UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE
ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2000
Commission File Number 1-10192
Gulfport Energy Corporation
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-1521290
------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
6307 Waterford Blvd., Suite 100
Oklahoma City, Oklahoma 73118
(405) 848-8807
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
Preferred Stock, $0.01 par value None
Common Stock, $0.01 par value None
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X ] No [ ].
1
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
All shares of common and preferred stock outstanding prior to the
Effective Date of the Plan of Reorganization (July 11, 1997) were canceled on
the Effective Date. The number of shares of the registrant's Common Stock, $0.01
par value, outstanding at March 31, 2001 was 10,145,400. The aggregate market
value of the voting stock held by non-affiliates of Gulfport using an average
trading price in December 2000 was $10,562,000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Common Stock Issued Outstanding December 31, 2000: 10,145,400
Common Stock Issued Outstanding February 1, 2001: 10,145,400
DOCUMENTS INCORPORATED BY REFERENCE
2
TABLE OF CONTENTS
Page
Disclosure Regarding Forward-Looking Statements........................... 4
Part I
Item 1. Business ........................................................ 4
Item 2. Properties ........................................................ 13
Item 3. Legal Proceedings.................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders................ 15
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters ............................................ 16
Item 6. Selected Financial Data ........................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 18
Item 8. Financial Statements and Supporting Data........................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 24
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................ 24
Item 11. Executive Compensation............................................ 26
Item 12. Security Ownership of Certain Beneficial Owners and Management.... 29
Item 13. Certain Relationships and Related Transactions.................... 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8K............................................... 30
Signatures ...................................................... 32
3
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking statements" within the meaning
of Section 27A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts, included in
this Form 10-K that address activities, events or developments that Gulfport
Energy Corporation ("Gulfport" or the "Company"), a Delaware corporation,
formerly known as WRT Energy Corporation ("WRT"), expects or anticipates will or
may occur in the future, including such things as estimated future net revenues
from oil and gas reserves and the present value thereof, future capital
expenditures (including the amount and nature thereof), business strategy and
measures to implement strategy, competitive strength, goals, expansion and
growth of Gulfport's business and operations, plans, references to future
success, reference to intentions as to future matters and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by Gulfport in light of its experience and its perception of
historical trends, current conditions and expected future developments as well
as other factors it believes are appropriate in the circumstances. However,
whether actual results and developments will conform with Gulfport's
expectations and predictions is subject to a number of risks and uncertainties,
general economic, market, or business conditions; the opportunities (or lack
thereof) that may be presented to and pursued by Gulfport; competitive actions
by other oil and gas companies; changes in laws or regulations; and other
factors, many of which are beyond the control of Gulfport. Consequently, all of
the forward-looking statements made in the Form 10-K are qualified by these
cautionary statements and there can be no assurances that the actual results or
developments anticipated by Gulfport will be realized, or even if realized, that
they will have the expected consequences to or effects on Gulfport, its business
or operations.
PART I
Item 1. Business
Description of Business
Gulfport is an independent oil and gas exploration and production
company with properties located in the Louisiana Gulf Coast. Gulfport has a
market enterprise value of approximately $41.0 million dollars and generated
EBITDA of $8.4 million dollars for the twelve months ended December 31, 2000. As
of December 31, 2000, the Company had in excess of 25 MMBOE proved reserves with
a present value (10%) of estimated future net reserves of $280 million dollars.
Gulfport is actively pursuing further development of its properties in
order to fully exploit its reserves. The Company has a substantial portfolio of
low risk developmental projects for the next several years providing the
opportunity to increase production and cash flow. Gulfport's developmental
program is designed to reach the Company's high impact, higher potential rate of
return prospects through the penetration of several producing horizons.
Additionally, Gulfport owns 3-D seismic data, which along with the
Company's technical expertise, will be used to identify exploratory prospects
and test undrilled fault blocks in this existing fields.
4
Background
Gulfport is the successor of WRT Energy Corporation ("WRT"). WRT filed
for bankruptcy in February 1996. Gulfport emerged as the reorganized company in
July 1997.
Principal Oil and Gas Properties
Gulfport owns interests in a number of producing oil and gas properties
located along the Louisiana Gulf Coast. The following is a map showing the
locations of Gulfport's principal oil and gas properties.
(MAP OMITTED)
Gulfport serves as the operator of substantially all of the properties
in which it holds a working interest with the exception of the Texaco well and
deep rights at West Cote Blanche Bay. The following table presents certain
information as of January 1, 2001 reflecting Gulfport's net interest in its
producing oil and gas properties.
Net Proved Reserves
As of 1/1/01
-------------------
Field NRI/WI Active Wells Shut-in wells (1) Acreage (2) Gas Oil Total
------------ ----------------- -----------
Percentages Gross Net Gross Net Gross Net MBOE MBOE MBOE
- ---------- -----------------------------------------------------------------------------------------
E. Hackberry 78.7/100 13 13 77 77 3,147 3,147 644 3,260 3,904
W. Hackberry 87.5/100 3 3 24 24 592 592 47 283 330
West Cote
Blanche Bay(3) 78.7/100 54 53 306 303 4,590 4,590 2,193 18,015 20,208
Overrides/
Royalty Various 17 2 4 1 403 403 147 540 687
------------------------------------------------------------------------------
Total (4) 87 70.5 411 405 8,732 8,732 3,031 22,098 25,129
==============================================================================
(1) The following wells produce on an intermittent basis: East Hackberry - 3;
West Hackberry - 1; and West Cote Blanche Bay - 6.
(2) All of Gulfport's acreage is Developed Acreage.
(3) Includes 1 producing well and 3 shut-in wells attributable to depths below
the Rob "C" Marker ("Deep Rights"). Gulfport has a 7.45% non-operated
working interest (5.84% NRI) in the Deep Rights. The Deep Rights are
operated by Texaco Exploration and Production, Inc.
(4) In the future, Gulfport will have to plug and abandon almost 500 wellbores.
Gulfport's strategy to meet this obligation is to plug at twenty wells a
year at WCBB, three at Hackberry and to invest in plugging escrow accounts.
The Company continually deposits money in the West Cote Blanche Bay Escrow
Account, which currently has a balance in excess of $1.7 million dollars.
Additionally, Gulfport has a $200,000 letter of credit dedicated to the
plugging operations at East Hackberry.
All of the oil and gas leases in which Gulfport owns an interest have
been perpetuated by production. The operator may surrender the leases at any
time by notice to the lessors, or by the cessation of production.
5
East Hackberry Field
(Map Omitted)
Location and Land
The East Hackberry Field is located along the western shore of Lake
Calcasieu in Cameron Parish, Louisiana approximately 80 miles west of Lafayette
and 15 miles inland from the Gulf of Mexico. In February 1994, Gulfport
purchased a 100% working interest (approximately 79% average NRI) in certain
producing oil and gas properties situated in the East Hackberry Field. The
purchase included two separate lease blocks, the Erwin Heirs Block which is
located on land originally developed by Gulf Oil Company (now Chevron
Corporation), and the adjacent State Lease 50 Block which is located primarily
in the shallow waters of Lake Calcasieu, originally developed by Texaco. The two
lease blocks together contain 3,147 acres.
In September 1994, Gulfport sold an overriding royalty interest equal to a
50% working interest in certain producing oil and gas wells situated in the East
Hackberry Field to Milam Royalty Corporation a subsidiary of J. P. Morgan and
Company. In April 1999, Gulfport purchased the overriding royalty interest back
from the then current owner, Queen Sand Resources, Inc. giving Gulfport a 100%
working interest in the field.
Geology
The Hackberry Field is a major salt intrusive feature, elliptical in shape
as opposed to a classic "dome," divided into East and West field entities by a
saddle. Structurally, Gulfport's East Hackberry acreage is located on the
eastern end of the Hackberry salt ridge. There are over 30 pay zones at this
field. The salt intrusion trapped Oligocene through Lower Miocene rocks in a
series of complex, steeply dipping fault blocks. The Camerina sand series is a
prolific producer with 1-2 MMBL per well of oil potential. Gulfport's wells
currently produce from perforations found between 5,100' and 12,200'.
Area History and Production
The East Hackberry field was discovered in 1926 by Gulf Oil Company (now
Chevron Corporation) by a gravitational anomaly survey. The massive shallow salt
stock presented an easily recognizable gravity anomaly indicating a productive
field. Initial production began in 1927 and has continued to the present. The
estimated cumulative oil and condensate production through 2000 was 111 million
barrels of oil with casinghead gas production being 60 billion cubic feet of
gas. There have been a total of 170 wells drilled on Gulfport's portion of the
field with 13 having current daily production; three produce intermittently; 77
wells are shut-in and 4 wells have been converted to salt water disposal wells.
The remaining 72 wells have been plugged and abandoned. During 2000 daily net
production averaged 306 barrels of oil and 4,404 barrels of water with a limited
amount of gas.
Facilities
Gulfport has land-based production and processing facilities located at
the East Hackberry Field. The facility is comprised of two dehydrating units and
four disposal pumps. Gulfport also has a field office that serves both the East
and West Hackberry fields. Due to the high cost of gas, Gulfport converted the
Erwin Heirs Block from gas lift to other lifting methods in 2000 and returned
the rental compressors. Gulfport reactivated three pumping units from inventory
and purchased an additional surface unit and two electric submersible pumps.
6
2000 Activity
Gulfport successfully recompleted one well on the Erwin Heirs portion of
East Hackberry. In addition to the recompletions, the Company also conducted
several remedial operations that included repairing holes in tubing and casing,
the repair and replacement of downhole pumps and replacing parted tubing.
West Hackberry Field
Location and Land
The West Hackberry Field is located on land and is five miles West of Lake
Calcasieu in Cameron Parish, Louisiana approximately 85 miles west of Lafayette
and 15 miles inland from the Gulf of Mexico. In November 1992, Gulfport
purchased a 100% working interest (approximately 80% average NRI, subsequently
increased to approximately 87.5% NRI) in 592 acres within the West Hackberry
Field.
Gulfport's leases at West Hackberry are located within two miles of one of
the United States' Department of Energy's Strategic Petroleum Reserves. The
West Hackberry storage facility occupies 525 acres and has capacity to store
222 million barrels of oil in underground salt caverns.
Geology
Structurally, Gulfport's West Hackberry acreage is located on the western
end of the Hackberry salt ridge. (See graphic above.) There are over 30 pay
zones at this field. West Hackberry consists of a series of fault-bounded traps
in the Oligocene-age Vincent and Keough sands associated with the Hackberry Salt
Ridge. Recoveries from these thick, porous, water-drive reservoirs have resulted
in per well cumulatives of almost 700 BOE.
Area History and Production
The first discovery well at West Hackberry was drilled in 1938 and was
developed by Superior Oil Company (now Exxon-Mobil Corporation) between 1938 and
1988. The estimated cumulative oil and condensate production through 2000 was
170 million barrels of oil with casinghead gas production of 120 billion cubic
feet of gas. There have been 36 wells drilled to date on Gulfport's portion of
West Hackberry and currently 3 are producing, 24 are shut-in and 1 well has been
converted to a saltwater disposal well. The remaining 8 wells have been plugged
and abandoned. During 2000, daily net production averaged 46 barrels of oil and
167 barrels of water with a limited amount of gas.
Facilities
Gulfport has land-based production and processing facilities located at
the West Hackberry field. Gulfport has two dehydrating units and one disposal
pump. During 2000, due to the high cost of gas, Gulfport converted the West
Hackberry field from gas lift to other lifting methods. The Company reactivated
two pumping units from inventory and sold a company owned compressor. Gulfport
maintains a field office that serves both the East and West Hackberry fields.
2000 Activity
Gulfport had one unsuccessful recompletion at West Hackberry. In
addition to the recompletion, the Company also conducted remedial operations
that included repairing holes in tubing and casing, the repair and replacement
of downhole pumps and replacing parted tubing.
7
West Cote Blanche Bay Field
(Map Omitted) (Type Log Omitted)
Location and Land
The West Cote Blanche Bay (WCBB) Field lies approximately five miles off
the coast of Louisiana primarily in St. Mary Parish in a shallow bay, with water
depths averaging eight to ten feet. Gulfport originally acquired from Texaco a
6.25% working interest in all zones in the WCBB field in July 1988. In April
1995, Gulfport completed the purchase of an additional 43.75% working interest
in the WCBB field from an affiliate of Benton Oil and Gas Company and two
affiliates of Tenneco, Inc. as to those rights lying above the base of the Rob
"C" marker, located at approximately 10,500'. The sellers retained their
interests in all depths below the base of the Rob "C" marker. In July, 1997
Gulfport acquired the remaining 50% working interest in the WCBB field in depths
above the Rob "C" marker from Texaco and became the operator of the shallow
rights in the field. In 1999 Gulfport exercised a preferential right to purchase
an additional 1.00% working interest in the rights below the Rob "C" marker.
Currently Gulfport owns a 100% working interest (78.66% NRI) and is the operator
in the depths above the Rob "C" marker and owns a 7.45% non-operated working
interest (5.84% NRI) in depths below the Rob "C" marker. Texaco is the operator
below the base of the Rob "C" marker. Gulfport's leasehold at WCBB covers a
portion of Louisiana State Lease 340 and contains 4,590 acres.
Geology
WCBB overlies one of the largest salt dome structures on the Gulf Coast.
The field is characterized by a piercement salt dome, which created traps from
the Pleistocene through the Miocene. The relative movements affected deposition
and created a complex system of fault traps. The compensating fault sets
generally trend NW-SE and are intersected by sets having a major radial
component. Later-stage movement caused extension over the dome and a large
graben system was formed.
There are over 100 distinct sandstone reservoirs recognized throughout
most of the field and nearly 200 major and minor discrete intervals have been
tested. Within the over 800 wellbores that have been drilled to date in the
field, over 4,000 potential zones have been penetrated. These sands are highly
porous and permeable reservoirs primarily with a strong water drive.
Area History and Production
Texaco drilled the discovery well in 1940 based on a seismic and
gravitational anomaly. WCBB was subsequently developed on an even 160-acre
pattern for much of the remainder of the decade. Developmental drilling
continued and reached its peek in the 1970's when over 300 of the over 800 total
wells were drilled in the field. Of the over 800 wells drilled, only 80 were dry
holes and many of these were capable of hydrocarbon production. As a result, the
field has an historic success rate of over 90% for all wells drilled. The
cumulative gross production for the average producer in the field was 237 MBO,
with over 100 of those wells (14% of total wells) producing in excess of 500
MBO. As of January 1, 2001, field cumulative gross production was 190.5 MMBO and
232 BCF of gas.
There have been 864 wells drilled in WCBB. Of these, 54 are currently
producing, 306 are shut-in and five have been converted to salt water disposal
wells. The balance of the wells (or 499) have been plugged and abandoned. During
2000, Gulfport's net current daily production averaged 1,066 barrels of oil, 255
MCF of gas and 2,213 barrels of water at WCBB.
8
In 1991 Texaco conducted a 70 square mile 3-D seismic survey with 1,100
shot points per mile that processed out 100 fold. In 1993, an undershoot survey
around the crest and production facilities was added. Gulfport owns the rights
to the seismic data. In December of 1999 Gulfport completed the re-processing of
the seismic data and currently has its technical staff developing prospects from
the data. The reprocessed data will enable Gulfport to identify prospects in
areas of the field that would otherwise remain obscure.
Facilities
Gulfport owns and operates a production facility at WCBB. The platform
stretches over a mile and is equipped with a 30 MMCF capacity dehydrating
system, three compressors totaling 4000 horsepower and three 225 horsepower
triplex saltwater disposal pumps. Gulfport has made continual improvements to
this facility to enable it to function more efficiently and lower lease
operating expense at WCBB. Some of the improvements in 2000 include repairing
and replacing flowlines and gas lift lines, installing electric flow meters to
more accurately measure gas, cleaning out existing salt water disposal wells and
converting a shut-in well to a saltwater disposal well. Gulfport generates cash
flow by handling other companies' saltwater and gas through the facility for a
fee. In 2000, Gulfport earned an average of $63,000 a month from facility
charges.
2000 Activity
During 2000, Gulfport successfully drilled two developmental oil wells
and one developmental gas well. An unsuccessful well was drilled to a shallow
exploratory target. Gulfport successfully re-completed three wells at WCBB and
had no unsuccessful recompletions. The Company plugged 24 wells at WCBB during
2000 at an average cost of $13,700 per well. Gulfport has plugged 64 wells in
this field since beginning its plugging program in 1997.
