UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

MARINER ENERGY, INC.

Delaware (State or other jurisdiction of incorporation or organization)		86-0460233 (I.R.S. Employer Identification Number)

One BriarLake Plaza, Suite 2000
2000 West Sam Houston Parkway South
Houston, Texas 77042
(Address of principal executive offices and zip code)

(713) 954-5500
(Registrant’s telephone number, including area code)

     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 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):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     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 August 5, 2008, there were 88,853,874 shares issued and outstanding of the issuer’s common stock, par value $0.0001 per share.

 

 

TABLE OF CONTENTS

PART I
Item 1. Consolidated Financial Statements (unaudited)			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			36
PART II
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 4. Submission of Matters to a Vote of Security Holders			38
Item 6. Exhibits			38
Consent of Ryder Scott Company, L.P.
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 1350
Certification of CFO Pursuant to Section 1350

PART I

Item 1. Consolidated Financial Statements

MARINER ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

		June 30,				December 31,
		2008				2007
Current Assets:
Cash and cash equivalents		$	41,269			$	18,589
Receivables, net of allowances of $2,637 and $2,449 as of June 30, 2008 and December 31, 2007, respectively			289,214				157,774
Insurance receivables			10,800				26,683
Derivative financial instruments			—				11,863
Intangible assets			5,422				17,209
Prepaid expenses and other			14,906				10,630
Deferred tax asset			119,669				6,232
Total current assets			481,280				248,980
Property and Equipment:
Proved oil and gas properties, full-cost method			3,775,421				3,118,273
Unproved properties, not subject to amortization			126,853				40,455
Total oil and gas properties			3,902,274				3,158,728
Other property and equipment			66,258				15,545
Accumulated depreciation, depletion and amortization			(1,004,492	)			(754,079	)
Total property and equipment, net			2,964,040				2,420,194
Restricted Cash			—				5,000
Goodwill			295,598				295,598
Insurance Receivables			28,145				56,924
Derivative Financial Instruments			—				691
Other Assets, net of amortization			62,166				56,248
TOTAL ASSETS		$	3,831,229			$	3,083,635
Current Liabilities:
Accounts payable		$	18,090			$	1,064
Accrued liabilities			135,661				96,936
Accrued capital costs			210,510				159,010
Abandonment liability			52,421				30,985
Accrued interest			9,848				7,726
Derivative financial instruments			333,416				19,468
Total current liabilities			759,946				315,189
Long-Term Liabilities:
Abandonment liability			208,430				191,021
Deferred income tax			420,885				343,948
Derivative financial instruments			102,459				25,343
Long-term debt, bank credit facility			350,000				179,000
Long-term debt, senior unsecured notes			600,000				600,000
Other long-term liabilities			54,656				38,115
Total long-term liabilities			1,736,430				1,377,427
Commitments and Contingencies (see Note 8)
Minority Interest			189				1
Stockholders’ Equity:
Preferred stock, $.0001 par value; 20,000,000 shares authorized, no shares issued and outstanding at June 30, 2008 and December 31, 2007			—				—
Common stock, $.0001 par value; 180,000,000 shares authorized, 88,820,553 shares issued and outstanding at June 30, 2008; 180,000,000 shares authorized, 87,229,312 shares issued and outstanding at December 31, 2007			9				9
Additional paid-in capital			1,057,787				1,054,089
Accumulated other comprehensive loss			(278,144	)			(22,576	)
Accumulated retained earnings			555,012				359,496
Total stockholders’ equity			1,334,664				1,391,018
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,831,229			$	3,083,635

The accompanying notes are an integral part of these consolidated financial statements

MARINER ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
Revenues:
Natural gas		$	250,278			$	134,082			$	429,901			$	274,614
Oil			144,556				66,678				258,170				127,129
Natural gas liquids			33,057				11,413				54,038				20,562
Other revenues			1,561				908				3,240				2,381
Total revenues			429,452				213,081				745,349				424,686
Costs and Expenses:
Lease operating expense			55,315				38,601				100,147				72,072
Severance and ad valorem taxes			5,263				2,888				9,873				5,878
Transportation expense			4,197				1,403				7,216				3,305
General and administrative expense			14,360				12,878				26,286				24,054
Depreciation, depletion and amortization			141,454				93,799				260,772				192,655
Other miscellaneous expense			677				294				1,214				462
Total costs and expenses			221,266				149,863				405,508				298,426
OPERATING INCOME			208,186				63,218				339,841				126,260
Other Income (Expense):
Interest income			281				231				607				522
Interest expense, net of amounts capitalized			(17,563	)			(13,873	)			(36,134	)			(26,220	)
Other income (expense)			—				(373	)			—				5,058
Income Before Taxes and Minority Interest			190,904				49,203				304,314				105,620
Provision for Income Taxes			(67,416	)			(16,245	)			(108,610	)			(34,455	)
Minority Interest Expense			(98	)			—				(188	)			—
NET INCOME		$	123,390			$	32,958			$	195,516			$	71,165
Earnings per share:
Net income per share—basic		$	1.40			$	0.38			$	2.23			$	0.83
Net income per share—diluted		$	1.39			$	0.38			$	2.21			$	0.83
Weighted average shares outstanding—basic			87,983,902				85,627,433				87,638,816				85,585,072
Weighted average shares outstanding—diluted			88,828,904				85,905,296				88,430,344				85,767,175

