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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 September 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 [ ]
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 November 10, 2000, there were 1,380 shares of the registrant's common
stock outstanding.
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1
MARINER ENERGY, INC.
Form 10-Q
September 30, 2000
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Balance Sheets at September 30, 2000 (unaudited)
and December 31, 1999.................................................1
Statements of Operations for the three-months
and nine-months ended September 30, 2000 and 1999 (unaudited).........2
Statements of Cash Flows for the nine-months
ended September 30, 2000 and 1999 (unaudited).........................3
Notes to Financial Statements (unaudited).............................4
Independent Accountants' Report.......................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................14
Item 2. Changes in Securities and Use of Proceeds............................14
Item 3. Defaults Upon Senior Securities......................................14
Item 4. Submission of Matters to a Vote of Security Holders..................14
Item 5. Other Information....................................................14
Item 6. Exhibits and Reports on Form 8-K.....................................14
SIGNATURE....................................................................15
2
Part I, Item 1.
MARINER ENERGY, INC.
BALANCE SHEETS
(in thousands)
September 30, December 31,
2000 1999
------------ ----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 4,553 $ 123
Receivables ............................................. 35,921 23,683
Prepaid expenses and other .............................. 5,324 4,891
--------- ---------
Total current assets ......................... 45,798 28,697
--------- ---------
PROPERTY AND EQUIPMENT:
Oil and gas properties, at full cost:
Proved ............................................... 435,246 379,301
Unproved, not subject to amortization ................ 80,248 81,897
--------- ---------
Total ............................................ 515,494 461,198
Other property and equipment ......................... 4,286 3,982
Accumulated depreciation, depletion and amortization .... (239,636) (199,233)
--------- ---------
Total property and equipment, net ................ 280,144 265,947
--------- ---------
OTHER ASSETS, Net of amortization ............................ 2,896 2,868
--------- ---------
TOTAL ASSETS ................................................. $ 328,838 $ 297,512
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................ $ 11,076 $ 30,269
Accrued liabilities ..................................... 39,312 25,389
Accrued interest ........................................ 1,905 5,329
--------- ---------
Total current liabilities .................... 52,293 60,987
--------- ---------
OTHER LIABILITIES ............................................ 6,063 4,226
LONG-TERM DEBT:
Revolving credit facility ............................... 35,000 42,600
Senior Subordinated Notes ............................... 99,710 99,673
Senior credit facility .................................. 0 25,000
--------- ---------
Total long-term debt ......................... 134,710 167,273
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 2,000 shared authorized,
1,380 and 1,378 issued and outstanding at
September 30, 2000 and December 31, 1999
respectively ......................................... 1 1
Additional paid-in-capital .............................. 227,318 172,318
Accumulated deficit ..................................... (91,547) (107,293)
--------- ---------
Total stockholder's equity ................... 135,772 65,026
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ................... $ 328,838 $ 297,512
========= =========
The accompanying notes are an integral part of these financial statements.
1
3
MARINER ENERGY, INC.
STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
Three-months Ended Nine-months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
REVENUES:
Oil sales .............................. $ 5,178 $ 2,462 $ 21,869 $ 7,086
Gas sales .............................. 20,203 10,772 61,820 31,994
-------- -------- -------- --------
Total revenues .................. 25,381 13,234 83,689 39,080
-------- -------- -------- --------
COSTS AND EXPENSES:
Lease operating expenses ............... 4,412 2,616 12,882 8,380
Depreciation, depletion and amortization 12,753 7,564 41,741 23,367
General and administrative expenses .... 1,357 1,186 4,611 4,007
-------- -------- -------- --------
Total costs and expenses ........ 18,522 11,366 59,234 35,754
-------- -------- -------- --------
OPERATING INCOME .......................... 6,859 1,868 24,455 3,326
INTEREST:
Income ................................. 45 8 98 29
Expense ................................ (2,648) (3,536) (8,807) (10,147)
-------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES ................ 4,256 (1,660) 15,746 (6,792)
PROVISION FOR INCOME TAXES ................ -- -- -- --
-------- -------- -------- --------
NET INCOME (LOSS) ......................... $ 4,256 $ (1,660) $ 15,746 $ (6,792)
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
2
4
MARINER ENERGY, INC.
STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine-months Ended
September 30,
---------------------
2000 1999
--------- ---------
OPERATING ACTIVITIES:
Net Income (loss) ....................................... $ 15,746 $ (6,792)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation, depletion and amortization ..... 42,277 23,740
Changes in operating assets and liabilities:
Receivables .................................. (12,244) 193
Other current assets ......................... (432) 891
Other assets ................................. (29) 367
Accounts payable and accrued liabilities ..... (8,687) (10,957)
-------- --------
Net cash provided by (used in) operating activities 36,631 7,442
-------- --------
INVESTING ACTIVITIES:
Additions to oil and gas properties ..................... (83,299) (62,913)
Proceeds from property conveyances ...................... 29,002 19,757
Additions to other property and equipment ............... (304) (546)
-------- --------
Net cash used in investing activities ............. (54,601) (43,702)
-------- --------
FINANCING ACTIVITIES:
Proceeds from (payments to) revolving credit facility ... (7,600) (10,700)
Capital contribution by sale of stock to parent ......... 55,000 23,284
Proceeds from (payments to) senior credit facility ...... (25,000) 25,000
-------- --------
Net cash provided by financing activities ......... 22,400 37,584
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............. 4,430 1,324
CASH AND CASH EQUIV. AT BEGINNING OF PERIOD .................. 123 2
-------- --------
CASH AND CASH EQUIVALENT AT END OF PERIOD ................... $ 4,553 $ 1,326
======== ========
The accompanying notes are an integral part of these financial statements.
3
5
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 nine months ended September 30, 2000 and the cash
flows for the nine months ended September 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 and was
maintained at $70 million after a mandatory mid-year borrowing base
redetermination.
4. Affiliate Transactions
In March and May of 2000, the Company received cash equity contributions
from the 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 asset sales would be available to repay any portion of the
Parent's term loan.
4
6
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 September 30,
2000:
Price
Notional ------------------------------------------
Time Period Quantities Floor Ceiling Fixed Fair Value
----------- ---------- ----- ------- ----- ----------
(in millions)
Natural Gas (MMBtu)
October 1 - October 31, 2000
Collar purchased ............... 341 $ 2.25 $ 2.49 $ (1.0)
October 1 - December 31, 2000
Fixed price swap purchased ..... 1,821 $ 2.18 (5.6)
Collar purchased ............... 1,335 3.50 4.92 (0.4)
Put floor purchased ............ 1,335 3.50 --
January 1 - October 31, 2001
Collar purchased ............... 4,216 3.50 4.92 (0.2)
Put floor option purchased ..... 4,216 3.50 --
January 1 - December 31, 2001
Fixed price swap purchased ..... 4,501 2.18 (11.1)
January 1 - December 31, 2002
Fixed price swap purchased ..... 1,831 2.18 (3.5)
Crude Oil (MBbls)
October 1 - December 31, 2000
Fixed price swap purchased ..... 576 18.12 (6.2)
Market sensitive price swap sold (237) 23.87 2.0
-----
Total ...................... $ (26.0)
=====
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 September
30, 2000 a commodity price increase of 10% would have resulted in an unfavorable
change in fair value of $6.1 million and a commodity price decrease of 10% would
have resulted in a favorable change in fair value of $5.3 million.
Royalty Relief - Currently, the Company's Pluto well on Mississippi Canyon
Block 674 is not required to pay royalties to the Minerals Management Service
("MMS"). Royalty relief was granted assuming oil and natural gas prices remained
below certain predetermined levels. If average commodity prices for 2000 exceed
these predetermined levels, the Company may be required to pay up to $3 million
in royalties to the MMS.
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.
5
7
6. New Accounting Pronouncements
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. Based on a preliminary review, had the Company implemented SFAS No.
133 as of September 30, 2000, an estimated $26.0 million liability would have
been recorded. The offset at the future date of implementation, would be
reflected as a cumulative effect adjustment to income and other comprehensive
income in stockholder's equity. The Company will adopt this statement on January
1, 2001.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101, as amended, in the fourth quarter of
fiscal 2000. The Company does not expect the adoption of SAB 101 to have a
material effect on its financial position or results of operations.
6
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 September 30, 2000 and the related statements of operations for the
three-month and nine-month periods ended September 30, 2000 and 1999 and cash
flows for the nine-month periods ended September 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
November 13, 2000
7
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 nine-month
periods ended September 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.