2001 Field Activity
West Cote Blanche Bay
In 2001, Gulfport continues to use the re-processed 3-D seismic data to
identify and confirm intermediate and shallow prospects at WCBB. Gulfport
planned to begin a new drilling program in October of 2000 but was delayed due
to industry wide equipment and crew unavailability. The drilling program did
commence in early January 2001 and to date Gulfport has drilled, logged and run
pipe on four intermediate depth wells, with total depths averaging approximately
9,000 feet, and is in the process of drilling a fifth well to 9,000 feet. All
wells drilled in this program to date appear productive and are in the process
of being completed. Gulfport has an additional two to four wells to drill in
this program depending on cash flow, product prices, results and rig
availability. The Company anticipates that these wells will access significant
oil and gas deposits with all of the wells having multiple targets ranging from
relatively low risk proven undeveloped objectives to higher potential
exploratory targets. Gulfport believes that by taking most current and future
wells to a 9,000 feet target depth range increases the serendipity factor, i.e.
giving a well the chance to encounter otherwise unknown reserves. Gulfport also
has plans to begin another four to six intermediate depth well drilling program
during the summer of 2001.
9
East and West Hackberry
Gulfport has plans to workover or re-complete six wells and test fourteen
shut-in wells in the State Lease 50 portion of East Hackberry during 2001.
Gulfport also plans to re-activate a satellite tank battery plus additional
facility upgrades at State Lease 50 and the Erwin Heirs portions of East
Hackberry.
Gulfport successfully sidetracked a well in the West Hackberry Field in
February of 2001 and the well is currently waiting on completion.
Texaco Operated Well
In June of 1999, Gulfport executed a sublease in favor of Texaco of an
approximate 72 acre block below the base of the 8 Sand, located at approximately
9,060 feet, at WCBB and reserved a 25% back-in working interest after the
proceeds of the well totaled $1,000,000. Texaco has informed Gulfport that the
well reached the payout point in December 1999.
Overriding Royalty Interests
Gulfport owns overriding royalty interests in an additional 14 producing
oil and gas wells lying in four fields. When Gulfport sold its interest in the
Bayou Penchant Field to Castex Energy 1996 Limited Partnership effective April
1, 1998, Gulfport retained a 10% overriding royalty interest in this field. The
Bayou Penchant field is located in Terrebonne Parish, Louisiana and the 2000
average daily gross production from nine producing wells was over 2,000 MCF of
gas.
Gulfport also owns a 2.5% overriding royalty interest in three producing
wells at the Napoleonville Field retained when Gulfport sold its interest to
Plymouth Operating Company in 1998. The Napoleonville field is located in
Assumption Parish, Louisiana and averaged 160 barrels of oil per day in 2000.
Additionally, Gulfport owns a net profits interest in one producing well
and all the leasehold rights in the South Atchafalaya Bay Field located in St.
Mary Parish, Louisiana. This well was placed on production in late 1999. These
interests provided $57,000 in net revenue to Gulfport in 2000.
The land occupied by a warehouse owned by Gulfport in Lafayette, LA
covers approximately one acre. The mineral rights underlying the building were
included in a unit drilled by Newfield Exploration Company. In April 2000,
effective June 1999, Gulfport backed into a working interest in the Gladys
Garber #1 well. During 2000, the well generated over $58,000 net to Gulfport's
interest.
Fee Minerals and Surface Interest
Gulfport owns 230 net acres of fee minerals and surface interest adjacent
to its West Hackberry Field in Cameron Parish, Louisiana. This property
currently contains six producing wells.
Castex Energy 1996 Limited Partnership
In 1998, Gulfport sold a package of oil and gas properties to Castex
Energy 1996 LP for $8.8 million dollars. As additional consideration for the
sale, Gulfport was granted a 25% interest in the limited partnership that vests
once the investment in the partnership pays out. The Limited Partnership owns
and operates several oil and gas fields located along the Gulf Coast.
10
Other Interests
Litigation Trust
Gulfport owns a 12% interest in the Trust (the "Litigation Trust") that
was established in WRT's bankruptcy to pursue litigation connected with the WRT.
The Litigation Trust filed approximately 400 preference actions and
several substantive actions alleging fraud, malpractice and other wrongdoings.
At this time, Gulfport cannot estimate what the potential future recovery from
the litigation will be.
Oil and Gas Marketing
Gulfport sells its oil and gas at the wellhead and does not refine
petroleum products. Other than normal production facilities, Gulfport does not
own an interest in any bulk storage facilities or pipelines. As is customary in
the industry, Gulfport sells its production in any one area to relatively few
purchasers, including transmission companies that have pipelines near Gulfport's
producing wells. Gas purchase contracts are generally on a short-term "spot
market" basis and usually contain provisions by which the prices and delivery
quantities for future deliveries will be determined. The majority of Gulfport's
crude oil production in 2000 was sold on contracts based on postings plus a
premium. These premiums are based on an average paid by several purchasers minus
a handling charge per barrel of oil.
During 2000, oil sales to Black Hills Energy Co. and Equiva Trading
Company accounted for 74% and 17%, respectively of Gulfport's oil sales.
Gulfport had no other purchasers that accounted for greater than 10% of it's oil
sales. Gulfport had no gas purchaser's that accounted for more than 10% of it's
total sales.
Competition and Markets
Availability of Markets. The availability of a ready market for any oil
and/or gas produced by Gulfport depends on numerous factors beyond the control
of management, including but not limited to, the extent of domestic production
and imports of oil, the proximity and capacity of gas pipelines, the
availability of skilled labor, materials and equipment, the effect of state and
federal regulation of oil and gas production and federal regulation of gas sold
in interstate commerce. Oil and gas produced by Gulfport in Louisiana is sold to
various purchasers who service the areas where Gulfport's wells are located.
Gulfport's wells are not subject to any agreements that would prevent Gulfport
from either selling its production on the spot market or committing such gas to
a long-term contract; however, there can be no assurance that Gulfport will
continue to have ready access to suitable markets for its future oil and gas
production.
Impact of Energy Price Changes. Oil and gas prices can be extremely
volatile and are subject to substantial seasonal, political and other
fluctuations. The prices at which oil and gas produced by Gulfport may be sold
is uncertain and it is possible that under some market conditions the production
and sale of oil and gas from some or all of its properties may not be
economical. The availability of a ready market for oil and gas and the prices
obtained for such oil and gas, depend upon numerous factors beyond the control
of Gulfport, including competition from other oil and gas suppliers and national
and international economic and political developments. Because of all of the
factors influencing the price of oil and gas, it is impossible to accurately
predict future prices.
11
Environmental Regulation
Operations of Gulfport are subject to numerous federal, state and local
laws and regulations governing environmental protection. Over the last several
years, state and federal environmental laws and regulations have become more
stringent and may continue to become more stringent in the future. These laws
and regulations may affect Gulfport's operations and costs as a result of their
affect on oil and gas development, exploration, and production operations. It is
not anticipated that Gulfport will be required in the near future to expend
amounts that are material in relation to its total capital expenditures program
by reason of environmental laws and regulations, but inasmuch as such laws and
regulations are frequently changed, Gulfport is unable to predict the ultimate
cost of compliance.
Operational Hazards and Insurance
Gulfport's operations are subject to all of the risks normally incident to
the production of oil and gas, including blowouts, cratering, pipe failure,
casing collapse, oil spills and fires, each of which could result in severe
damage to or destruction of oil and gas wells, production facilities or other
property, or injury to persons. The energy business is also subject to
environmental hazards, such as oil spills, gas leaks, and ruptures and discharge
of toxic substances or gases that could expose Gulfport to substantial liability
due to pollution and other environmental damage. Although Gulfport maintains
insurance coverage considered to be customary in the industry for a company its
size, it is not fully insured against certain of these risks, either because
such insurance is not available or because of high premium costs. The occurrence
of a significant event that is not fully insured against could have a material
adverse effect on Gulfport's financial position.
Headquarters and Other Facilities
Gulfport lease office space in Oklahoma City, Oklahoma under a lease
covering approximately 7,000 square feet that expires in 2001. The monthly rent
is approximately $9,300.
In 1996, Gulfport purchased a building in Lafayette, Louisiana to be used
as Gulfport's Louisiana headquarters. The 16 year-old building contains 12,480
total square feet with 8,180 square feet of finished office area and 6,300
square feet of clear span warehouse area. The mortgage balance was approximately
$178,600 as of January 1, 2001 with an estimated fair market value of
$350,000.00. This building allows Gulfport to provide office space for Louisiana
personnel, have access to meeting space close to the fields and to maintain a
corporate presence in Louisiana.
Employees
At December 31, 2000, Gulfport had 11 employees. A Louisiana well
servicing company serves as contract operator of the fields and provides all
necessary field personnel.
12
Item 2. Properties
Oil & Gas Reserves
The oil and gas reserve information set forth below represents estimates
as prepared by the independent engineering firm of Netherland, Sewell and
Associates, Inc. Reserve engineering is a subjective process of estimating
volumes of economically recoverable oil and gas that cannot be measured in an
exact manner. The accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological interpretation. As a
result, the estimates of different engineers often vary. In addition, the
results of drilling, testing, and production may justify revisions of such
estimates. Accordingly, reserve estimates often differ from the quantities of
oil and gas that are ultimately recovered. Estimates of economically recoverable
oil and gas and of future net revenues are based on a number of variables and
assumptions, all of which may vary from actual results, including geologic
interpretation, prices, and future production rates and costs.
The following table sets forth estimates of the proved oil and gas
reserves of Gulfport at December 31, 2000, as estimated by Netherland, Sewell &
Associates, and independent engineering firm.
JANUARY 1, 2001
---------------
Proved Reserves Developed Undeveloped Total
--------- ----------- -----
Oil (MBBLS) 3,066 19,031 22,098
Gas (MMCF) 2,077 16,111 18,188
MBOE 3,412 21,717 25,129
Year-end present value (10%) of
estimated future net revenue $36,629,100 $244,264,700 $280,893,800
Total proved reserves decreased to 25,129 MBOE at January 1, 2001 from
26,967 at January 1, 2000. This decrease in reserves is mainly attributable to
natural production declines.
The estimated future net revenues as prepared by the independent
engineering firm of Netherland, Sewell and Associates, Inc. set forth above were
determined by using reserve quantities of proved reserves and the periods in
which they are expected to be developed and produced based on economic
conditions prevailing at December 31, 2000. The estimated future production is
priced at December 31, 2000 without escalation using $26.80 per BBL and $9.52
per MCF.
In compliance with federal law, Gulfport files annual reports with the
Energy Information Agency of the U.S. Department of Energy with respect to its
production of oil and gas during each calendar year and its estimated oil and
gas reserves at the end of each year.
Production, Prices, and Production Costs
The following is a table and graph of Gulfport's monthly net production in
2000.
(Table and Graph Omitted)
The following table demonstrates the oil and gas production volumes,
average sales prices and average lease operating expenses received for
production years ended 2000, 1999 and 1998.
13
Year Ended December 31
-------------------------------
Production Volumes: 2000 1999 1998
------ ------ ------
Oil (MBBLS) 530 576 441
Gas (MMCF) 83 107 421
Oil Equivalents (MBOE) 544 594 512
Average Prices
Oil (per BBL) $29.76 $16.86 $15.48
Gas (per MCF) $ 4.04 $ 2.83 $ 2.30
Oil Equivalents (per MBOE) $29.62 $16.86 $15.18
Average Production Costs (per BOE) $ 9.35 $ 6.18 $14.01
Average Production Taxes (per BOE) $ 3.02 $ 1.64 $ 1.49
Drilling and Recompletion Activities
The following table contains data with respect to certain of Gulfport's
field operations during the years ended December 31, 2000, 1999 and 1998.
Gulfport drilled no exploratory wells during the periods presented.
2000 1999 1998
Gross Net Gross Net Gross Net
------------- ------------ -------------
Recompletions,Sidetracks and
Deepenings
Oil 4 4 15 15 7 4.7
Gas 0 0 0 0 0 0
Non-Productive 1 1 12 12 0 0
------------- ------------ -------------
TOTAL: 5 5 27 27 7 4.7
============= ============ =============
Development Wells:
Oil 2 2 5 5 0 0
Gas 1 1 0 0 0 0
Non-Productive 1 1 1 1 0 0
------------- ----------- -------------
TOTAL: 4 4 6 6 0 0
============= =========== =============
Title to Oil and Gas Properties
It is customary in the oil and gas industry to make only a cursory review
of title to undeveloped oil and gas leases at the time they are acquired and to
obtain more extensive title examinations when acquiring producing properties. In
future acquisitions, Gulfport will conduct title examinations on material
portions of such properties in a manner generally consistent with industry
practice. Certain of Gulfport's oil and gas properties may be subject to title
defects, encumbrances, easements, servitudes or other restrictions, none of
which, in management's opinion, will in the aggregate materially restrict
Gulfport's operations.
14
Item 3. Legal Proceedings
Gulfport has been named as a defendant in various lawsuits. The
ultimate resolution of these matters is not expected to have a material adverse
affect on the Company's financial condition or results of operations for the
periods presented in the financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
On August 24, 2000 the Board of Directors nominated five persons to
serve on the Board of Gulfport. On September 1, 2000, the holders of a majority
of the outstanding shares of Gulfport's common stock executed a written consent
electing the five nominated persons as directors of Gulfport. Each director will
serve until the next annual meeting or until he is succeeded by another
qualified director who has been elected.
The annual shareholder meeting for Gulfport has not been scheduled as of
the date of this filing.
Item 4a. Executive Officers of the Registrant.
The officers of Gulfport are as follows:
Name Age Position
---- --- --------
Mike Liddell 47 Chairman of the Board, Chief
Executive Officer, President and
Director
Michael G. Moore 44 Vice President and Chief
Financial Officer
Lisa Holbrook 30 Vice President, General Counsel
and Secretary
Mike Liddell has served as a director of Gulfport since July 11, 1997,
as Chief Executive Officer since April 28, 1998 and as Chairman of the Board
since July 28, 1998. Mr. Liddell has served as President of Gulfport since July
2000. In addition, Mr. Liddell served as Chief Executive Officer of DLB from
October 1994 to April 28, 1998, and as a director of DLB from 1991 through April
1998. From 1991 to 1994, Mr. Liddell was President of DLB. From 1979 to 1991, he
was President and Chief Executive Officer of DLB Energy. He received a B.S.
degree in education from Oklahoma State University. He is the brother of Mickey
Liddell.
Michael G. Moore has served as Vice President and Chief Financial
Officer since July 2000. From May 1998 through July 2000, Mr. Moore served as
Vice President and Chief Financial Officer of Indian Oil Company. From September
1995 through May 1998, Mr. Moore served as Controller of DLB Oil & Gas, Inc.
Prior to that, Mr. Moore served as Controller of LEDCO, Inc., a Houston based
gas marketing company. Mr. Moore received both his B.B.A degree in finance
and his M.B.A. from the University of Central Oklahoma.
Lisa Holbrook has served as Vice President and Secretary of Gulfport
since November 5, 1999, and as General Counsel since April 28, 1998. In
addition, Ms. Holbrook served as Assistant General Counsel of DLB until April
1998. Ms. Holbrook received a B.A. in political science from Southwestern
Oklahoma State University. In 1996, Ms. Holbrook received her J.D. from Oklahoma
City University Law School where she graduated with highest distinction.
15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Gulfport's Common Stock is traded on the NASD OTC Bulletin Board under
the symbol GPOR. The following table sets forth the high and low sales prices
for the Common Stock in each quarter:
YEAR ENDED DECEMBER 31, 2000 LOW HIGH
---------------------------- ----- -----
First Quarter $2.125 $2.875
Second Quarter $2.50 $5.375
Third Quarter $4.125 $4.937
Fourth Quarter $3.750 $4.875
Holders of Record
At the close of business on February 1, 2001 there were 10,145,400 shares
of Common Stock outstanding held by 381 shareholders of record.
Dividend Policy
Gulfport has never paid dividends on the Common Stock. Gulfport currently
intends to retain all earnings to fund its operations. Therefore, Gulfport does
not intend to pay any cash dividends on the Common Stock in the foreseeable
future.
Item 6. Selected Financial Data
As a result of the Reorganization Case and Plan, which was consummated
and became effective on July 11, 1997, Gulfport was required to present its
financial statements pursuant to fresh start reporting standards. Accordingly,
the financial statements of Gulfport are not comparable to the financial
statements of WRT. However, in the case of the statement of operations, the
Company believes that comments comparing calendar years are appropriate in order
to provide a more meaningful understanding of Gulfport's operations.
16
The following selected financial data as of and for the years ended
December 31, 2000, 1999 and 1998, and as of and for the five months 21 days
ended December 31, 1997, for Gulfport and for the six months and 10 days ended
July 10, 1997, for the Predecessor Company are derived from the consolidated
financial statements of Gulfport included elsewhere in the Annual Report. The
selected financial data at December 31, 1996 and for the year then ended have
been derived from historical consolidated financial statements of WRT. The
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Gulfport and the notes thereto included
elsewhere in this Annual Report.
