|
19,765 |
|
|
|
|
|
|
|
53,612 |
|
Accumulated depreciation, depletion and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved oil and gas properties |
|
|
(1,305,219 |
) |
|
|
(1,251,950 |
) |
|
|
|
|
|
|
(2,557,169 |
) |
Other property and equipment |
|
|
(4,850 |
) |
|
|
(1,313 |
) |
|
|
|
|
|
|
(6,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated depreciation, depletion and
amortization |
|
|
(1,310,069 |
) |
|
|
(1,253,263 |
) |
|
|
|
|
|
|
(2,563,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
|
1,171,133 |
|
|
|
1,146,608 |
|
|
|
|
|
|
|
2,317,741 |
|
Investment in Subsidiaries |
|
|
461,031 |
|
|
|
|
|
|
|
(461,031 |
) |
|
|
|
|
Intercompany Receivables |
|
|
128,825 |
|
|
|
(133,427 |
) |
|
|
(262,252 |
) |
|
|
|
|
Intercompany Note Receivable |
|
|
176,200 |
|
|
|
|
|
|
|
(176,200 |
) |
|
|
|
|
Insurance Receivables |
|
|
124 |
|
|
|
23,657 |
|
|
|
|
|
|
|
23,781 |
|
Other Assets, net of amortization |
|
|
65,275 |
|
|
|
622 |
|
|
|
|
|
|
|
65,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
2,343,774 |
|
|
$ |
1,375,550 |
|
|
$ |
(899,483 |
) |
|
$ |
2,819,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,490 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,490 |
|
Accrued liabilities |
|
|
58,637 |
|
|
|
33,052 |
|
|
|
|
|
|
|
91,689 |
|
Accrued capital costs |
|
|
97,231 |
|
|
|
55,059 |
|
|
|
|
|
|
|
152,290 |
|
Deferred income tax |
|
|
12,594 |
|
|
|
|
|
|
|
|
|
|
|
12,594 |
|
Abandonment liability |
|
|
20,870 |
|
|
|
88,848 |
|
|
|
|
|
|
|
109,718 |
|
Accrued interest |
|
|
21,284 |
|
|
|
|
|
|
|
|
|
|
|
21,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
213,106 |
|
|
|
176,959 |
|
|
|
|
|
|
|
390,065 |
|
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abandonment liability |
|
|
46,524 |
|
|
|
281,024 |
|
|
|
|
|
|
|
327,548 |
|
Deferred income tax |
|
|
(42,040 |
) |
|
|
150,916 |
|
|
|
|
|
|
|
108,876 |
|
Intercompany payable |
|
|
133,427 |
|
|
|
128,825 |
|
|
|
(262,252 |
) |
|
|
|
|
Long-term debt, |
|
|
1,240,000 |
|
|
|
|
|
|
|
|
|
|
|
1,240,000 |
|
Other long-term liabilities |
|
|
28,805 |
|
|
|
595 |
|
|
|
|
|
|
|
29,400 |
|
Intercompany note payable |
|
|
|
|
|
|
176,200 |
|
|
|
(176,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
1,406,716 |
|
|
|
737,560 |
|
|
|
(438,452 |
) |
|
|
1,705,824 |
|
Commitments and Contingencies (see Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value; 20,000,000 shares
authorized, no shares issued and outstanding at
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value; 180,000,000 shares
authorized, 90,006,593 shares issued and outstanding
at March 31, 2009 |
|
|
9 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
9 |
|
Additional paid-in capital |
|
|
1,077,677 |
|
|
|
886,142 |
|
|
|
(886,142 |
) |
|
|
1,077,677 |
|
Partner capital |
|
|
|
|
|
|
31,611 |
|
|
|
(31,611 |
) |
|
|
|
|
Accumulated other comprehensive income |
|
|
99,601 |
|
|
|
|
|
|
|
|
|
|
|
99,601 |
|
Accumulated deficit |
|
|
(453,335 |
) |
|
|
(456,727 |
) |
|
|
456,727 |
|
|
|
(453,335 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
723,952 |
|
|
|
461,031 |
|
|
|
(461,031 |
) |
|
|
723,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
2,343,774 |
|
|
$ |
1,375,550 |
|
|
$ |
(899,483 |
) |
|
$ |
2,819,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
MARINER ENERGY, INC.
CONSOLIDATING BALANCE SHEET (Unaudited)
December 31, 2008
(In thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiary |
|
|
|
|
|
|
Mariner |
|
|
|
Company |
|
|
Guarantors |
|
|
Eliminations |
|
|
Energy, Inc. |
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,851 |
|
|
$ |
400 |
|
|
$ |
|
|
|
$ |
3,251 |
|
Receivables, net of allowances |
|
|
157,362 |
|
|
|
62,558 |
|
|
|
|
|
|
|
219,920 |
|
Insurance receivables |
|
|
5,886 |
|
|
|
7,237 |
|
|
|
|
|
|
|
13,123 |
|
Derivative financial instruments |
|
|
121,929 |
|
|
|
|
|
|
|
|
|
|
|
121,929 |
|
Intangible assets |
|
|
2,334 |
|
|
|
19 |
|
|
|
|
|
|
|
2,353 |
|
Prepaid expenses and other |
|
|
12,923 |
|
|
|
1,454 |
|
|
|
|
|
|
|
14,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
303,285 |
|
|
|
71,668 |
|
|
|
|
|
|
|
374,953 |
|
Property and Equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved oil and gas properties, full-cost method |
|
|
2,181,238 |
|
|
|
2,266,908 |
|
|
|
|
|
|
|
4,448,146 |
|
Unproved properties, not subject to amortization |
|
|
185,012 |
|
|
|
16,109 |
|
|
|
|
|
|
|
201,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total oil and gas properties |
|
|
2,366,250 |
|
|
|
2,283,017 |
|
|
|
|
|
|
|
4,649,267 |
|
Other property and equipment |
|
|
33,351 |
|
|
|
19,764 |
|
|
|
|
|
|
|
53,115 |
|
Accumulated depreciation, depletion and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved oil and gas properties |
|
|
(911,462 |
) |
|
|
(855,566 |
) |
|
|
|
|
|
|
(1,767,028 |
) |
Other property and equipment |
|
|
(4,425 |
) |
|
|
(1,052 |
) |
|
|
|
|
|
|
(5,477 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated depreciation, depletion and
amortization |
|
|
(915,887 |
) |
|
|
(856,618 |
) |
|
|
|
|
|
|
(1,772,505 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
|
1,483,714 |
|
|
|
1,446,163 |
|
|
|
|
|
|
|
2,929,877 |
|
Investment in Subsidiaries |
|
|
704,971 |
|
|
|
|
|
|
|
(704,971 |
) |
|
|
|
|
Intercompany Receivables |
|
|
123,142 |
|
|
|
113,064 |
|
|
|
(236,206 |
) |
|
|
|
|
Intercompany Note Receivable |
|
|
176,200 |
|
|
|
|
|
|
|
(176,200 |
) |
|
|
|
|
Insurance Receivables |
|
|
3,924 |
|
|
|
18,208 |
|
|
|
|
|
|
|
22,132 |
|
Other Assets, net of amortization |
|
|
64,726 |
|
|
|
1,105 |
|
|
|
|
|
|
|
65,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
2,859,962 |
|
|
$ |
1,650,208 |
|
|
$ |
(1,117,377 |
) |
|
$ |
3,392,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
3,837 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,837 |
|
Accrued liabilities |
|
|
72,743 |
|
|
|
35,072 |
|
|
|
|
|
|
|
107,815 |
|
Accrued capital costs |
|
|
144,710 |
|
|
|
51,123 |
|
|
|
|
|
|
|
195,833 |
|
Deferred income tax |
|
|
23,148 |
|
|
|
|
|
|
|
|
|
|
|
23,148 |
|
Abandonment liability |
|
|
1,554 |
|
|
|
80,810 |
|
|
|
|
|
|
|
82,364 |
|
Accrued interest |
|
|
12,567 |
|
|
|
|
|
|
|
|
|
|
|
12,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
258,559 |
|
|
|
167,005 |
|
|
|
|
|
|
|
425,564 |
|
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abandonment liability |
|
|
56,920 |
|
|
|
268,960 |
|
|
|
|
|
|
|
325,880 |
|
Deferred income tax |
|
|
110,431 |
|
|
|
209,335 |
|
|
|
|
|
|
|
319,766 |
|
Intercompany payables |
|
|
113,064 |
|
|
|
123,142 |
|
|
|
(236,206 |
) |
|
|
|
|
Long-term debt |
|
|
1,170,000 |
|
|
|
|
|
|
|
|
|
|
|
1,170,000 |
|
Other long-term liabilities |
|
|
30,668 |
|
|
|
595 |
|
|
|
|
|
|
|
31,263 |
|
Intercompany note payable |
|
|
|
|
|
|
176,200 |
|
|
|
(176,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
1,481,083 |
|
|
|
778,232 |
|
|
|
(412,406 |
) |
|
|
1,846,909 |
|
Commitments and Contingencies (see Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value; 20,000,000 shares
authorized, no shares issued and outstanding at
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value; 180,000,000 shares
authorized, 88,846,073 shares issued and outstanding at
December 31, 2008 |
|
|
9 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
9 |
|
Additional paid-in-capital |
|
|
1,071,347 |
|
|
|
886,143 |
|
|
|
(886,143 |
) |
|
|
1,071,347 |
|
Partner capital |
|
|
|
|
|
|
30,646 |
|
|
|
(30,646 |
) |
|
|
|
|
Accumulated other comprehensive income |
|
|
78,181 |
|
|
|
|
|
|
|
|
|
|
|
78,181 |
|
Accumulated deficit |
|
|
(29,217 |
) |
|
|
(211,823 |
) |
|
|
211,823 |
|
|
|
(29,217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,120,320 |
|
|
|
704,971 |
|
|
|
(704,971 |
) |
|
|
1,120,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
2,859,962 |
|
|
$ |
1,650,208 |
|
|
$ |
(1,117,377 |
) |
|
$ |
3,392,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
MARINER ENERGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended March 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiary |
|
|
|
|
|
|
Mariner |
|
|
|
Company |
|
|
Guarantors |
|
|
Eliminations |
|
|
Energy, Inc. |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
103,451 |
|
|
$ |
49,887 |
|
|
$ |
|
|
|
$ |
153,338 |
|
Oil |
|
|
48,783 |
|
|
|
12,142 |
|
|
|
|
|
|
|
60,925 |
|
Natural gas liquids |
|
|
4,046 |
|
|
|
2,423 |
|
|
|
|
|
|
|
6,469 |
|
Other revenues |
|
|
4,960 |
|
|
|
17,644 |
|
|
|
|
|
|
|
22,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
161,240 |
|
|
|
82,096 |
|
|
|
|
|
|
|
243,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
34,540 |
|
|
|
26,975 |
|
|
|
|
|
|
|
61,515 |
|
General and administrative expense |
|
|
17,052 |
|
|
|
359 |
|
|
|
|
|
|
|
17,411 |
|
Depreciation, depletion and amortization |
|
|
51,743 |
|
|
|
43,062 |
|
|
|
|
|
|
|
94,805 |
|
Full cost ceiling test impairment |
|
|
342,595 |
|
|
|
362,136 |
|
|
|
|
|
|
|
704,731 |
|
Other miscellaneous expense |
|
|
7,438 |
|
|
|
571 |
|
|
|
|
|
|
|
8,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
453,368 |
|
|
|
433,103 |
|
|
|
|
|
|
|
