Subject: FYI - Moody's Letter for Board Mtg.
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked], [email-masked]
Date: Tue, 4 Dec 2001 11:54:05 -0800 (PST)

-----Original Message-----
From: Wichterich, Mike 
Sent: Tuesday, December 04, 2001 1:45 PM
To: Zelikovitz, Kelly
Subject: FW: Courtesy of eWatch, a service of PR Newswire: UPDATE:
Moody's Downgrades Mariner Energy's Sub Notes To Caa2

Kelly below is the Moody's downgrade press release.  S & P did not issue a
press release other than they downgraded us.  They expect to issue a more
detail press release today or tomorrow.  The have told me it is a possiblity
that they will raise our rating to the B range but they can't guarantee.

Mike

-----Original Message-----
From: Cashiola, Kimm 
Sent: Monday, December 03, 2001 9:43 AM
To: Wichterich, Mike
Subject: FW: Courtesy of eWatch, a service of PR Newswire: UPDATE:
Moody's Downgrades Mariner Energy's Sub Notes To Caa2

-----Original Message-----
From: Complimentary Monitoring
[mailto:[email-masked]] 
Sent: Monday, December 03, 2001 9:55 AM
To: [email-masked]
Subject: Courtesy of eWatch, a service of PR Newswire: UPDATE: Moody's
Downgrades Mariner Energy's Sub Notes To Caa2

Moody's Downgrades Mariner Energy's Sub Notes To Caa2

Dow Jones & Company, Inc. -- December  3, 2001

     Following is a press release from Moody's Investors Service:

    New York, December 03, 2001 -- Moody's Investor's Service downgraded to
Caa2
from B3 the rating on Mariner Energy Inc.'s (Mariner) $100 million 10.5%
senior
subordinated notes due 2006. Moody's also downgraded Mariner's senior
implied
rating to B3 from B1 and its unsecured issuer rating to Caa1 from B2.
Moody's
does not rate the company's $150 million senior secured credit facility
maturing
October 2002.

    The ratings outlook is negative, reflecting uncertainty regarding the
effect
of Enron's bankruptcy on Mariner.

    The ratings downgrades reflect the absence of potential support from
Enron
going forward. Mariner's ratings had incorporated continuing implied support
from Enron while Mariner grew its size relative to the scale of its business
risks and capital requirements. Enron indirectly owns 96% of the firm
through
Joint Energy Development Investments LP (JEDI), and indirectly contributed
about
$130 million in equity during 1998-2000. Mariner's credit facility and
subordinated notes are non-recourse to Enron and do not cross-default with
Enron
obligations.

    Through 9/30/01, Mariner sold 38% of its oil and gas production to Enron
under
one to three month production contracts. Receivables from these sales were
$2.7
million at 9/30/01. Mariner also has commodity price hedges with Enron
through
2003. The value of these contracts was approximately $28 million at 9/30/01.
A
portion of these contracts was settled subsequent to 9/30/01, and commodity
prices have improved slightly since 9/30/01, causing the value of these
contracts to decline.

    Mariner's ratings assume that the company operates as an entity
independent
from Enron. The ratings reflect a small, concentrated and comparatively
short-
lived reserve base; the company's exploration focus on deepwater plays in
the
Gulf of Mexico (GOM), which have relatively large up front costs; high
leverage
on the reserve base; and relatively high full cycle unit costs.

    The scale of the front-end exploration and development costs associated
with
Mariner's operations is large relative to Mariner's size, and there are
significant time lags prior to commencement of production. Mariner's proved
reserves totaled 34 mmboe as of 12/31/00, with PD reserves at only 16 mmboe.
The
large PUD component, representing over 50% of proved reserves, requires
significant capex to bring to production, and the reserve life is short, at
about 5 years (less than 3 years on PD reserves).

    Mariner's deep water oriented business strategy and limited scale result
in a
concentrated reserve base, with the company's top nine properties
representing
93% of 12/31/00 reserves. Overall production and reserve movements can be
lumpy
and susceptible to delay and operational risks at an individual property,
while
the short life of the reserve base compounds the challenge of growing
reserve
mass and sustaining production levels. Mariner expects to diversify its
reserve
base over time by increasing activity in the shelf/shallow GOM, but over the
near term the reserve base is expected to remain relatively small,
concentrated,
and comparatively short-lived.

    Mariner's debt on proved developed (PD) reserves has declined from over
$10/
boe in early 2000, but remains high, at about $6.30/PD boe and is not
expected
to decrease significantly over the near term. Continuing heavy capex
requirements are expected to require revolver drawings in 2002, and if Enron
fails to make payments under Mariner's commodity hedges, additional drawings
may
be required to make up for the lost cash flow. Currently, Mariner's
revolving
credit ($65 million borrowing base, after the November 2001 sale of
Aconcagua)
is undrawn and proceeds from the sale of Aconcagua provide near term
liquidity
for 4Q01 capex. The revolver expires in October 2002, and Mariner expects to
extend it in early 2002.

    Mariner's production has been decreasing in 2001 (from 19 mmboe/d in
1Q01 to
16 mmboe/d in 3Q01). However, Mariner expects to start production at King
Kong
and Yosemite by the end of 2001, which would add to 12/31/01 PD reserves and
support production growth during 2002.

    Mariner's full cycle leveraged unit cost structure is relatively high.
At
average unhedged realizations of $22.20 in 3Q01, Mariner's leveraged unit
margin
(including about $1.85/boe of interest expense) would have been slightly
below
average historic unit reserve replacement costs. In a sustained period of
weak
commodity prices, the company's liquidity may become strained, given its
heavy,
front-ended capex and the short life of its reserve base.

    Mariner Energy is an independent oil and gas exploration and development
company, with headquarters in Houston, Texas, and principal operations in
the
Gulf of Mexico and Gulf Coast area.

  DOW JONES NEWS  12-03-01
  10:34 AM

  Copyright (C) 2001 Dow Jones & Company, Inc.  All Rights Reserved.