8
10
Results of Operations
The following table sets forth certain information regarding results of
operations for the periods shown:
Three-Months Nine-Months
Ended September 30, Ended September 30,
------------------ -----------------
2000 1999 2000 1999
------- ------- ------- -------
Total revenue, $MM ................... $ 25.4 $ 13.2 $ 83.7 $ 39.1
EBITDA(1), $MM ....................... 19.6 9.4 66.2 26.7
Net income (loss), $MM .............. 4.3 (1.7) 15.7 (6.8)
Production:
Oil and condensate (Mbbls) ...... 314 154 1,142 502
Natural Gas (Mmcf) .............. 6,602 4,976 21,584 15,559
Natural Gas equivalents (Mmcfe) . 8,485 5,900 28,438 18,571
Average realized sales prices:
Oil and condensate ($/Bbl) ...... $ 16.77 $ 16.01 $ 19.22 $ 14.12
Natural Gas ($/Mcf) ............. 3.04 2.16 2.86 2.06
Natural Gas equivalents ($/Mcfe) 2.99 2.24 2.94 2.10
Cash Margin(2) per Mcfe:
Revenue (pre-hedge) ............. $ 4.28 $ 2.84 $ 3.76 $ 2.35
Hedging impact .................. (1.29) (0.60) (0.82) (0.25)
Lease operating expenses ........ (0.52) (0.44) (0.45) (0.45)
Gross G&A costs ................. (0.34) (0.44) (0.36) (0.47)
------- ------- ------- -------
Cash Margin ................. $ 2.13 $ 1.36 $ 2.13 $ 1.18
======= ======= ======= =======
Capital Expenditures(3), $MM:
Exploration:
Leasehold and G&G costs ..... $ 12.0 $ 1.3 $ 1.8 $ 1.2
Drilling .................... 9.3 3.1 11.6 3.8
Development & other .............. 6.0 17.9 33.0 31.9
Capitalized G&A and interest costs 2.3 2.1 8.2 6.8
------- ------- ------- -------
Total ........................ $ 29.6 $ 24.4 $ 54.6 $ 43.7
======= ======= ======= =======
(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 $29.0 million and $19.8 million of proceeds from property
conveyances for the nine-month periods ending September 30, 2000 and 1999,
respectively.
9
11
Results of Operations for the Third Quarter of 2000
Net production increased by 44% during the third quarter of 2000, to 8.5
billion cubic feet of natural gas equivalent (Bcfe) from 5.9 Bcfe in the same
period of 1999. The Company's Deepwater Gulf of Mexico production was 6.0 Bcfe
in the third quarter of 2000, an increase of 149% compared to the 2.4 Bcfe
produced in the third quarter of 1999, with Pluto, located in Mississippi Canyon
674, and Apia, located in Garden Banks 73, continuing to account for the
majority of the increase. These two projects more than offset anticipated
production decline in shallow water and onshore production, and at the Company's
Dulcimer Deepwater Gulf field, located in Garden Banks 367.
Hedging activities for the third quarter of 2000 decreased our average
realized natural gas sales price received by $1.11 per Mcf and revenues by $7.3
million. Hedging related to crude oil during the third quarter of 2000 decreased
our average realized crude oil sales price received by $11.75 per Bbl and
revenues by $3.7 million. Hedging activities for the third quarter 1999 reduced
our average realized natural gas and crude oil prices by $0.60 per Mcf and $3.70
per Bbl respectively, resulting in reductions in revenue of $3.0 million and
$0.6 million, respectively.
Oil and gas revenues increased 92% to $25.4 million for the third quarter
of 2000 from $13.2 million for the third quarter of 1999, due to a 44% increase
in production and to a 33% increase in realized prices, to $2.99 per Mcfe for
the third quarter from $2.24 per Mcfe in the same period of 1999.
Lease operating expenses increased 69% to $4.4 million for the third
quarter of 2000, from $2.6 million for the third quarter of 1999, due to the
addition of four new offshore wells.
Depreciation, depletion, and amortization expense (DD&A) increased 69% to
$12.8 million for the third quarter of 2000 from $7.6 million for the third
quarter of 1999, as a result of the 44% increase in equivalent volumes produced
and an increase in the unit-of-production depreciation, depletion, and
amortization rate to $1.50 per Mcfe from $1.28 per Mcfe. The higher rate for the
third 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 14%
to $1.4 million for the third quarter of 2000 from $1.2 million for the second
quarter of 1999, due to less overhead recoveries from partners during the third
quarter of 2000 as compared to the same period in 1999.
Interest expense for the third quarter of 2000 decreased 25% to $2.6
million from $3.5 million in the third 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 $4.3 million for the third quarter of 2000,
as a result of the oil and gas revenue increase, offset in part by increased
expenses as discussed above.
10
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Results of Operations for the First Nine Months of 2000
Net production increased 53% to 28.4 Bcfe for the first nine months of 2000
from 18.6 Bcfe for the same period of 1999. Production from our Deepwater Gulf
of Mexico properties increased to 19.5 Bcfe in the nine month period ending
September 30, 2000 from 6.6 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. Production for the
fourth quarter of 2000 is expected to increase with first production from the
Black Widow project, located in Ewing Bank 966, which commenced on October 29,
2000, and increased production from the Pluto field.
