UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10753
GULPORT ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 73-1521290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6307 Waterford Blvd.
Building D, Suite 100
Oklahoma City, Oklahoma 73118
(405) 848-8807
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive office)
Indicate by 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 Issuer was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEEDING 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 and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, $0.01 par value,
outstanding as of August 14, 2001 was 10,146,656.
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets at June 30, 2001 (unaudited) and December 31, 2000 4
Statements of Income for the Three and Six Month periods Ended
June 30, 2001 and 2000 (unaudited) 5
Statement of Stockholders' Equity for the Six Months Ended
June 30, 2001 and 2000 (unaudited) 6
Statements of Cash Flows for the Six Months Ended
June 30, 2001 and 2000 (unaudited) 7
Notes to Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 1 Legal Proceedings 22
Item 2 Changes in Securities and Use of Proceeds 22
Item 3 Defaults upon Senior Securities 22
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 22
Signatures 23
2
GULFPORT ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
June 30, 2001 and 2000
Forming a part of Form 10-Q Quarterly Report to the
Securities and Exchange Commission
This quarterly report on Form 10-Q should be read in conjunction with Gulfport
Energy Corporation's Annual Report on Form 10-K for the year ended December 31,
2000.
3
GULFPORT ENERGY CORPORATION
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 2,199,000 $ 3,657,000
Accounts receivable, net of allowance for
doubtful accounts of $239,000 and
$244,000 as of June 30, 2001, and
December 31, 2000, respectively 1,757,000 3,608,000
Prepaid expenses and other current assets 187,000 171,000
----------- -----------
Total current assets 4,143,000 7,436,000
----------- -----------
Property and equipment:
Oil and natural gas properties 101,241,000 90,640,000
Other property and equipment 1,924,000 1,919,000
Accumulated depletion, depreciation,
amortization (67,663,000) (65,867,000)
----------- -----------
Property and equipment, net 35,502,000 26,692,000
----------- -----------
Other assets 2,210,000 2,050,000
----------- -----------
$ 41,855,000 $36,178,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,836,000 $ 6,426,000
Note payable - related party 3,000,000 -
Current maturities of long-term debt 1,340,000 878,000
------------ -----------
Total current liabilities 10,176,000 7,304,000
----------- -----------
Long-term debt 472,000 301,000
------------ -----------
Total liabilities 10,648,000 7,605,000
------------ -----------
Commitments and contingencies - -
Stockholders' equity (deficit):
Preferred stock - $.01 par value, 1,000,000
Authorized, none issued - -
Common stock - $.01 par value, 15,000,000
authorized, 10,146,656 and 10,145,400 issued
and outstanding at June 30, 2001 and
December 31, 2000, respectively 101,000 101,000
Paid-in capital 84,192,000 84,190,000
Accumulated deficit (53,086,000) (55,718,000)
------------ -----------
Total stockholders' equity 31,207,000 28,573,000
------------ -----------
Total liabilities and stockholder's equity $ 41,855,000 $36,178,000
============ ===========
See accompanying notes to financial statements
4
GULFPORT ENERGY CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE FOR THE SIX
MONTHS ENDED JUNE 30, MONTHS ENDED JUNE 30,
2001 2000 2001 2000
--------- ---------- ---------- ----------
Revenues:
Gas sales $ 32,000 $ 106,000 $ 166,000 $ 177,000
Oil and condensate sales 4,909,000 3,240,000 8,176,000 6,909,000
Other income 12,000 2,000 61,000 195,000
---------- ---------- ---------- ----------
4,953,000 3,348,000 8,403,000 7,281,000
---------- ---------- ---------- ----------
Cost and expenses:
Operating expenses 978,000 1,364,000 2,571,000 2,449,000
Production taxes 567,000 317,000 944,000 686,000
Depreciation, depletion 1,082,000 705,000 1,796,000 1,480,000
and amortization
General and administrative 403,000 378,000 860,000 718,000
---------- ---------- ---------- ----------
3,030,000 2,764,000 6,171,000 5,333,000
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS: 1,923,000 584,000 2,232,000 1,948,000
---------- ---------- ---------- ----------
OTHER (INCOME) EXPENSE:
Gain on settlement of
disputed amounts (482,000) - (482,000) -
Interest expense 72,000 179,000 169,000 391,000
Interest income (34,000) (92,000) (87,000) (172,000)
---------- ---------- ---------- ----------
(444,000) 87,000 (400,000) 219,000
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 2,367,000 497,000 2,632,000 1,729,000
INCOME TAX EXPENSE (BENEFIT):
Current 947,000 198,000 1,053,000 685,000
Deferred (947,000) (198,000) (1,053,000) (685,000)
---------- ---------- ---------- ----------
- - - -
---------- ---------- ---------- ----------
NET INCOME $2,367,000 $ 497,000 $2,632,000 $1,729,000
========== ========== ========== ==========
NET INCOME PER COMMON SHARE:
Basic $ 0.23 $ 0.05 $ 0.26 $ 0.17
========== ========== ========== ==========
Diluted $ 0.23 $ 0.05 $ 0.25 $ 0.17
========== ========== ========== ==========
See accompanying notes to financial statements.