The accompanying notes are an integral part of these consolidated financial statements

MARINER ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Six Months
		Ended June 30,
		2008				2007
Operating Activities:
Net income		$	195,516			$	71,165
Adjustments to reconcile net income to net cash provided by operating activities:
Allowance for doubtful receivables			188				(840	)
Deferred income tax			105,075				34,205
Depreciation, depletion and amortization			260,772				192,655
Amortization of deferred financing costs			1,466				1,272
Ineffectiveness of derivative instruments			6,474				2,047
Share-based compensation			7,172				3,414
Minority interest			188				—
Changes in operating assets and liabilities:
Receivables			(131,078	)			(15,087	)
Insurance receivables			57,083				(20,125	)
Prepaid expenses and other			(62	)			(2,172	)
Accounts payable and accrued liabilities			48,686				17,363
Net cash provided by operating activities			551,480				283,897
Investing Activities:
Acquisitions and additions to oil and gas properties			(652,910	)			(256,494	)
Additions to other property and equipment			(48,605	)			(906	)
Property conveyances			—				1,103
Restricted cash designated for investment			5,000				31,830
Net cash used in investing activities			(696,515	)			(224,467	)
Financing Activities:
Credit facility borrowings			630,000				142,000
Credit facility repayments			(459,000	)			(496,000	)
Proceeds from note offering			—				300,000
Deferred offering costs			—				(6,491	)
Repurchase of stock			(4,014	)			—
Proceeds from exercise of stock options			729				629
Net cash provided by (used in) financing activities			167,715				(59,862	)
Increase (Decrease) in Cash and Cash Equivalents			22,680				(432	)
Cash and Cash Equivalents at Beginning of Period			18,589				9,579
Cash and Cash Equivalents at End of Period		$	41,269			$	9,147
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest, net of amount capitalized		$	31,101			$	20,808
Income taxes, net of refunds		$	1,100			$	250

The accompanying notes are an integral part of these consolidated financial statements

MARINER ENERGY, INC. AND SUBSIDIARIES

NOTES TO THE 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 West Texas 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 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 SEC 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. The unaudited consolidated financial statements included herein should be read in conjunction with the Financial Statements and Notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

     Use of Estimates — The preparation of the 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. Our most significant financial estimates are based on remaining proved natural gas and oil reserves. Estimates of proved reserves are key components of our depletion rate for natural gas and oil properties, our unevaluated properties and our 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 — Our consolidated financial statements as of June 30, 2008 and December 31, 2007 include our accounts and the accounts of our subsidiaries. All inter-company balances and transactions have been eliminated.

     Reclassifications — Certain prior year amounts have been reclassified to conform to current year presentation. These reclassifications had no effect on total operating income or net income. Amounts for producing overhead recovery were presented as General and administrative expense in the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2007. These amounts are presented herein as Lease operating expense for comparability to 2008 presentation.

     Income Taxes — Our 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 uncertain tax positions during the six months ended June 30, 2008. For a detail of the Company’s uncertain positions, please refer to Note 9, “Income Taxes” to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

     Recent Accounting Pronouncements — In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. The FASB believes that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. The Company does not expect the adoption of SFAS No. 162 to have a material effect on its results of operations or financial position.

     In April 2008, the FASB issued Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” FSP 142-3 is effective for financial statements issued after December 15, 2008. The Company does not expect the adoption of FSP 142-3 to have a material effect on its results of operations or financial position.

     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”). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”); and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. SFAS 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit-risk related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. The Company is currently evaluating the provisions of SFAS 161.

     In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 141(R) will have an impact on accounting for business combinations with the effect dependent upon acquisitions at that time.

     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 parent’s ownership interest and the valuation of retained non-controlling 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 non-controlling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has not determined the effect that the application of SFAS 160 will have on its consolidated financial statements.

     In April 2007, the FASB issued FASB Interpretation No. 39-1, “Amendment of FASB Interpretation No. 39” (“FIN 39-1”), which addresses certain modifications to FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts,” and whether a reporting entity that is party to a master netting arrangement can offset fair value amounts recognized for the right to reclaim or obligation to return cash collateral against fair value amounts recognized for derivative instruments that have been offset under the same master netting arrangement in accordance with Interpretation 39. FIN 39-1 is effective for fiscal years beginning after November 15, 2007. The provisions of FIN 39-1 were consistent with the Company’s accounting practice. The adoption of FIN 39-1 did not impact the consolidated financial statements of the Company.

     During February 2007, the FASB issued SFAS No 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value, and thereby mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for the Company as of January 1, 2008. SFAS 159 did not have an impact on the Company’s Consolidated Financial Statements as the Company elected not to measure at fair value additional financial assets and liabilities not already required to be measured at fair value.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather it eliminates inconsistencies in the guidance found in various prior accounting pronouncements. SFAS 157 was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP is effective for financial statements issued during fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. Accordingly, our adoption of SFAS 157 was limited to financial assets and liabilities, which primarily affects the valuation of the Company’s derivative contracts. The adoption of SFAS 157 with respect to financial assets and liabilities did not have a material impact on our net asset values (see Note 11). The Company is still in the process of evaluating SFAS 157 with respect to its effect on nonfinancial assets and liabilities and therefore has not yet determined the impact that it will have on its financial statements upon full adoption in 2009. Nonfinancial assets and liabilities for which the Company has not applied the provisions of SFAS 157 include its asset retirement obligations and assets held for future sale.

