<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission file number 333-12707
Mariner Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware 86-0460233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)
Identification Number)
580 WestLake Park Blvd., Suite 1300
Houston, Texas 77079
(Address of principal executive offices including Zip Code)
(281) 584-5500
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 requirement for the past 90 days. Yes [_] No [X]
Note: The Company is not subject to the filing requirements of the Securities
Exchange Act of 1934. This quarterly report is filed pursuant to contractual
obligations imposed on the Company by an Indenture, dated as of August 1,
1996, under which the Company is the issuer of certain debt.
As of August 10, 2000, there were 1,380 shares of the registrant's common
stock outstanding.
<PAGE> 2
MARINER ENERGY, INC.
Form 10-Q
June 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Balance Sheets at March 31, 2000 (unaudited) and December 31, 1999....1
Statements of Operations for the three months ended March 31, 2000 and
1999 (unaudited)......................................................2
Statements of Cash Flows for the three months ended March 31, 2000 and
1999 (unaudited)......................................................3
Notes to Financial Statements (unaudited).............................4
Independent Accountants' Report ......................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................7
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................13
Item 2. Changes in Securities and Use of Proceeds............................13
Item 3. Defaults Upon Senior Securities......................................13
Item 4. Submission of Matters to a Vote of Security Holders..................13
Item 5. Other Information ...................................................13
Item 6. Exhibits and Reports on Form 8-K.....................................13
SIGNATURE ...................................................................14
</TABLE>
<PAGE> 3
Part I, Item 1.
MARINER ENERGY, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,603 $ 123
Receivables 44,411 23,683
Prepaid expenses and other 6,853 4,891
-------- --------
Total current assets 56,867 28,697
-------- --------
PROPERTY AND EQUIPMENT:
Oil and gas properties, at full cost:
Proved 417,824 379,301
Unproved, not subject to amortization 68,238 81,897
-------- --------
Total 486,062 461,198
Other property and equipment 4,082 3,982
Accumulated depreciation, depletion and
amortization (227,190) (199,233)
--------- ---------
Total property and equipment, net 262,954 265,947
OTHER ASSETS, Net of amortization 3,224 2,868
-------- --------
TOTAL ASSETS $323,045 $297,512
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 18,668 $ 30,269
Accrued liabilities 43,244 25,389
Accrued interest 4,397 5,329
-------- --------
Total current liabilities 66,309 60,987
-------- --------
OTHER LIABILITIES 5,516 4,226
LONG-TERM DEBT:
Revolving credit facility 20,000 42,600
Senior subordinated notes 99,698 99,673
Senior credit facility 0 25,000
---------- --------
Total long-term debt 119,698 167,273
------- -------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 2,000 shared authorized, 1,380 and 1,378 issued
and outstanding at June 30, 2000 and December 31,
1999 respectively 1 1
Additional paid-in-capital 227,318 172,318
Accumulated deficit (95,797) (107,293)
--------- ---------
Total stockholder's equity 131,522 65,026
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $323,045 $297,512
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
MARINER ENERGY, INC.
STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- --------------------
2000 1999 2000 1999
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Oil sales ..................... $ 9,546 $ 2,739 $ 16,691 $ 4,624
Gas sales ..................... 25,483 12,085 41,617 21,222
-------- -------- -------- --------
Total revenues ......... 35,029 14,824 58,308 25,846
-------- -------- -------- --------
COSTS AND EXPENSES:
Lease operating expenses ...... 4,277 3,189 8,470 5,764
Depreciation, depletion and
amortization ................. 16,055 8,337 28,982 15,803
General and administrative
expenses ..................... 1,526 1,282 3,254 2,821
-------- -------- -------- --------
Total costs and expenses 21,858 12,808 40,706 24,388
-------- -------- -------- --------
OPERATING INCOME ................. 13,171 2,016 17,602 1,458
INTEREST:
Income ........................ 38 11 53 21
Expense ....................... (2,767) (3,671) (6,159) (6,611)
-------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES ....... 10,442 (1,644) 11,496 (5,132)
PROVISION FOR INCOME TAXES ....... -- -- -- --
-------- -------- -------- --------
NET INCOME (LOSS) ................ $ 10,442 $ (1,644) $ 11,496 $ (5,132)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
<TABLE>
<CAPTION>
MARINER ENERGY, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Six Months Ended June 30
------------------------
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (loss) ................................ $ 11,496 $ (5,132)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation, depletion and amortization .. 29,272 16,059
Changes in operating assets and liabilities:
Receivables ............................... (20,728) (2,249)
Other current assets ...................... (1,962) (32)
Other assets .............................. (356) 222
Accounts payable and accrued liabilities .. 5,322 (27,940)
-------- --------
Net cash provided by (used in)
operating activities .................... 23,044 (19,072)
-------- --------
INVESTING ACTIVITIES:
Additions to oil and gas properties .............. (53,866) (19,000)
Proceeds from property conveyances ............... 29,002 --
Additions to other property and equipment ........ (100) (290)
-------- --------
Net cash used in investing activities.... (24,964) (19,290)
-------- --------
FINANCING ACTIVITIES:
Proceeds (payments) from revolving credit facility (22,600) (9,400)
Capital contribution from parent ............... 55,000 23,284
Proceeds (payments) from senior credit facility .. (25,000) 25,000
-------- --------
Net cash provided by financing activities 7,400 38,884
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIV .......... 5,480 522
CASH AND CASH EQUIV. AT BEGINNING OF PERIOD ......... 123 2
-------- --------
CASH AND CASH EQUIV. AT END OF PERIOD .............. $ 5,603 $ 524
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
MARINER ENERGY, INC.