5
GULFPORT ENERGY CORPORATION
Statements of Stockholders' Equity (Deficit)
(Unaudited)
Additional
Preferred Common Stock Paid-in Accumulated Treasury
Stock Shares Amount Capital Deficit Stock
--------- ---------- -------- ----------- ------------ --------
Balance at December 31, 1999 $ - 10,145,400 $101,000 $84,190,000 $(60,177,000) $ -
Net Income - - - - 1,729,000 -
----- ---------- -------- ----------- ------------ ------
Balance at June 30, 2000 $ - 10,145,400 $101,000 $84,190,000 $(58,448,000) $ -
===== ========== ======== =========== ============ ======
Balance at December 31, 2000 $ - 10,145,400 $101,000 $84,190,000 $(55,718,000) $ -
Common shares issued - 1,166 - 2,000 - -
Net income - - - - 2,632,000 -
----- ---------- -------- ----------- ------------ ------
Balance at June 30, 2001 $ - 10,146,566 $101,000 $84,192,000 $(53,086,000) $ -
===== ========== ======== =========== ============ ======
See accompanying notes to financial statements.
6
GULFPORT ENERGY CORPORATION
Statements of Cash Flows
(Unaudited)
For the Six Months
Ended June 30,
--------------------------
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 2,632,000 $ 1,729,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion, and amortization 1,796,000 1,480,000
Amortization of debt issuance costs - 84,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,851,000 (278,000)
(Increase) decrease in prepaid expenses
and other (15,000) 29,000
(Decrease) increase in accounts payable,
and accrued liabilities (590,000) 482,000
----------- -----------
Net cash provided by operating activities 5,674,000 3,526,000
----------- -----------
Cash flows from investing activities:
(Additions) reductions to cash held in escrow (128,000) 182,000
(Additions) to other assets (32,000) (56,000)
(Additions) to other property, plant and equipment (5,000) (17,000)
Proceeds from sale of oil and gas equipment - 100,000
(Additions) to oil and gas properties (10,602,000) (3,790,000)
----------- -----------
Net cash provided by (used in) investing activities (10,767,000) (3,581,000)
----------- -----------
Cash flows from financing activities:
Borrowings on note payable - related party 3,000,000 -
Borrowings on note payable 960,000 1,600,000
Principal payments on borrowings (327,000) (2,887,000)
Proceeds from issuance of common stock 2,000 -
----------- -----------
Net cash provided by (used in)
financing activities 3,635,000 (1,287,000)
----------- -----------
Net (decrease) in cash and cash equivalents (1,458,000) (1,342,000)
Cash and cash equivalents at beginning of period 3,657,000 5,664,000
----------- -----------
Cash and cash equivalents at end of period $ 2,199,000 $ 4,322,000
=========== ===========
Supplemental disclosure of cash flow information:
Interest payments $ 29,000 $ 137,000
=========== ===========
See accompanying notes to financial statements
7
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
These condensed financial statements have been prepared by Gulfport Energy
Corporation (the "Company") without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission, and reflect all adjustments which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financials statements should be read in
conjunction with the financial statements and the summary of significant
accounting policies and notes thereto included in the Company's most recent
annual report on Form 10-K.
1. PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated
depreciation, depletion and amortization are as follows:
June 30, 2001 December 31, 2000
------------- -----------------
Oil and gas properties $101,241,000 $ 90,640,000
Office furniture and fixtures 1,447,000 1,442,000
Building 217,000 217,000
Land 260,000 260,000
------------ ------------
Total property and equipment 103,165,000 92,559,000
Accumulated depreciation, depletion,
amortization and impairment reserve (67,663,000) (65,867,000)
------------ ------------
Property and equipment, net $ 35,502,000 $ 26,692,000
============ ============
8
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
2. OTHER ASSETS
Other assets consist of the following:
June 30, 2001 December 31, 2000
------------- -----------------
Plugging and abandonment escrow account
on the WCBB properties $ 1,899,000 $ 1,739,000
CD's securing letter of credit 200,000 200,000
Deposits 111,000 111,000
----------- -----------
$ 2,210,000 $ 2,050,000
=========== ===========
3. LONG-TERM DEBT
The building loan of $162,000 relates to a building in Lafayette,
Louisiana, purchased in 1996 to be used as the Company'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 the Company to provide office space for Louisiana personnel, have access
to meeting space close to the fields and to maintain a corporate presence in
Louisiana.
A break down of long-term debt is as follows:
June 30, 2001 December 31, 2000
------------- -----------------
Note payable $ 1,650,000 $ 1,000,000
Building loan 162,000 179,000
------------ ------------
1,812,000 1,179,000
Less current portion (1,340,000) (878,000)
------------ ------------
Long-term debt $ 472,000 $ 301,000
============ ============
During the first quarter of 2001, the Company refinanced amounts due on its
note payable. Under the terms of the new agreement, the Company was extended a
commitment to borrow up to a total of $1,760,000. Amounts borrowed are to be
repaid through monthly principal payments of $110,000 beginning July 1, 2001,
with any remaining outstanding principal due October 1, 2002. The refinanced
note bears interest at Chase Manhattan Prime rate plus 1%. During April 2001,
the Company borrowed the additional $960,000 available under this commitment.
The first principal payment of $110,000 was made during June 2001.
9
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
4. NOTE PAYABLE - RELATED PARTY
On May 22, 2001, the Company entered in to a revolving line of credit
agreement with Gulfport Funding, LLC, ("Gulfport Funding") which is wholly owned
by one of the Company's stockholders. Under the terms of the agreement, the
Company may borrow up to $3,000,000, with borrowed amounts bearing interest at
Bank of America Prime Rate plus four percent. All outstanding principal amounts
along with accrued interest are due on February 22, 2002. The Company paid a
facility commitment fee of $60,000 in connection with this line of credit. This
fee will be amortized over the life of the agreement. At June 30, 2001, the
Company had borrowed $3,000,000 available under this line.
In accordance with the revolving credit agreement, the Company issued
108,625 warrants to CD Holdings LLC. The exercise price of these warrants was
established as the average closing price of the Company's common stock for the
five days following the issuance of the warrants. The warrant agreement provides
for pro-rata adjustments to the number of warrants granted if the Company at any
time increases the number of outstanding shares or otherwise adjusts its
capitalization.
5. SETTLEMENT OF DISPUTED AMOUNTS
During the second quarter of 2001, the Company reached a settlement with
Texaco Exploration and Production, Inc. ("Texaco") regarding previously disputed
amounts, some of which date back to periods which were prior to the Company's
reorganization. The Company's net gain resulting from this settlement is
included in the accompanying statements of income for the three and six-month
periods ending June 30, 2001, as "Gain on settlement of disputed amounts".