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 approximately $243.0 million, subject to customary purchase price adjustments, including $8.0 million for reimbursement of drilling costs attributable to the High Island 166 #5 well. The acquisition was financed by borrowing under Mariner’s bank credit facility.

     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								For the Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(In thousands, except per share amounts)
Pro Forma:
Revenue		$	429,168			$	276,539			$	760,042			$	542,860
Net income available to common stockholders		$	123,443			$	47,151			$	199,071			$	95,132
Basic earnings per share		$	1.40			$	0.55			$	2.27			$	1.11
Diluted earnings per share		$	1.39			$	0.55			$	2.25			$	1.11

     West Texas Acquisitions. On December 31, 2007 and February 29, 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 price, subject to customary purchase price adjustments, for the December 2007 acquisition was approximately $122.5 million, which Mariner financed under its bank credit facility, and for the February 2008 acquisition was approximately $21.7 million which Mariner funded with cash flow from operations.

     Interest in Cottonwood — On December 1, 2006, Mariner completed the sale of its 20% interest in Garden Banks 244 (Cottonwood) to Petrobras America, Inc., for $31.8 million. The sale was effective November 1, 2006. Proceeds from the sale were deposited in trust with a qualified intermediary to preserve Mariner’s ability to reinvest them in a tax-deferred, like-kind exchange transaction for federal income tax purposes. Inasmuch as Mariner elected not to identify replacement like-kind property to facilitate the exchange, proceeds and related interest totaling $32.0 million were disbursed to Mariner on January 19, 2007 and used to repay borrowings under its bank credit facility. No gain was recorded for book purposes on this disposition.

3. Long-Term Debt

     Bank Credit Facility — On June 2, 2008, the Company’s secured bank credit facility was amended to increase the borrowing base to $850.0 million. On January 31, 2008, the credit facility was amended to:

	•		increase the facility’s maximum credit availability to $1.0 billion, including up to $50.0 million in letters of credit,
	•		fix the borrowing base at $750.0 million as of January 31, 2008,
	•		extend the facility’s term to January 31, 2012,
	•		terminate a dedicated $40.0 million letter of credit facility due to Mariner’s satisfaction of its obligations under a drill-to-earn program, and
	•		add as a permitted use of loan proceeds the funding of Mariner’s purchase of MGOM.

     The Company’s payment and performance of its obligations under the bank 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. Borrowings under the bank credit facility bear interest at either a LIBOR-based rate or a prime-based rate, at the Company’s option, plus a specified margin.

     As of June 30, 2008 and December 31, 2007, $350.0 million and $179.0 million, respectively, was outstanding under the bank credit facility and the interest rate was 3.70% and 7.25%, respectively. In addition, as of June 30, 2008, four letters of credit totaling $4.7 million were outstanding, of which $4.2 million was required for plugging and abandonment obligations at certain of the Company’s offshore fields.

     The bank credit facility contains various restrictive covenants and other usual and customary terms and conditions, including limitations on the payment of cash dividends and other restricted payments, the incurrence of additional debt, the sale of assets, and speculative hedging. The Company was in compliance with the financial covenants under the bank credit facility as of June 30, 2008.

     The Company must pay a commitment fee of 0.250% to 0.375% per year on the unused availability under the bank credit facility. As of June 30, 2008, the Company had $495.3 million of borrowings available under the credit facility.

     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 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.

     Capitalized Interest — For the three-month periods ended June 30, 2008 and 2007, capitalized interest totaled $0.7 million and $0.1 million, respectively. For the six-month periods ended June 30, 2008 and 2007, capitalized interest totaled $0.9 million and $0.3 million, respectively.

4. Oil and Gas Properties

     Mariner’s 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 certain general and administrative expenses (“G&A”). For the three-month periods ended June 30, 2008 and 2007, capitalized G&A totaled $5.1 million and $2.3 million, respectively. For the six-month periods ended June 30, 2008 and 2007, capitalized G&A totaled $9.7 million and $4.5 million, respectively. Amortization of oil and gas properties is calculated using the unit-of-production method based on estimated proved oil and gas reserves.

     GAAP requires that a quarterly full-cost ceiling limitation calculation be performed whereby net capitalized costs related to proved and unproved properties, less related deferred income taxes, may not exceed a ceiling limitation. The ceiling limitation is the amount equal to the present value discounted at 10% of estimated future net revenues from estimated proved reserves plus the lower of cost or fair value of unproved properties less estimated future production and development costs, all net of related income tax effect. 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 differential. 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 133 to hedge against the volatility of oil and natural gas prices and, in accordance with SEC guidelines, the Company includes estimated future cash flows from its hedging program in its ceiling test calculation. If net capitalized costs, less related deferred income taxes, were to exceed the ceiling limitation, the excess would be impaired and a permanent write-down would be recorded in the Consolidated Statements of Operations.