886,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS |
|
|
(292,128 |
) |
|
|
(351,007 |
) |
|
|
|
|
|
|
(643,135 |
) |
(Loss) Earnings of Affiliates |
|
|
(244,904 |
) |
|
|
|
|
|
|
244,904 |
|
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
1,532 |
|
|
|
|
|
|
|
(1,447 |
) |
|
|
85 |
|
Interest expense, net of amounts capitalized |
|
|
(14,275 |
) |
|
|
(1,574 |
) |
|
|
1,447 |
|
|
|
(14,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Before Taxes |
|
|
(549,775 |
) |
|
|
(352,581 |
) |
|
|
244,904 |
|
|
|
(657,452 |
) |
Benefit for Income Taxes |
|
|
125,657 |
|
|
|
107,677 |
|
|
|
|
|
|
|
233,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(424,118 |
) |
|
$ |
(244,904 |
) |
|
$ |
244,904 |
|
|
$ |
(424,118 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
23
MARINER ENERGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended March 31, 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiary |
|
|
|
|
|
|
Mariner |
|
|
|
Company |
|
|
Guarantors |
|
|
Eliminations |
|
|
Energy, Inc. |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas |
|
$ |
85,533 |
|
|
$ |
94,090 |
|
|
$ |
|
|
|
$ |
179,623 |
|
Oil |
|
|
61,931 |
|
|
|
51,683 |
|
|
|
|
|
|
|
113,614 |
|
Natural gas liquids |
|
|
11,743 |
|
|
|
9,238 |
|
|
|
|
|
|
|
20,981 |
|
Other revenues |
|
|
334 |
|
|
|
1,345 |
|
|
|
|
|
|
|
1,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
159,541 |
|
|
|
156,356 |
|
|
|
|
|
|
|
315,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
21,518 |
|
|
|
31,758 |
|
|
|
|
|
|
|
53,276 |
|
General and administrative expense |
|
|
10,815 |
|
|
|
296 |
|
|
|
|
|
|
|
11,111 |
|
Depreciation, depletion and amortization |
|
|
60,155 |
|
|
|
59,163 |
|
|
|
|
|
|
|
119,318 |
|
Other miscellaneous expense |
|
|
521 |
|
|
|
16 |
|
|
|
|
|
|
|
537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
93,009 |
|
|
|
91,233 |
|
|
|
|
|
|
|
184,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
66,532 |
|
|
|
65,123 |
|
|
|
|
|
|
|
131,655 |
|
Earnings of Affiliates |
|
|
45,188 |
|
|
|
|
|
|
|
(45,188 |
) |
|
|
|
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
3,043 |
|
|
|
7 |
|
|
|
(2,724 |
) |
|
|
326 |
|
Interest expense, net of amounts capitalized |
|
|
(18,374 |
) |
|
|
(2,921 |
) |
|
|
2,724 |
|
|
|
(18,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Taxes |
|
|
96,389 |
|
|
|
62,209 |
|
|
|
(45,188 |
) |
|
|
113,410 |
|
Provision for Income Taxes |
|
|
(24,263 |
) |
|
|
(16,931 |
) |
|
|
|
|
|
|
(41,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
|
72,126 |
|
|
|
45,278 |
|
|
|
(45,188 |
) |
|
|
72,216 |
|
Less: Net income attributable to noncontrolling interest |
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO MARINER ENERGY, INC. |
|
$ |
72,126 |
|
|
$ |
45,188 |
|
|
$ |
(45,188 |
) |
|
$ |
72,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
MARINER ENERGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 2009
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiary |
|
|
Mariner |
|
|
|
Company |
|
|
Guarantors |
|
|
Energy, Inc. |
|
Net cash provided by operating activities |
|
$ |
(14,273 |
) |
|
$ |
140,230 |
|
|
$ |
125,957 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and additions to oil and gas properties |
|
|
(124,965 |
) |
|
|
(65,915 |
) |
|
|
(190,880 |
) |
Additions to other property and equipment |
|
|
(524 |
) |
|
|
|
|
|
|
(524 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(125,489 |
) |
|
|
(65,915 |
) |
|
|
(191,404 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Credit facility borrowings |
|
|
140,000 |
|
|
|
|
|
|
|
140,000 |
|
Credit facility repayments |
|
|
(70,000 |
) |
|
|
|
|
|
|
(70,000 |
) |
Other financing activities |
|
|
74,250 |
|
|
|
(74,715 |
) |
|
|
(465 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
144,250 |
|
|
|
(74,715 |
) |
|
|
69,535 |
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
4,488 |
|
|
|
(400 |
) |
|
|
4,088 |
|
Cash and Cash Equivalents at Beginning of Period |
|
|
2,851 |
|
|
|
400 |
|
|
|
3,251 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
7,339 |
|
|
$ |
|
|
|
$ |
7,339 |
|
|
|
|
|
|
|
|
|
|
|
25
MARINER ENERGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Parent |
|
|
Subsidiary |
|
|
Mariner |
|
|
|
Company |
|
|
Guarantors |
|
|
Energy, Inc. |
|
Net cash (used in) provided by operating activities |
|
$ |
89,222 |
|
|
$ |
124,949 |
|
|
$ |
214,171 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions and additions to oil and gas properties |
|
|
(176,853 |
) |
|
|
(260,712 |
) |
|
|
(437,565 |
) |
Additions to other property and equipment |
|
|
(347 |
) |
|
|
(47,301 |
) |
|
|
(47,648 |
) |
Restricted cash designated for investment |
|
|
|
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(177,200 |
) |
|
|
(303,013 |
) |
|
|
(480,213 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Credit facility borrowings |
|
|
412,000 |
|
|
|
|
|
|
|
412,000 |
|
Credit facility repayments |
|
|
(161,000 |
) |
|
|
|
|
|
|
(161,000 |
) |
Other financing activities |
|
|
(178,136 |
) |
|
|
178,461 |
|
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
72,864 |
|
|
|
178,461 |
|
|
|
251,325 |
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in Cash and Cash Equivalents |
|
|
(15,114 |
) |
|
|
397 |
|
|
|
(14,717 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
18,589 |
|
|
|
|
|
|
|
18,589 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
3,475 |
|
|
$ |
397 |
|
|
$ |
3,872 |
|
|
|
|
|
|
|
|
|
|
|
14. Subsequent Events
Subsequent to March 31, 2009, gas commodity prices have continued to decline from $3.63, which
was the gas price used to calculate the Companys ceiling test impairment for the first quarter
2009. Oil commodity prices have increased from $49.65 since March 31, 2009. If commodity prices
deteriorate further during the second quarter of 2009, the Company may be required to record a
ceiling test impairment which could be material to its financial position, cash flows and results of
operations. As of May 5, 2009, prices for natural gas and oil
were $3.47 and $53.83, respectively.
26
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist you in understanding our business and the
results of operations together with our present financial condition. This section should be read in
conjunction with our Condensed Consolidated Financial Statements and the accompanying notes
included in this Quarterly Report, as well as our Annual Report on Form 10-K for the fiscal year
ended December 31, 2008, as amended. For meanings of natural gas and oil terms used in the
Quarterly Report, please refer to Glossary of Oil and Natural Gas Terms under Business in Part
I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as
amended.
Forward-Looking Statements
Statements in our discussion may be forward-looking. These forward-looking statements involve
risks and uncertainties. We caution that a number of factors could cause future production,
revenues and expenses to differ materially from our expectations. Please see Risk Factors in Item
1A of Part II of this Quarterly Report regarding certain risk factors relating to us.
Overview
We are an independent oil and natural gas exploration, development and production company with
principal operations in the Permian Basin and the Gulf of Mexico. As of December 31, 2008,
approximately 70% of our total estimated proved reserves were classified as proved developed, with
approximately 45% of the total estimated proved reserves located in the Permian Basin, 20% in the
Gulf of Mexico deepwater and 35% on the Gulf of Mexico shelf.
Our revenues, profitability and future growth depend substantially on prevailing prices for
oil and natural gas and our ability to find, develop and acquire oil and gas reserves that are
economically recoverable while controlling and reducing costs. The energy markets historically have
been very volatile. Oil and natural gas prices increased to, and then declined significantly from,
historical highs in mid-2008 and may fluctuate and decline significantly in the future. Although we
attempt to mitigate the impact of price declines and provide for more predictable cash flows
through our hedging strategy, a substantial or extended decline in oil and natural gas prices or
poor drilling results could have a material adverse effect on our financial position, results of
operations, cash flows, quantities of natural gas and oil reserves that we can economically produce
and our access to capital. Conversely, the use of derivative instruments also can prevent us from
realizing the full benefit of upward price movements.
The recent worldwide financial and credit crisis has reduced the availability of liquidity and
credit to fund the continuation and expansion of industrial business operations worldwide. The
shortage of liquidity and credit combined with recent substantial losses in worldwide equity
markets could lead to an extended worldwide economic recession. A sustained recession or slowdown in economic
activity could further reduce worldwide demand for energy and result in lower oil and natural gas
prices, which could materially adversely affect our profitability and results of operations.