Notes to Financial Statements
(unaudited)
1. Basis of Presentation
The financial statements of Mariner Energy, Inc. (the "Company") included
herein have been prepared, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Accordingly, they reflect all
adjustments (consisting only of normal, recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the financial
results for the interim periods. Certain information and notes normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Form 10-K for the year ended December 31, 1999. The results of
operations for the three and six months ending June 30, 2000 and the cash flows
for the six months ending June 30, 2000 are not necessarily indicative of the
results for the full year.
2. Oil and Gas Properties
Under the full cost method of accounting for oil and gas properties, the net
carrying value of proved oil and gas properties is limited to an estimate of the
future net revenues, discounted at 10%, from proved oil and gas reserves based
on period-end prices and costs plus the lower of cost or estimated fair value of
unproved properties.
3. Revolving Credit Facility
In April 2000 the Company requested a $10 million borrowing base increase
under the terms of the Revolving Credit Agreement. This increase was approved in
May 2000, raising the borrowing base from $60 million to $70 million.
4. Affiliate Transactions
In March and May of 2000, the Company received cash equity contributions by
sale of common stock to Mariner Holdings, Inc., the Company's parent ("Parent"),
of $30 million and $25 million, respectively. The March equity contribution was
used to reduce accounts payable and accrued liabilities, and the May equity
contribution was used to repay the Company's $25 million Senior Credit Facility
with Enron North America Corp. ("ENA"). These equity contributions were made
with proceeds from Mariner Energy LLC's three-year $112 million term loan with
ENA. Due to certain restrictions from the Company's Senior Subordinated Notes
and Revolving Credit Agreement, neither the cash flows from operations nor from
asset sales would be available to repay any portion of the Parent's term loan.
4
<PAGE> 7
5. Commitments and Contingencies
Hedging Program -- The Company conducts a hedging program with respect to its
sales of crude oil and natural gas using various instruments whereby monthly
settlements are based on the differences between the price or range of prices
specified in the instruments and the settlement price of certain crude oil and
natural gas futures contracts quoted on the open market. The instruments
utilized by the Company differ from futures contracts in that there is no
contractual obligation which requires or allows for the future delivery of the
product. The counter party to all of the Company's current contracts are with an
affiliate.
The following table sets forth the Company's position as of June 30, 2000:
<TABLE>
<CAPTION>
Notional Price
---------------------------
Time Period Quantities Floor Ceiling Fixed Fair Value
(in
millions)
<S> <C> <C> <C> <C> <C>
Natural Gas (MMBtu)
July 1 - December 31, 2000
Collar purchased................ 1,353 $2.25 $2.49 $(2.9)
Fixed price swap purchased...... 4,407 $2.18 (10.7)
January 1 - December 31, 2001
Fixed price swap purchased...... 4,501 2.18 (7.4)
January 1 - December 31, 2002
Fixed price swap purchased...... 1,831 2.18 (1.8)
Crude Oil (MBbls)
July 1 - December 31, 2000
Fixed price swap purchased...... 1,155 18.46 (9.8)
Market sensitive price swap sold (416) 24.16 2.4
-------
Total ..................... $(30.2)
=======
</TABLE>
The fair value of our hedging instruments was determined based on a broker's
forward price quote and a NYMEX forward price quote. As of June 30, 2000 a
commodity price increase of 10% would have resulted in an unfavorable change in
fair value of $8.4 million and a commodity price decrease of 10% would have
resulted in a favorable change in fair value of $8.4 million.
