Houston-based Mariner Energy Inc.’s 2009 capital budget of $431 million is 70% less than this year’s spending plan, but if commodity prices rise and industry costs fall, more money could be allocated for exploration and development, the company’s CEO said Thursday.

Despite spending cuts, CEO Scott D. Josey told energy analysts during a conference call that the company is still forecasting production growth of around 20% and “significant” cash flow. Because Mariner has “minimal leasehold commitments” and because it operates most of its properties, the company has more discretion over its capital spending Josey said.

In the Gulf of Mexico, Mariner’s budget includes the start-up of production at new fields and a diverse exploration program to test several “high-potential prospects,” he said. Capital spending in the Permian Basin will focus on the delineation of recent discoveries and infill development drilling activities. The budget is based on oil prices of $55/bbl and natural gas prices of $6/MMBtu. Full-year 2009 production is forecast to range from 135 Bcfe to 150 Bcfe.

The company typically runs its price forecast at $55/bbl oil and $7/Mcf gas, he said. “In the deepwater, the prospects there still work in this [price] environment because these are significant prospects that we are drilling. On the shelf, most of the work is recompletion work, and we do it with boats, and for the most part we do not need a rig, so there are very quick payouts. All of the shelf prospects…even at the lower commodity price forecast, we still generate good economics.”

Onshore, however, “we believe the cost there needs to be reset, which is why we’re going to slow down our activity there,” he said. In the Permian Basin leasehold, “we need to see commodity prices improve or the cost structure to come down.”

Given the company’s price deck, an analyst asked Josey if Mariner was “hitting its hurdle rates onshore.”

“We still generate positive rates of return [onshore], but not as high as we would like to see, which is why we are slowing down,” Josey said.

Mariner will be on the lookout for possible acquisitions, however.

“Generally, we are a company that is transactional in nature, and we’re always looking for opportunities…we’re an opportunistic company,” Josey said. “Also, we have the desire to expand further onshore, but to do so has been pretty expensive over the last two years. We are doing a good job in the Permian [Basin] with the balance sheet and cash flow, and it may be a good time for some opportunities to materialize in the current environment. Some companies are stretched and short on cash flow. We’re going to look for those types of things, but there’s nothing to discuss today.”

Mariner’s strong cash flow this year and projected cash flow in the coming year is helping the company avoid the credit squeeze that’s affected some of its peers, Josey noted. “We’ll apply some of it to debt repayment, which further strengthens our balance sheet,” he said. “In terms of what we will do with the rest of it, I don’t know. It’s a function of the capital markets at this point. In the current state, you’re not going to see us write many checks. Liquidity is a prudent thing, and we will conserve our cash.”

By reducing its spending in the coming year, Mariner is “running the risk of slowing growth,” Josey acknowledged. However, everything Mariner is planning for 2009 “is consistent with the things we’ve done in the past. We’ve always strived to live within our means.”

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