Acquisitions. On December 19, 2008, we acquired additional working interests in our existing
property, Atwater Valley Block 426 (Bass Lite), for approximately $30.6 million, subject to
customary purchase price adjustments, increasing our working interest by 11.6% to 53.8%.
On February 29, 2008, and December 1, 2008 we acquired additional working interests in certain
of our existing properties in the Spraberry field in the Permian Basin. We operate substantially
all of the assets. The purchase prices were $23.5 million for the February 2008 acquisition and
$19.4 million for the December 2008 acquisition, subject to customary purchase price adjustments.
On January 31, 2008, we acquired 100% of the equity in a subsidiary of Hydro Gulf of Mexico,
Inc. pursuant to a Membership Interest Purchase Agreement executed on December 23, 2007. The
acquired subsidiary, now known as Mariner Gulf of Mexico LLC (MGOM), was an indirect subsidiary
of StatoilHydro ASA and owns substantially all of its former Gulf of Mexico shelf operations. We paid $228.8 million for MGOM.
27
First Quarter 2009 Highlights
In the first quarter ended March 31, 2009, we reported a net loss of $424.1 million which on a
fully-diluted earnings per share (EPS) basis was a loss of $(4.77). For first quarter 2008, we
reported net income of $72.1 million and $0.82 fully-diluted EPS. Other financial and operational
items include:
|
|
|
Total revenues for first quarter 2009 decreased 23% to $243.3 million, down from $315.9
million reported for first quarter 2008. |
|
|
|
|
Net cash provided by operations for the three-month period ended March 31, 2009
decreased 41% to $126.0 million, down from $214.2 million for the same period in 2008. |
|
|
|
|
Estimated average daily production for first quarter 2009 decreased to 328 MMcfe per
day, compared to 344 MMcfe per day for first quarter 2008. |
|
|
|
|
Ceiling test impairment for first quarter 2009 of $704.7 million as compared to no
impairment for the same period in 2008. |
Operational Update
Offshore We drilled three offshore wells in the first quarter of 2009, all of which were
successful. Information regarding these wells is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
Well Name |
|
Operator |
|
Working Interest |
|
Water Depth (Ft) |
|
Location |
Green Canyon 859 #1 |
|
Anadarko |
|
13% |
|
|
5,000 |
|
|
Deepwater |
South Marsh 150 D2 |
|
Mariner |
|
100% |
|
|
230 |
|
|
Conventional Shelf |
South Marsh 150 D3 |
|
Mariner |
|
100% |
|
|
230 |
|
|
Conventional Shelf |
As of March 31, 2009 three offshore wells were drilling.
In addition, we were the apparent high bidder on 12 of 17 blocks on which we bid at the
Minerals Management Service of the United States Department of the Interior (MMS) Central Gulf of
Mexico Lease Sale 208 held on March 18, 2009. We submitted individual and joint bids with one or
more industry partners on 12 deepwater blocks and five shelf blocks, with a total net exposure of
$11.1 million. Our net exposure on the 12 apparent high bids was $7.3 million. As of May 6, 2009,
the MMS had awarded two blocks on which we were the apparent high bidder. We expect the MMS to
determine which other blocks ultimately will be awarded over the next several months. Our working
interest in all 12 blocks if awarded will range from 15% to 100%.
Onshore In the first quarter of 2009, we drilled 12 development wells in the Permian Basin,
all of which were successful. As of March 31, 2009, two rigs were operating on our Permian Basin
properties.
Results of Operations
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
The following table sets forth summary information with respect to our oil and gas operations.
Certain prior year amounts have been reclassified to conform to current year presentation:
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Increase |
|
|
% |
|
Summary Operating Information: |
|
2009 |
|
|
2008 |
|
|
(Decrease) |
|
|
Change |
|
|
|
(In thousands, except net production, average sales prices and % |
|
|
|
change) |
|
Net Production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (MMcf) |
|
|
22,048 |
|
|
|
20,956 |
|
|
|
1,092 |
|
|
|
5 |
% |
Oil (MBbls) |
|
|
970 |
|
|
|
1,350 |
|
|
|
(380 |
) |
|
|
(28 |
)% |
Natural gas liquids (MBbls) |
|
|
273 |
|
|
|
377 |
|
|
|
(104 |
) |
|
|
(28 |
)% |
Total natural gas equivalent (MMcfe) |
|
|
29,502 |
|
|
|
31,315 |
|
|
|
(1,813 |
) |
|
|
(6 |
)% |
Average daily production (MMcfe/d) |
|
|
328 |
|
|
|
344 |
|
|
|
(16 |
) |
|
|
(5 |
)% |
Hedging Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas revenue gain |
|
$ |
42,966 |
|
|
$ |
1,936 |
|
|
$ |
41,030 |
|
|
|
2119 |
% |
Oil revenue gain (loss) |
|
|
20,835 |
|
|
|
(16,167 |
) |
|
|
37,002 |
|
|
|
229 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total hedging revenue gain (loss) |
|
$ |
63,801 |
|
|
$ |
(14,231 |
) |
|
$ |
78,032 |
|
|
|
548 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Sales Prices: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (per Mcf) realized(1) |
|
$ |
6.95 |
|
|
$ |
8.57 |
|
|
$ |
(1.62 |
) |
|
|
(19 |
)% |
Natural gas (per Mcf) unhedged |
|
|
5.01 |
|
|
|
8.48 |
|
|
|
(3.47 |
) |
|
|
(41 |
)% |
Oil (per Bbl) realized(1) |
|
|
62.81 |
|
|
|
84.16 |
|
|
|
(21.35 |
) |
|
|
(25 |
)% |
Oil (per Bbl) unhedged |
|
|
41.33 |
|
|
|
96.13 |
|
|
|
(54.80 |
) |
|
|
(57 |
)% |
Natural gas liquids (per Bbl) realized(1) |
|
|
23.70 |
|
|
|
55.65 |
|
|
|
(31.95 |
) |
|
|
(57 |
)% |
Natural gas liquids (per Bbl) unhedged |
|
|
23.70 |
|
|
|
55.65 |
|
|
|
(31.95 |
) |
|
|
(57 |
)% |
Total natural gas equivalent ($/Mcfe) realized(1) |
|
|
7.48 |
|
|
|
10.03 |
|
|
|
(2.55 |
) |
|
|
(25 |
)% |
Total natural gas equivalent ($/Mcfe) unhedged |
|
|
5.32 |
|
|
|
10.49 |
|
|
|
(5.17 |
) |
|
|
(49 |
)% |
Summary of Financial Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas revenue |
|
$ |
153,338 |
|
|
$ |
179,623 |
|
|
$ |
(26,285 |
) |
|
|
(15 |
)% |
Oil revenue |
|
|
60,925 |
|
|
|
113,614 |
|
|
|
(52,689 |
) |
|
|
(46 |
)% |
Natural gas liquids revenue |
|
|
6,469 |
|
|
|
20,981 |
|
|
|
(14,512 |
) |
|
|
(69 |
)% |
Other revenues |
|
|
22,604 |
|
|
|
1,679 |
|
|
|
20,925 |
|
|
|
1246 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expense |
|
|
53,399 |
|
|
|
45,647 |
|
|
|
7,752 |
|
|
|
17 |
% |
Severance and ad valorem taxes |
|
|
3,532 |
|
|
|
4,610 |
|
|
|
(1,078 |
) |
|
|
(23 |
)% |
Transportation expense |
|
|
4,584 |
|
|
|
3,019 |
|
|
|
1,565 |
|
|
|
52 |
% |
General and administrative expense |
|
|
17,411 |
|
|
|
11,111 |
|
|
|
6,300 |
|
|
|
57 |
% |
Depreciation, depletion and amortization |
|
|
94,805 |
|
|
|
119,318 |
|
|
|
(24,513 |
) |
|
|
(21 |
)% |
Full cost ceiling test impairment |
|
|
704,731 |
|
|
|
|
|
|
|
704,731 |
|
|
|
N/A |
|
Other miscellaneous expense |
|
|
8,009 |
|
|
|
537 |
|
|
|
7,472 |
|
|
|
1391 |
% |
Net interest expense |
|
|
14,317 |
|
|
|
18,245 |
|
|
|
(3,928 |
) |
|
|
(22 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before taxes |
|
|
(657,452 |
) |
|
|
113,410 |
|
|
|
(770,862 |
) |
|
|
(680 |
)% |
(Benefit) Provision for income taxes |
|
|
(233,334 |
) |
|
|
41,194 |
|
|
|
(274,528 |
) |
|
|
(666 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income |
|
$ |
(424,118 |
) |
|
$ |
72,216 |
|
|
$ |
(496,334 |
) |
|
|
(687 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Unit Costs per Mcfe: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expense |
|
$ |
1.81 |
|
|
$ |
1.46 |
|
|
$ |
0.35 |
|
|
|
24 |
% |
Severance and ad valorem taxes |
|
|
0.12 |
|
|
|
0.15 |
|
|
|
(0.03 |
) |
|
|
(20 |
)% |
Transportation expense |
|
|
0.16 |
|
|
|
0.10 |
|
|
|
0.06 |
|
|
|
60 |
% |
General and administrative expense |
|
|
0.59 |
|
|
|
0.35 |
|
|
|
0.24 |
|
|
|
69 |
% |
Depreciation, depletion and amortization |
|
|
3.21 |
|
|
|
3.81 |
|
|
|
(0.60 |
) |
|
|
(16 |
)% |
|
|
|
(1) |
|
Average sales prices include the effects of hedging |
Net
(Loss) Income for first quarter 2009 was $(424.1) million compared to $72.2 million for
the comparable period in 2008. The decrease was primarily attributable to a $704.7 million
impairment resulting from our full cost ceiling test. Basic and fully-diluted earnings per share
for the first quarter 2009 were $(4.77) for each measure compared to basic and fully-diluted
earnings per share of $0.83 and $0.82, respectively for first quarter 2008.