Additional guidance was provided in Staff Accounting Bulletin No. 47, Topic 12(D)(c)(3), primarily regarding the use of cash flow hedges, asset retirement obligations, and the effect of subsequent events on the ceiling test calculation. Mariner had no write downs due to the ceiling test for the current quarter.

5. Accrual for Future Abandonment Liabilities

     SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”), addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted SFAS No. 143 on January 1, 2003. SFAS No. 143 requires that the fair value of a liability for an asset’s retirement obligation be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. 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.

     To estimate the fair value of an asset retirement obligation, the Company employs a present value technique, which reflects certain assumptions, including the Company’s 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.

		(In thousands)
Abandonment liability as of December 31, 2007 (1)		$	222,006
Liabilities Incurred			6,364
Liabilities Settled			(25,179	)
Accretion Expense			10,359
Revisions to previous estimates			2,881
Liabilities from assets acquired			44,420
Abandonment liability as of June 30, 2008 (2)		$	260,851

6. Stockholders’ Equity

     Mariner recorded compensation expense related to restricted stock and stock options of $4.6 million and $1.8 million for the three-month periods ended June 30, 2008 and 2007, respectively, and $7.2 million and $3.4 million for the six-month periods ended June 30, 2008 and 2007, respectively. Unrecognized compensation expense at June 30, 2008 was $74.5 million for the unvested portion of restricted stock granted under its Stock Incentive Plan, as amended and restated from time to time (the “Stock Incentive Plan”), and $151,000 for unvested options, of which $4,000 was attributable to unvested options granted under the Stock Incentive Plan and $148,000 was attributable to unvested rollover options granted in connection with a March 2006 merger transaction.

     The following table presents a summary of stock option activity under the Stock Incentive Plan and under rollover options granted for the six months ended June 30, 2008.

						Weighted
						Average
						Exercise				Aggregate
		Shares				Price				IntrinsicValue (1)
										(In thousands)
Outstanding at beginning of year			720,488			$	13.82			$	16,679
Granted			—				—				—
Exercised (2)			(55,160	)			13.21				(1,311	)
Forfeited			(18,000	)			14.00				(413	)
Outstanding at June 30, 2008			647,328				13.87			$	14,955

     A summary of the activity for unvested restricted stock awards under the Stock Incentive Plan as of June 30, 2008 and 2007, respectively, and changes during the six-month periods is as follows:

		Restricted Shares under
		Stock Incentive Plan
		June 30,
		2008				2007
Total unvested shares at beginning of period: January 1			1,484,552				875,380
Shares granted (1)			1,683,316				799,694
Shares vested			(432,606	)			(207,053	)
Shares forfeited			(17,214	)			(24,266	)
Total unvested shares at end of period: June 30			2,718,048				1,443,755
Available for future grant as options or restricted stock			2,554,720				4,146,100

7. Derivative Financial Instruments and Hedging Activities

     The energy markets historically have been very volatile, and Mariner 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 the Company’s 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 Mariner’s 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. Loss of hedge accounting and cash flow designation will cause volatility in earnings. The fair values Mariner reports in its

financial statements change as estimates are revised to reflect actual results, changes in market conditions or other factors, many of which are beyond Mariner’s control.

     The effects on Mariner’s oil and natural gas revenues from its hedging activities were as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
						(In thousands)
Cash (Loss) Gain on Settlements		$	(64,607	)		$	6,868			$	(74,914	)		$	30,490
(Loss) Gain on Hedge Ineffectiveness (1)			(2,550	)			101				(6,474	)			(2,047	)
Total		$	(67,157	)		$	6,969			$	(81,388	)		$	28,443

     As of June 30, 2008, the Company had the following hedge contracts outstanding:

										June 30,
						Weighted Average				2008 Fair Value
Fixed Price Swaps		Quantity				Fixed Price				Liability
		(In thousands)
Natural Gas (MMbtus)
July 1—December 31, 2008			17,542,192			$	8.41			$	(88,138	)
January 1—December 31, 2009			31,642,084			$	8.48				(121,670	)
Crude Oil (Bbls)
July 1—December 31, 2008			1,023,040			$	78.80				(62,517	)
January 1—December 31, 2009			2,172,210			$	76.15				(131,664	)
Total										$	(403,989	)

														June 30,
						Weighted Average				Weighted Average				2008 Fair Value
Costless Collars		Quantity				Floor				Cap				Liability
		(In thousands)
Natural Gas (MMbtus)
July 1—December 31, 2008			5,704,000			$	7.83			$	14.60			$	(4,045	)
Crude Oil (Bbls)
July 1—December 31, 2008			521,640			$	61.65			$	86.80				(27,841	)
Total														$	(31,886	)

     As of June 30, 2008, the Company expects $333.4 million in accumulated other comprehensive income to be reclassified as a decrease to natural gas and oil revenues within the next 12 months. As of August 5, 2008, the Company had not entered into any hedge transactions subsequent to June 30, 2008.