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. The Company does not consider its
exposure in these proceedings, individually and in the aggregate, to be
material.
6. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133, as amended, is
effective for fiscal years beginning after June 15, 2000 and establishes
accounting and reporting standards for derivative instruments and for hedging
activities. The Company is currently evaluating what effect, if any, SFAS No.
133 will have on the Company's financial statements. The Company will adopt this
statement no later than January 1, 2001.
5
<PAGE> 8
Independent Accountants' Report
Board of Directors and Stockholder
Mariner Energy, Inc.
Houston, Texas
We have reviewed the accompanying balance sheet of Mariner Energy, Inc. as of
June 30, 2000 and the related statements of operations for the three-month and
six-month periods ended June 30, 2000 and 1999 and cash flows for the six-month
periods ended June 30, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists primarily of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United Sates of America, the balance sheet as of December 31,
1999, and the related statements of operations, stockholder's equity, and cash
flows for the year ended December 31, 1999 (not presented herein), and in our
report dated March 28, 2000, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 1999 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
August 10, 2000
6
<PAGE> 9
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following review of operations for the three-month and six-month
periods ended June 30, 2000 and 1999 should be read in conjunction with the
financial statements of the Company and Notes thereto included elsewhere in this
Form 10-Q and with the Financial Statements, Notes, and Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999, filed
with the Securities and Exchange Commission on March 30, 2000.
Information Regarding Forward Looking Statements
All statements other than statements of historical fact included in this
quarterly report on Form 10-Q, including, without limitation, statements
contained in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy, plans and objectives of management of the Company for future
operations, and industry conditions, are forward-looking statements. Although
the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct, and actual results could differ materially from the
Company's expectations. Factors that could influence these results include, but
are not limited to, oil and gas price volatility, results of future drilling,
availability of drilling rigs, future production and costs, capital resources,
liquidity and other factors described in the Company's annual report on Form
10-K for the year ended December 31, 1999, filed with the Securities and
Exchange Commission on March 30, 2000.
7
<PAGE> 10
Results of Operations
The following table sets forth certain information regarding results of
operations for the periods shown:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- ------------------
2000 1999 2000 1999
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Total revenue, $MM $35.0 $14.8 $58.3 $25.8
EBITDA(1), $MM 29.3 10.4 46.6 17.3
Net income (loss), $MM 10.4 (1.6) 11.5 (5.1)
Production:
Oil and condensate (Mbbls) 459 179 828 348
Natural Gas (Mmcf) 8,262 5,668 14,983 10,583
Natural Gas equivalents (Mmcfe) 11,016 6,742 19,951 12,671
Average realized sales prices:
Oil and condensate ($/Bbl) $20.78 $15.27 $20.15 $13.28
Natural Gas ($/Mcf) 3.08 2.13 2.78 2.01
Natural Gas equivalents ($/Mcfe) 3.18 2.20 2.92 2.04
Cash Margin(2) per Mcfe:
Revenue (pre-hedge) $3.90 $2.34 $3.55 $2.11
Hedging impact (0.72) (0.14) (0.63) (0.07)
Lease operating expenses (0.38) (0.47) (0.42) (0.45)
Gross G&A costs (0.31) (0.42) (0.37) (0.49)
----- ----- ----- -----
Cash Margin $2.49 $1.31 $2.13 $1.10
===== ====== ====== =====
Capital Expenditures (3), $MM:
Exploration:
Leasehold and G&G costs $(12.9) $(4.9) $(10.2) $(0.1)
Drilling 1.4 (0.2) 2.8 0.4
Development & other 15.3 (1.8) 27.3 14.3
Capitalized G&A and interest costs 2.4 2.2 5.1 4.7
------ ------- ------- ------
Total $ 6.2 $ (4.7) $ 25.0 $ 19.3
===== ======= ====== ======
</TABLE>
(1) - EBITDA equals earnings before interest, income taxes, depreciation,
depletion, amortization and impairment of oil and gas properties. EBITDA
should be used as a supplement to, and not as a supplement for, net
earnings and cash provided by operating activities (as disclosed in the
financial statements) in analyzing the Company's results of operations and
liquidity.
(2) - Cash margin measures the net cash generated by a company's operations
during a given period, without regard to the period such cash is physically
received or spent by the company.
(3) - Net of proceeds from property conveyances.