6. EARNINGS PER SHARE
A reconciliation of the components of basic and diluted net income per
common share is presented in the table below:
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
2001 2000
-------------------------------- --------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
---------- ---------- ------- --------- ---------- -------
BASIC:
Income attributable
to common stock $2,367,000 10,145,900 $ 0.23 $ 497,000 10,145,400 $ 0.05
====== ======
Effect of dilutive
securities:
Stock options - 368,526 - 214,405
--------- ---------- -------- ----------
Diluted:
Income attributable to
common stock, after
assumed dilutions $2,367,000 10,514,426 $ 0.23 $ 497,000 10,359,805 $ 0.05
========= ========== ====== ======== ========== ======
10
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
2001 2000
-------------------------------- --------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
---------- ---------- ------- --------- ---------- -------
BASIC:
Income attributable
to common stock $2,632,000 10,145,651 $ 0.26 $1,729,000 10,145,400 $ 0.17
====== =====
Effect of dilutive
securities:
Stock options - 350,026 - 161,312
--------- ---------- -------- ----------
Diluted:
Income attributable to
common stock, after
assumed dilutions $2,632,000 10,495,677 $ 0.25 $1,729,000 10,306,712 $ 0.17
========= ========== ====== ========= ========== ======
Common stock equivalents not included in the calculation of diluted
earnings per share above consists of 1,163,195 warrants issued at the time of
the Company's reorganization. Also not included in the calculation of 2001
diluted earnings per share are 108,625 warrants issued in connection with the
Company's revolving line of credit with Gulfport Funding, as discussed in Note
4. These potential common shares were not considered in the calculation due to
their anti-dilutive effect during the periods presented.
7. COMMITMENTS
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 wells per year for 20 years
commencing March 11, 1997. Texaco retained a security interest in production
from these properties until 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. During March 2001, Gulfport intended to begin to fulfill its yearly
plugging commitment of 20 wells at WCBB for the twelve month period ending March
2001. Due to equipment and crew unavailability however, this activity commenced
in the third quarter of 2001.
As of June 30, 2001, the plugging and abandonment trust totaled $1,899,000,
including interest received during 2001 of approximately $32,000. The Company
was in arrears on its escrow payments for the period of June 1999 to September
2000 in the amount of $275,000 as of June 30, 2001. However, as a result of the
settlement reached with Texaco in April 2001, the Company is now current with
its escrow obligations.
8. RECLASSIFICATION
Certain reclassifications have been made to the 2000 financial statements
presentation in order to conform to the 2001 financial statements presentation.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). All
statements, other than statements of historical facts, included in this Form
10-Q that address activities, events or developments that Gulfport Energy
Corporation ("Gulfport" or the "Company"), a Delaware corporation, 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 strengths, goals,
expansion and growth of the Company's business and operations, plans, references
to future success, references 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 the Company 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 the Company'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 the
Company; competitive actions by other oil and gas companies; changes in laws or
regulations; and other factors, many of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this Form
10-Q are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized, or even if realized, that they will have the expected consequences to
or effects on the Company or its business or operations.
The following discussion is intended to assist in an understanding of the
Company's financial position as of June 30, 2001 and its results of operations
for the three and six-month periods ended June 30, 2001 and 2000. The Financial
Statements and Notes included in this report contain additional information and
should be referred to in conjunction with this discussion. It is presumed that
the readers have read or have access to Gulfport Energy Corporation's 2000
annual report on Form 10-K.
Overview
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 $48.7 million dollars on August 13, 2001 and
generated EBITDA of $4.1 and $3.0 million dollars for the six months ended June
30, 2001 and the three months ended June 30, 2001, respectively.
The Company is consulting with its financial advisors to determine how to
take advantage of the current markets whether through internal value creation or
a capital markets transaction which could include a sale of all or part of the
Company.
As of January 1, 2001, 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
12
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 its existing fields.
The Company's operations are concentrated in two fields: West Cote Blanche
Bay and the Hackberry Fields.
West Cote Blanche Bay
West Cote Blanche Bay ("WCBB") Field lies approximately five miles off the
coast of Louisiana primarily in St. Mary's Parish in a shallow bay, with water
depths averaging eight to ten feet. WCBB overlies one of the largest salt dome
structures in the Gulf Coast. There are over 100 distinct sandstone reservoirs
throughout most of the field and nearly 200 major and minor discrete intervals
have been tested. Within almost 900 wellbores that have been drilled to date in
the field, over 4,000 potential zones have been penetrated. The sands are
highly porous and permeable reservoirs primarily with a strong water drive.