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 Company’s operating leases in effect at June 30, 2008 are as follows:

		(In thousands)
2009		$	2,217
2010			2,489
2011			2,499
2012			2,414
2013 and thereafter			11,961

     Other Commitments — In the ordinary course of business, the Company enters into long-term commitments to purchase seismic data. At June 30, 2008 and December 31, 2007, the Company’s seismic obligations totaled $5.4 million and $14.6 million, respectively. At June 30, 2008, the Company also has a long-term commitment for

contracted drilling services of $136.8 million, of which $85.6 million and $51.2 million is due in 2008 and 2009, respectively.

     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. The RRA relieved lessees of the obligation to pay royalties on certain leases until a designated volume was produced. Four of these leases held by the Company and one held by MERI that are producing or have produced contain language that limits royalty relief if commodity prices exceed predetermined levels. Since 2000, commodity prices have exceeded some of the predetermined levels, except in 2002. The Company and MERI believe the MMS did not have the authority to include commodity price threshold language in these leases and have withheld payment of royalties on the leases while disputing the MMS’ authority in pending proceedings on those leases that the MMS has issued orders to pay. The Company has recorded a liability for its estimated exposure on these leases, which at June 30, 2008 was $47.3 million, including interest. The potential liability of MERI under its lease relates to production from the lease commencing July 1, 2005, the effective date of Mariner’s acquisition of MERI.

     In May 2006, the MMS issued an order asserting price thresholds were exceeded in calendar years 2000, 2001, 2003 and 2004 and, accordingly, that royalties were due under such leases on oil and gas produced in those years. Mariner has filed and is pursuing an administrative appeal of that order. The MMS has not yet made demand for non-payment of royalties alleged to be due for calendar years subsequent to 2004 on the basis of price thresholds being exceeded.

     The enforceability of the price threshold provisions of leases granted pursuant to the RRA currently is being litigated in several administrative appeals filed by other companies in addition to Mariner.

  Insurance Matters

  Hurricanes Katrina and Rita (2005)

     In 2005, the Company’s 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 through June 30, 2008, Mariner incurred approximately $157.5 million in hurricane expenditures resulting from Hurricanes Katrina and Rita. As of June 30, 2008, insurance recoveries totaled approximately $59.6 million, of which $2.5 million was received in 2007, $8.6 million was received in April 2008 and $48.5 million was received in May 2008 as discussed below.

     Insurance through which Mariner could make claims pertaining to Hurricanes Katrina and Rita includes policies provided by OIL Insurance Limited (“OIL”), an energy industry insurance cooperative, and separate commercial difference-in-coverage or excess insurance policies.  As to those hurricanes, OIL applies to properties Mariner acquired from Forest Oil Corporation (“Forest”) in 2006 and 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 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 accordingly, Mariner’s insurance recovery is expected to be reduced pro-rata with all other competing claims from the storms.

     At June 30, 2008, the OIL insurance receivable balance for Mariner’s Hurricane Katrina and Rita claims was approximately $34.8 million, of which $28.1 million is classified as a long-term asset. Due to the magnitude of the storms and the complexity of the insurance claims being processed, the timing of Mariner’s ultimate insurance recovery from OIL cannot be ascertained. Mariner expects to maintain a potentially significant insurance receivable for the indefinite future while it actively pursues settlement of OIL claims to minimize the impact to working capital and liquidity. Any differences between Mariner’s insurance recoveries and insurance receivables will be recorded as adjustments to oil and natural gas properties.

     Mariner also had excess insurance applicable to damage from Hurricanes Katrina and Rita under separate policies for assets acquired from Forest in 2006 and legacy properties. In May 2008, Mariner agreed to a settlement

with its insurers and underwriters for certain excess coverage claims related to property damage caused by Hurricanes Katrina and Rita to assets acquired from Forest. Net proceeds to Mariner were approximately $48.5 million. The settled excess coverage claims encompass assets on the continental shelf acquired from Forest, including properties located in the South Pass, Grand Isle, Garden Banks, Main Pass, South Timbalier, and Eugene Island lease areas. Settled claims include those for costs associated with physical impairment, debris removal, seepage and pollution clean up, and well control, as well as increased costs associated with plugging and abandonment of wells and facilities at those fields. The settled excess coverage claims are independent of the Company’s pending claims made through OIL. Mariner does not anticipate recovery of excess insurance applicable to its legacy properties as the associated $3.8 million deductible has not been satisfied.

  Hurricane Ivan (2004)

     In September 2004, Mariner incurred damage from Hurricane Ivan that affected the Mississippi Canyon 66, known as Ochre (“Ochre”) and Mississippi Canyon 357 fields. Ochre production was shut-in until September 2006, when production recommenced at approximately the same net rate. Mississippi Canyon 357 production was shut-in until March 2005, when necessary repairs were completed and production recommenced; however, production was subsequently shut-in due to Hurricane Katrina and recommenced in the first quarter of 2007. Since 2004 through June 30, 2008, Mariner incurred approximately $9.4 million of property damage related to Hurricane Ivan. As of June 30, 2008, approximately $2.4 million has been recovered through insurance, with the balance of $4.1 million, net of deductible, recorded as insurance receivable.

     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. See “MMS Proceedings” above.