Reorganized Company Predecessor Company
------------------------------------------- ------------------------
July 11, Six Months
Year ended 1997 to 10 Days Year ended
December 31, December 31, July 10, December 31,
-------------------------- ------------
2000 1999 1998 1997 1997 1996
---- ---- ---- ---- ---- ----
Statement of Operation Data (in thousands, except per share amounts)
Oil and gas sales $16,117 $10,018 $ 8,298 $ 9,456 $10,138 $24,019
------- ------- ------- ------- ------- -------
Operating expenses 11,635 9,978 66,415 11,478 11,002 40,855
------- ------- ------- ------- ------- -------
Net income (loss) from operations 4,482 40 (58,117) (2,022) (864) (16,836)
------- ------- ------- ------- ------- -------
Interest expense 596 934 1,534 727 1,106 5,562
Proceeds for litigation trust - 1,342 - - - -
Reorganized cost - - - - (7,771) (7,345)
Net income (loss) before dividends
on preferred stock an 4,459 641 (59,109) (1,713) (9,615) (29,387)
Extraordinary item - - - - 88,723 -
Net income (loss) before dividends
on preferred stock 4,459 641 (59,109) (1,713) $79,108 $(29,387)
Dividends on preferred stock - - - - (1,510) (2,846)
Net income (loss) available to
common stock 4,459 641 (59,109) (1,713) $77,598 $(32,233)
Earnings (loss) per common and
common share equivalent 0.44 0.13 (72.34) (3.88) N/A N/A
Average common and common
equivalent shares outstanding 10,145 5,120 817 442 9,539 9,539
Capital expenditures $ 6,658 $ 7,147 $ 991 $ 5,644 $ 2,562 $ 4,823
Predecessor
Reorganized Company Company
-------------------------------------- -----------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance Sheet Data
Working capital (deficit) $ 169 $(1,352) $(3,204) $ (719) $(148,932)
Property, plant and equipment, net 26,692 23,469 19,990 81,507 56,899
Total assets 36,178 33,484 27,568 92,346 68,076
Long term debt 301 179 381 13,528 -
Shareholders' equity (deficit) $28,573 $24,114 $18,503 $70,280 $ (60,551)
(1) Operating expenses for 1998 include non-cash charges of $50,131,000 for
impairment of oil and gas properties, $271,000 for abandonment of long-
lived assets and a $244,000 provision for doubtful accounts. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the Company's financial
condition and results of operations is based in part on the consolidated
financial statements and the notes thereto included elsewhere in this Annual
Report and should be read in conjunction therewith.
Credit Facility
On July 11, 1997 Gulfport entered into a $15,000,000 credit facility
with ING (U.S.) Capital Corporation. During 1998 and 1999, there were two
amendments to the facility and the maturity date was reset to June 30, 2000. On
June 28, 2000, the Company repaid in full its credit facility at ING and
established a new credit facility at Bank of Oklahoma ("BOK"). Gulfport was
advanced $1.6 million on this new facility, which calls for interest payments to
be made monthly in addition to twelve monthly principal payments of $100,000,
with the remaining unpaid balance due on August 31, 2001. On March 22, 2001,
Gulfport executed a new note with BOK increasing the availability to $1,760,000,
increasing the monthly payments slightly to $110,000 beginning July 1, 2001 and
extending the maturity date to October 1, 2002. This new note replaces the
original BOK note dated June 28, 2000.
Accounting Change
Before July 11, 1997, Gulfport used the successful efforts method for
reporting oil and gas operations. On July 11, 1997, Gulfport converted to the
full cost pool method of accounting for its oil and gas operations.
Due to the restating of property values to comply with fresh start
accounting and the conversion from the successful efforts method to the full
cost pool method for reporting oil and gas operations as of July 1997,
comparison of depreciation, depletion, and amortization expense for the years
ended December 31, 2000, 1999 and 1998, with prior years will not be meaningful.
Results of Operations
The markets for oil and gas have historically been, and will continue to
be, volatile. Prices for oil and gas may fluctuate in response to relatively
minor changes in supply and demand, market uncertainty and a variety of factors
beyond the control of Gulfport. Set forth in the table below are the average
prices received by the Company and production volumes during the periods
indicated.
18
Year Ended December 31
--------------------------------
Production Volumes: 2000 1999 1998
---- ---- ----
Oil (MBBLS) 530 576 441
Gas (MMCF) 83 107 421
Oil Equivalents (MBOE) 544 594 512
Average Prices
Oil (per BBL) $29.76 $16.86 $15.48
Gas (per MCF) $ 4.04 $ 2.83 $ 2.30
Oil Equivalents (per MBOE) $29.62 $16.86 $15.18
Average Production Costs (per BOE) $ 9.35 $ 6.18 $14.01
Average Production Taxes (per BOE) $ 3.02 $ 1.64 $ 1.49
Comparison of Years Ended December 31, 2000 and 1999
Gulfport reported net income attributable to common stock of $4,459,000
for the year ended December 31, 2000, as compared with $641,000 for the year
ended December 31, 1999. The increase in earnings attributable to common stock
of $3,818,000 was due primarily to a significant increase in average oil and gas
prices in 2000.
Oil and Gas Revenues. For the year ended 2000, Gulfport reported oil and
gas revenues of $16,118,000, a 61% increase from revenues of $10,018,000 in
1999. This $6,100,000 increase in revenues is attributable to a 76% increase in
prices per BOE to $29.76 for the year ended 2000 as compared to $16.86 for the
same period in 1999. This increase in revenues was partially offset by a slight
reduction in total BOE's produced and sold due to natural production declines
during the year.
Operating Expenses Including Production Taxes. Total lease operating
expenses increased $2,092,000 to $6,732,000 for the year ended 2000 as compared
to $4,640,000 for the same period in 1999. This increase was partially
attributable to a $1,028,000 increase in gas lift costs to $1,555,000 for the
year ended 2000 from $528,000 for the same period in 1999. This increase in gas
lift costs is attributable to the increased gas prices for 2000 as compared to
1999 as well as increase in gas usage related to an increased number of
producing wells brought online in 2000. In addition, the increase in operating
expenses was also due in part to an approximately $763,000 increase in
production taxes for year ended 2000 as a result of increased revenues from
higher oil and gas prices.
General and Administrative Expenses. General and administrative expenses
decreased by $171,000 or 10% to $1,552,000 for the year ended 2000 from
$1,723,000 for the same period 1999. This decrease was due primarily to
Gulfport's continuing efforts to reduce overall general and administrative
costs.
Interest Expense. Interest expense decreased by $338,000 or 36% to
$596,000 for the year ended 2000 from $934,000 for the same period in 1999. This
decrease was due to a reduction in Gulfport's interest bearing debt of $1.9
million.
19
Litigation Trust. In 1999, the Company received proceeds of $1,342,000
from the Trust. Since the Company had no basis in the Litigation Trust, the
Company recognized the entire proceeds of $1,342,000 as income in the month in
which it was received. No revenues were received from the Litigation Trust for
the comparable period in 2000.
Other changes in income for the year ended December 31, 2000 as compared
to the year ended December 31, 1999 were attributable to the following factors:
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization expense was $3,351,000 for the year ended 2000, consisting of
$3,126,000 in depletion on oil and gas properties, $209,000 in depreciation of
other property and equipment and $16,000 in amortization expense. This is an 7%
decrease when compared to the 1999 depreciation, depletion and amortization
expense of $3,615,000. This decrease is due primarily to a reduction in total
BOE's produced for the year ended 2000 as compared to the same period in 1999.
Income Taxes. As of December 31, 2000, the Company had a net operating
loss carryforward of approximately $69 million, in addition to numerous timing
differences which gave rise to a deferred tax asset of approximately $41
million, which was fully reserved by a valuation allowance at that date.
Utilization of net operating loss carryforwards and other timing differences
will be recognized as a reduction in income tax expense in the year utilized. A
current tax provision of $1.78 million was provided for the year ended 2000,
which was fully offset by an equal income tax benefit due to operating loss
carryforwards and other deferred tax assets.
Comparison of Years Ended December 31, 1999 and 1998
Gulfport reported net income attributable to common stock of $641,000 for
the year ended December 31, 1999, as compared with a net (loss) attributable to
common stock of $(59,105,000) for the year ended December 31, 1998. The major
change in earnings attributable to common stock of $59,746,000 was due primarily
to the following factors: (1) the write-down of oil and gas properties in 1998
totaling $50,131,000, (2) the recognition in 1999 of $1,342,000 in revenues from
the Litigation Trust, (3) the increased oil production as a result of
development efforts in 1999, (4) reduction of operating expenses in 1999, (5)
reduction of general and administrative expenses in 1999, and (6) increase in
average oil and gas prices in 1999.
Impairment of Oil and Gas Properties. At each year end Gulfport
commissions a reserve report that estimates proved reserves and future revenue
of the Company's properties. The price of oil and gas, finding costs and
operating costs are used to determine future revenue. When changes occur such as
a drop in product prices that indicate the value carried on the balance sheet
cannot be recovered by future net cash flow, an impairment in oil and gas
properties must be recorded. During 1998, Gulfport incurred an impairment of oil
and gas properties of $50,130,000. The value of oil and gas properties was
impaired due primarily to the reduction in the present value of anticipated
future cash flows which occurred as a result of a 36% decrease in the BOE prices
from $17.91 used in the January 1, 1998 reserve report to $11.43 used in the
January 1, 1999 reserve report. The reserve report dated January 1, 2000 used a
BOE price of $25.56 resulting in the present value of anticipated future cash
flows of $145,355,000.
20
Recognition of Income from the Litigation Trust. During 1999, Gulfport
received $1,342,000 in proceeds from the Litigation Trust.
Oil and Gas Revenues. During 1999, Gulfport reported oil and gas revenues
of $10,018,000, a 21% increase from revenues of $8,298,000 in 1998. The increase
in revenues is attributable to a 82,000 increase in BOE production in 1999 over
1998 and an increase in prices in 1999 over 1998 of $1.68 per BOE. This overall
increase in revenues is despite the $665,000 million decrease in gas revenue
attributable to a .314 MMCF decrease in gas sales. The decrease in gas sales is
the result of the sale in April 1998 of the Bayou Pigeon, Bayou Penchant, Lac
Blanc, Golden Meadow and Deer Island Fields, which produced significant amounts
of gas.
Operating Expenses. Lease operating expenses have decreased by $4,113,000
or 53% from $7,782,000 in 1998 to $3,669,000 in 1999. This decrease was due in
part to the reduction of field related services performed by third party
contractors. Gulfport has lowered its operating expenses by reducing facility
costs through capital expenditures performed to enhance the saltwater disposal
facility, acidizing and repairing the saltwater wells, repairing the compressors
and a reduction in gas lift costs. This decrease was also due in part to the
sale effective April 1, 1998 of oil and gas properties located in Bayou Pigeon,
Bayou Penchant, Deer Island, Lac Blanc and Golden Meadow. The decrease was also
due in part to a streamlining and cost savings steps taken to reduce operating
costs at Gulfport's remaining properties.
General and Administrative Expenses. General and administrative expenses
decreased by $1,182,000 or 41% from $2,849,000 in 1998 to $1,667,000 in 1999.
This decrease was due primarily to Gulfport's efforts to reduce personnel and
overall general and administrative costs.
Interest Expense. Interest expense decreased by $600,000 or 39% from
$1,534,000 in 1998 to $934,000 in 1999. This decrease was due in part to
interest bearing debt reduced by $1.9 million, offset in part by the accrual of
$300,000 in interest on certain vendor debt.
Litigation Trust. In 1999, the Company received proceeds of $1,342,000
from the Trust. Since the Company had no basis in the Litigation Trust, the
Company recognized the entire proceeds of $1,342,000 as income in the month in
which it was received. No revenues were received from the Litigation Trust for
the comparable period in 1998.
Other changes in income for the year ended December 31, 1999 as compared
to the year ended December 31, 1998 were attributable to the following factors:
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization expense totaled $3,615,000 in 1999 consisting of $3,410,000 in
depletion on oil and gas properties and $205,000 in depreciation of other
property and equipment. This is a 16% decrease when compared to 1998
depreciation, depletion and amortization expense of $4,325,000. This decrease is
due primarily to the sale of $8.8 million of property in 1998.
Provision for Doubtful Accounts. The bad debts expense decreased from
$244,000 in 1998 to $56,000 in 1999.
Abandonment of Long-Lived Assets. During 1998, Gulfport abandoned outdated
computer software costs in the amount of $271,000.
21
Capital Expenditures, Capital Resources and Liquidity
Net cash flow provided by operating activities for the year ended December
31, 2000 was $6.3 million, as compared to net cash flow provided by operating
activities of $6.4 million for the comparable period in 1999.
Net cash used in financing activities for 2000 was $1.9 million as
compared to net cash provided of $2,870,000 during 1999. Net cash used in
financing activities in 2000 included $3.5 million of principle payments to pay
off the ING note and make principle payments on the new BOK facility and the
proceeds of $1,600,000 from the new BOK facility. The 1999 net cash flows
provided by financing activities occurred as a result of the $3,200,000 from the
Stockholder Credit Facility and the net proceeds from the 1999 Regulation D
Offering. The 1999 Regulation D Offering after expenses yielded $4,971,000 to
Gulfport. Affiliated Stockholders subscribed for 4,040,011 shares in the 1999
Regulation D Offering through the forgiveness of $3.0 million in debt, thus
netting $2.0 million to Gulfport for the net cash proceeds from the 1999
Regulation D Offering. In 1998, Gulfport received net funds of $7,363,000 for
the Rights Offering. Affiliated Stockholders exercised 1,200,000 shares of stock
through the forgiveness of $3.0 million in debt, thus netting $4.3 million to
the Company for the net cash proceeds from the 1998 Rights Offering. In addition
to repaying the Affiliated Stockholders through forgiveness of debt, Gulfport
made principal payments of $10.6 million in long-term debt during 1999.
Capital Expenditures. In 2000, Gulfport invested $6,658,000 in oil and
gas properties and other property and equipment as compared to $7,147,000 during
the comparable period in 1999. During 2000, Gulfport financed its capital
expenditures with cash flow provided by operations and borrowings under the
Company's credit facilities.
Gulfport's strategy is to continue to increase cash flows generated by
its properties by undertaking new drilling, workover, sidetrack and recompletion
projects in the fields to exploit its extensive reserves. The Company has
upgraded its infrastructure by enhancing its existing facilities to increase
operating efficiencies, increase volume capacities and lower lease operating
expenses. Additionally, Gulfport has undertaken the reprocessing of its 3D
seismic data in its principal property, West Cote Blanche Bay. The reprocessed
data will enable the Company's geophysicists to generate new prospects and
enhance existing prospects in the intermediate zones in the field thus creating
a portfolio of new drilling opportunities in the most prolific depths of the
field.
Capital Resources. On July 11, 1997 Gulfport entered into a $15,000,000
credit facility with ING (U.S.) Capital Corporation ("ING") 1998 and 1999, there
were two amendments to the facility and the maturity date was reset to June 30,
2000. On June 28, 2000, the Company repaid in full its credit facility at ING
and established a new credit facility at Bank of Oklahoma ("BOK"). Gulfport was
advanced $1.6 million on this new facility, which calls for interest payments to
be made monthly in addition to twelve monthly principal payments of $100,000,
with the remaining unpaid balance due on August 31, 2001. On March 22, 2001,
Gulfport executed a new note with BOK increasing the availability to $1,760,000,
increasing the monthly payments slightly to $110,000 beginning July 1, 2001 and
extending the maturity date to October 1, 2002. This new note replaces the
original BOK note dated June 28, 2000.
As a result of the completion of the NSA engineering report for the year
ended January 1, 2001, the Company intends to initiate discussions with other
banking institutions and attempt to put in a place a longer-term revolving
credit facility. The Company cannot be sure however that they will be
successful.
22
Liquidity. The primary capital commitments faced by the Company are the
capital requirements needed to continue developing the Company's proved reserves
and to continue meeting the required principal payments on its term Credit
Facility.
In Gulfport's January 1, 2001 reserve report, 86% of Gulfport's net
reserves were categorized as proved undeveloped. The proved reserves of Gulfport
will generally decline as reserves are depleted, except to the extent that
Gulfport conducts successful exploration or development activities or acquires
properties containing proved developed reserves, or both.
To realize reserves and increase production, the Company must continue
its exploratory drilling, undertake other replacement activities or utilize
third parties to accomplish those activities. In the year 2001, Gulfport expects
to undertake an intermediate drilling program. Gulfport has identified four to
eight wells with depths of approximately 9,000' that it commenced drilling in
January 2001. It is anticipated that these reserve development projects will be
funded either through the use of cash flow from operations when available,
interim bank financing, a long-term credit facility or by accessing the capital
markets. The cash flow generated from these new projects will be reinvested in
the field to complete more capital projects.
Commitments and Contingencies
Plugging and Abandonment Funds
In connection with the acquisition of the remaining 50% interest in the
WCBB properties, the Company assumed the obligation to contribute approximately
$18,000 per month through March 2004 to a plugging and abandonment trust and the
obligation to plug a minimum of 20 wells per year for 20 years commencing March
11,1997. Texaco retained a security interest in production from these properties
and the plugging and abandonment trust until such time the Company's plugging
and abandonment obligations to Texaco have been fulfilled. Once the plugging and
abandonment trust is fully funded, the Company can access it for use in plugging
and abandonment charges associated with the property. The Company ceased making
the required monthly contributions to the plugging and abandonment escrow
account from June 1999 to September 2000 and is currently negotiating a
settlement of this issue with Texaco. In October 2000, the Company started
making its required monthly contribution again. As of December 31, 2000, the
plugging and abandonment trust totaled $1,739,000. These funds are invested in a
U.S. Treasury Money Market.