Net Production for first quarter 2009 decreased 6% compared to first quarter 2008 due
primarily to the following:
|
|
|
decreased production of 4.4 Bcfe, or 24%, from our Gulf of Mexico shelf properties as a
result of production that remains shut-in due to the impact of Hurricane Ike in
third quarter of 2008; |
29
|
|
|
offset by increased production of 2.1 Bcfe, or 24%, from our Gulf of Mexico deepwater
properties primarily due to Bass Lite located in Atwater 426 (which contributed 4.0 Bcfe),
partially offset by decreased production of 1.6 Bcfe from Pluto located in Mississippi
Canyon 674; and |
|
|
|
|
further offset by increased production of 0.5 Bcfe, or 14%, from our onshore properties
primarily as a result of our drilling and development of existing acreage in the Permian
Basin. |
Natural gas production for first quarter 2009 increased 6% to approximately 245 MMcf per day,
compared to approximately 230 MMcf per day for first quarter 2008. Oil production for first quarter
2009 decreased 27% to approximately 10,773 barrels per day, compared to approximately 14,835
barrels per day for first quarter 2008. Natural gas liquids production per day for first quarter
2009 decreased 27% as compared to the first quarter 2008. Total overall production for first
quarter 2009 decreased 5% to approximately 328 MMcfe per day, compared to 344 MMcfe per day for
first quarter 2008. Natural gas production for first quarter 2009 comprised approximately 75% of
total production compared to approximately 67% for first quarter 2008.
Natural gas, oil and NGL revenues for first quarter 2009 decreased 30% to $220.7 million
compared to $314.2 million for first quarter 2008 as a result of decreased pricing (approximately
$75.3 million, net of the effect of hedging), and decreased production (approximately $18.2
million).
During first quarter 2009, our revenues reflected a net recognized hedging gain of $63.8
million comprised of $57.5 million in favorable cash settlements
on our hedges, a $6.5 million gain on our liquidated
swaps and an unrealized loss of $0.2
million related to the ineffective portion of open contracts that are not eligible for deferral
under SFAS 133 due primarily to the basis differentials between the contract price and the indexed
price at the point of sale. This compares to a net recognized hedging loss of approximately $14.2
million for first quarter 2008, comprised of $10.3 million in unfavorable cash settlements and an
unrealized loss of $3.9 million related to the ineffective portion not eligible for deferral under
SFAS 133.
Our natural gas and oil average sales prices, and the effects of hedging activities on those
prices, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging |
|
|
|
|
Realized |
|
Unhedged |
|
(Loss) Gain |
|
% Change |
Three Months Ended March 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (per Mcf) |
|
$ |
6.95 |
|
|
$ |
5.01 |
|
|
$ |
1.94 |
|
|
|
39 |
% |
Oil (per Bbl) |
|
|
62.81 |
|
|
|
41.33 |
|
|
|
21.48 |
|
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (per Mcf) |
|
$ |
8.57 |
|
|
$ |
8.48 |
|
|
$ |
0.09 |
|
|
|
1 |
% |
Oil (per Bbl) |
|
|
84.16 |
|
|
|
96.13 |
|
|
|
(11.97 |
) |
|
|
(12 |
)% |
Other revenues for first quarter 2009 increased approximately $20.9 million to $22.6 million
from
$1.7 million for first quarter 2008 primarily as a result of a $16.6 million cash arbitration
award related to a consummated acquisition and $4.2 in third party gas sales.
Lease operating expense (LOE) for first quarter 2009 increased approximately $7.8 million to
$53.4 million from $45.6 million for first quarter 2008, primarily as a result of hurricane repairs
resulting from Hurricane Ike of $5.1 million and acquisition of additional interests and increased
production handling fees related to Bass Lite of $6.4 million.
The increase is offset by decreased production in
our Gulf of Mexico shelf properties of $3.6 million as a result of shut-ins due to Hurricanes
Gustav and Ike in the third quarter of 2008.
Severance and ad valorem tax for first quarter 2009 decreased approximately $1.1 million to
$3.5 million from $4.6 million for first quarter 2008 due
to lower production taxes of $1.7 million
offset by increased ad valorem taxes of $0.5 million.
Transportation expense for first quarter 2009 increased approximately $1.6 million to $4.6
million from $3.0 million for first quarter 2008 due primarily to increased expense at Bass Lite
located in Atwater 426.
30
General and administrative expense for first quarter 2009 increased approximately $6.3 million
to $17.4 million from $11.1 million for first quarter 2008 due to an increase in stock compensation
expense of approximately $4.2 million for long-term performance-based restricted stock and an increase in salaries and wages of $1.5 million due to increased headcount.
Depreciation, depletion, and amortization expense for first quarter 2009 decreased
approximately $24.5 million to $94.8 million from $119.3 million for first quarter 2008, primarily
as a result of decreased production from our shelf properties as a result of continued shut-in
production due to the impacts of Hurricanes Gustav and Ike in third quarter of 2008 combined with a lower DD&A rate due to the effects of a ceiling test impairment.
Full cost ceiling test impairment of $704.7 million was recognized for first quarter 2009 as a
result of the net capitalized cost of our proved oil and gas properties exceeding our ceiling
limit. See Note 4 Oil and Gas Properties in Item 1 of Part I of this Quarterly Report on Form
10-Q for more detail on this impairment.
Other miscellaneous expense for first quarter 2009 increased approximately $7.5 million to
$8.0 million from $0.5 million for first quarter 2008 due primarily to increased bad debt of
approximately $3.4 million and third party gas purchases of $3.7 million made to satisfy our
pipeline transportation commitments.
Net interest expense for first quarter 2009 decreased approximately $3.9 million to $14.3
million from $18.2 million for first quarter 2008 due primarily to increased capitalized interest
and decreased interest expense on our credit facility as a result of lower interest rates in 2009
as compared to 2008.
Income before taxes for first quarter 2009 decreased approximately
$770.9 million to $(657.5) million from $113.4 million for first quarter 2008 due primarily to the
$704.7 million impairment related to our full cost ceiling test as discussed above.
Provision for income taxes for first quarter 2009 reflected an effective tax rate of 35.5% as
compared to 36.3% for first quarter 2008. The decrease in our effective tax rate was due primarily
to lower state income tax liabilities and other permanent differences.
Liquidity and Capital Resources
Net
cash provided by operating activities decreased by $88.2 million
to $126.0 million from
$214.2 million for the three months ended March 31, 2009 and 2008, respectively. The decrease was
due primarily to lower revenue resulting from decreases in realized price and production of $75.3
million and $18.2 million, respectively. The decrease was partially offset by $10.0 million
received as a result of the liquidation of certain oil hedges and a $16.6 million arbitration award.
As of March 31, 2009, we had a working capital deficit of $22.4 million, including non-cash
current derivative assets and deferred tax liabilities. In addition, working capital was negatively
impacted by accrued capital expenditures. We expect that this deficit will be funded by cash flow
from operating activities and borrowings under our bank credit facility, as needed.
Net cash flows used in investing activities decreased by $288.8 million to $191.4 million from
$480.2 million for the three months ended March 31, 2009 and 2008, respectively, due primarily to
decreased capital expenditures attributable to reduced activity in our drilling programs.
Additionally, the three months ended March 31, 2008 was impacted by the acquisition of MGOM,
including approximately $15.0 million of mid-stream assets reflected in other property, and an
investment of approximately $27.4 million in office property.
Net cash flows provided by financing activities decreased by $181.8 million to $69.5 million
for the three months ended March 31, 2009 as compared to net cash flows used by financing
activities of $251.3 million for the comparable period in 2008. This decrease was due primarily to
$223.5 million borrowed in January 2008 under our bank credit facility to finance the purchase of
MGOM, partially offset by net increased borrowings for working capital requirements in 2009 of
$42.5 million.
Capital Expenditures The following table presents major components of our capital
expenditures during the three months ended March 31, 2009.
31
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
|
Percentage |
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
Offshore natural gas and oil development |
|
$ |
99,004 |
|
|
|
59 |
% |
Natural gas and oil exploration |
|
|
40,099 |
|
|
|
24 |
% |
Onshore natural gas and oil development |
|
|
18,118 |
|
|
|
11 |
% |
Other items (primarily capitalized overhead) |
|
|
7,757 |
|
|
|
5 |
% |
Acquisitions (property and leasehold) |
|
|
1,436 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
166,414 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
The above table reflects non-cash capital accruals of $43.5 million that are a component of
working capital changes in the statement of cash flows.
Bank Credit Facility We have a secured revolving line of credit with a syndicate of banks
that matures January 31, 2012. The credit facility is subject to a borrowing base which is
redetermined periodically. The outstanding principal balance of loans under the credit facility may
not exceed the borrowing base. Pursuant to a March 24, 2009 amendment, the borrowing base was
affirmed at $850.0 million. In addition, we agreed to initiate the next scheduled borrowing base
determination process by July 31, 2009 and requested that the amount of the next borrowing base be
$800.0 million. The intended effects are to accelerate the next borrowing base redetermination to
August 2009 and require 100% lender approval if the resulting borrowing base exceeds $800.0
million.
The March 2009 amendment increased by 1.0% the interest rate on outstanding borrowings and
increased to 0.5% per annum the commitment fee on unused capacity. During the quarter ended March
31, 2009, the commitment fee on unused capacity was 0.250% to 0.375% per year through March 23,
2009 and 0.5% thereafter. Borrowings under the bank credit facility bear interest at either a
LIBOR-based rate or a prime-based rate, at the Companys option, plus a specified margin. As of
March 31, 2009, the interest rate was 3.57%.
As of March 31, 2009, maximum credit availability under the facility was $1.0 billion,
including up to $50.0 million in letters of credit, subject to a borrowing base of $850.0 million.
As of May 5, 2009, there was $620.0 million in advances outstanding under the credit facility
and four letters of credit outstanding totaling $4.7 million, of which $4.2 million is required for
plugging and abandonment obligations at certain of our offshore fields. As of May 5, 2009, after
accounting for the $4.7 million of letters of credit, we had $225.3 million available to borrow
under the credit facility.
Payment and performance of our obligations under the credit facility (including any
obligations under commodity and interest rate hedges entered into with facility lenders) are
secured by liens upon substantially all of our assets, and guaranteed by our subsidiaries, other
than MERI which is a co-borrower. We also are subject to various restrictive covenants and other
usual and customary terms and conditions, including limits on additional debt, cash dividends and
other restricted payments, liens, investments, asset dispositions, mergers and speculative hedging.