     Letters of Credit — On March 2, 2006, Mariner obtained an additional dedicated $40.0 million letter of credit under its bank credit facility that was not included as a use of the borrowing base. The balance of this letter of credit as of December 31, 2007 was $3.2 million. In January 2008, the letter of credit was reduced to zero and was cancelled.

     Mariner’s bank credit facility also has a letter of credit facility for up to $50.0 million that is included as a use of the borrowing base. As of June 30, 2008, four such letters of credit totaling $4.7 million were outstanding.

     Please refer to Note 3, “Long-Term Debt” for further discussion of these letters of credit.

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.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(In thousands, except per share data)
Numerator:
Net Income		$	123,390			$	32,958			$	195,516			$	71,165
Denominator:
Weighted average shares outstanding			87,984				85,627				87,639				85,585
Add dilutive securities			845				278				791				182
Total weighted average shares outstanding and dilutive securities		$	88,829			$	85,905			$	88,430			$	85,767
Earnings per share—basic		$	1.40			$	0.38			$	2.23			$	0.83
Earnings per share—diluted		$	1.39			$	0.38			$	2.21			$	0.83

     Those shares issuable upon exercise of options to purchase common stock that would have been anti-dilutive are excluded from the computation of diluted earnings per share. Approximately 367,000 and 376,000 shares issuable upon exercise of stock options were excluded from the computation for the three months and six months ended June 30, 2008, respectively. Approximately 547,000 and 578,000 shares issuable upon exercise of stock options were excluded from the computation for the three months and six months ended June 30, 2007, respectively.

     Please refer to Note 6, “Stockholders’ Equity” for option and restricted stock activity for the six months ended June 30, 2008 and 2007.

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-month and six-month periods ended June 30, 2008 and 2007.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2008				2007				2008				2007
		(in thousands)								(in thousands)
Net Income		$	123,390			$	32,958			$	195,516			$	71,165
Other comprehensive (loss) income:
Derivative contracts settled and reclassified, net of income taxes of ($23,910), $2,445, ($28,977) and $9,979			(43,247	)			4,523				(52,411	)			18,464
Change in unrealized mark-to-market losses arising during period, net of income taxes of ($67,487), ($2,235), ($124,800) and ($29,358)			(122,068	)			(4,134	)			(203,157	)			(52,329	)
Change in accumulated other comprehensive (loss) gain			(165,315	)			389				(255,568	)			(33,865	)
Comprehensive (loss) income		$	(41,925	)		$	33,347			$	(60,052	)		$	37,300

11. Fair Value Measurement

     Certain of Mariner’s assets and liabilities are reported at fair value in the accompanying 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 June 30, 2008 and December 31, 2007. 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 3 inputs are unobservable (meaning they reflect Mariner’s 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 instrument’s 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 Mariner’s credit rating.

     The following table provides fair value measurement information for the Company’s derivative financial instruments as of June 30, 2008.

		As of June 30, 2008
										Fair Value Measurements Using:
														Significant
										Quoted Prices				other				Significant
										in Active				Observable				Unobservable
		Carrying				Total Fair				Markets				Inputs				Inputs
		Amount				Value				(Level 1)				(Level 2)				(Level 3)
Derivative Financial Instruments										(In thousands)
Crude oil and natural gas fixed price swaps and costless collars – Short Term		$	(333,416	)		$	(333,416	)		$	—			$	(301,530	)		$	(31,886	)
Crude oil and natural gas fixed price swaps and costless collars – Long Term			(102,459	)			(102,459	)			—				(102,459	)			—
Total		$	(435,875	)		$	(435,875	)		$	—			$	(403,989	)		$	(31,886	)

     The following methods and assumptions were used to estimate the fair values of Mariner’s derivative financial instruments in the table above.

Level 2 Fair Value Measurements

     The fair values of the crude oil and natural gas 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 Mariner’s credit rating as of June 30, 2008.

Level 3 Fair Value Measurements

     The fair values of the crude oil and natural gas costless collars are estimated valuations using the Black-Scholes valuation model based upon the forward commodity price curves, implied volatilities of commodities, and a credit adjustment based on Mariner’s credit rating as of June 30, 2008. The following table provides fair value measurement information for the Company’s Level 3 financial instruments as of June 30, 2008.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

		For the Three				For the Six
		Months Ended				Months Ended
		June 30, 2008				June 30, 2008
		(In thousands)
Fair value of costless collars, beginning of period		$	(13,536	)		$	(4,058	)
Total gains/(losses):
Included in natural gas and oil revenues (realized/unrealized)			(11,697	)			(15,703	)
Included in other comprehensive loss (realized/unrealized)			(18,350	)			(27,828	)
Purchases, issuances, and settlements, net			11,697				15,703
Transfers in and/or out of Level 3			—				—
Fair value of costless collars, end of period		$	(31,886	)		$	(31,886	)
The amount of net losses for the period included in earnings attributable to the change in net unrealized losses relating to costless collars still held at the reporting date		$	—			$	—

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 they 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.

     Mariner 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 oil and natural gas. All operations are located in the United States. Mariner tracks basic operational data by area, but inasmuch as it is one enterprise, it does not maintain comprehensive financial statement information by area.

