Mariner Energy's ME third-quarter earnings of $4.2 million were lower than expected and well below year-ago earnings of $64.7 million and $17.2 million in the preceding second quarter. Tough comparisons with year-ago earnings were expected due to the fall in oil and gas prices over the past year. However, third-quarter production was below earlier forecasts at just a 1% sequential gain due to unexpected delays in new field startups by other Gulf of Mexico operators and longer-than-expected post-hurricane repairs to third-party pipelines. We consider these issues to be short-term in nature with limited impact to long-term growth plans and our fair value estimate. We believe Mariner's mixed third-quarter operating results illustrate inherent variability in the timing of offshore wells and other factors. The firm benefited from the startup of two deep-water fields during the third quarter--Green Canyon 646 (Daniel Boone) and Viosca Knoll 821--but restoration of Vermillion 380 facilities took longer than expected. Drilling success can also be more variable offshore than at resource-type onshore fields. Two of five offshore wells drilled during the third quarter were successful--Vermillion 380 A3 ST1 and South Timbalier 316 A6 ST1. Since quarter-end, Mariner drilled two more successful exploration wells--Green Canyon 490 (Wide Berth) in deep-water Gulf of Mexico and South Marsh Island 10 on the shelf. We look for these drilling successes to help drive offshore production growth in 2010 and into 2011. We're also encouraged by Mariner's growing partnership with Anadarko Petroleum APC, which agreed to an eight-block deep-water acreage trade in the Heidelberg area and to sell Mariner an interest in its Keathley Canyon 875 (Lucius) project.Onshore, production growth continues in the Permian Basin after Mariner ramped up drilling activity earlier this year. Drilling results to date have been encouraging, particularly in delineating Mariner's Deadwood and Blue Plate prospects. While Mariner's 2010 capital spending budget is still under discussion and subject to board approval, managers hinted that Permian spending could be as high as $150 million-$200 million in 2010 versus $50 million-$60 million allocated in 2009. We view Mariner's plans to ramp up Permian drilling favorably as it adds lower-risk onshore production growth potential to a portfolio dominated by offshore shelf and deep-water prospects.
Get our full take on
Mariner Energy, Inc.
See our complete company report and outlook--including fair value estimate, consider buying and selling prices, risk rating, bull and bear arguments,
and star rating--with a free two-week Morningstar.com Premium Membership trial.
You will also get complete access to all 2,000 Stock Analyst Reports, 2,000 Mutual Fund Analyst Reports, and Morningstar's award-winning Portfolio Management and Screening tools.
Start my free trial
Learn more about Premium Membership
View Sample Analyst Report
More Analyst Research
Mariner Energy, Inc. Full Analyst Report
Analyst Notes
06-10-09 | 9:17AM Mariner Moves Ahead Offshore
05-14-09 | 11:03AM Some 1Q Offshore Gains for Mariner
| 