Financial covenants under the credit facility require us to, among other things:
|
|
|
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. |
We were in compliance with the financial covenants under the bank credit facility as of March
31, 2009. Our breach of these covenants would be an event of default, after which the lenders could
terminate their lending obligations and accelerate maturity of any outstanding indebtedness under
the credit facility which then would become due and payable in full. An unrescinded acceleration of
maturity under the bank credit facility would constitute an event of default under our senior notes
described below, which could trigger acceleration of maturity of the indebtedness evidenced by the
senior notes.
Future Uses of Capital. Our identified needs for liquidity in the future are as follows:
|
|
|
funding future capital expenditures; |
32
|
|
|
funding hurricane repairs and hurricane-related abandonment operations; |
|
|
|
|
financing any future acquisitions that we may identify; |
|
|
|
|
paying routine operating and administrative expenses; and |
|
|
|
|
paying other commitments comprised largely of cash settlement of hedging obligations and
debt service. |
2009 Capital Expenditures. In the second half of 2008 and first quarter of 2009, a world-wide
economic recession and oversupply of natural gas in North America led to an unprecedented decline
in oil and gas prices. However, the inflated cost of oil field services resulting from sustained
historically high commodity prices did not decrease in line with the decline in commodity prices.
The prospect of continued low commodity prices and persistent high service costs has constrained
the industrys capital reinvestment and undermined rates of return in new projects, particularly
those in areas characterized by high costs or long reserve lives. In order to manage our capital
program within expected cash flows, we tentatively have reduced our 2009 capital budget by more
than 50% from 2008. Refer to Item 1. BusinessImpact of Worldwide Financial Crisis and Lower
Commodity Prices on Capital Program in Part I of our Annual Report on Form 10-K for the year ended
December 31, 2008, as amended, for an outline of our planned 2009 activities in the Permian Basin
and Gulf of Mexico. Further, financial difficulties encountered by our partners and co-owners
could adversely affect our ability to timely complete the exploration and development of our
prospects.
We anticipate that our base operating capital expenditures for 2009 will be approximately
$465.0 million (excluding hurricane-related expenditures and acquisitions), with significant
potential for increase or decrease depending upon drilling success and cash flow experience during
the year. Approximately 48% of the base operating capital program is planned to be allocated to
development activities, 45% to exploration activities, and the remainder to other items (primarily
capitalized overhead and interest). In addition, we expect to incur additional hurricane-related
costs of $36.1 million during 2009 related to Hurricane Ike that we believe are covered under
applicable insurance. Complete recovery or settlement is not expected to occur during the next
12 months.
Future Capital Resources. Our anticipated sources of liquidity in the future are as follows:
|
|
|
cash flow from operations in future periods; |
|
|
|
|
proceeds under our bank credit facility; |
|
|
|
|
proceeds from insurance policies relating to hurricane repairs; and |
|
|
|
|
proceeds from future capital markets transactions as needed. |
As discussed above, we have reduced our 2009 operating capital program (exclusive of
hurricane-related expenditures and acquisitions) to remain within our projected operating cash flow
so that our operating capital requirements are largely self-sustaining. We anticipate using
proceeds under our bank credit facility only for working capital needs or acquisitions and not
generally to fund our operations. We would generally expect to fund future acquisitions on a case
by case basis through a combination of bank debt and capital markets activities. Based on our
current operating plan and assumed price case, our expected cash flow from operations and continued
access to our bank credit facility allows us ample liquidity to conduct our operations as planned
for the foreseeable future.
The timing of expenditures (especially regarding deepwater projects) is unpredictable. Also,
our cash flows are heavily dependent on the oil and natural gas commodity markets, and our ability
to hedge oil and natural gas prices. If either oil or natural gas commodity prices decrease from
their current levels, our ability to finance our planned capital expenditures could be affected
negatively. Amounts available for borrowing under our bank credit facility are largely dependent on
our level of estimated proved reserves and current oil and natural gas prices. If either our
estimated proved reserves or commodity prices decrease, amounts available to us to borrow under our
bank credit facility could be reduced. If our cash flows are less than anticipated or amounts
available for borrowing are reduced, we may be forced to defer planned capital expenditures.
33
In addition, the recent worldwide financial and credit crisis may adversely affect our
liquidity. We may be unable to obtain adequate funding under our bank credit facility because our
lending counterparties may be unwilling or unable to meet their funding obligations, or because our
borrowing base under the facility may be decreased as the result of a redetermination, reducing it
due to lower oil or natural gas prices, operating difficulties, declines in reserves or other
reasons. If funding is not available as needed, or is available only on unfavorable terms, we may
be unable to meet our obligations as they come due or we may be unable to implement our business
strategies or otherwise take advantage of business opportunities or respond to competitive
pressures.
Off-Balance Sheet Arrangements
Letters of Credit Our bank credit facility has a letter of credit subfacility of up to $50.0
million that is included as a use of the borrowing base. As of March 31, 2009, four such letters of
credit totaling $4.7 million were outstanding.
Fair Value Measurement
We determine the fair value of our natural gas and crude oil fixed price swaps by reference to
forward pricing curves for natural gas and oil futures contracts. The difference between the
forward price curve and the contractual fixed price is discounted to the measurement date using a
credit-risk adjusted discount rate. The credit risk adjustment for swap liabilities is based on our
credit quality and the credit risk adjustment for swap assets is based on the credit quality of our
counterparty. Our fair value determinations of our swaps have historically approximated our exit
price for such derivatives.
We have determined that the fair value methodology described above for our swaps is consistent
with observable market inputs and have categorized our swaps as Level 2 in accordance with SFAS
157.
During the three months ended March 31, 2009, we recorded an asset for the increase in the
fair value of our derivative financial instruments of $27.3 million, principally due to the
decrease in natural gas and oil commodity prices below our swap prices. The increase was comprised
of a decrease in accumulated other comprehensive income of approximately $19.5 million, net of
income taxes of $10.4 million, approximately $57.5 million of favorable cash hedging settlements
and a $6.5 million gain on liquidated swaps during the period reflected in natural gas and oil revenues and an unrealized, non-cash loss due to
hedging ineffectiveness under SFAS 133 of approximately $0.2 million reflected in natural gas
revenues.
The continued volatility of natural gas and oil commodity prices will have a material impact
on the fair value of our derivatives positions. It is our intent to hold all of our derivatives
positions to maturity such that realized gains or losses are generally recognized in income when
the hedged natural gas or oil is produced and sold. While the derivatives settlements may decrease
(or increase) our effective price realized, the ultimate settlement of our derivatives positions is
not expected to materially adversely affect our liquidity, results of operations or cash flows.
Legal Proceedings
MMS Proceedings Mariner and its subsidiary, Mariner Energy Resources, Inc. (MERI), own
numerous properties in the Gulf of Mexico. Certain of such properties were leased from the Minerals
Management Service of the United States Department of the Interior (MMS) subject to The Outer
Continental Shelf Deep Water Royalty Relief Act (RRA), signed into law on November 28, 1995.
Section 304 of the RRA relieves lessees of the obligation to pay royalties on certain leases until
after a designated volume has been produced. Four of these leases held by Mariner and two held by
MERI that are producing or have produced contain lease language (inserted by the MMS) that
conditions royalty relief on commodity prices remaining below specified thresholds. Since 2000,
commodity prices have exceeded some of the predetermined thresholds, except in 2002. In May 2006
and September 2008, the MMS issued orders asserting that the price thresholds had been exceeded in
calendar years 2000, 2001, and each of the years from 2003 through 2007, and, accordingly, that
royalties were due under such leases on oil and gas produced in those years. The potential
liability of MERI under its leases relate to production from the leases commencing July 1, 2005,
the effective date of our acquisition of MERI. Mariner and MERI believe that the MMS did not have
the statutory authority to include commodity price threshold language in the leases
34
governed by Section 304 of the RRA and accordingly have withheld payment of royalties. Mariner
and MERI have challenged the MMSs authority in pending administrative appeals for those leases for
which the MMS has issued orders to pay.
The enforceability of the price threshold provisions in leases granted pursuant to Section 304
of the RRA is currently being litigated in several administrative appeals filed by other companies
in addition to us, as well as in Kerr-McGee Oil & Gas Corp. v. Allred, No. 08-30069 (5th Cir.). In
the Kerr-McGee litigation, the district court in the Western District of Louisiana granted
Kerr-McGees motion for summary judgment, ruling that the price threshold provisions are unlawful
and unenforceable under Section 304 of the RRA. Kerr-McGee Oil & Gas Corp. v. Allred, No. 2:06 CV
0439 (W.D. La.) (Mem. Ruling filed Oct. 30, 2007). The Department of the Interior appealed that
judgment to the United States Court of Appeals for the Fifth Circuit. On January 12, 2009, the
Fifth Circuit affirmed the district courts judgment that the price provisions are unlawful based
on Section 304 of the RRA. Kerr-McGee Oil & Gas Corp. v. U.S. Dept of Interior, F.3d, 2009
WL 57883 (5th Cir. Jan. 12, 2009). On April 14, 2009, the Fifth Circuit denied the Department of
the Interiors Petition for Rehearing En Banc. Until the appeals process is complete, we will
continue to monitor the case. Given the judicial history of the case, we determined that as of
December 31, 2008, we no longer will record a liability for our estimated exposure to the MMS on
leases granted to us pursuant to Section 304 of the RRA. At March 31, 2009, this liability would
have been $63.7 million, including interest. In addition, as of December 31, 2008, we began
including in our estimated proved reserves those reserves attributable to these RRA Section 304
leases which, at December 31, 2008, was approximately 18.1 Bcfe.
U.S. Department of the Interior Five-Year Leasing Program. The Outer Continental Shelf Lands
Act (43. U.S.C. § 1331, et seq.) (OCSLA) directs the U.S. Department of the
Interior (DOI) to prepare and approve a five-year leasing program specifying the size, timing and
location of areas on the Outer Continental Shelf (OCS) to be considered and assessed for natural
gas and oil leasing during the period covered by the program. An OCS area may be offered for oil
and gas leasing only if it has been included in an approved five-year program. The current
five-year leasing program covers the period 2007 though 2012 (the current program). To date, seven
oil and gas lease sales have been held under this program, five of which covered areas in the Gulf
of Mexico Region (GOM). We hold interests in 62 leases awarded
pursuant to these sales in respect of which our net lease bonus
exposure is approximately $159.4 million.