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 Company’s existing and future domestic subsidiaries (“Subsidiary Guarantors”).

     The following information sets forth Mariner’s Consolidating Balance Sheets as of June 30, 2008 and December 31, 2007, Condensed Consolidating Statements of Operations for the three months and six months ended June 30, 2008 and 2007, and Condensed Consolidating Statements of Cash Flows for the six months ended June 30, 2008 and 2007.

     Mariner accounts for investments in its subsidiaries on the consolidation method; accordingly, entries necessary to consolidate Mariner, the parent company, and its Subsidiary Guarantors are reflected in the eliminations column. In the opinion of management, separate complete financial statements of the Subsidiary Guarantors would not provide additional material information that would be useful in assessing their financial composition.

MARINER ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
June 30, 2008
(In thousands except share data)
(Unaudited)

														Consolidated
		Parent				Subsidiary								Mariner
		Company				Guarantors				Eliminations				Energy, Inc.
Current Assets:
Cash and cash equivalents		$	38,127			$	3,142			$	—			$	41,269
Receivables, net of allowances			134,849				154,365				—				289,214
Insurance receivables			3,950				6,850				—				10,800
Intangible assets			5,422				—				—				5,422
Prepaid expenses and other			12,527				2,379				—				14,906
Deferred tax asset			119,669				—				—				119,669
Total current assets			314,544				166,736				—				481,280
Property and Equipment:
Proved oil and gas properties, full-cost method			1,773,717				2,001,704				—				3,775,421
Unproved properties, not subject to amortization			113,010				13,843				—				126,853
Total oil and gas properties			1,886,727				2,015,547				—				3,902,274
Other property and equipment			33,050				33,208				—				66,258
Accumulated depreciation, depletion and amortization			(537,309	)			(467,183	)			—				(1,004,492	)
Total property and equipment, net			1,382,468				1,581,572				—				2,964,040
Investment in Subsidiaries			1,171,614				—				(1,171,614	)			—
Intercompany Receivables / (Payables)			292,088				(292,088	)			—				—
Goodwill			—				295,598				—				295,598
Insurance Receivables			—				28,145				—				28,145
Other Assets, net of amortization			61,154				1,012				—				62,166
TOTAL ASSETS		$	3,221,868			$	1,780,975			$	(1,171,614	)		$	3,831,229
Current Liabilities:
Accounts payable		$	18,090			$	—			$	—			$	18,090
Accrued liabilities			99,710				35,951				—				135,661
Accrued capital costs			151,841				58,669				—				210,510
Abandonment liability			4,222				48,199				—				52,421
Accrued interest			9,848				—				—				9,848
Derivative financial instruments			333,416				—				—				333,416
Total current liabilities			617,127				142,819				—				759,946
Long-Term Liabilities:
Abandonment liability			53,710				154,720				—				208,430
Deferred income tax			113,874				307,011				—				420,885
Derivative financial instruments			102,459				—				—				102,459
Long-term debt, bank credit facility			350,000				—				—				350,000
Long-term debt, senior unsecured notes			600,000				—				—				600,000
Other long-term liabilities			50,034				4,622				—				54,656
Total long-term liabilities			1,270,077				466,353				—				1,736,430
Commitments and Contingencies (see Note 8)
Minority Interest			—				189				—				189
Stockholders’ Equity:
Preferred stock, $.0001 par value; 20,000,000 shares authorized, no shares issued and outstanding at June 30, 2008			—				—				—				—
Common stock, $.0001 par value; 180,000,000 shares authorized, 88,820,553 shares issued and outstanding at June 30, 2008			9				5				(5	)			9
Additional paid-in capital			1,057,787				886,142				(886,142	)			1,057,787
Partner capital			—				29,192				(29,192	)			—
Accumulated other comprehensive loss			(278,144	)			—				—				(278,144	)
Accumulated retained earnings			555,012				256,275				(256,275	)			555,012
Total stockholders’ equity			1,334,664				1,171,614				(1,171,614	)			1,334,664
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,221,868			$	1,780,975			$	(1,171,614	)		$	3,831,229

MARINER ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
December 31, 2007
(In thousands except share data)
(Unaudited)