Oil and gas revenues increased 114% to $83.7 million for the first nine
months of 2000 from $39.1 million for the comparable period of 1999, primarily
due to a 40% increase in realized prices to $2.94 per Mcfe in the first nine
months of 2000 from $2.10 per Mcfe in the same period last year, and the
production increase discussed above.
Hedging activities for the first nine months of 2000 decreased our average
realized natural gas sales price received by $0.63 per Mcf and revenues by $13.7
million. Hedging related to crude oil during the first nine months of 2000
decreased our average realized crude oil sales price received by $8.64 per Bbl
and revenues by $9.9 million. Hedging activities for the first nine months of
1999 reduced our average realized natural gas and crude oil prices by $0.24 per
Mcf and $1.32 per Bbl, resulting in reductions in revenue of $3.8 million and
$0.7 million, respectively.
Lease operating expenses increased 54% to $12.9 million for the first nine
months of 2000, from $8.4 million for the comparable period of 1999, primarily
due to the higher deepwater production discussed above.
Depreciation, depletion, and amortization expense (DD&A) increased 79% to
$41.7 million for the first nine months of 2000 from $23.4 million for the
comparable period of 1999, as a result of the increase in the unit-of-production
depreciation, depletion, and amortization rate to $1.47 per Mcfe from $1.26 per
Mcfe, and a 53% increase in equivalent volumes produced. The higher rate for the
third quarter of 2000 was due to the occurrence of two dry holes since the third
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 $4.6 million for the first six months of 2000 from $4.0 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 nine months of 2000 decreased 13% to $8.8
million from $10.1 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 $15.7 million income for the first
nine months of 2000, primarily as a result of oil and gas revenue increases and
partially offset by increased expenses discussed above.
Liquidity, Capital Expenditures and Capital Resources
As of September 30, 2000, we had a working capital deficit of approximately
$6.5 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 $100 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.
11
13
Net cash used by operating activities was $36.6 million in the first nine
months of 2000, an increase of $29.2 million from the same period of 1999. A
period to period increase of approximately $41.1 million in operating cash flow
before changes in operating assets and liabilities was due primarily to higher
production and higher commodity prices. A decrease of $11.9 million in net cash
used for changes in working capital was caused by decrease joint interest
receivables and the timing of payments made on accounts payable.
Net cash used in investing activities in the first six months of 2000
increased to $54.6 million from $43.7 million for the same period in 1999 due
primarily to higher exploratory drilling expenditures.
Cash provided by financing activities was $22.4 million for the first nine
months of 2000 compared to $37.6 million for the same period in 1999. Our
primary source of cash for the first nine 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 $7.6 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.
Nine-Months Ended
September 30,
----------------------
2000 1999
--------- --------
Decrease in natural gas sales (in thousands) ................................... ($13,682) $(3,818)
Decrease in oil sales (in thousands) ........................................... (9,864) (666)
Effect of hedging transactions on average natural gas sales price (per Mcf)..... (0.63) (0.24)
Effect of hedging transactions on average oil sales price (per Bbl)............. (8.64) (1.32)
A table setting forth our open hedging positions as of September 30, 2000
is contained in the "Commitments and Contingencies" footnote to the financial
statements in Part I, Item 1. of this report.
Hedging arrangements for 2000 cover approximately 68% of our anticipated
equivalent production for the year. Hedging arrangements for 2001 and 2002 cover
approximately 35% and 3% of our anticipated equivalent production for those
years, respectively.
Capital expenditures for the first nine months of 2000 were $54.6 million
including $8.2 million of capitalized general, administrative and interest costs
and a reduction of $29.0 million for proceeds received from property
conveyances. Net capital expenditures included $13.4 million for exploration
activities and $33.0 million for development activities.
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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, and development activities on the
recently-acquired King Kong Deepwater Gulf exploitation project have commenced.
We also plan to conduct production enhancement projects in several of our
currently-producing fields during the fourth quarter of 2000 to take advantage
of the current commodity price environment. Total capital expenditures for 2000,
net of proceeds from property conveyances, are now expected to be approximately
$100 million.
Long-term debt outstanding as of September 30, 2000 was approximately
$134.7 million, including $99.7 million of senior subordinated notes and $35.0
million drawn on the Revolving Credit Facility. Following a semi-annual
borrowing base redetermination completed in May 2000, the borrowing base under
the revolving credit facility was increased from $60 million to $70 million. In
October 2000, the borrowing base was re-affirmed at $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 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. The sale of this stock was
exempt pursuant to Section 4(2) of the Securities Act of 1933.
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. The sale of this stock was
exempt pursuant to Section 4(2) of the Securities Act of 1933.
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
September 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: November 13, 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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