On April 17, 2009, the United States Court of Appeals for the District of Columbia Circuit, in
the matter entitled Center for Biological Diversity v. Department of the Interior, Nos. 07-1247,
07-1344, 2009 WL 1025375 (C.A.D.C. 2009), vacated the current program and remanded it to DOI for
reconsideration in light of the courts ruling. The case arose as a result of petitions filed by
three non-profit organizations and an Alaskan village challenging the current program, which
includes the expansion of previous lease offerings in areas off the coast of Alaska. The court
found that DOIs environmental sensitivity analysis was irrational and did not comply with certain
OCSLA requirements. The court ordered DOI to conduct a more complete environmental sensitivity
analysis of different OCS areas and reassess timing and location of the leasing program to properly
balance the potential for environmental damage, oil and gas discovery, and adverse impacts on the
coastal zone.
The impact of the courts decision on leases awarded in GOM lease sales held under the current
program is unclear. If the decision is interpreted to void lease sales held under the current
program and that interpretation is upheld, then revocation of leases awarded in those sales is
possible. The means and manner by which a revocation might be attempted and, if successful, the
effect of revocation on previously conducted operations and our expenditures relating to the leases
are unknown. Pursuant to Applications for Drilling Permits (ADPs) approved by the MMS, we have
conducted operations on three leases awarded under the current program and are mobilizing a
drilling rig to a fourth lease, located on our Arden prospect, that was awarded under the current
program. How future operations in the GOM, including our ability to pursue our planned drilling
schedule, may be affected also are unknown; however on May 6, 2009, the MMS notified us that two of
our 12 apparent high bids at the March 2009 lease sale would be awarded, and on May 8, 2009, the
MMS approved the ADP for our Arden prospect. Depending upon the ultimate resolution of the issues
arising as a result of courts decision, our operational and financial results could be adversely
affected.
35
Recent Accounting Pronouncements
In April 2009, the FASB issued three FSPs to provide additional application guidance and
enhance disclosures regarding fair value measurements and impairments of securities. FSP FAS 157-4,
"Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly, provides guidelines for
making fair value measurements more consistent with the principles presented in SFAS No. 157. FSP
FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, enhances
consistency in financial reporting by increasing the frequency of fair value disclosures. FSP FAS
115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, provides
additional guidance designed to create greater clarity and consistency in accounting for and
presenting impairment losses on securities. These three FSPs are effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for periods ending after March
15, 2009. We adopted the provisions of these FSPs for the period ending March 31, 2009. The
adoption of these FSPs did not have a material impact on our financial position, cash flows or results of
operations.
On December 31, 2008, the SEC issued the Final Rule, which adopts revisions to the SECs oil
and gas reporting disclosure requirements and is effective for annual reports on Forms 10-K for
years ending on or after December 31, 2009. Early adoption of the Final Rule is prohibited. The
revisions are intended to provide investors with a more meaningful and comprehensive understanding
of oil and gas reserves to help investors evaluate their investments in oil and gas companies. The
amendments are also designed to modernize the oil and gas disclosure requirements to align them
with current practices and changes in technology. Revised requirements in the SECs Final Rule
include, but are not limited to:
|
|
|
Oil and gas reserves must be reported using average prices over the prior 12 month
period, rather than year-end prices; |
|
|
|
|
Companies will be allowed to report, on an optional basis, probable and possible
reserves; |
|
|
|
|
Non-traditional reserves, such as oil and gas extracted from coal and shales, will
be included in the definition of oil and gas producing activities; |
|
|
|
|
Companies will be permitted to use new technologies to determine proved reserves, as
long as those technologies have been demonstrated empirically to lead to reliable
conclusions with respect to reserve volumes; |
|
|
|
|
Companies will be required to disclose, in narrative form, additional details on
their proved undeveloped reserves (PUDs), including the total quantity of PUDs at year
end, any material changes to PUDs that occurred during the year, investments and
progress made to convert PUDs to developed oil and gas reserves and an explanation of
the reasons why material concentrations of PUDs in individual fields or countries have
remained undeveloped for five years or more after disclosure as PUDs; |
|
|
|
|
Companies will be required to report the qualifications and measures taken to assure
the independence and objectivity of any business entity or employee primarily
responsible for preparing or auditing the reserves estimates. |
We are currently evaluating the potential impact of adopting the Final Rule. The SEC is
discussing the Final Rule with the staff to align FASB accounting standards with the new SEC rules.
These discussions may delay the required compliance date. Absent any change in the effective date,
we will begin complying with the disclosure requirements in our annual report on Form 10-K for the
year ended December 31, 2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of Accounting Research Bulletin No. 51 (SFAS 160), which
establishes accounting and reporting standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net income attributable to the parent and
to the noncontrolling interest, changes in a parents ownership interest and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also
establishes reporting requirements that provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the noncontrolling (minority)
owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We adopted SFAS
160 beginning January 1, 2009. The adoption of this statement did not have a material impact on our
financial position, cash flows or results of operations. However, it did impact the presentation and disclosure
of noncontrolling (minority) interests in our consolidated financial statements.
36
In September 2006, the FASB issued SFAS 157. SFAS 157 defines fair value, establishes criteria
to be considered when measuring fair value and expands disclosures about fair value measurements.
SFAS 157 is effective for all recurring measures of financial assets and financial liabilities
(e.g. derivatives and investment securities) for fiscal years beginning after November 15, 2007. We
adopted the provisions of SFAS 157 for all recurring measures of financial assets and liabilities
on January 1, 2008. In February 2008, the FASB issued FSP 157-2, which granted a one-year deferral
of the effective date of SFAS No. 157 as it applies to non-financial assets and liabilities that
are recognized or disclosed at fair value on a nonrecurring basis (e.g. those measured at fair
value in a business combination and asset retirement obligations). Beginning January 1, 2009, we
applied SFAS 157 to non-financial assets and liabilities. The adoption of SFAS 157 did not have a
material impact on our financial position, cash flows or results of operations.
In March 2008, the FASB issued SFAS 161. This statement requires enhanced disclosures about
our derivative and hedging activities. This statement is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008. We adopted the disclosure
requirements of SFAS 161 beginning January 1, 2009. See Note 7 Derivative Financial Instruments
and Hedging Activities in Item 1 of Part I of this Quarterly Report for additional disclosures.
The adoption of this statement did not have a material impact on our financial position, cash flows or results of
operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Commodity Prices and Related Hedging Activities
Our major market risk exposure continues to be the prices applicable to our natural gas and
oil production. The sales price of our production is primarily driven by the prevailing market
price. Historically, prices received for our natural gas and oil production have been volatile and
unpredictable.
The energy markets historically have been very volatile, and we can reasonably expect that oil
and gas prices will be subject to wide fluctuations in the future. In an effort to reduce the
effects of the volatility of the price of oil and natural gas on our operations, management has
adopted a policy of hedging oil and natural gas prices from time to time primarily through the use
of commodity price swap agreements and costless collar arrangements. While the use of these hedging
arrangements limits the downside risk of adverse price movements, it also limits future gains from
favorable movements. In addition, forward price curves and estimates of future volatility are used
to assess and measure the ineffectiveness of our open contracts at the end of each period. If open
contracts cease to qualify for hedge accounting, the mark-to-market change in fair value is
recognized in oil and natural gas revenue in the Condensed Consolidated Statements of Operations.
Not qualifying for hedge accounting and cash flow hedge designation will cause volatility in Net
Income. The fair values we report in our Condensed Consolidated Financial Statements change as
estimates are revised to reflect actual results, changes in market conditions or other factors,
many of which are beyond our control.
On January 29, 2009, we liquidated crude oil fixed price swaps that previously had been
designated as cash flow hedges for accounting purposes in respect of 977,000 barrels of crude oil
in exchange for a cash payment to us of $10.0 million and installment payments of $13.5 million to
be paid monthly to us through 2009. Since the forecasted sales of crude oil volumes are still
expected to occur, the accumulated gains through January 29, 2009 on the related derivative
contracts remained in accumulated other comprehensive income, and will not be reclassified into
earnings until the physical transactions occur. Any changes in the value of these derivative
contracts subsequent to January 29, 2009 will no longer be deferred in other comprehensive income,
but rather will impact current period income.
Derivative gains and losses are recorded by commodity type in oil and natural gas revenues in
the Condensed Consolidated Statements of Operations. The effects on our oil and gas revenues from
our hedging activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Cash Gain (Loss) on Settlements (1) |
|
$ |
57,457 |
|
|
$ |
(10,307 |
) |
Gains on
liquidated swaps (2) |
|
|
6,523 |
|
|
|
|
|
Loss on Hedge Ineffectiveness (3) |
|
|
(179 |
) |
|
|
(3,924 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
63,801 |
|
|
$ |
(14,231 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Designated as cash flow hedges pursuant to SFAS 133. |
|
(2) |
|
Crude oil fixed price swaps liquidated on January 29, 2009 that do not qualify for hedge
accounting. Includes $2.6 million, net of premium, related to
the $10.0 million cash liquidation, and $3.9 million, net
of discount, related to the $13.5 million installment
liquidation. |
37
|
|
|
(3) |
|
Unrealized loss recognized in natural gas revenue related to the ineffective portion of open
contracts that are not eligible for deferral under SFAS 133 due primarily to the basis
differentials between the contract price and the indexed price at the point of sale. |
As of March 31, 2009, we had the following hedge contracts outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Fair Value |
|
Fixed Price Swaps |
|
Quantity |
|
|
Fixed Price |
|
|
Asset |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Natural Gas (MMbtus) |
|
|
|
|
|
|
|
|
|
|
|
|
April 1December 31, 2009 |
|
|
36,923,804 |
|
|
$ |
7.57 |
|
|
$ |
121,718 |
|
Crude Oil (Bbls) |
|
|
|
|
|
|
|
|
|
|
|
|
April 1December 31, 2009 |
|
|
769,485 |
|
|
$ |
76.56 |
|
|
|
16,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
138,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
We have reviewed the financial strength of our counterparties and believe the credit risk
associated with these swaps to be minimal. Hedges with counterparties that are lenders under our
bank credit facility are secured under the bank credit facility.
As of March 31, 2009, we expect to realize within the next 12 months approximately
$138.2 million in net gains resulting from hedging activities
and $17.5 million resulting from liquidated fixed price swaps that are currently recorded in
accumulated other comprehensive income. These hedging gains are expected to be realized as an
increase of $34.0 million to oil revenues and an increase of $121.7 million to natural gas
revenues.