8
<PAGE> 11
Results of Operations for the Second Quarter of 2000
Net production increased 63% to 11.0 Bcfe for the second quarter of 2000 from
6.7 Bcfe for the second quarter of 1999. OurDeepwater Gulf of Mexico production
was 8.0 Bcfe in the second quarter of 2000, an increase of 196% compared to the
2.7 Bcfe produced in the second quarter of 1999, with Pluto, located in
Mississippi Canyon 674, and Apia, located in Garden Banks 73, accounting for the
majority of the increase. These two projects more than offset anticipated
production declines in shallow water and onshore production, and a sooner than
anticipated production decline at our Dulcimer Deepwater Gulf field, located in
Garden Banks 367. Our production for the remainder of 2000 is expected to be
approximately equal to first half 2000 production, with first production from
the Black Widow project, located in Ewing Bank 966, expected in the fourth
quarter of 2000, offset by anticipated production decline from the Dulcimer
project, located in Garden Banks 367.
Hedging activities for the second quarter of 2000 decreased our average
realized natural gas sales price received by $0.58 per Mcf and revenues by $4.8
million. Hedging related to crude oil during the second quarter of 2000
decreased our average realized crude oil sales price received by $6.92 per Bbl
and revenues by $3.2 million. Hedging activities for the second quarter 1999
reduced our average realized natural gas and crude oil prices by $0.15 per Mcf
and $0.53 per Bbl, resulting in reductions in revenue of $0.8 million and $0.1
million, respectively.
Oil and gas revenues increased 136% to $35.0 million for the second quarter of
2000 from $14.8 million for the second quarter of 1999, due to a 63% increase in
production and to a 45% increase in realized prices, to $3.18 per Mcfe for the
second quarter from $2.20 per Mcfe in the same period of 1999.
Lease operating expenses increased 34% to $4.3 million for the second quarter
of 2000, from $3.2 million for the second quarter of 1999, due to the addition
of five new offshore wells.
Depreciation, depletion, and amortization expense (DD&A) increased 93% to
$16.1 million for the second quarter of 2000 from $8.3 million for the second
quarter of 1999, as a result of the 63% increase in equivalent volumes produced
and an increase in the unit-of-production depreciation, depletion, and
amortization rate to $1.46 per Mcfe from $1.24 per Mcfe. The higher rate for the
second quarter of 2000 was due to the occurrence of three dry holes since the
second quarter of 1999, and does not include the impact on the rate of two
potentially significant discoveries during the same period for which proved
reserves may be recorded after certain appraisal activities are completed.
General and administrative expenses, which are net of overhead reimbursements
received by us from other working interest owners, increased 19% to $1.5 million
for the second quarter of 2000 from $1.3 million for the second quarter of 1999,
due to less overhead recoveries from partners during the second quarter of 2000
as compared to the same period in 1999.
Interest expense for the second quarter of 2000 decreased 25% to $2.8 million
from $3.7 million in the second quarter of 1999, due to the repayment of the $25
million Senior Credit Facility with proceeds from a capital contribution by the
sale of common stock to Mariner Holdings, Inc.
Income before income taxes was $10.4 million for the second quarter of 2000,
as a result of the oil and gas revenue increase, offset in part by increased
expenses as discussed above.
9
<PAGE> 12
Results of Operations for the First Six Months of 2000
Net production increased 57% to 20.0 Bcfe for the first six months of 2000
from 12.7 Bcfe for the same period of 1999. Production from our offshore Gulf of
Mexico properties increased to 9.0 Bcfe in the six month period ending June 20,
2000 from 8.7 Bcfe in the same period of 1999, primarily as a result of
production commencing from new wells in the Pluto field located in Mississippi
Canyon 674 and the Apia field located in Garden Banks 73. This increase was
offset in part by anticipated production declines in shallow water and onshore
production and sooner than anticipated production declines at our Dulcimer
Deepwater Gulf field, located in Garden Banks 367. Total production for the
remainder of 2000 is expected to be approximately equal to first half 2000
production, with first production from the Black Widow project, located in Ewing
Bank 966, expected in the fourth quarter of 2000, offset by anticipated
production decline from the Dulcimer project, located in Garden Banks 367.
Oil and gas revenues increased 126% to $58.3 million for the first six months
of 2000 from $25.8 million for the comparable period of 1999, primarily due to a
43% increase in realized prices to $2.92 per Mcfe in the first six months of
2000 from $2.04 per Mcfe in the same period last year, and the production
increase discussed above.