In addition, the Company has letters of credit totaling $200,000 secured
by certificates of deposit being held for plugging costs in the East Hackberry
field. Once specific wells are plugged and abandoned the $200,000 will be
returned to the Company.
Texaco Global Settlement
Pursuant to the terms of a global settlement between Texaco ad the State
of Louisiana, which includes the State Lease 50 portion of Gulfport's East
Hackberry Field and Gulfport's WCBB (State Lease 340), Gulfport is obligated to
conduct developmental operations on certain designated non-producing acreage in
each field annually. If Gulfport does not conduct the required developmental
operations, the state of Louisiana could force Gulfport to release 20% of the
designated areas. As the date of this filing, Gulfport is in compliance with the
obligations of this settlement.
23
Year 2000 Compliance
Gulfport made all necessary investments in software systems and
applications to ensure it was Year 2000 compliant. Gulfport did not experience
any difficulties related to the Year 2000 rollover. Any cost associated with the
process of becoming Year 2000 compliant was not material.
Subsequent Events
In March 2001, a company that shares common ownership with Gulfport
acquired a majority of the oil and natural gas properties of a mid-continent
exploration and production company. Subsequent to the acquisition, Gulfport will
begin providing administrative services to effectively manage the day-to-day
operations of this acquisition and in turn will receive an administrative
service fee for such services.
Item 8. Financial Statements and Supplementary Data
The information required by this item appears on pages F-1 through F-22
following the signature pages of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The officers and directors of Gulfport are as follows:
Name Age Position
---- --- -------
Mike Liddell 47 Chairman of the Board, Chief Executive
Officer, President and Director
Michael G. Moore 44 Vice President and
Chief Financial Officer
Lisa Holbrook 30 Vice President, General Counsel and
Secretary
*Robert E. Brooks 54 Director
*David L. Houston 48 Director
*Mickey Liddell 39 Director
Dan Noles 53 Director
*Members of Gulfport's Audit Committee.
Mike Liddell has served as a director of Gulfport since July 11, 1997,
as Chief Executive Officer since April 28, 1998 and as Chairman of the Board
since July 28, 1998. Mr. Liddell has served as President of Gulfport since July
2000. In addition, Mr. Liddell served as Chief Executive Officer of DLB from
October 1994 to April 28, 1998, and as a director of DLB from 1991 through April
1998. From 1991 to 1994, Mr. Liddell was President of DLB. From 1979 to 1991,
he was President and Chief Executive Officer of DLB Energy. He received a B.S.
degree in education from Oklahoma State University. He is the brother of Mickey
Liddell and brother in law of Dan Noles.
24
Michael G. Moore has served as Vice President and Chief Financial
Officer since July 2000. From May 1998 through July 2000, Mr. Moore served as
Vice President and Chief Financial Officer of Indian Oil Company. From September
1995 through May 1998, Mr. Moore served as Controller of DLB Oil & Gas, Inc.
Prior to that, Mr. Moore served as Controller of LEDCO, Inc., a Houston based
gas marketing company. Mr. Moore received his B.B.A degree in finance from
the University of Central Oklahoma in 1982 and in 1987 also completed his M.B.A.
from the University of Central Oklahoma.
Lisa Holbrook has served as Vice President and Secretary of Gulfport
since November 5, 1999, and as General Counsel since April 28, 1998. In
addition, Ms. Holbrook served as Assistant General Counsel of DLB until April
1998. Ms. Holbrook received a B.A. in political science from Southwestern
Oklahoma State University. In 1996, Ms. Holbrook received her J.D. from
Oklahoma City University Law School where she graduated with highest
distinction.
Robert E. Brooks has served as a director of Gulfport since July 11,
1997. Mr. Brooks is currently a partner with Brooks Greenblatt, a commercial
finance company located in Baton Rouge, Louisiana that was formed by Mr. Brooks
in July 1997. Mr. Brooks is a Certified Public Accountant and was Senior Vice
President in charge of Asset Finance and Managed Assets for Bank One, Louisiana
between 1993 and July 1997. He received his B.S. degree from Purdue University
in mechanical engineering in 1969. He obtained graduate degrees in finance and
accounting from the Graduate School of Business at the University of Chicago in
1974.
David Houston has served as a director of Gulfport since July 1998.
Since 1991, Mr. Houston has been the principal of Houston & Associates, a firm
that offers life and disability insurance, compensation and benefits plans and
estate planning. Prior to 1991, he was President and Chief Executive Officer of
Equity Bank for Savings, F.A., a $600 million, Oklahoma-based savings bank. He
currently serves on the board of directors and executive committee of Deaconess
Hospital, Oklahoma City, Oklahoma, and is the former chair of the Oklahoma State
Ethics Commission and the Oklahoma League of Savings Institutions. He received a
Bachelor of Science degree in business from Oklahoma State University and a
graduate degree in banking from Louisiana State University.
Mickey Liddell has served as a director of Gulfport since January 1999.
Mr. Liddell is currently the President of Banner Entertainment, Inc., a motion
picture production company in Los Angeles, California. Prior to 1994, Mr.
Liddell owned and managed wholesale nutrition product stores in Los Angeles. Mr.
Liddell received a Bachelor of Arts from the University of Oklahoma in
Communications in 1984 and a graduate degree from Parson School of Design in New
York, New York in 1987. He is the brother of Mike Liddell and the brother in law
of Dan Noles.
Dan Noles was appointed to the Board of Directors in January of 2000.
Mr. Noles has served as the president of Atoka Management Company, an oilfield
equipment company, since 1993. Mr. Noles received his Bachelor degree in
Finance from the University of Oklahoma in 1970. Mr. Noles is the brother-in-
law to Mike Liddell and Mickey Liddell.
25
Item 11. Executive Compensation
The following table provides summary information concerning compensation
paid or accrued during the three fiscal years December 31, 2000, 1999 and 1998
to the Company's Chief Executive Officer and each of the four most highly
compensated executive officers of Gulfport, determined as of the end of the last
fiscal year, whose annual compensation exceeded $100,000.
Long Term
Name and Principal Annual Compensation All Other
Position Year Compensation (1) (2) Awards
Compensation
- -------------------------------------------------------------------------------
Salary Bonus
----------------
Mike Liddell 2000 $200,000 $16,667 (4) ---
Chief Executive 1999 $200,000 $ 4,166 (3) ---
Officer (5) 1998 $133,333 --- ---
Mark Liddell 2000 $ --- --- ---
President (6) 1999 $200,000 $ 4,166 (3) ---
1998 $133,333 --- ---
Raymond P. Landry 2000 $ --- --- ---
Executive Vice- 1999 $ --- --- ---
President 1998 $156,000 --- ---
- ----------------
(1) Amounts shown include cash and non-cash compensation earned and received by
the named executives as well as amounts earned but deferred at their election.
(2) Gulfport provides various perquisites to certain employees, including the
named executives. In each case, the aggregate value of the perquisite provided
to the named executives did not exceed 10% of such named executive's annual
salary and bonus.
(3) Mike Liddell and Mark Liddell each received stock options exercisable at
$2.00 per share for 253,635 shares. These options had no readily determinable
market value at the date of issuance. Mark Liddell's options were surrendered to
Gulfport upon his death at December 24, 1999.
(4) Mike Liddell received stock options exercisable at $2.00 per share for
203,635 shares. These options had no readily determinable market value at the
date of issue.
(5) Mr. Mike Liddell became the Chief Executive Officer of Gulfport on April 28,
1998. From April 28, 1998 until June 1999 Mr. Liddell's services were provided
pursuant to the Administrative Services Agreement. The Administrative Services
Agreement was terminated in June 1999 and all services previously rendered there
under were transferred to Gulfport. The compensation shown represents $100,000
paid under the Administrative Services Agreement from January 1999 until May
1999 and $100,000 paid directly from Gulfport from June 1999 until December
1999. See "Certain Transactions".
(6) Mr. Mark Liddell became the President of Gulfport on April 28, 1998. From
April 28, 1998 until June 1999 Mr. Liddell's services were provided pursuant to
the Administrative Services Agreement. The Administrative Services Agreement was
terminated in June 1999 and all services previously rendered there under were
transferred to Gulfport. The compensation shown represents $100,000 paid under
the Administrative Services Agreement and $100,000 paid directly from the
Company from June 1999 until December 1999. See "Certain Transactions".
26
Stock Options Granted
On June 1, 1999, Mike Liddell, Chief Executive Officer and Chairman of
the Board, received a grant of options for 2.5% of the issued shares of Common
Stock at an exercise price of $2.00 per share. The options shall be exercisable
and vest as to 35% of the shares on June 1, 2000, an additional 35% of the
shares will become exercisable and vest on June 1, 2001, and the remaining
shares will become exercisable and vest on June 1, 2002. On January 17, 2000,
Mr.Liddell was granted an additional 203,635 giving him a total of 457,270
options at the date of this filing.
On June 1, 1999, Mark Liddell, President, received a grant of options
for 2.5% of the outstanding shares of Common Stock at an exercise price of $2.00
per share. The options were scheduled to be exercisable and vest as to 35% of
the shares on June 1, 2000, an additional 35% of the shares will become
exercisable and vest on June 1, 2001, and the remaining shares will become
exercisable and vest on June 1, 2002. On December 24, 1999, Mr. Liddell died.
Pursuant to the terms of Mr. Liddell's Stock Option Agreement, all of his
options were surrendered to Gulfport.
On January 17, 2000 and July 15, 2000, respectively, Lisa Holbrook and
Mike Moore each received 10,000 options. The options vest in three equal
installments and are exercisable at $2.00 a share.
The Option Agreements for Mike Liddell, Lisa Holbrook and Mike Moore
provide that if the Company at any time increases the number of outstanding
shares of the Company or alters the capitalization of Gulfport in any other way,
the stock options shall be adjusted to reflect such changes.
The following table sets forth information concerning the grant of stock
options during 2000 to the named executives.
2000
----
Individual Grants Potential Realizable
-----------------
Number of Securities Value Assumed Annual
Underlying Options Market Rates at of Stock Price
Granted Exercise Price Appreciation for Option
Price Date Expiration Terms (1)
Name 2000 ($/SH) of Grant Date 5%($) 10%($)
- -------------------------------------------------------------------------------------------------
Mike Liddell 203,635 77% $2.00 $0.000 01/17/10 $296,379 $751,083
Lisa Holbrook 10,000 04% $2.00 $2.375 01/17/10 $ 12,578 $ 31,875
Mike Moore 10,000 04% $2.00 $4.250 07/15/10 $ 12,578 $ 31,975
(1) The assumed annual rates of increase are based on an annually compounded
increase of the exercise price through a presumed ten-year option term.
Stock Option Holdings
The following table sets forth the number of unexercised options held by
named executives as of December 31, 2000. No options were exercised in 1997 or
1998.
27
Value of Unexercised
Number of Unexercised In the Money Options
Options at FY-End at Fiscal Year End
----------------- ------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------
Mike Liddell(1) 88,772 368,498
Lisa Holbrook(1) --- 10,000
Mike Moore(1) --- 10,000
(1) These options are exercisable at $2.00 per share.
Director Compensation
Up to the Effective Date, each director who was not a salaried employee
of Gulfport received $500 for his attendance at each meeting of the Board of
Directors and was reimbursed for expenses incurred in connection with attending
each such meeting. Currently, each outside director receives compensation in the
amount of $1,000 per month, $500 for attendance at each meeting of the Board of
Directors and reimbursement for expenses incurred in connection with attending
such meetings.
Employment Agreements
On June 1, 1999, the Company entered into a five-year employment
agreement with Mike Liddell, Chief Executive Officer and Chairman of the Board.
The employment agreement provides for a salary of $200,000 per year.
Compensation Committee Interlocks and Insider Trading
The Compensation Committee of the Company is comprised of all
non-employee directors of Gulfport, which include Robert Brooks, David Houston
and Mickey Liddell. Mickey Liddell is the President of Banner Entertainment,
LLC. Mike Liddell is a member of Banner Entertainment, LLC and assists in making
compensation decisions for Mickey Liddell. Prior to his death in December 1999,
Mark Liddell was also a member of the compensation committee. Other than herein
disclosed, no member of the Committee is a former or current officer or employee
of the Company and no employee of the Company serves or has served on the
compensation committee (or board of directors of a corporation lacking a
compensation committee) of a corporation employing a member of this Committee.
28
Item 12. Security Ownership of Certain Beneficial Owners and Management
Name and Address of Beneficial Owner(1) Beneficial Ownership
- -------------------------------------------------------------------------------
Shares Percentage(2)
----------------------
Mike Liddell(3) 917,179 9.04%
6307 Waterford Blvd., Suite 100
Oklahoma City, OK 73118
Charles E. Davidson(4)(5) 6,154,855 60.66%
411 West Putnam Avenue
Greenwich, CT 06830
Peter M. Faulkner(6) 777,384 7.66%
767 Third Avenue, Fifth Floor
New York, New York 10017
Lisa Holbrook * *
6307 Waterford Blvd., Suite 100
Oklahoma City, OK 73118
Michael G. Moore * *
6307 Waterford Blvd., Suite 100
Oklahoma City, OK 73118
Robert Brooks * *
343 3rd Street
Suite 205
Baton Rouge, LA 70801
David Houston * *
1120 N.W. 63rd
Suite 360
Oklahoma City, OK 73116
Mickey Liddell * *
8265 Sunset Blvd.
Suite 200
Los Angeles, CA 90046
All directors and executive officers as a group __________ _______
(10 individuals) 1,143,052 9.04%
- --------------------
* Less than one percent.
(1) Unless otherwise indicated, each person or group has sole voting power
with respect to all listed shares.
(2) Each listed person's percentage ownership is determined by assuming that
options, warrants and other convertible securities that are held by such
Person and that are exercisable or convertible within sixty (60) days
have been exercised.
29
(3) Includes shares of Common Stock held of record by Liddell Investments,
L.L.C. Mr. Liddell is the sole member of Liddell Investments, L.L.C.
(4) Includes 3,574,722 shares of Common Stock held of record by CD Holding,
L.L.C. and 784,273 shares of Common Stock held in an IRA for Mr.
Davidson. Mr. Davidson is the sole member of CD Holding, L.L.C. does not
include 1,795,860 shares of Common Stock held by the Wexford Entities
(as defined below). Mr. Davidson is the Chairman and controlling member
of Wexford Management, L.L.C. Mr. Davidson disclaims beneficial
ownership of the 1,795,860 shares owned by the Wexford Entities.
However, Mr. Davidson controls 61% of the issued stock of Gulfport. As a
result, Mr. Davidson is able to influence significantly and possibly
control matters requiring approval of the shareholders including the
election of directors.
(5) Includes 1,795,860 shares of Common Stock owned by the following
investment funds (the "Wexford Entities") that are affiliated with
Wexford Management: Wexford Special Situations 1996, L.P.; Wexford
Special Situations 1996 Institutional, L.P.; Wexford Special Situations
1996, Limited; Wexford-Euris Special Situations 1996, L.P.; Wexford
Spectrum Investors, L.L.C.; Wexford Capital Partners II, L.P.; Wexford
Overseas Partners I, L.P.
(6) Includes shares of Common Stock owned by the following investment funds:
PMF Partners, L.L.C., Rumpere Capital, L.P., and Rumpere Capital Fund,
Ltd.
Item 13. Certain Relationships and Related Transactions
In March 2001, a company that shares common ownership with Gulfport
acquired a majority of the oil and natural gas properties of a mid-continent
exploration and production company. Subsequent to the acquisition, Gulfport will
begin providing administrative services to effectively manage the day-to-day
operations of this acquisition and in turn will receive an administrative
service fee for such services.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements. The following Financial Statements of the
Company, the Notes thereto, and the reports thereon are filed under
Item 8 of this Report.
Independent Auditors Report..............................................F-2
Balance Sheets, December 31, 2000 and 1999...............................F-3
Statements of Operations, Years Ended December 31, 2000, 1999 and 1998...F-4
Statements of Stockholders' Equity, Years Ended December 31, 2000,
1999 and 1998.......................................................F-5
Statements of Cash Flows, Years Ended December 31, 2000, 1999 and 1998...F-6
Notes to Financial Statements............................................F-7
30
2. Financial Statement Schedules. All financial statement schedules have
been omitted, as the required information is inapplicable or is not
present in amounts sufficient to require submission of the schedule or
the information is presented in the Financial Statements or related
notes.
3. Exhibits.
10.1 Credit Agreement Dated June 28, 2000 between Registrant and
Bank of Oklahoma
10.2 Stock Option Plan
(b). Reports on Form 8-K
June 30, 2000 - Disclosure of bank debt reduction and hiring of new CFO
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934 as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Date: March _____, 2001.
