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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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From: Dennis Roth	8/13/2007 8:15:30 AM
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Mariner Energy Inc. (ME): Meeting aggressive 2H 2007 guidance can reverse recent weakness - Goldman Sachs What's changed Mariner Energy reported adjusted 2Q 2007 EPS of $0.38 in-line with our estimate but lower than First Call consensus estimate of $0.42. Total production was 270 MMcfe/d versus our estimate of 280 MMcfe/d. Operating cash flow was $145 million versus our estimate of $150 million. Management reaffirmed its original production and costs guidance with the production guidance for the year 2007 ranging from 105-115 Bcfe. Implications The midpoint of Mariner’s production guidance implies a 21% increase relative to 2Q 2007. Management’s confidence is largely based on new production from the Pluto field as well as a slew of shelf and deep shelf startups. The ability for Mariner to sustain or grow shelf production is a key catalyst for the stock. Because of this, it was not surprising that the stock reversed some of its recent underperformance on August 10. We see further upside for Mariner shares if the company successfully meets its 2007 production guidance and brings on deepwater projects Nansen and Bass Lite reasonably on-time at expected production rates. Valuation We see 20% upside potential to a $25 12-month target price, based on a discounted cash flow of proved reserves and selected unbooked resource potential. Mariner trades at 3.7x 2007 EV/debt-adjusted cash flow, at the low end versus other E&Ps in part because of the company’s shorter reserve life and Gulf of Mexico focus. We continue to rate Mariner Neutral relative to an Attractive coverage view. Key risks Commodity price volatility, drilling results, weather-related disruptions, cost pressures and government pronouncements are key risks.

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