Hedging activities for the first six months of 2000 decreased our average
realized natural gas sales price received by $0.43 per Mcf and revenues by $6.4
million. Hedging related to crude oil during the first six months of 2000
decreased our average realized crude oil sales price received by $7.46 per Bbl
and revenues by $6.2 million. Hedging activities for the first six months of
1999 reduced our average realized natural gas and crude oil prices by $0.08 per
Mcf and $0.28 per Bbl, resulting in reductions in revenue of $0.8 million and
$0.1 million, respectively.
Lease operating expenses increased 47% to $8.5 million for the first six
months of 2000, from $5.8 million for the comparable period of 1999, primarily
due to the higher offshore production discussed above.
Depreciation, depletion, and amortization expense (DD&A) increased 83% to
$29.0 million for the first six months of 2000 from $15.8 million for the
comparable period of 1999, as a result of the increase in the unit-of-production
depreciation, depletion, and amortization rate to $1.45 per Mcfe from $1.25 per
Mcfe, and a 57% increase in equivalent volumes produced. The higher rate for the
second quarter of 2000 was due to the occurrence of three dry holes since the
second quarter of 1999, and does not include the impact on the rate of two
potentially significant discoveries during the same period for which proved
reserves may be recorded after certain appraisal activities are completed.
General and administrative expenses, which are net of overhead reimbursements
received by us from other working interest owners, increased 15% to $3.3 million
for the first six months of 2000 from $2.8 million for the comparable period of
1999, due primarily to increased personnel-related costs required for us to
pursue its Deepwater Gulf exploration and development plan.
Interest expense for the first six months of 2000 decreased 7% to $6.2 million
from $6.6 million for the comparable period of 1999, primarily due to capital
contributions by the sale of common stock to our Parent which were used to
reduce debt.
Income (loss) before income taxes was an $11.5 million income for the first
six months of 2000, primarily as a result of oil and gas revenue increases and
partially offset by increased expenses discussed above.
10
<PAGE> 13
Liquidity, Capital Expenditures and Capital Resources
As of June 30, 2000, we had a working capital deficit of approximately $9.4
million, compared to a working capital deficit of $32.3 million at December 31,
1999. The reduction in the working capital deficit was primarily a result of a
$30.0 million cash equity contribution by the sale of common stock to our
Parent, which was used to reduce accounts payable and accrued liabilities. We
expect our 2000 capital expenditures, including capitalized general,
administrative and interest costs but reduced by proceeds from property
conveyances, to be approximately $85 million to $90 million, which would exceed
cash flow from operations. However, we believe there will be adequate cash flow
in order for us to fund our remaining planned activities in 2000. There can be
no assurance that our access to capital will be sufficient to meet our needs for
capital. As such, we may be required to reduce our planned capital expenditures
and forego planned exploratory drilling or monetize portions of our proved
reserves or undeveloped inventory if additional capital resources are not
available to us on terms we consider reasonable.
Net cash used by operating activities was $23.0 million in the first six
months of 2000, an increase of $42.1 million from the same period of 1999. A
period to period increase of approximately $29.8 million in operating cash flow
before changes in operating assets and liabilities was due primarily to higher
production and higher commodity prices. An increase of $12.3 million in net cash
used for changes in working capital was caused by increased oil and gas
receivables and the timing of payments made on accounts payable.
Cash used in investing activities in the first six months of 2000 increased to
$25.0 million from $19.3 million for the same period in 1999 due primarily to
higher development expenditures.
Cash provided by financing activities was $7.4 million for the first six
months of 2000 compared to $38.9 million for the same period in 1999. Our
primary source of cash for the first six months of 2000 was $55.0 million in
proceeds from two cash equity contributions by the sale of common stock to our
Parent offset in part by $22.6 million of payments on our Revolving Credit
Facility and a $25 million repayment of our Senior Credit Facility with ENA.
The energy markets have historically been very volatile, and there can be no
assurance that oil and natural gas prices will not be subject to wide
fluctuations in the future. To reduce the effects of the volatility of the price
of oil and natural gas on our operating cash flow, management has adopted a
policy of hedging oil and natural gas prices from time to time through the use
of commodity futures, options and swap agreements. While the use of these
hedging arrangements limits the downside risk of adverse price movements, it may
also limit future gains from favorable movements.