GULFPORT ENERGY CORPORATION
By:/s/Mike Liddell
------------------------------------
Mike Liddell, Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934 as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacity and on the date indicated.
Date: March ____, 2001 By:/s/Mike Liddell
-------------------------------------
Mike Liddell, Chief Executive Officer
And Director
Date: March ____, 2001 By:/s/Robert Brooks
------------------------------------
Robert Brooks, Director
Date: March ____, 2001 By:/s/David L. Houston
------------------------------------
David L. Houston, Director
Date: March ____, 2001 By:/s/Mickey Liddell
-----------------------------------
Mickey Liddell, Director
Date: March _____, 2001 By:/s/Dan Noles
-----------------------------------
Dan Noles, Director
Date: March _____, 2001 By:/s/Michael G. Moore
-----------------------------------
Michael G. Moore, Vice President and
Chief Financial Officer
32
EXHIBIT INDEX
10.1 Credit Agreement Dated June 28, 2000 between Registrant and
Bank Of Oklahoma
10.2 Stock Option Plan
33
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-2
Balance Sheets, December 31, 2000 and 1999 F-3
Statements of Operations, Years Ended December 31, 2000,
1999 and 1998 F-4
Statements of Shareholders' Equity, Years Ended December
31, 2000 and 1999 F-5
Statements of Cash Flows, Years Ended December 31, 2000, 1999
and 1998 F-6
Notes to Financial Statements F-7
All financial statement schedules are omitted, as the required information is
inapplicable or the information is presented in the financial statements or
related notes.
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and
Shareholders of Gulfport Energy Corporation:
We have audited the accompanying balance sheets of Gulfport Energy
Corporation (a Delaware corporation) (formerly WRT Energy Corporation)
(the"Company") as of December 31, 2000 and 1999, and the related statements of
operations, shareholders' equity, and cash flows for the years ended December
31, 2000, 1999 and 1998. These financial statements are the responsibility of
Gulfport's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gulfport Energy Corporation
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for the years ended December 31, 2000, 1999 and 1998, in conformity with
generally accepted accounting principles in the United States of America.
HOGAN & SLOVACEK
Oklahoma City, OK
March 27, 2001
F-2
GULFPORT ENERGY CORPORATION
BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
----------------------------
2000 1999
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 3,657,000 $ 5,664,000
Accounts receivable, net of allowance for
doubtful accounts of $244,000 for 2000 and 1999 3,608,000 2,055,000
Prepaid expenses and other current assets 171,000 120,000
---------- -----------
Total current assets 7,436,000 7,839,000
---------- -----------
Property and equipment:
Oil and natural gas properties 90,640,000 84,135,000
Other property and equipment 1,919,000 1,866,000
Accumulated depletion, depreciation,
amortization and impairment reserve (65,867,000) (62,532,000)
----------- -----------
Property and equipment, net 26,692,000 23,469,000
----------- -----------
Other assets 2,050,000 2,176,000
----------- -----------
$36,178,000 $33,484,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 6,426,000 $ 6,296,000
Current maturities of long-term debt 878,000 2,895,000
----------- -----------
Total current liabilities 7,304,000 9,191,000
----------- -----------
Long-term debt 301,000 179,000
----------- -----------
Total liabilities 7,605,000 9,370,000
----------- -----------
Commitments and contingencies - -
Stockholders' equity (deficit):
Preferred stock - $.01 par value, 1,000,000
authorized, non issued - -
Common stock - $.01 par value, 15,000,000
authorized, 10,145,400 issued and outstanding
at December 31, 2000 and 1999 101,000 101,000
Paid-in capital 84,190,000 84,190,000
Accumulated deficit (55,718,000) (60,177,000)
----------- -----------
Total stockholders' equity 28,573,000 24,114,000
----------- -----------
Total liabilities and stockholders' equity $36,178,000 $33,484,000
=========== ===========
See accompanying notes to financial statements.
F-3
GULFPORT ENERGY CORPORATION
STATEMENTS OF OPERATIONS
Year ended December 31,
---------------------------------------------
2000 1999 1998
------------ ------------- ------------
Revenues:
Gas sales $ 337,000 $ 303,000 $ 1,346,000
Oil and condensate sales 15,781,000 9,715,000 6,952,000
Other income 572,000 193,000 546,000
----------- ------------ -----------
16,690,000 10,211,000 8,844,000
----------- ------------ -----------
Costs and expenses:
Operating expenses including production taxes 6,732,000 4,640,000 8,596,000
Impairment of oil and gas properties - - 50,130,000
Depreciation, depletion, and amortization 3,351,000 3,615,000 4,325,000
General and administrative 1,552,000 1,667,000 2,849,000
Interest 596,000 934,000 1,534,000
Provision for doubtful accounts - 56,000 244,000
Impairment of long lived assests - - 271,000
----------- ------------ -----------
12,231,000 10,912,000 67,949,000
----------- ------------ -----------
INCOME (LOSS) FROM OPERATIONS BEFORE OTHER
INCOME (EXPENSE) AND INCOME TAX 4,459,000 (701,000) (59,105,000)
OTHER INCOME (EXPENSE)
Proceeds from Litigation Trust - 1,342,000 -
----------- ------------ ------------
- 1,342,000 -
----------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 4,459,000 641,000 (59,105,000)
INCOME TAX EXPENSE (BENEFIT):
Current 1,784,000 255,000 -
Deferred (1,784,000) (255,000) -
----------- ------------ ------------
- - -
----------- ------------ ------------
NET INCOME (LOSS) $ 4,459,000 $ 641,000 $(59,105,000)
=========== ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ 0.44 $ 0.13 $ (72.35)
=========== ============ ============
Diluted $ 0.43 $ 0.13 $ (72.35)
=========== ============ ============
See accompanying notes to financial statements.
F-4
GULFPORT ENERGY CORPORATION
Statements of Stockholders' Equity (Deficit)
Additional
Preferred Common Stock Paid-in Accumulated Treasury
----------------------
Stock Shares Amount Capital Deficit Stock
-------- ---------- ---------- ---------- ----------- ------
Balance at December 31, 1998 $ - 3,445,400 $1,723,000 $77,598,000 (60,818,000) -
Change in par value of common stock - - (1,689,000) 1,689,000 - -
------- ---------- ---------- ----------- ----------- -----
Balance as restated, December 31, 1998 - 3,445,400 34,000 79,287,000 (60,818,000) -
Regulation D offering - 6,700,000 67,000 4,903,000 - -
------- ---------- ---------- ----------- ----------- -----
Net income - - - - 641,000 -
------- ---------- ---------- ----------- ----------- -----
Balance at December 31, 1999 - 10,145,400 101,000 84,190,000 (60,177,000)
Net income - - - - 4,459,000 -
------- ---------- ---------- ----------- ----------- -----
Balance at December 31, 2000 $ - 10,145,400 $ 101,000 $84,190,000 $(55,718,000) $ -
======= ========== ========== =========== =========== =====
See accompanying notes to financial statements.
F-5
GULFPORT ENERGY
Statements of Cash Flows
Year ended December 31,
---------------------------------------
2000 1999 1998
----------- ---------- ------------
Cash flows from operating activities:
Net income (loss) $4,459,000 $ 641,000 $(59,105,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Impairment of oil and gas properties - - 50,130,000
Depletion, depreciation and amortization 3,335,000 3,615,000 4,519,000
Provision for doubtful accounts receivable - 56,000 244,000
Impairment of long-lived assets - - 271,000
Amortization of debt issuance costs 16,000 108,000 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,553,000) (455,000) 2,464,000
(Increase) decrease in prepaid expenses (51,000) (10,000) 82,000
(Increase) decrease in accounts payable
and accrued liabilities 130,000 2,406,000 (2,456,000)
------------ --------- -----------
Net cash provided by (used in) operating activities 6,336,000 6,361,000 (3,851,000)
------------ --------- -----------
Cash flows from investing activities:
Additions to cash held in escrow (55,000) (92,000) (280,000)
Redemption of Certificates of Deposit 200,000 - -
Capital expenditures (6,658,000) (7,147,000) (1,330,000)
Proceeds from sale of oil and gas properties 100,000 47,000 8,966,000
Proceeds from sale of equipment - 5,000 49,000
Increase (decrease) in other assets (19,000) (94,000) 114,000
------------ --------- -----------
Net cash used in investing activities (6,432,000) (7,281,000) 7,519,000
============ ========= ===========
Cash flows from financing activities:
Proceeds from sales of common stock - 4,971,000 7,328,000
Proceeds from borrowings 1,600,000 3,210,000 35,000
Principle payments on borrowings (3,495,000) (5,311,000) (10,580,000)
Payment of loan origination fees (16,000) - -
------------ --------- -----------
Net cash (used) provided by financing activities (1,911,000) 2,870,000 (3,217,000)
------------ --------- -----------
Net increase (decrease) in cash and cash equivalents (2,007,000) 1,950,000 451,000
Cash and cash equivalents at beginning of period 5,664,000 3,714,000 3,263,000
------------ --------- -----------
Cash and cash equivalents at end of period $3,657,000 $5,664,000 $ 3,714,000
============ ========= ===========
Supplemental disclosure of cash flow information:
Interest payments $ 240,000 $ 476,000 $ 1,334,000
See accompanying notes to financial statements.
F-6
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Gulfport Energy Corporation (the "Company"), formerly known as WRT
Energy Corporation ("WRT"), is a domestic independent energy company engaged in
the exploration, development and production of crude oil and gas. On March 30,
1998, the Company changed its name from WRT Energy Corporation to Gulfport
Energy Corporation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents for purposes of the
statement of cash flows.
Oil and Gas Properties
The Company uses the Full Cost method of accounting for oil and gas
operations. Accordingly, all costs, including nonproductive costs and certain
general and administrative costs associated with acquisition, exploration and
development of oil and gas properties, are capitalized. Net capitalized costs
are limited to the estimated future net revenues, after income taxes, discounted
at 10% per year, from proven oil and gas reserves and the cost of the properties
not subject to amortization. Such capitalized costs, including the estimated
future development costs and site remediation costs, if any, are depleted by an
equivalent units-of-production method, converting gas to barrels at the ratio of
six MCF of gas to one barrel of oil. No gain or loss is recognized upon the
disposal of oil and gas properties, unless such dispositions significantly alter
the relationship between capitalized costs and proven oil and gas reserves. Oil
and gas properties not subject to amortization consist of the cost of
undeveloped leaseholds. These costs are reviewed periodically by management for
impairment, with the impairment provision included in the cost of oil and gas
properties subject to amortization. Factors considered by management in its
impairment assessment include drilling results by Gulfport and other operators,
the terms of oil and gas leases not held by production, and available funds for
exploration and development.
Other Property and Equipment
Depreciation of other property and equipment is provided on a straight-
line basis over estimated useful lives of the related assets, which range from
seven to 30 years.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing income
(loss) attributable to common stock by the weighted average number of common
shares outstanding for the period. Diluted net income per common share reflects
the potential dilution that could occur if options or other contracts to issue
common stock were exercised or converted into common stock. Diluted net loss per
common share does not reflect dilution from potential common shares, because to
do so would be anti-dilutive. Calculations of basic and diluted net income
(loss) per common share are illustrated in Note 9.
F-7
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
Income Taxes
Gulfport uses the asset and liability method of accounting for income
taxes, under which, deferred tax assets and liabilities are recognized for the
future tax consequences of (1) temporary differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities
and (2) operating loss and tax credit carryforwards. Deferred income tax assets
and liabilities are based on enacted tax rates applicable to the future period
when those temporary differences are expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income during the period the rate change is enacted. Deferred tax
assets are recognized as income in the year in which realization becomes
determinable.
Revenue Recognition
Gas revenues are recorded in the month produced using the entitlement
method, whereby any production volumes received in excess of the Company's
ownership percentage in the property are recorded as a liability. If less than
Gulfport's entitlement is received, the underproduction is recorded as a
receivable. There is no such liability or asset recorded at December 31, 2000 or
December 31, 1999. Oil revenues are recognized in the month produced.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates, judgments
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ materially from those estimates.
Significant estimates with regard to these financial statements include the
estimate of proved oil and gas reserve quantities and the related present value
of estimated future net cash flows there from.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments,
litigation or other sources are recorded when it is probable that a liability
has been incurred and the amount can be reasonably estimated.
F-8
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMETNS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
2. PROVISION FOR ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of the activity in the allowance for doubtful accounts for the
years ended December 31, 2000 and 1999 is as follows:
2000 1999
------------ --------------
Balance, beginning of the year $ 244,000 $ 4,607,000
Provision for bad debts - 56,000
Bad debts written off - (4,419,000)
------------ --------------
Balance, end of year $ 244,000 $ 244,000
============ ==============
No charges to bad debt expense were made during the year ended December
31, 2000. During the years ended December 31, 1999 and 1998, the Company charged
$56,000 and $244,000, respectively, to bad debt expense.
The 1999 bad debt expense related to receivables on properties no longer
owned by Gulfport.
3. PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated
depreciation, depletion and amortization as of December 31 are as follows:
2000 1999
------------ ------------
Oil and gas properties $ 90,640,000 $84,135,000
Office furniture and fixtures 1,442,000 1,389,000
Building 217,000 217,000
Land 260,000 260,000
------------ ------------
Total property and equipment $ 92,559,000 $86,001,000
Accumulated depreciation, depletion,
amortization and impairment reserve (65,867,000) (62,532,000)
------------ ------------
Property and equipment, net $ 26,692,000 $23,469,000
============ ============
F-9
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
Included in oil and gas properties at December 31, 2000 and 1999, are
$801,000 and $413,000, respectively, in general and administrative costs
incurred and capitalized to the full cost pool. General and administrative costs
capitalized to the full cost pool are those incurred directly related to
exploration and development activities such as geological costs and other
administrative costs associated with overseeing the exploration and development
activities. All general and administrative costs not directly associated with
exploration and development activities were charged to expense as they were
incurred. During 1998, no general and administrative costs were capitalized to
the full cost pool.
During 1998, the Company recorded a loss impairment on its oil and gas
properties of $50,130,000. At December 31, 2000 and 1999, due mainly to
increases in prevailing sales prices and to the write down of properties
recorded during 1998, the 10% discounted future cash flow from oil and gas
properties, as computed by the Company, well exceeded carrying value. Therefore,
no loss impairments related to oil and gas properties were recorded during 2000
or 1999.
During 1998, $5,097,000 of undeveloped leasehold cost, previously not
considered to be subject to amortization, was determined to be impaired and was
included in the cost of oil and gas properties subject to amortization, and in
the $50,130,000 impairment of oil and gas properties. The Company had no oil and
gas properties not subject to amortization at December 31, 2000 or December 31,
1999.
During 2000, the Company sold equipment related to oil and gas
properties totaling $100,000. During 1998, the Company sold oil and gas
properties totaling $8,800,000. The sale of these properties was treated as a
reduction to the full cost pool. Additionally, during 1998, the Company
abandoned $271,000 in software costs.
4. OTHER ASSETS
Other assets as of December 31 consist of the following:
2000 1999
---- ----
Plugging and abandonment escrow account
on the WCBB properties $ 1,739,000 $ 1,610,000
Prepaid loan fees, net of amortization - 34,000
CD's securing Letter of credit 200,000 400,000
Deposits 111,000 132,000
------------ -----------
$ 2,050,000 $ 2,176,000
============ ===========
F-10
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
5. SETTLEMENT OF CLAIMS
In accordance with a reorganization that took place during 1997,
Gulfport has accrued certain tax claims, which are included in the accompanying
balance sheets as current liabilities. These unpaid claims totaled $372,000 at
December 31, 2000 and 1999.
6. LONG-TERM DEBT
Long-term debt as of December 31 is as follows:
2000 1999
------------ -------------
Note payable to bank, payable in monthly
payments of $100,000, including interest at
the Chase Manhattan Prime rate plus 1% (10.5%
at December 31, 2000), with final payment of
outstanding principal and accrued interest
amounts due August 2001. The outstanding
balance at December 31, 2000, was refinanced
during March, 2001 $1,000,000 $ -
Credit facility payable to a capital corporation
calling for interest at either (1) London
Interbank Offering Rate ("LIBOR") plus 3%
or (2) capital corporations' fluctuating
"reference rate" plus 1.25%, payable
quarterly, collaterized by substantially all
Companies assets. This credit facility payable
was repaid in full during 2000. - 2,879,000
Note payable to bank, payable in monthly
payments of $2,900, including interest at 9.5%,
concluding March, 2008, collaterized by
land and building. 179,000 195,000
---------- -----------
Total 1,179,000 3,074,000
Less - current maturities of long-term debt (878,000) (2,895,000)
---------- -----------
Debt reflected as long-term $ 301,000 $ 179,000
---------- -----------
Following are the maturities of long-term debt for each of the next five
years:
2001 878,000
2002 160,000
2003 22,000
2004 24,000
2005 26,000
Thereafter 69,000
------------
$1,179,000
============
F-11
GULFPORT ENREGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
Note Payable Refinancing
On March 1, 2001, Gulfport refinanced its $1,000,000 note payable which
was outstanding at December 31, 2000. Additional borrowings were also made at
the time of the refinancing, bringing the total note payable at March 1, 2001 to
$1,760,000. Under the terms of the new agreement, monthly principal payments of
$110,000 are to be made beginning July 1, 2001, with the remaining outstanding
principal due October 1, 2002. The refinanced note bears interest at Chase
Manhattan Prime rate plus 1%. Principal payments made after December 31, 2000,
but prior to the refinancing totaled $200,000 and are included, along with
monthly payments to be made from July 1, 2001 to December 31, 2001, in current
maturities of long -term debt at December 31, 2000.