														Consolidated
		Parent				Subsidiary								Mariner
		Company				Guarantors				Eliminations				Energy, Inc.
Current Assets:
Cash and cash equivalents		$	18,589			$	—			$	—			$	18,589
Receivables, net of allowances			64,727				93,047				—				157,774
Insurance receivables			3,950				22,733				—				26,683
Derivative financial instruments			11,863				—				—				11,863
Intangible assets			16,209				1,000				—				17,209
Prepaid expenses and other			9,092				1,538				—				10,630
Deferred tax asset			6,232				—				—				6,232
Total current assets			130,662				118,318				—				248,980
Property and Equipment:
Proved oil and gas properties, full-cost method			1,469,989				1,648,284				—				3,118,273
Unproved properties, not subject to amortization			40,025				430				—				40,455
Total oil and gas properties			1,510,014				1,648,714				—				3,158,728
Other property and equipment			15,495				50				—				15,545
Accumulated depreciation, depletion and amortization			(403,159	)			(350,920	)			—				(754,079	)
Total property and equipment, net			1,122,350				1,297,844				—				2,420,194
Investment in Subsidiaries			1,014,548				—				(1,014,548	)			—
Intercompany Receivables / (Payables)			222,215				(222,215	)			—				—
Restricted Cash			—				5,000				—				5,000
Goodwill			—				295,598				—				295,598
Insurance Receivables			2,663				54,261				—				56,924
Derivative Financial Instruments			691				—				—				691
Other Assets, net of amortization			55,607				641				—				56,248
TOTAL ASSETS		$	2,548,736			$	1,549,447			$	(1,014,548	)		$	3,083,635
Current Liabilities:
Accounts payable		$	1,064			$	—			$	—			$	1,064
Accrued liabilities			70,467				26,469				—				96,936
Accrued capital costs			85,839				73,171				—				159,010
Abandonment liability			4,383				26,602				—				30,985
Accrued interest			7,726				—				—				7,726
Derivative financial instruments			19,468				—				—				19,468
Total current liabilities			188,947				126,242				—				315,189
Long-Term Liabilities:
Abandonment liability			49,827				141,194				—				191,021
Deferred income tax			80,095				263,853				—				343,948
Derivative financial instruments			25,343				—				—				25,343
Long-term debt, bank credit facility			179,000				—				—				179,000
Long-term debt, senior unsecured notes			600,000				—				—				600,000
Other long-term liabilities			34,506				3,609				—				38,115
Total long-term liabilities			968,771				408,656				—				1,377,427
Commitments and Contingencies (see Note 8)
Minority Interest			—				1				—				1
Stockholders’ Equity:
Preferred stock, $.0001 par value; 20,000,000 shares authorized, no shares issued and outstanding at December 31, 2007			—				—				—				—
Common stock, $.0001 par value; 180,000,000 shares authorized, 87,229,312 shares issued and outstanding at December 31, 2007			9				5				(5	)			9
Additional paid-in capital			1,054,089				886,142				(886,142	)			1,054,089
Partner capital			—				6,000				(6,000	)			—
Accumulated other comprehensive loss			(22,576	)			—				—				(22,576	)
Accumulated retained earnings			359,496				122,401				(122,401	)			359,496
Total stockholders’ equity			1,391,018				1,014,548				(1,014,548	)			1,391,018
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,548,736			$	1,549,447			$	(1,014,548	)		$	3,083,635

MARINER ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2008
(In thousands)
(Unaudited)

														Consolidated
		Parent				Subsidiary								Mariner
		Company				Guarantors				Eliminations				Energy, Inc.
Revenues:
Natural gas		$	110,905			$	139,373			$	—			$	250,278
Oil			76,215				68,341				—				144,556
Natural gas liquids			25,541				7,516				—				33,057
Other revenues			41				1,520				—				1,561
Total revenues			212,702				216,750				—				429,452
Costs and Expenses:
Operating expenses			31,769				33,006				—				64,775
General and administrative expense			14,189				171				—				14,360
Depreciation, depletion and amortization			76,425				65,029				—				141,454
Other miscellaneous expense			640				37				—				677
Total costs and expenses			123,023				98,243				—				221,266
OPERATING INCOME			89,679				118,507				—				208,186
Earnings of Affiliates			88,686				—				(88,686	)			—
Other Income (Expense):
Interest income			2,491				15				(2,225	)			281
Interest expense, net of amounts capitalized			(17,433	)			(2,355	)			2,225				(17,563	)
Income Before Taxes and Minority Interest			163,423				116,167				(88,686	)			190,904
Provision for Income Taxes			(40,033	)			(27,383	)			—				(67,416	)
Minority Interest Expense			—				(98	)			—				(98	)
NET INCOME		$	123,390			$	88,686			$	(88,686	)		$	123,390

MARINER ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2007
(In thousands)
(Unaudited)

														Consolidated
		Parent				Subsidiary								Mariner
		Company				Guarantors				Eliminations				Energy, Inc.
Revenues:
Natural gas		$	60,368			$	73,714			$	—			$	134,082
Oil			32,129				34,549				—				66,678
Natural gas liquids			7,284				4,129				—				11,413
Other revenues			908				—				—				908
Total revenues			100,689				112,392				—				213,081
Costs and Expenses:
Operating expenses			10,201				32,691				—				42,892
General and administrative expense			12,072				806				—				12,878
Depreciation, depletion and amortization			45,392				48,407				—				93,799
Other miscellaneous expense			70				224				—				294
Total costs and expenses			67,735				82,128				—				149,863
OPERATING INCOME			32,954				30,264				—				63,218
Earnings of Affiliates			17,183				—				(17,183	)			—
Other Income (Expense):
Interest income			3,872				1				(3,642	)			231
Interest expense, net of amounts capitalized			(13,818	)			(3,697	)			3,642				(13,873	)
Other income			—				(373	)			—				(373	)
Income Before Taxes and Minority Interest			40,191				26,195				(17,183	)			49,203
Provision for Income Taxes			(7,233	)			(9,012	)			—				(16,245	)
NET INCOME		$	32,958			$	17,183			$	(17,183	)		$	32,958