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Petrobras Reacquires Stake in Gulf of Mexico Gas Prospect

Houston-based Mariner Energy Inc. has sold back a 20% stake in the Gulf of Mexico Cottonwood project to Petrobras America Inc., the operator, for $31.8 million. Mariner acquired an interest in the project, which is located in Garden Banks Block 244, in April 2005 from Petrobras.

Cottonwood is located 240 miles southwest of New Orleans in a water depth of 2,300 feet. Mariner acquired its interest in the project under an arrangement whereby Mariner allowed Petrobras access to the deepwater rig Noble Lorris Bouzigard, which Mariner has under long-term contract. Mariner participated with Petrobras in two sidetrack wells in the project since Mariner acquired its interest. Petrobras owns the remaining interest.

Petrobras, Brazil's state-owned oil company, announced it had found "high-quality" natural gas reserves at the Cottonwood location in September 2005 (see Daily GPI, Sept. 22, 2005).

Petrobras Americas Inc. President Renato Bertani said he expects his company to have more transactions with North American producers as it expands its presence.

"We are expanding in the United States, both upstream and downstream," said Bertani. He was speaking at the Deloitte 2006 Oil & Gas Conference Tuesday. "We are back in the shallow water of the Gulf of Mexico, and we're engaged in some deep gas plays. In the Western Gulf of Mexico, we're looking at some new concepts there. We'll continue our expansion there, certainly."

Bertani said Petrobras planned to invest about $1 billion in U.S. projects over the next five years. "Outside of Brazil, our current biggest projects are in the Gulf of Mexico," he said.

"We are pleased to have had the opportunity to work with Petrobras and hope they continue to achieve positive results in this project," said Mariner CEO Scott D. Josey. "This transaction represents a successful example of our efforts to leverage our deepwater drilling rig contracts to create high-quality investment opportunities."

The sale was completed effective Nov. 1, and it will result in a pretax gain to Mariner of $22 million in 4Q2006. As a result of the sale, Mariner will not be required to fund $21 million of the development costs necessary to establish the first project, currently expected to happen in 1Q2007. Mariner's capital spending for this year, which was previously expected to range between $525 million and $545 million, is now expected to range between $504 million and $524 million, excluding hurricane repairs, acquisitions and dispositions.

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