Building Loan
In 1996, the Company purchased a building in Lafayette, Louisiana to be
used as Gulfport's Louisiana headquarters. The building is 12,480 square feet
with approximately 6,180 square feet of finished office area and 6,300 square
feet of warehouse space. This building allows Gulfport to provide office space
for Louisiana personnel, have access to meeting space close to the fields and to
maintain a corporate presence in Louisiana.
In connection with the purchase of the building, the Company entered
into a loan agreement with MC Bank & Trust Company. The original loan balance
was $215,000 and called for monthly principal and interest payments totaling
$3,000 per month through 2005 with the unpaid balance due at that time.
During 1998, the Company renegotiated this loan agreement with MC Bank &
Trust Company. The Company borrowed an additional $35,000 for building
improvements. The loan agreement calls for monthly principal and interest
payments of $2,900 per month through March 2008. The loan bears interest at 9.5%
per annum and is collateralized by the land and building.
7. COMMON STOCK OPTIONS, WARRANTS AND CHANGES IN CAPITALIZATION
Options
The Company granted its Chief Financial Officer 10,000 stock options
with an exercise price of $2.00 per share and an effective date of July 15,
2000. The options vest 35% in July 2001, and 35% in July 2002 with the remaining
shares vesting in 2003. The option agreement provides for pro rata adjustments
to the options granted if the Company at any time increases the number of
outstanding shares or otherwise alters its capitalization. The Company did not
recognize any compensation expense related to these options as fair value at
the grant date approximated the exercise price.
During January, 2000, the Company's Chief Executive Officer, employees,
and non-employee directors were granted a total of 313,635 stock options with an
exercise price of $2.00 per share. The options vest 35% in January 2001, and 35%
in January 2002, with the remaining options vesting in January 2003. The option
agreements provide for pro-rata adjustments to options granted if the Company at
any time increases the number of outstanding shares or otherwise alters its
capitalization.
F-12
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
On June 1, 1999, Gulfport's Chief Executive Officer and President were
each granted stock options for the purchase of 2.5% of the outstanding shares of
Common Stock at an exercise price of $2.00 per share. The options vest 35% on
June 1, 2000, and 35% on June 1, 2001, with the remaining options vesting on
June 1, 2002. The option agreements provide for pro-rata adjustments to options
granted if Gulfport at any time increases the number of outstanding shares or
otherwise alters its capitalization. Stock options previously granted to the
President were surrendered to Gulfport upon his death in December 1999.
On September 15, 1999, all non-employee board members were each granted
10,000 options with an exercise price of $2.00. The options vest 33% on October
1, 1999, and 33% on October 1, 2000, with the remaining options vesting on
October 1, 2001. These options granted to non-employee board members will be
adjusted on a pro-rata basis to reflect any change in the capitalization of the
Company.
Options outstanding at December 31, 2000 totaled 609,087. Of this total,
108,769 options were exercisable at December 31, 2000, with the remaining
options vesting in future periods.
Warrants
At December 31, 2000, a total of 1,163,195 warrants, each for the
purchase of one share of Gulfport's common stock, were outstanding. All of these
warrants were issued pursuant to a 1997 warrant agreement, stemming from a
reorganization which occurred that year. The warrants will expire on July 11,
2002 and are exercisable at $10 per warrant.
The related agreement contains several anti-dilutive provisions that
provide for adjustments to the terms of the warrants in the event of any
recapitalization by Gulfport. As a result of Gulfport's capitalization changes
as described below, which occurred subsequent to the issuance of these warrants,
each warrant outstanding at December 31, 2000 can purchase .234 shares of common
stock.
Rights Offering
On November 20, 1998, Gulfport completed a $7,500,000 Rights Offering.
Gulfport distributed 4,000,000 nontransferable rights at an exercise price of
$2.50 per right, after the effect of the reverse stock split, to Gulfport's
existing shareholders. Each right entitled the holder thereof to subscribe to
purchase one share of common stock at the exercise price. Each shareholder who
exercised in full his basic subscription privilege was entitled to oversubscribe
for additional rights. A total of 3,000,000 rights were exercised for
$7,509,000. As of the date of the Rights Offering, affiliated Shareholders were
owed $4,600,000 by the Company. In the Rights Offering, the Affiliated
Shareholders exercised 1,752,195 rights through the forgiveness of $4,380,000 of
debt. The balance of $220,000 was repaid in cash during 1998.
Reverse Stock Split
On March 5, 1999, the Board of Directors authorized a 50-to-1 reverse
stock split, thereby decreasing the number of issued and outstanding shares to
3,445,400, and increasing the par value of each share to $.50. Subsequent to
this reverse stock split, the par value was reduced to $.01.
F-13
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
Regulation D Private Placement Offering
During September 1999, Gulfport conducted a private placement of stock
(the "Regulation D Offering"). In accordance with the provisions of certain
exemptions, the Regulation D Offering was made only to Accredited Investors as
defined in Regulation D.
Gulfport offered 6,700,000 shares of common stock at an exercise price
of $.75 per share. Each shareholder exercising his basic subscription privilege
in full was entitled to oversubscribe for additional shares. A total of
6,700,000 shares were subscribed, yielding $5,016,000, net of offering costs. As
of the date of the Regulation D Offering, affiliated Shareholders were owed
$3,238,000 by the Company. In the Regulation D Offering, the Affiliated
Shareholders acquired 4,040,011 common shares through the forgiveness of
$3,030,000 of this debt, with the remaining balance of $208,000 paid in cash
during 1999.
8. INCOME TAXES
A reconciliation of the statutory federal income tax amount to the
recorded expense follows:
2000 1999 1998
---------- ---------- ------------
Income (loss) before
federal income taxes $ 4,459,000 $ 641,000 $(59,105,000)
Expected income tax (benefit)
at statutory rate 1,784,000 255,000 (22,460,000)
Valuation allowance - 22,460,000
Net operating loss carryforward
utilized (341,000) - -
Other deferred tax assets utilized (1,443,000) (255,000) -
----------- ----------- -------------
Income tax expense recorded $ - $ - $ -
=========== =========== =============
The tax effects of temporary differences and net operating loss
carryforwards, which give rise to deferred tax assets at December 31 are as
follows:
F-14
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
2000 1999
----------- -------------
Net operating loss carryforward $18,231,000 $ 18,572,000
Oil and gas property basis difference 23,089,000 23,089,000
Other - 1,443,000
----------- -------------
Total Deferred tax asset 41,320,000 43,104,000
Valuation allowance (41,320,000) (43,104,000)
----------- -------------
Net deferred tax asset (liability) $ - $ -
=========== =============
The Company has an available tax net operating loss carry forward of
approximately $68,912,000 as of December 31, 2000. This carryforward will begin
to expire in the year 2013.
9. NET INCOME (LOSS) PER COMMON SHARE
A reconciliation of the components of basic and diluted net income
(loss) per common share is presented in the table below:
2000 1999 1998
-------------------------- -------------------------- ----------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
------ ------- ----- ------ -------- ----- ------- ------ -----
Basic:
Income (loss) attributable
to common stock $4,459,000 10,145,400 $0.44 $641,000 5,120,255 $0.13 $(59,105,000) 816,986 $(72.35)
====== ====== ========
Effect of dilutive securities:
Stock options - 259,567 - - - -
---------- --------- -------- --------- ------------ -------
Diluted:
Income (loss) attributable
to common stock, after
assumed dilutions $4,459,000 10,404,967 $0.43 $641,000 5,120,255 $0.13 $(59,105,000) 816,986 $(72.35)
========== ========== ===== ======== ========= ===== ============ ======= ========
Not included in the calculation of diluted income (loss) above are
1,163,195 warrants issued in 1997. Also, not included in the calculation of the
1999 diluted income per share are 253,635 stock options issued to an officer of
Gulfport in June, 1999 and 30,000 stock options issued to certain directors in
September 1999. These potential common shares were not considered in the
calculations due to their anti-dilutive effect during the periods presented.
10. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company conducts business
activities with a substantial number of its shareholders.
DLB Oil & Gas, Inc. ("DLB") and Wexford Management LLC ("Wexford") were,
along with Gulfport, co-proponents in a 1997 plan of reorganization. During
April of 1998, DLB distributed all of its shares in the Company to its
shareholders prior to DLB's acquisition by Chesapeake Energy Corporation. As a
result of this distribution, Charles Davidson, Mike Liddell and Mark Liddell
collectively received 37.5% of the Company's stock. As of December 31, 2000,
Wexford and its affiliates owned approximately 17.7% of Gulfport's issued
outstanding stock. Charles Davidson, Mike Liddell and the Estate of Mark Liddell
own collectively 52% of the Company's outstanding stock as of December 31, 2000.
F-15
GULPFORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 21, 2000, 1999 AND 1998
CONTINUED
Administrative Service Agreement
Pursuant to the terms and conditions of an Administrative Services
Agreement, DLB agreed to make available to the Company personnel, services,
facilities, supplies, and equipment as needed, including executive and
managerial, accounting, auditing and tax, engineering, geological and
geophysical, legal, land and administrative and clerical services. The initial
term was one year beginning on the date of the Administrative Services
Agreement. The Administrative Services Agreement was to continue for successive
one-year periods unless terminated by either party. On April 28, 1998, in
connection with the acquisition of DLB, Inc. by Chesapeake Energy Corporation,
the obligations of DLB under the Administrative Services Agreement were assigned
to DLB Equities, L.L.C.
Gulfport paid fees under this agreement totaling $21,000 and $969,000
in 1999 and 1998, respectively, and believes that such fees are comparable to
those that would have been charged by an independent third party. Effective June
of 1999, this Administrative Service Agreement was terminated.
At December 31, 1997, Gulfport owed DLB approximately $1,600,000 for
services rendered pursuant to the Administrative Services Agreement. In March
1998, in order to facilitate the acquisition of DLB by Chesapeake Energy Corp.,
Mike Liddell, Mark Liddell and Charles Davidson purchased the receivable from
DLB for its then outstanding amount of approximately $1,600,000. Each of Messrs.
Mike and Mark Liddell and Mr. Davidson subsequently transferred his portion of
the receivable to Liddell Investments, L.L.C., Liddell Holdings, L.L.C. and CD
Holdings, L.L.C., respectively. The receivable accrued interest at the rate of
LIBOR plus 3% per annum and was satisfied with the exercise of 632,484 rights in
the November 20, 1998 Rights Offering through debt forgiveness.
Sales
During the year ended December 31, 1998, Gulfport sold $2,058,000 in oil
to a DLB subsidiary. These sales occurred at prices which the Company could be
expected to obtain from an unrelated third party. No sales to related parties
were made during 2000 or 1999.
Stockholder Credit Facility
On August 18, 1998, Gulfport entered into a $3,000,000 revolving credit
facility with Liddell Investments, L.L.C., Liddell Holdings, L.L.C., CD
Holdings, L.L.C. and Wexford Entities (collectively "Affiliated Stockholders").
Borrowing under the Stockholder Credit Facility was due on August 17, 1999 and
bore interest at LIBOR plus 3%. Pursuant to the facility agreement, Gulfport
paid the eligible Affiliated Stockholders an aggregate commitment fee equal to
$60,000. Gulfport repaid $2,000,000 of principal under the Amended ING Credit
Agreement with borrowings under the Stockholder Credit Facility. The remaining
$1,000,000 was used for working capital and general corporate purposes. The
Affiliated Stockholders paid the subscription price for 1,200,000 Shares
pursuant to their Basic Subscription Privilege in the Rights Offering through
the forgiveness of the amount owed to them under this stockholder credit
facility.
F-16
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
On August 5, 1999, Gulfport entered into a $3,255,000 revolving credit
facility with the "Affiliated Stockholders". Borrowing under this agreement was
due on August 1, 2000, and bore interest at LIBOR plus 3%. Pursuant to the terms
of the agreement, Gulfport paid aggregate commitment fees equal to $65,000 or 2%
of the related borrowings in stock. This debt was extinguished through the
issuance of 4,040,011 shares of common stock to the Affiliated Stockholders in
the Regulation D Offering in August 1999, and through the payment of additional
funds totaling $208,000.
11. COMMITMENTS
Leases
As of December 31, 2000 and 1999, the Company had no long-term,
non-cancelable operating lease commitments. Rental expense for all operating
leases for the years ended December 31, 2000, 1999 and 1998, totaled $112,000,
$119,000 and $120,000, respectively.
Plugging and Abandonment Funds
In connection with the acquisition of the remaining 50% interest in the
WCBB properties, Gulfport assumed the obligation to contribute approximately
$18,000 per month through March 2004, to a plugging and abandonment trust and
the obligation to plug a minimum of 20 wells per year for 20 years commencing
March 11, 1997. Texaco Exploration and Production, Inc. ("Texaco") retained a
security interest in production from these properties and the plugging and
abandonment trust until such time as the Company's plugging and abandonment
obligations to Texaco have been fulfilled. Once the plugging and abandonment
trust is fully funded, the Company can access it for use in plugging and
abandonment charges associated with the property. As of December 31, 2000, the
plugging and abandonment trust totaled $1,739,000 including interest received
during 2000 of $88,000. Gulfport was in arrears on its escrow payments in the
amounts of $275,000 as of December 31, 2000. During March 2001, Gulfport began
to fulfill its yearly plugging commitment of 20 wells at WCBB for the twelve
month period ending march 2001.
Texaco Global Settlement
Pursuant to the terms of a global settlement between Texaco and the
State of Louisiana which includes the State Lease No. 50 portion of Gulfport's
East Hackberry Field, Gulfport was obligated to commence drilling a well or
other qualifying development operation on certain non-producing acreage in the
field prior to March 1998. Because of prevailing market conditions during 1998,
the Company believed it was commercially impractical to shoot seismic or
commence drilling operations on the subject property. As a result, Gulfport has
agreed to surrender approximately 440 non-producing acres in this field to the
State of Louisiana. At December 31, 2000, Gulfport was in the process of
releasing these properties to the State of Louisiana.
F-17
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
Contributions to 401(k) Plan
During 1999 and 1998, Gulfport sponsored a 401(k) savings plan under
which eligible employees could chose to contribute up to 15% of salary income on
a pre-tax basis, subject to certain IRS limits. During the year ended December
31, 1998, Gulfport incurred $4,000, in matching contributions expense associated
with this plan. Gulfport did not incur any expense related to this plan during
the year ended December 31, 1999. On February 17, 1999, this 401(k) savings plan
was terminated and all contributions were distributed to the participants.
Effective January 1, 2000, Gulfport began sponsoring new 401(k) and
Profit Sharing plans under which eligible employees may contribute up to 15% of
pay through salary deferrals. Also under these plans, the Company will make a
contribution each calendar year on behalf of each employee equal to at least 3%
of his or her salary, regardless of the employee's participation in salary
deferrals. During the year ended December 31, 2000, Gulfport incurred $24,000 in
contributions expense related to this plan.
Employment Agreement
At December 31, 2000, Gulfport had an employment agreement with its
Chief Executive Officer. This agreement expires June 1, 2004, and calls for an
annual salary of $200,000, which may be adjusted for cost of living increases.
11. CONTINGENCIES
The Company owns and operates a production facility at WCBB. Pursuant to
facility use agreements, Gulfport charges third parties including Texaco for
using the facility. Gulfport and Texaco are currently negotiating past due
amounts related to the facility. Gulfport believes that it has adequately
recorded in its financial statements all material obligations arising from the
operations of WCBB as well as revenues earned attributed to operating these
facilities.
Other Litigation
The Company has been named as a defendant on various other litigation
matters. The ultimate resolution of these matters is not expected to have a
material adverse effect on the Company's financial condition or results of
operations for the periods presented in the financial statements.
Concentration of Credit Risk
Gulfport operates in the oil and gas industry principally in the state
of Louisiana with sales to refineries, re-sellers such as pipeline companies,
and local distribution companies. While certain of these customers are affected
by periodic downturns in the economy in general or in their specific segment of
the oil and gas industry, Gulfport believes that its level of credit-related
losses due to such economic fluctuations has been immaterial and will continue
to be immaterial to the Company's results of operations in the long term. No bad
debt expense was incurred during 2000. During 1999 and 1998, Gulfport incurred
bad debts of $56,000 and $244,000, respectively. The bad debt incurred during
1998 related to a disputed pre-bankruptcy receivable which was determined to be
uncollectible.