As of May 5, 2009, we have entered into the following hedge transactions subsequent to March
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
Fixed Price Swaps |
|
Quantity |
|
Fixed Price |
Natural Gas (MMbtus) |
|
|
|
|
|
|
|
|
January 1December 31, 2010 |
|
|
12,775,000 |
|
|
$ |
5.84 |
|
January 1June 30, 2011 |
|
|
4,525,000 |
|
|
$ |
6.65 |
|
Crude Oil (Bbls) |
|
|
|
|
|
|
|
|
January 1December 31, 2010 |
|
|
1,277,500 |
|
|
$ |
62.28 |
|
January 1June 30, 2011 |
|
|
452,500 |
|
|
$ |
65.65 |
|
Interest Rate Market Risk Borrowings under our bank credit facility, as discussed under the
caption Liquidity and Capital Resources, mature on January 31, 2012, and bear interest at either
a LIBOR-based rate or a prime-based rate, at our option, plus a specified margin. Both options
expose us to risk of earnings loss due to changes in market rates. We have not entered into
interest rate hedges that would mitigate such risk. As of March 31, 2009, the interest rate on our
outstanding bank debt was 3.57%. If the balance of our bank debt at March 31, 2009 were to remain
constant, a 10% change in market interest rates would impact our cash flow by approximately $0.6
million per quarter.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Mariner, under the supervision and with the participation of its management, including
Mariners principal executive officer and principal financial officer, evaluated the effectiveness
of its disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end
of the period covered by this Quarterly Report. Based on that evaluation, our principal executive
officer and principal financial officer concluded that Mariners disclosure
38
controls and procedures are effective as of March 31, 2009 to ensure that information required
to be disclosed by Mariner in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and include controls and procedures designed to ensure that information
required to be disclosed by us in such reports is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting
There were no changes that occurred during the quarter ended March 31, 2009 covered by this
Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
39
PART II OTHER INFORMATION
Item 1A. Risk Factors.
Please refer to Item 1A of our Annual Report on Form 10-K for the fiscal year ended December
31, 2008, as amended.
Various statements in this Quarterly Report on Form 10-Q (Quarterly Report), including those
that express a belief, expectation, or intention, as well as those that are not statements of
historical fact, are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The forward-looking statements may include projections and estimates
concerning the timing and success of specific projects and our future production, revenues, income
and capital spending. Our forward-looking statements are generally accompanied by words such as
may, estimate, project, predict, believe, expect, anticipate, potential, plan,
goal or other words that convey the uncertainty of future events or outcomes. The forward-looking
statements in this Quarterly Report speak only as of the date of this Quarterly Report; we disclaim
any obligation to update these statements unless required by law, and we caution you not to rely on
them unduly. We have based these forward-looking statements on our current expectations and
assumptions about future events. While our management considers these expectations and assumptions
to be reasonable, they are inherently subject to significant business, economic, competitive,
regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict
and many of which are beyond our control. We disclose important factors that could cause our actual
results to differ materially from our expectations described in Item 2 Managements Discussion and
Analysis of Financial Condition and Results of Operations of Part I and elsewhere in this
Quarterly Report. These risks, contingencies and uncertainties relate to, among other matters, the
following:
|
|
|
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 |
40
|
|
|
risks related to significant acquisitions or other strategic transactions, such as
failure to realize expected benefits or objectives for future operations. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
Shares |
|
Value) of |
|
|
Total |
|
|
|
|
|
(or Units) |
|
Shares (or Units) |
|
|
Number of |
|
Average |
|
Purchased as |
|
that May Yet Be |
|
|
Shares (or |
|
Price Paid |
|
Part of Publicly |
|
Purchased Under the |
|
|
Units) |
|
per Share |
|
Announced Plans or |
|
Plans or |
Period |
|
Purchased |
|
(or Unit) |
|
Programs |
|
Programs |
January 1, 2009 to January 31, 2009 (1) |
|
|
1,386 |
|
|
$ |
10.54 |
|
|
|
|
|
|
|
|
|
February 1, 2009 to February 28, 2009 (1) |
|
|
65 |
|
|
$ |
11.16 |
|
|
|
|
|
|
|
|
|
March 1, 2009 to March 31, 2009 (1) |
|
|
50,683 |
|
|
$ |
7.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
52,134 |
|
|
$ |
7.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These shares were withheld upon the vesting of employee restricted stock grants in connection
with payment of required withholding taxes. |
Item 5. Other Information
Effective January 1, 2009, we adopted SFAS 160, Noncontrolling Interests in Consolidated
Financial Statements. This statement amended Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to establish accounting and reporting standards for a noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. The adoption of SFAS No. 160
did not have a material impact on our financial position, cash flows and results of operations. However, it did
impact the presentation and disclosure of noncontrolling (minority) interests in our consolidated
financial statements. As a result of the retrospective presentation and disclosure requirements of
SFAS 160, we will be required to reflect the change in presentation and disclosure for all periods
presented in future filings. The noncontrolling (minority) interest primarily related to a third
party investor in certain real estate. The third party no longer retained an interest as of July
15, 2008.
The following table summarizes the effects of the adoption of SFAS 160 on our financial
statements as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and
2006 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
As |
|
|
|
|
|
As |
|
|
|
|
|
As |
|
|
|
|
Previously |
|
As |
|
Previously |
|
As |
|
Previously |
|
As |
|
|
Reported |
|
Revised |
|
Reported |
|
Revised |
|
Reported |
|
Revised |
|
Consolidated Statements of Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interest |
|
$ |
(188 |
) |
|
$ |
|
|
|
$ |
(1 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net (loss) income |
|
|
(388,713 |
) |
|
|
(388,525 |
) |
|
|
143,934 |
|
|
|
143,935 |
|
|
|
121,462 |
|
|
|
121,462 |
|
Net (loss) income attributable to Mariner Energy, Inc. (1) |
|
|
|
|
|
|
(388,713 |
) |
|
|
|
|
|
|
143,934 |
|
|
|
|
|
|
|
121,462 |
|
Net income attributable to noncontrolling interests (1) |
|
|
|
|
|
|
(188 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Total earnings per common share, basic |
|
|
(4.44 |
) |
|
|
|
|
|
|
1.68 |
|
|
|
|
|
|
|
1.59 |
|
|
|
|
|
Total earnings per common share, diluted |
|
|
(4.44 |
) |
|
|
|
|
|
|
1.67 |
|
|
|
|
|
|
|
1.58 |
|
|
|
|
|
Earnings per common share attributable to Mariner Energy, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (1) |
|
|
|
|
|
|
(4.44 |
) |
|
|
|
|
|
|
1.68 |
|
|
|
|
|
|
|
1.59 |
|
Diluted (1) |
|
|
|
|
|
|
(4.44 |
) |
|
|
|
|
|
|
1.67 |
|
|
|
|
|
|
|
1.58 |
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
|
As |
|
|
|
|
|
As |
|
|
|
|
|
As |
|
|
|
|
Previously |
|
As |
|
Previously |
|
As |
|
Previously |
|
As |
|
|
Reported |
|
Revised |
|
Reported |
|
Revised |
|
Reported |
|
Revised |
|
Consolidated Balance Sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Total Mariner Energy, Inc. Stockholders Equity (1) |
|
|
|
|
|
|
1,120,320 |
|
|
|
|
|
|
|
1,391,018 |
|
|
|
|
|
|
|
1,302,591 |
|
Total stockholders equity |
|
|
1,120,320 |
|
|
|
1,120,320 |
|
|
|
1,391,018 |
|
|
|
1,391,019 |
|
|
|
1,302,591 |
|
|
|
1,302,591 |
|
Consolidated Statements of Cash Flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(388,713 |
) |
|
|
(388,525 |
) |
|
|
143,934 |
|
|
|
143,935 |
|
|
|
121,462 |
|
|
|
121,462 |
|
MMS Royalty Relief and other |
|
|
(52,731 |
) |
|
|
(52,919 |
) |
|
|
4,486 |
|
|
|
4,486 |
|
|
|
226 |
|
|
|
226 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(388,713 |
) |
|
|
(388,525 |
) |
|
|
143,934 |
|
|
|
143,935 |
|
|
|
121,462 |
|
|
|
121,462 |
|
Noncontrolling interest (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,120,320 |
|
|
|
1,120,320 |
|
|
|
1,391,018 |
|
|
|
1,391,019 |
|
|
|
1,302,591 |
|
|
|
1,302,591 |
|
|
|
|
(1) |
|
Represents a new financial statement line item included as a result of the retrospective application of SFAS 160. |
Item 6. Exhibits
|
|
|
Number |
|
Description |
2.1*
|
|
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 Mariners 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 Mariners Registration Statement on Form S-4 (File
No. 333-137441) filed on September 19, 2006). |
|
|
|
2.3*
|
|
Letter Agreement, dated as of February 28, 2006, among Forest Oil Corporation, Forest Energy
Resources, Inc., Mariner Energy, Inc. and MEI Sub, Inc. amended the transaction agreements
(incorporated by reference to Exhibit 2.1 to Mariners Form 8-K filed on March 3, 2006). |
|
|
|
2.4*
|
|
Letter Agreement, dated April 12, 2006, among Forest Oil Corporation, Mariner Energy Resources,
Inc. and Mariner Energy, Inc. amended the transaction agreements (incorporated by reference to
Exhibit 2.1 to Mariners Form 8-K filed on April 13, 2006). |
|
|
|
2.5*
|
|
Membership Interest Purchase Agreement by and between Hydro Gulf of Mexico, Inc. and Mariner
Energy, Inc., executed December 23, 2007 (incorporated by reference to Exhibit 2.1 to Mariners
Form 8-K filed on February 5, 2008). |
|
|
|
3.1*
|
|
Second Amended and Restated Certificate of Incorporation of Mariner Energy, Inc., as amended
(incorporated by reference to Exhibit 3.1 to Mariners Registration Statement on Form S-8 (File
No. 333-132800) filed on March 29, 2006). |
|
|
|
3.2*
|
|
Certificate of Designations of Series A Junior Participating Preferred Stock of Mariner Energy,
Inc. (incorporated by reference to Exhibit 3.1 to Mariners Form 8-K filed on October 14, 2008). |
