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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION -- Ignore unavailable to you. Want to Upgrade?

To: Dennis Roth who wrote (24)	11/13/2007 6:10:23 AM
From: Dennis Roth	Respond to of 111

Mariner Energy Inc. (ME): Production ramping up; subsalt success needed to outperform in '08 - Goldman Sachs - 11/12/07 What's changed Mariner Energy reported 3Q2007 EPS of $0.26 versus our $0.31 estimate and First Call consensus of $0.38. Production was 252 MMcfe/d versus our 280 MMcfe/d estimate, and the company reduced 2007 guidance to 100 Bcfe from 105-109 Bcfe. On the conference call, however, management noted that October production averaged 290 MMcfe/d. Implications We believe Mariner's setbacks in the third quarter reflect temporary delays that are mostly remedied, as projects in the deepwater and shelf of the Gulf of Mexico are ramping up. We expect 24% production growth in 2008, the result of startups at Pluto, Bass Lite, and various recent shelf discoveries. Beyond the timing of these projects and their ultimate production rates versus expectations, we see deepwater exploration as a key catalyst for Mariner in 2008. The company expects to be more aggressive relative to 2007 and could drill about four exploration wells with a focus on the subsalt. Mariner has historically had a strong exploration track record, although the 2007 more limited deepwater program has been less successful. We believe exploration success next year is needed to avoid the perception that the sharp growth expected in 2008 may lead to sharper declines in future years. We are adjusting our EPS estimates to reflect the effects of changes to production estimates, costs, and minor other company adjustments. Valuation Mariner trades at 3.4X 2008E EV/debt-adjusted cash flow, at the low end of E&P stocks, reflective both of the company's short reserve life and the outsized growth expected in 2008. We see 27% upside potential to a $29 12-month price target versus 18% upside for peers, with our bullish commodity prices playing a major factor in that magnitude. Key risks Commodity price volatility, drilling results, cost pressures and government pronouncements are key risks.