F-18
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
The Company maintains cash balances at several banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. At December 31, 2000 and 1999, Gulfport held cash in excess of insured
limits in these banks totaling $3,556,000 and $5,962,000 respectively.
During the year ended December 31, 2000, approximately 91% of Gulfport's
revenues from oil and gas sales were attributable to two primary customers:
Black Hills Energy and Equiva Trading Company. During the year ended December
31, 1999, approximately 99% of Gulfport's revenues from oil and gas sales were
attributable to five primary customers: Equiva Trading Company, Black Hills
Energy Resources, Inc., Flash Oil & Gas Southwest, Inc., Burlington Resources,
and Plains All American, Inc. During the year ended December 31, 1998,
approximately 76% of the Company's revenues from oil and gas sales were
attributable to sales to five primary customers: Equiva Trading Company,
Gathering and Energy Marketing Corp., Black Hills Energy Resources, Inc., Prior
Energy Company, and Plains Marketing, L.P. Included in accounts payable and
accrued liabilities in the accompanying balance sheets at December 31, 2000 and
1999, is approximately $795,000 and $1,000,000, respectively, in production
revenues remitted to the Company by certain of the above-named customers.
Gulfport has not recognized these receipts as sales revenue in the accompanying
statements of operations because it believes these funds exceed its share of
revenues on the related properties.
12. LITIGATION TRUST ENTITY
Pursuant to the Company's 1997 plan of reorganization, all of Gulfport's
possible causes of action against third parties (with the exception of certain
litigation related to recovery of marine and rig equipment assets and claims
against Tri-Deck), existing as of the effective date of that plan, were
transferred into a "Litigation Trust" controlled by an independent party for the
benefit of most of the Company's existing unsecured creditors. The litigation
related to recovery of marine and rig equipment and the Tri-Deck claims were
subsequently transferred to the Litigation Trust as described below.
The Litigation Trust was funded by a $3,000,000 cash payment from the
Company, which was made on the effective date of reorganization. Gulfport owns a
12% interest in the Litigation Trust with the other 88% being owned by the
former general unsecured creditors of Gulfport. For financial statement
reporting purposes, Gulfport has not recognized the potential value of
recoveries which may ultimately be obtained, if any, as a result of the actions
of the Litigation Trust, treating the entire $3,000,000 payment as a
reorganization cost at the time of Gulfport's reorganization.
On January 20, 1998, Gulfport and the Litigation Trust entered into a
Clarification Agreement whereby the rights to pursue various claims reserved by
Gulfport under the plan of reorganization were assigned to the Litigation Trust.
In connection with this agreement, the Litigation Trust agreed to reimburse the
Company $100,000 for legal fees Gulfport had incurred in connection these
claims. As additional consideration for the contribution of this claim to the
Litigation Trust, Gulfport is entitled to 20% to 80% of the net proceeds from
these claims.
F-19
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
There were no funds received from the Litigation Trust during the year
ended December 31, 2000 or the year ended December 31, 1998. During 1999,
Gulfport received $1,342,000 in proceeds from the Litigation Trust.
13. SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION
ACTIVITIES (UNAUDITED)
The following is historical revenue and cost information relating to the
Company's oil and gas operations located entirely in the southeastern United
States:
Capitalized Costs Related to Oil and Gas Producing Activities
2000 1999
----------- ------------
Proven Properties $90,640,000 $84,135,000
Accumulated depreciation, depletion
amortization and impairment reserve (65,173,000) (62,047,000)
------------ ------------
Proven properties, net $25,467,000 $22,088,000
============ ============
Costs Incurred in Oil and Gas Property Acquisition and Development Activities
2000 1999 1998
---------- ----------- -----------
Acquisition $ - $ 337,000 $ -
Development 6,505,000 6,803,000 746,000
---------- ----------- -----------
Total $6,505,000 $ 7,140,000 $ 746,000
========== =========== ===========
Results of Operations for Producing Activities
The following schedule sets forth the revenues and expenses related to
the production and sale of oil and gas. The income tax expense is calculated by
applying the current statutory tax rates to the revenues after deducting costs,
which include depreciation, depletion and amortization allowances, after giving
effect to the permanent differences. The results of operations exclude general
office overhead and interest expense attributable to oil and gas production.
2000 1999 1998
------------ ------------ ------------
Revenues $16,117,000 $10,018,000 $ 8,298,000
Production costs (6,732,000) (4,640,000) (8,596,000)
Impairment of oil
and gas properties - - (50,130,000)
Depletion (3,125,000) (3,410,000) (4,136,000)
------------ ------------ ------------
6,260,000 1,968,000 (54,564,000)
------------ ------------ ------------
Income tax expense
Current 2,504,000 781,000 -
Deferred (2,504,000) (781,000) -
------------ ------------ ------------
- - -
------------ ------------ ------------
Results of operations
from producing activities $ 6,260,000 $ 1,968,000 $(54,564,000)
============ ============ ============
F-20
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
Oil and Gas Reserves
The following table presents estimated volumes of proven and proven
undeveloped oil and gas reserves as of December 31, 2000, 1999, and 1998 and
changes in proven reserves during the last three years, assuming continuation
of economic conditions prevailing at the end of each year. Volumes for oil are
stated in thousands of barrels (MBbls) and volumes for gas are stated in
millions of cubic feet (MMCF). The weighted average prices at December 31,
2000 used for reserve report purposes are $26.80 and $9.52 for oil and gas
reserves, respectively.
Gulfport emphasizes that the volumes of reserves shown below are
estimates which, by their nature, are subject to revision. The estimates are
made using all available geological and reservoir data, as well as production
performance data. These estimates are reviewed annually and revised, either
upward or downward, as warranted by additional performance data.
2000 1999 1998
------------ ------------ ------------
Oil Gas Oil Gas Oil Gas
----- ----- ----- ----- ----- -----
Proven Reserves
Beginning of the period 25,923 6,264 24,282 3,331 25,817 11,576
Purchases in oil and gas
reserves in place - - 1,594 2,762 - -
Extensions, discoveries and
other additions - - - - - -
Revisions of prior reserve
estimates (3,295) 12,007 641 297 - -
Current production (530) (83) (594) (126) (441) (421)
Sales of oil and gas
reserves in place - - - - 1,094 (7,824)
------ ------ ------ ------ ------ -------
End of period 22,098 18,188 25,923 6,264 26,470 3,331
====== ====== ====== ====== ====== =======
Proven developed reserves 3,066 2,077 6,606 2,073 5,665 1,250
====== ====== ====== ====== ====== =======
F-21
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
Discounted Future Net Cash Flows
Estimates of future net cash flows from proven oil and gas reserves were
made in accordance with SFAS No. 69, "Disclosures about Oil and Gas Producing
activities." The following tables present the estimated future cash flows, and
changes therein, from Gulfport's proven oil and gas reserves as of December 31,
2000, 1999, and 1998, assuming continuation of economic conditions prevailing at
the end of each year.
F-22
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
Standardized Measure of Discounted Future Net Cash Flows Relating to Proven
Oil and Gas Reserves
Year ended December 31,
--------------------------------------------
2000 1999 1998
------------ ------------- -------------
Future cash flows $763,942,000 $676,056,000 $286,086,000
Future development costs (118,857,000) (132,708,000) (116,000,000)
Future production costs (93,817,000) (91,705,000) (58,582,000)
Future production taxes (67,349,000) (83,392,000) (35,116,000)
------------- ------------- -------------
Future net cash flows before income taxes 483,919,000 368,251,000 76,388,000
10% discount to reflect timing of cash flows (203,025,000) (222,896,000) (48,965,000)
------------- ------------- -------------
Discounted future net cash flows 280,894,000 145,355,000 27,423,000
Future income taxes, net of 10% discount (68,037,000) (14,602,000) -
------------- ------------- -------------
Standardized measure of discounted future
net cash flows $212,857,000 $130,753,000 $ 27,423,000
============= ============= =============
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to
Proven Oil and Gas Reserves
Year ended December 31,
---------------------------------------------
2000 1999 1998
------------- ------------- -------------
Sales and transfers of oil and gas produced,
net of production costs $ (9,386,000) $ (5,378,000) $ 298,000
Net changes in prices and production costs 104,539,000 113,060,000 (59,354,000)
Acquisition of oil and gas reserves in place,
less related production costs - 4,978,000 -
Extensions, discoveries and improven
recovery, less related costs - - -
Revisions of previous quantity estimates,
less related production costs 20,515,000 3,722,000 4,298,000
Sales of reserves in place - - (16,679,000)
Accretion of discount 19,871,000 1,550,000 22,430,000
Net changes in income taxes (53,435,000) (14,602,000) -
Other - - -
------------ ------------- --------------
Total change in standardized measure of
discounted future net cash flows $ 82,104,000 $103,330,000 $(49,007,000)
============ ============= ==============
F-23
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
CONTINUED
Comparison of Standardized Measure of Discounted Future Net Cash Flows to the
Net Carrying Value of Proven Oil and Gas Properties at December 31, 2000 and
1999 is as follows:
2000 1999
------------ ------------
Standardized measure of discounted future and net cash flows $280,894,000 $130,753,000
------------ ------------
Proven oil and gas properties 90,640,000 84,135,000
Less accumulated depreciation, depletion, amortization and
impairment reserve (64,776,000) (62,047,000)
------------ ------------
Net carrying value of proven oil and gas properties 25,864,000 22,088,000
------------ ------------
Standardized measure of discounted future net cash flows in excess
of net carrying value of proven oil and gas properties $255,030,000 $108,665,000
EXHIBIT 10.1
John N. Huff
Vice President
Energy Banking
(405) 272-2028
Fax 272-2588
June 28, 2000
Mr. Mike Liddell
Gulfport Energy Corporation
6307 Waterford Blvd., Suite 100
Oklahoma City, OK 73118
Re: Loan Agreement Covenants
Dear Mike,
This letter is written to evidence our mutual understanding between Gulfport
Energy Corporation ("Borrower") and Bank of Oklahoma ("Bank") regarding a
$1,600,000 loan to Gulfport Energy Corporation for the purpose of refinancing an
existing obligation of the Borrower. Borrower agrees to the following conditions
in connection with its obligation to Bank of Oklahoma:
1. Any proceeds from the sale of oil/gas properties having an aggregate
selling price in excess of $100,000 will be applied to the loan
balance.
2. Borrower will not encumber any oil and gas producing properties.
3. No material changes in the ownership of Gulfport without Bank consent.
4. Current assets divided by current liabilities, exclusive of
obligations to Bank shall exceed 1.0 at all times.
5. Borrower's indebtedness other than trade payables incurred in the
ordinary course of business and excluding all loans from Bank of
Oklahoma is limited to $100,000 without prior Bank consent.
6. Borrower will not pay any dividends or redeem any shares without prior
Bank consent.
Please sign below as your acceptance of these terms and conditions.
We appreciate the opportunity to provide you with this credit facility.
Very truly yours,
/s/John N. Huff
- ---------------
John N. Huff
Vice President
Agreed and accepted this _____ day of June 2000.
For the Borrower:
By:/S/Mike Liddell
---------------
Mike Liddell, Chief Executive Officer
EXHIBIT 10.2
1999 STOCK OPTION PLAN
1. Purpose. The 1999 Stock Option Plan (the "Plan") is intended to
strengthen Gulfport Energy Corporation (the "Company") by providing to
employees, officers, directors, consultants, and independent contractors of the
Company added incentive for high levels of performance and unusual efforts to
increase the earnings of the Company. The Plan seeks to accomplish this purpose
by enabling specified persons to purchase shares of Common Stock, $.50 par
value, thereby increasing their proprietary interest in the Company's success
and encouraging them to remain in the employ or service of the Company.
2. Administration. The Plan shall be administered by the Compensation
Committee (the "Committee" or "Administrator") of the Board of Directors (the
"Board") of the Company. The number of individuals that shall constitute the
Committee shall be determined from time to time by a majority of all of the
members of the Board, and unless that majority of the Board determines
otherwise, shall be no less than two individuals; PROVIDED, however, that if the
members of the Board and the Company's executive officers are subject to Rule
16b-3 under the Exchange Act, the Committee shall be comprised of either (a) the
entire Board or (b) persons who are "Non-Employee Directors" under Rule 16b-3 or
such other person as shall then be eligible to serve in such capacity under Rule
16b-3. A majority of the Committee shall constitute a quorum (or if the
Committee is only two members, then both members shall constitute a quorum), and
subject to the provisions of Section 4, the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all members of the Committee, shall be the acts of the Committee.
The members of the Committee shall serve at the pleasure of the Board,
which shall have the power, at any time and from time to time to remove members
from or add members to the Committee. Removal from the Committee may be with or
without cause. Any individual serving as a member of the Committee shall have
the right to resign from membership in the Committee by written notice to the
Board. The Board, and not the remaining members of the Committee, shall have the
power and authority to fill vacancies on the Committee, however caused. The
Board shall promptly fill any vacancy that causes the number of members of the
Committee to be below two or if the Company has a class of equity securities
registered pursuant to Section 12 of the Exchange Act, any other members that
Rule 16B-3 may require from time to time.
3. Shares Available. Subject to the adjustments provided in Section
5(g), the maximum number of shares of Common Stock, par value $.50 per share, of
the Company (the "Common Stock") in respect of which Option may be granted for
all purposes under the Plan shall be 300,000 shares. If, for any reason, any
shares as to which Options have been granted cease to be subject to purchase
thereunder, including the expiration of such Option, the termination of such
Option prior to exercise, or the forfeiture of such Option, such shares shall
thereafter be available for grants under the Plan. Options granted under the
Plan may be fulfilled in accordance with the terms of the Plan with (i)
authorized and unissued shares of the Common Stock, (ii) issued shares of such
Common Stock held in the Company's treasury, or (iii) issued shares of Common
Stock reacquired by the Company, in each situation as the Board or the Committee
may determine from time to time.
4. Authority of Committee. Subject to and not inconsistent with the
express provisions of the Plan, the Code and, if applicable, Rule 16b-3, the
Committee shall have plenary authority to:
a. determine the Key Employees and Eligible Non-Employees to whom
Options shall be granted, the time when such Options shall be granted, the
number of shares covered by such Options, the purchase price or exercise price
under each such Option, the period(s) during which such Options shall be
exercisable (whether in whole or in part, including whether such Options shall
become immediately exercisable upon the consummation of a "Change of Control" or
a "Qualifying Public Offering"), the restrictions to be applicable to Options
and all other terms and provisions thereof (which need not be identical);
b. require, if determined necessary or appropriate by the
committee in order to comply with Rule 16b-3, as a condition to the granting of
any Option, that the Person receiving such Option agree not to sell or otherwise
dispose of such Option, any Common Stock acquired pursuant to such Option, or
any other "derivative security" (as defined by Rule 16a-1(c) under the Exchange
Act) for a period of six months following the later of the date of the grant of
such Option or (ii) the date when the exercise price of such Option is fixed if
such exercise price is not fixed at the date of grant of such Option, or for
such other period as the Committee may determine;
c. provide an arrangement through registered broker-dealers
whereby temporary financing may be made available to an optionee by the
broker-dealer, under the rules and regulations of the Board of Governors of the
Federal Reserve, for the purpose of assisting the optionee in the exercise of an
Option, such authority to include the payment by the Company of the commissions
of the broker-dealer;
d. provide the establishment of procedures for an optionee (i) to
have withheld from the total number of shares of Common Stock to be acquired
upon the exercise of an Option that number of shares having a Fair Market Value
which, together with such cash as shall be paid in respect of fractional shares,
shall equal the aggregate exercise price under such Option for the number of
shares then being acquired (including the shares to be so withheld), and (ii) to
exercise a portion of an Option by delivering that number of shares of Common
Stock already owned by such optionee having an aggregate Fair Market Value which
shall equal the partial Option exercise price and to deliver the shares thus
acquired by such optionee in payment of shares to be received pursuant to the
exercise of additional portions of such Option, the effect of which shall be
that such optionee can in sequence utilize such newly acquired shares in payment
of the exercise price of the entire Option, together with such cash as shall be
paid in respect of fractional shares;
e. provide (in accordance with Section 13 or otherwise) the
establishment of a procedure whereby a number of shares of Common Stock or other
securities may be withheld from the total number of shares of Common Stock or
other securities to be issued upon exercise of an Option to meet the obligation
of withholding for income, social security and other taxes incurred by an
optionee upon such exercise or required to be withheld by the Company or a
Related Entity in connection with such exercise;
f. prescribe, amend, modify and rescind rules and regulations
relating to the Plan;
g. make all determinations permitted or deemed necessary,
appropriate or advisable for the administration of the Plan, interpret any Plan
or Option, provision, perform all other acts, exercise all other powers, and
establish any other procedures determined by the Committee to be necessary,
appropriate, or advisable in administering the Plan or for the conduct of the
Committee's business. Any act of the Committee, including interpretations of the
provisions of the Plan or any Option and determinations under the Plan or any
Option shall be final, conclusive and binding on all parties;
h. delegate to the Chairman of the Board, Chief Executive Officer
or President of the Company the authority to grant options to any eligible
employee of the Company. If such authority is delegated, the Committee's
designation of authority shall include the authority to determine (i) to whom
the Option is to be granted, (ii) the number of shares optioned, (iii) the terms
and conditions of the Option, and (iv) in the case of replacement Options, the
terms and conditions of such Option.