|
|
|
3.3*
|
|
Fourth Amended and Restated Bylaws of Mariner Energy, Inc. (incorporated by reference to Exhibit
3.2 to Mariners Registration Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005). |
|
|
|
4.1*
|
|
Indenture, dated as of April 30, 2007, among Mariner Energy, Inc., the guarantors party thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Mariners Form
8-K filed on May 1, 2007). |
42
|
|
|
Number |
|
Description |
4.2*
|
|
Indenture, dated as of April 24, 2006, among Mariner Energy, Inc., the guarantors party thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Mariners Form
8-K filed on April 25, 2006). |
|
|
|
4.3*
|
|
Exchange and Registration Rights Agreement, dated as of April 24, 2006, among Mariner Energy,
Inc., the guarantors party thereto and the initial purchasers party thereto (incorporated by
reference to Exhibit 4.2 to Mariners Form 8-K filed on April 25, 2006). |
|
|
|
4.4*
|
|
Rights Agreement, dated as of October 12, 2008, between Mariner Energy, Inc. and Continental Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Mariners
Form 8-K filed on October 14, 2008). |
|
|
|
4.5*
|
|
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 Mariners Form 8-K filed on March 3, 2006). |
|
|
|
4.6*
|
|
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 Mariners Form 8-K filed on April 13, 2006). |
|
|
|
4.7*
|
|
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 Mariners Form 8-K filed on October 18, 2006). |
|
|
|
4.8*
|
|
Amendment No. 3 and Consent, dated as of April 23, 2007, among Mariner Energy, Inc. and Mariner
Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender for such Lenders
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on April 24, 2007). |
|
|
|
4.9*
|
|
Amendment No. 4, dated as of August 24, 2007, among Mariner Energy, Inc. and Mariner Energy
Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California, N.A., as
Administrative Agent for such Lenders and as Issuing Lender for such Lenders (incorporated by
reference to Exhibit 4.1 to Mariners Form 8-K filed on August 27, 2007). |
|
|
|
4.10*
|
|
Amendment No. 5 and Agreement, dated as of January 31, 2008, among Mariner Energy, Inc. and
Mariner Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of
California, N.A., as Administrative Agent for such Lenders and as Issuing Lender for such Lenders
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on February 5, 2008). |
|
|
|
4.11*
|
|
Master Assignment, Agreement and Amendment No. 6, dated as of June 2, 2008, among Mariner Energy,
Inc. and Mariner Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank
of California, N.A., as Administrative Agent for such Lenders and as Issuing Lender for such
Lenders (incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on June 3, 2008). |
|
|
|
4.12*
|
|
Amendment No. 7, dated as of December 12, 2008, among Mariner Energy, Inc. and Mariner Energy
Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California, N.A., as
Administrative Agent for such Lenders and as Issuing Lender for such Lenders (incorporated by
reference to Exhibit 4.1 to Mariners Form 8-K filed on December 15, 2008). |
|
|
|
4.13*
|
|
Amendment No. 8 and Consent, dated as of March 24, 2009, 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 Mariners Form 8-K filed on March 27, 2009). |
|
|
|
10.1*
|
|
Underwriting Agreement, dated April 25, 2007, among J.P. Morgan Securities Inc., as Representative
of the several Underwriters listed in Schedule 1 thereto, Mariner Energy, Inc., Mariner Energy
Resources, Inc., Mariner LP LLC, and Mariner Energy Texas LP (incorporated by reference to Exhibit
1.1 to Mariners Form 8-K filed on April 26, 2007). |
43
|
|
|
Number |
|
Description |
10.2*
|
|
Purchase Agreement, dated as of April 19, 2006, among Mariner Energy, Inc., Mariner LP LLC,
Mariner Energy Resources, Inc., Mariner Energy Texas LP and the initial purchasers party thereto
(incorporated by reference to Exhibit 10.1 to Mariners Form 8-K filed on April 25, 2006). |
|
|
|
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. |
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
Mariner Energy, Inc. has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on May 11, 2009.
|
|
|
|
|
|
Mariner Energy, Inc.
|
|
|
By: |
/s/ Scott D. Josey
|
|
|
|
Scott D. Josey, |
|
|
|
Chairman of the Board, Chief Executive Officer
and President |
|
|
|
|
|
By: |
/s/John H. Karnes
|
|
|
|
John H. Karnes, |
|
|
|
Senior Vice President, Chief Financial Officer
and Treasurer |
|
45
EXHIBIT INDEX
|
|
|
Number |
|
Description |
2.1*
|
|
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 Mariners 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 Mariners Registration Statement on Form S-4 (File
No. 333-137441) filed on September 19, 2006). |
|
|
|
2.3*
|
|
Letter Agreement, dated as of February 28, 2006, among Forest Oil Corporation, Forest Energy
Resources, Inc., Mariner Energy, Inc. and MEI Sub, Inc. amended the transaction agreements
(incorporated by reference to Exhibit 2.1 to Mariners Form 8-K filed on March 3, 2006). |
|
|
|
2.4*
|
|
Letter Agreement, dated April 12, 2006, among Forest Oil Corporation, Mariner Energy Resources,
Inc. and Mariner Energy, Inc. amended the transaction agreements (incorporated by reference to
Exhibit 2.1 to Mariners Form 8-K filed on April 13, 2006). |
|
|
|
2.5*
|
|
Membership Interest Purchase Agreement by and between Hydro Gulf of Mexico, Inc. and Mariner
Energy, Inc., executed December 23, 2007 (incorporated by reference to Exhibit 2.1 to Mariners
Form 8-K filed on February 5, 2008). |
|
|
|
3.1*
|
|
Second Amended and Restated Certificate of Incorporation of Mariner Energy, Inc., as amended
(incorporated by reference to Exhibit 3.1 to Mariners Registration Statement on Form S-8 (File
No. 333-132800) filed on March 29, 2006). |
|
|
|
3.2*
|
|
Certificate of Designations of Series A Junior Participating Preferred Stock of Mariner Energy,
Inc. (incorporated by reference to Exhibit 3.1 to Mariners Form 8-K filed on October 14, 2008). |
|
|
|
3.3*
|
|
Fourth Amended and Restated Bylaws of Mariner Energy, Inc. (incorporated by reference to Exhibit
3.2 to Mariners Registration Statement on Form S-4 (File No. 333-129096) filed on October 18,
2005). |
|
|
|
4.1*
|
|
Indenture, dated as of April 30, 2007, among Mariner Energy, Inc., the guarantors party thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Mariners Form
8-K filed on May 1, 2007). |
|
|
|
4.2*
|
|
Indenture, dated as of April 24, 2006, among Mariner Energy, Inc., the guarantors party thereto
and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Mariners Form
8-K filed on April 25, 2006). |
|
|
|
4.3*
|
|
Exchange and Registration Rights Agreement, dated as of April 24, 2006, among Mariner Energy,
Inc., the guarantors party thereto and the initial purchasers party thereto (incorporated by
reference to Exhibit 4.2 to Mariners Form 8-K filed on April 25, 2006). |
|
|
|
4.4*
|
|
Rights Agreement, dated as of October 12, 2008, between Mariner Energy, Inc. and Continental Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Mariners
Form 8-K filed on October 14, 2008). |
|
|
|
4.5*
|
|
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 Mariners Form 8-K filed on March 3, 2006). |
|
|
|
4.6*
|
|
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 Mariners Form 8-K filed on April 13, 2006). |
|
|
|
4.7*
|
|
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 |
46
|
|
|
Number |
|
Description |
|
|
Administrative Agent for such Lenders and as Issuing Lender for such Lenders (incorporated by
reference to Exhibit 4.1 to Mariners Form 8-K filed on October 18, 2006). |
|
|
|
4.8*
|
|
Amendment No. 3 and Consent, dated as of April 23, 2007, among Mariner Energy, Inc. and Mariner
Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California,
N.A., as Administrative Agent for such Lenders and as Issuing Lender for such Lenders
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on April 24, 2007). |
|
|
|
4.9*
|
|
Amendment No. 4, dated as of August 24, 2007, among Mariner Energy, Inc. and Mariner Energy
Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California, N.A., as
Administrative Agent for such Lenders and as Issuing Lender for such Lenders (incorporated by
reference to Exhibit 4.1 to Mariners Form 8-K filed on August 27, 2007). |
|
|
|
4.10*
|
|
Amendment No. 5 and Agreement, dated as of January 31, 2008, among Mariner Energy, Inc. and
Mariner Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of
California, N.A., as Administrative Agent for such Lenders and as Issuing Lender for such Lenders
(incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on February 5, 2008). |
|
|
|
4.11*
|
|
Master Assignment, Agreement and Amendment No. 6, dated as of June 2, 2008, among Mariner Energy,
Inc. and Mariner Energy Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank
of California, N.A., as Administrative Agent for such Lenders and as Issuing Lender for such
Lenders (incorporated by reference to Exhibit 4.1 to Mariners Form 8-K filed on June 3, 2008). |
|
|
|
4.12*
|
|
Amendment No. 7, dated as of December 12, 2008, among Mariner Energy, Inc. and Mariner Energy
Resources, Inc., as Borrowers, the Lenders party thereto, and Union Bank of California, N.A., as
Administrative Agent for such Lenders and as Issuing Lender for such Lenders (incorporated by
reference to Exhibit 4.1 to Mariners Form 8-K filed on December 15, 2008). |
|
|
|
4.13*
|
|
Amendment No. 8 and Consent, dated as of March 24, 2009, 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 Mariners Form 8-K filed on March 27, 2009). |
|
|
|
10.1*
|
|
Underwriting Agreement, dated April 25, 2007, among J.P. Morgan Securities Inc., as Representative
of the several Underwriters listed in Schedule 1 thereto, Mariner Energy, Inc., Mariner Energy
Resources, Inc., Mariner LP LLC, and Mariner Energy Texas LP (incorporated by reference to Exhibit
1.1 to Mariners Form 8-K filed on April 26, 2007). |
|
|
|
10.2*
|
|
Purchase Agreement, dated as of April 19, 2006, among Mariner Energy, Inc., Mariner LP LLC,
Mariner Energy Resources, Inc., Mariner Energy Texas LP and the initial purchasers party thereto
(incorporated by reference to Exhibit 10.1 to Mariners Form 8-K filed on April 25, 2006). |
|
|
|
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. |
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
47