The following table sets forth the increase (decrease) in our oil and natural
gas sales as a result of hedging transactions and the effects of hedging
transactions on prices during the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
2000 1999
---------- ---------
<S> <C> <C>
Decrease in natural gas sales (in thousands)....... ($6,393) $(843)
Decrease in oil sales (in thousands)............... (6,178) (96)
Effect of hedging transactions on average natural gas
sales price (per Mcf).............................. (0.43) (0.08)
Effect of hedging transactions on average oil sales
price (per Bbl).................................... (7.46) (0.28)
</TABLE>
A table setting forth our open hedging positions as of June 30, 2000 is
contained in footnote 5. "Commitments and Contingencies" in the footnotes to the
financial statements in Part I, Item 1. of this report.
Hedging arrangements for 2000 cover approximately 59% of our anticipated
equivalent production for the year. Hedging arrangements for 2001 and 2002 cover
approximately 11% and 4% of our anticipated equivalent production for those
years, respectively.
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Capital expenditures for the first six months of 2000 were $25.0 million
including $5.1 million of capitalized general, administrative and interest costs
and areduction for proceeds received from property conveyances. Net capital
expenditures included a $7.4 million credit for exploration activities and $27.3
million for development.
During the remainder of 2000, we expect to conduct drilling operations on two
to four exploratory wells, all in the Deepwater Gulf. Appraisal activities on
our Aconcagua and Devils Tower discoveries also are expected to continue during
the remainder of the year, with another appraisal well at Devils Tower expected
and the beginning of infrastructure activity on the Canyon Express System, which
includes the Aconcagua project. Total capital expenditures for 2000, net of
proceeds from property conveyances, are now expected to be $85 to $90 million,
with approximately $30 million for exploration activity, including expenditures
related to our recently-announced acquisition of Shell's 50% working interest in
the King Kong deepwater development project.
Debt outstanding as of June 30, 2000 was approximately $119.7 million,
including $99.7 million of senior subordinated notes and $20.0 million drawn on
the Revolving Credit Facility. Following the semi-annual borrowing base
redetermination, in May 2000, the borrowing base under the Revolving Credit
Facility was increased from $60 million to $70 million.
In March and May of 2000, we received cash equity contributions by the sale
of common stock to our Parent of $30 million and $25 million, respectively. The
March equity contribution was used to reduce accounts payable and accrued
liabilities, and the May equity contribution was used to repay our $25 million
Senior Credit Facility with ENA. These equity contributions were made with
proceeds from the Mariner Energy LLC three-year $112 million term loan with ENA.
Due to certain restrictions with our Indenture and Revolving Credit Agreement,
neither the cash flows from operations nor from asset sales would be available
to repay any portion of this term loan.
There can be no assurance that funds available to us under the Revolving
Credit Facility will be sufficient for us to fund our currently planned capital
expenditures. We may be required to reduce our planned capital expenditures and
forego planned exploratory drilling or to monetize portions of our proved
reserves or undeveloped inventory if additional capital resources are not
available to us on terms we consider reasonable.
We believe there will be adequate cash flow in order for us to fund our
remaining planned activities in 2000. Our capital resources still may not be
sufficient to meet our anticipated future requirements for working capital,
capital expenditures and scheduled payments of principal and interest on our
indebtedness. There can be no assurance that anticipated growth will be
realized, that our business will generate sufficient cash flow from operations
or that future borrowings or equity capital will be available in an amount
sufficient to enable us to service our indebtedness or make necessary capital
expenditures. In addition, depending on the levels of our cash flow and capital
expenditures (the latter of which are, to a large extent, discretionary), we may
need to refinance a portion of the principal amount of our senior subordinated
debt at or prior to maturity. However, there can be no assurance that we would
be able to obtain financing on acceptable terms to complete a refinancing.
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Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk.
See Part I, Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
On March 21, 2000, Mariner Energy, Inc. sold one share of common stock to its
parent, Mariner Holdings, Inc., for $30,000,000. The proceeds were used to
reduce accounts payable and accrued liabilities.
On May 1, 2000, Mariner Energy, Inc. sold one share of common stock to its
parent, Mariner Holdings, Inc., for $25,000,000. The proceeds were used to pay
off the Company's Senior Credit Facility with ENA.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith.
27.1 Financial Data Schedule
(b) The Company filed no Current Reports on Form 8-K during the quarter ended
June 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARINER ENERGY, INC.
Date: August 10, 2000 /s/ Frank A.
-------------
Pici__________
Frank A. Pici
Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer and
Officer Duly Authorized to Sign
on Behalf of the Registrant)
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EXHIBIT TABLE
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
27.1 Financial Data Schedule
</TABLE>