The committee or any person to whom it has delegated authority as
aforesaid may employ one or more Persons to render advice with respect to any
responsibility the Committee or such Person may have under the Plan. The
Committee may employ attorneys, consultants, accountants, or other Persons and
the Committee, the Company, and its officers and directors shall be entitled to
rely upon the advice, opinions, or valuations of any such Persons. No member or
agent of the Committee shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan and all members
and agents of the Committee shall be fully protected by the Company in respect
of any such action, determination or interpretation.
5. Terms and Conditions of Options.
a. Only Eligible Participants shall be eligible to receive grants
of Options under this Plan. "Eligible Participants" shall mean: (i) all
directors of the Company; (ii) all officers (whether or not they are also
directors) of the Company; and (iii) all key employees (as such persons may be
determined by the Stock Option Committee from time to time) of the Company,
provided that such officers and key employees have a customary work week of at
least forty hours in the employ of the Company.
b. Type of Options. Each option granted under the Plan shall be a
non-qualified stock option (an "Option").
c. Options and Grants. Options shall be evidenced by Option
Agreements. The agreements shall conform to the requirements of the Plan, and
may contain such other provisions (including restrictions upon the exercise or
vesting of the Option, and provisions for the protection of the Options in the
event of mergers, consolidations, dissolutions, and liquidations) as the
Committee may deem advisable.
d. Option Price. The price at which Common Stock may be purchased
upon exercise of an Option shall be determined by the Committee in accordance
with its rules, or, in their absence, by the Committee's discretion.
e. Period of Option. The expiration date of such Option shall be
fixed by the Committee, but, notwithstanding any provision of the Plan to the
contrary, such expiration date shall not be more than ten years from the date of
grant.
f. Nontransferability of Stock Options. Each Option shall, by its
terms, be nontransferable by the Optionee other than by will, the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the Optionee's lifetime only by the Optionee except pursuant
to a domestic relations order.
g. Adjustments and Corporate Reorganizations. If the outstanding
shares of Common Stock are increased or decreased, or are changed into or
exchanged for a different number of kind of shares or securities, as a result of
one or more reorganizations, recapitalizations, stock splits, reverse stock
splits, stock dividends or the like, appropriate adjustments shall be made in
the number and/or kind of shares or securities for which the unexercised
portions of this Option may thereafter be exercised, all without any change in
the aggregate exercise price applicable to the unexercised Options, but with a
corresponding adjustment in the exercise price per share or other unit. No
fractional share of stock shall be issued under the Options or in connection
with any such adjustment. Such adjustments shall be made by or under authority
of the Board, whose determinations as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company as a result of which the
outstanding securities of the class then subject to the Options are changed into
or exchanged for cash or property or securities not of the Company's issue, or
upon a sale of substantially all the property of the Company to, or the
acquisition of stock representing more than eighty percent (80%) of the voting
power of the stock of the Company then outstanding by, another corporation or
person, the Options shall terminate unless provision be made in writing in
connection with such transaction for the assumption of options previously
granted under the Stock Option Plan under which the Option was granted, or the
substitution for such options any options covering the stock of a successor
employer corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices, in which event the
Options shall continue in the manner and under the terms so provided. If the
Options shall terminate pursuant to the foregoing sentence, the Optionee shall
have the right, at such time prior to the consummation of the transaction
causing such termination as the Company shall reasonably designate, to exercise
all Options granted to Optionee, including the Options not yet exercisable.
h. Death of Holder of Option. Except as otherwise provided in the
applicable Option Agreement, in the event an Optionee to whom an Option has been
granted under the Plan dies during, or within three months after the termination
of, his employment by the Company, such Option (unless it shall have been
previously terminated pursuant to the provisions of the Plan or unless otherwise
provided in his Option Agreement) may be exercised (to the extent the entire
number of shares covered by the Option whether or not purchasable by the
employee at the date of his death) by the executor or administrator of the
optionee's estate or by the person or persons to whom the optionee shall have
transferred such Option by will or by the laws of descent and distribution, at
any time within a period of 12 months after his death, but not after the
exercise termination date set forth in the relevant Option Agreement.
i. Exercise and Payment.
i. An option may be exercised by notice (in the form
prescribed by the Committee) to the Company specifying the number of Shares to
be purchased. Payment for the number of Shares purchased upon the exercise of
an option shall be made in full at the price provided for in the applicable
Option Agreement and such purchase price shall be paid by the delivery to the
Company of cash (including check or similar draft) in United States dollars or
previously owned whole Shares that have been owned by the optionee for more than
six (6) months or a combination thereof. Shares used in payment of the purchase
price shall be valued at their Fair Market Value as of the date notice of
exercise is received by the Company. Any Shares delivered to the Company shall
be in such form as is acceptable to the Company.
ii. The Company may defer making delivery of Shares under
the Plan until satisfactory arrangements have been made for the payment of any
tax attributable to exercise of an option. The Administrator may, in its sole
discretion, permit an optionee to elect, in such form and at such time as the
Administrator may prescribe, to pay all or a portion of all taxes arising in
connection with the exercise of an option by electing to (A) have the Company
withhold whole Shares, or (B) deliver other whole Shares previously owned by the
optionee having a Fair Market Value not greater than the amount to be withheld;
provided, however, that the amount to be withheld shall not exceed the
optionee's estimated total tax obligations associated with the transaction.
The Company may elect to pay an optionee the amount
of optionee's federal and state income tax liability attributable to the
granting of the Option, or the exercise by the optionee of the Option, whichever
the case may be, to the extent the Company receives a federal income tax
deduction for compensation expense by reason of the grant of the Option or the
exercise of that Option by optionee. Within ninety (90) days after the year in
which the optionee incurs such tax liability by reason of grant or exercise of
the Option, the company by vote of the Board, and the optionee shall mutually
determine the amount of federal and state income tax liability owing by optionee
as a result thereof and shall settle for the amount to be paid by Company to
Optionee to reimburse optionee for that liability after consideration and
appropriate credit for the amount of federal and state income tax withheld by
the Company for the optionee for the preceding year.
6. Amendment and Termination. The Board of the Company may at any time
and from time to time suspend, amend, or terminate the Plan and may, with the
consent of an optionee, make such modifications of the terms and conditions of
that optionee's Stock Option as it shall deem advisable.
7. Rights of Eligible Participants and Optionees. No Eligible
Participant, optionee or other person shall have any claim or right to be
granted a Stock Option under this Plan, and neither this Plan nor any action
taken hereunder shall be deemed to give or be construed as giving any Eligible
Participant, optionee or other person any right to be retained in the employ of
the Company. Without limiting the generality of the foregoing, no person shall
have any rights as a result of his or her classification of an Eligible
Participant or optionee, such classifications being made solely to describe,
define and limit those persons who are eligible for consideration for privileges
under the Plan.
8. Privileges of Stock Ownership; Regulatory Law Compliance; Notice of
Sale. No optionee shall be entitled to the privileges of stock ownership as to
any Option Shares not actually issued and delivered. No Option Shares may be
purchased upon the exercise of a Stock Option unless and until all and then
applicable requirements of all regulatory agencies having jurisdiction and all
applicable requirements of the securities exchanges upon which securities of the
Company are listed (if any) shall have been fully complied with. The optionee
shall, not more than thirty (30) days after each sale or other disposition of
shares of Common Stock acquired pursuant to the exercise of Stock Options, give
the Company notice in writing of such sale or other disposition.
9. Effective Date of the Plan. The Plan shall be deemed adopted as of
June 1, 1999.
10. Exculpation and Indemnification of Stock Option Committee. In
addition to any applicable coverage under any directors and officers liability
or similar insurance policy, the present, former and future members of the
Committee, and each of them, who is or was a director, officer or employee of
the Company shall be indemnified by the Company to the extent authorized in and
permitted by the Company's Certificate of Incorporation, and/or Bylaws in
connection with all actions, suits and proceedings to which they or any of them
may be a party by reason of any act or omission of any member of the Committee
under or in connection with the Plan or any Option granted thereunder.
11. Agreement and Representations of Optionee. Unless the shares of
Common Stock covered by this Plan have been registered with the Securities and
Exchange Commission pursuant to the registration requirements under the
Securities Act of 1933, each optionee shall: (i) by and upon accepting an
Option, represent and agree in writing, in the form of the letter attached
hereto as Exhibit "A", for himself or herself and his or her transferees by will
or the laws of descent and distribution, that the Option shares will be acquired
for investment purposes and not for resale or distribution; and (ii) and upon
the exercise of an Option, or a part thereof, furnish evidence satisfactory to
counsel for the Company, including written and signed representations in the
form of the letter attached hereto as Exhibit "B", to the effect that the Option
Shares are being acquired for investment purposes and not for resale or
distribution, and that the Option Shares being acquired shall not be sold or
otherwise transferred by the optionee except in compliance with the registration
provisions under the Securities Act of 1933, as amended, or an applicable
exemption therefrom. Furthermore, the Company, at its sole discretion, to assure
itself that any sale or distribution by the optionee complies with this Plan and
any applicable federal or state securities laws, may take all reasonable steps,
including placing stop transfer instructions with the Company's transfer agent
prohibiting transfers in violation of the Plan and affixing the following legend
(and/or such other legend or legends as the Committee shall require) on
certificates evidencing the shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THEM
UNDER THE ACT OR A WRITTEN OPINION OF COUNSEL FOR THE HOLDER THEREOF,
WHICH OPINION SHALL BE ACCEPTABLE TO GULFPORT ENERGY CORPORATION, THAT
REGISTRATION IS NOT REQUIRED."
At any time that an Optionee contemplates the disposition of any of the Option
Shares (whether by sale, exchange, gift, or other form of transfer), he or she
shall first notify the Company of such proposed disposition and shall thereafter
cooperate with the Company in complying with all applicable requirements of law
which, in the opinion of counsel for the Company, must be satisfied prior to the
making of such disposition. Before consummating such disposition, the optionee
shall provide to the Company an opinion of optionee's counsel, of which both
such opinion and such counsel shall be satisfactory to the Company, that such
disposition will not result in a violation of any state or federal securities
laws or regulations. The Company shall remove any legend affixed to certificates
for Option Shares pursuant to this Section if and when all of the restrictions
on the transfer of the Option Shares, whether imposed by this Plan or federal or
state law, have terminated. Notwithstanding the optionee shall have the right to
have his options included in the first registration statement filed by the
Company following the grant of his options. If the Company has no immediate
plans to file a registration statement, the Board, in its discretion may elect
to file a registration statement specifically for the options granted under the
Plan.
12. Severability. If any provision of this Plan as applied to any person
or to any circumstance shall be adjudged by a court of competent jurisdiction to
be void, invalid, or unenforceable, the same shall in no way affect any other
provision hereof, the application of any such provision in any other
circumstances, or the validity or enforceability hereof.
13. Construction. Where the context or construction requires, all words
applied in the plural herein shall be deemed to have been used in the singular
and vice versa, and the masculine gender shall include the feminine and the
neuter and vice versa.
14. Headings. The headings of the several paragraphs herein are inserted
solely for convenience of reference and are not intended to form a part of and
are not intended to govern, limit or aid in the construction of any term or
provision hereof.
15. Governing Law. To the extent not governed by the laws of the United
States, this Plan shall be governed by and construed in accordance with the laws
of the State of Delaware.
16. Conflict. In the event of any conflict between the terms and
provisions of this Plan and any other document, agreement or instrument,
including without limitation, any Stock Option Agreement, the terms and
provisions of this Plan shall control.
EXHIBIT "A"
_____________, 1999
Gulfport Energy Corporation
6307 Waterford Blvd., Suite 100
Oklahoma City, OK 73118
Gentlemen:
On this _____ day of ____________, 1999, the undersigned has received,
pursuant to the Gulfport Energy Corporation 1999 Stock Option Plan (the "Plan")
and the Stock Option Agreement (the "Agreement") by and between Gulfport Energy
Corporation (the "Company") and the undersigned, dated ____________, 1999, an
option to purchase ________ shares of the no par value common stock of the
Company (the "Stock").
In consideration of the grant of such option by the Company:
1. I hereby represent and warrant to you that the Stock to be acquired
pursuant to the option will be acquired by me in good faith and for my own
personal account, and not with a view to distributing the Stock to others or
otherwise reselling the stock in violation of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder.
2. I hereby acknowledge and agree that: (a) the Stock to be acquired by
me pursuant to the Plan has not been registered; and (b) the Stock to be
acquired by me will not be freely tradable unless the Stock is either registered
under the Securities Act of 1933, as amended, or the holder presents a legal
opinion acceptable to Gulfport Energy Corporation that the transfer will not
violate the federal securities laws.
3. I understand that the Company is relying upon the truth and accuracy
of the representations and agreements contained herein in determining to grant
such options to me and upon subsequently issuing any Stock pursuant to the Plan
without the Company first registering the same under the Securities Act of 1933,
as amended.
4. I understand that the certificate evidencing the Stock to be issued
pursuant to the Plan will contain a legend upon the face thereof to the effect
that the Stock is not registered under the Securities At of 1933 and that stop
transfer orders will be placed against the shares with Gulfport Energy
Corporation's transfer agent.
EXHIBIT "A" - PAGE 2
5. In further consideration for the grant of an option to purchase Stock
of Gulfport Energy, the undersigned hereby agrees to indemnify you and hold you
harmless against all liability, cost or expenses (including reasonable
attorney's fees) arising out of or as a result of any distribution or resale of
shares of Stock issued by the undersigned in violation of the securities laws.
The agreements contained herein shall inure to the benefit of and be binding
upon the respective legal representatives, successors and assigns of the
undersigned and Gulfport Energy.
Very truly yours,
(Signature)
(Type or Print Name)
EXHIBIT "B"
Gulfport Energy Corporation
6307 Waterford Blvd., Suite 100
Oklahoma City, Oklahoma 73118
Gentlemen:
On this _____ day of May, 1999, the undersigned has acquired, pursuant
to the Gulfport Energy Corporation Stock Option Plan (the "Plan") and the Stock
Option Agreement (the "Agreement") by and between Gulfport Energy Corporation
and the undersigned dated _____________, 1999, _________ (____) shares of no par
value Common Stock of Gulfport Energy Corporation (the "Stock"). In
consideration of the issuance by Gulfport Energy Corporation to the undersigned
of said shares of its Common Stock:
1. I hereby represent and warrant to you that the Stock is being
acquired by me in good faith for my own personal account, and not with a view to
distributing the Stock to others or otherwise reselling the Stock in violation
of the Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder.
2. I hereby acknowledge and agree that: (a) the Stock being acquired by
me pursuant to the Plan has not been registered and that there is no obligation
on the part of Gulfport Energy Corporation to register such Stock under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder; and (b) the Stock being acquired by me is not freely tradable and
must be held by me for investment purposes unless the Stock is either registered
under the Securities Act of 1933 or transferred pursuant to an exemption from
such registration, as accorded by the Securities Act of 1933 and under the rules
and regulations promulgated thereunder. I further represent and acknowledge that
I have been informed by legal counsel in connection with said Plan of the
restrictions on my ability to transfer the Stock and that I understand the scope
and effect of those restrictions.
3. I understand that the effects of the above representations are the
following: (i) that the undersigned does not presently intend to sell or
otherwise dispose of all or any part of the shares of the Stock to any person or
entity Gulfport Energy Corporation except in compliance with the terms described
above, in the Plan and in the Agreement; and (ii) that the Company is relying
upon the truth and accuracy of the representations and agreements contained
herein in issuing said shares of the Stock to me without first registering the
same under the Securities Act of 1933, as amended.
4. I hereby agree that the certificate evidencing the Stock may contain
the following legend stamped upon the face thereof to the effect that the Stock
is not registered under the Securities Act of 1933, as amended, and that the
Stock has been acquired pursuant to the representations and restrictions in this
letter, the Plan and in the Agreement: EXHIBIT "B" - Page 2
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THEM
UNDER THE ACT OF A WRITTEN OPINION OF COUNSEL FOR THE HOLDER HEREOF,
WHICH OPINION SHALL BE ACCEPTABLE TO GULFPORT ENERGY CORPORATION THAT
REGISTRATION IS NOT REQUIRED."
5. I hereby agree and understand that the Company will place a stop
transfer notice with its stock transfer agent to ensure that the restrictions on
transfer described herein will be observed.
6. In further consideration of the issuance of the Stock, the
undersigned does hereby agree to indemnify you and hold you harmless against all
liability, costs, or expenses (including reasonable attorney's fees) arising out
of or as a result of any distribution or resale by the undersigned of any of the
Stock. The Agreements contained herein shall inure to the benefit of and be
binding upon the respective legal representatives, successors and assigns of the
undersigned and Gulfport Energy Corporation.
Very truly yours,
(Signature)
(Type or Print Name)
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