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Enron Mail |
-----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:complimentary_monitoring@prnewswire.com] Sent: Monday, December 03, 2001 9:55 AM To: kcashiola@mariner-energy.com 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.
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