Estimated cumulative field gross production as of January 1, 2001 is 190
MBO and 232 BCF of gas. There have been 871 wells drilled at WCBB, and of these
61 are currently producing, 306 are shut-in and 5 are utilized as salt water
disposal wells. The balance of the wells (or 499) have been plugged and
abandoned. During June 2001, Gulfport's net current daily production in this
field averaged 1,474 barrels of oil.
During April 2001, Gulfport finished the seven well drilling program it had
commenced in January of 2001. The Company successfully drilled, completed and is
currently producing six intermediate depth wells, with total depths averaging
approximately 9,000' and one shallow well, with a total depth of 2,500'. These
wells found significant oil and gas deposits in multiple targets ranging from
relatively low risk proven undeveloped objectives to higher potential
exploratory targets. Gulfport feels that by taking most future wells to a depth
of 9,000' there will be an increased chance of converting reserves currently
classified as possible and probable to proved. The Company has plans to begin
another three to five intermediate depth well drilling program during October of
2001, pending rig availability.
Gulfport has an ongoing plan to review and increase production from
existing marginal and non-producing wells. Since January of 2001, the Company
has worked over or re-completed six wells in order to restore or increase
production. Gulfport has several additional workovers and recompletions
scheduled for the remainder of the year.
Gulfport also has an ongoing program to modernize and service the existing
production facilities at West Cote Blanche Bay. Since the beginning of the
second quarter the Company has put two new gas compressors into full time
service at the field replacing two outdated compressors. The new compressors
increased efficiency and, together with a new header valve Gulfport installed at
one of the tank batteries reduced the Company's gas usage by 50%. Gulfport is in
the process of back flowing and cleaning sand from the five salt-water disposal
wells at West Cote Blanche Bay, which will allow the wells to handle a higher
volume of water.
13
Gulfport has recently commenced the yearly program to meet its plugging
liability. The Company will plug 27 non-producing wells at West Cote Blanche
Bay.
Hackberry Fields
The Hackberry fields are located along the shore of Lake Calcasieu in
Cameron Parish, Louisiana. The Hackberry Field is a major salt intrusive
feature, elliptical in shape with East Hackberry on the east end of the ridge
with West Hackberry located on the western end of the ridge. There are over 30
pay zones in this field. The salt intrusion at East Hackberry trapped Oligocene
through Lower Miocene rocks in a series of complex, steeply dipping fault
blocks. The Camerina sand series at East Hackberry is a prolific producer with
1-2 MMBL per well oil potential. West Hackberry consists of a series of fault
bounded traps in the Oligocene-age Vincent and Keough sands associated with the
Hackberry Salt Ridge.
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 1999 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.
At West Hackberry, the first discovery well 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 the first quarter of 2001, Gulfport unsuccessfully
sidetracked an existing non-producing well at West Hackberry and conducted
remedial operations to increase production.
Gulfport is in the process of testing fourteen shut-in wells in the State
Lease 50 portion of East Hackberry to detemine current production potential. To
date, the Company believes that at least six of the wells that have been tested
warrant continuous production. The work to restore these wells is underway. The
Company estimates one of these wells will satisfy the gas lift needs of the East
Hackberry Field. The testing has also indicated some of the wells need to be
worked over and possibly recompleted and the Company is in the process of
scheduling this work. Gulfport is in the process of re-activating a satellite
tank battery to service the wells that are being returned to production. The
average daily production during June 2001 for both Hackberry fields was 370
barrels of oil per day.
14
Gulfport will plug four wells at the State Lease 50 portion of East
Hackberry during the third quarter of 2001.
Second quarter Overview
The focus of the Company in the second quarter was completion of the
drilling and development program prepared in 2000 and commenced in January 2001.
The primary emphasis of this drilling program was in the WCBB field.
During April 2001, Gulfport finished the seven well drilling program it had
commenced in January of 2001 in its West Cote Blanche Field. The Company
successfully drilled, completed and is currently producing six intermediate
depth wells, with total depths averaging approximately 9,000' and one shallow
well, with a total depth of 2,500'. These wells found significant oil and gas
deposits in multiple targets ranging from relatively low risk proven undeveloped
objectives to higher potential exploratory targets.
The Company anticipates these new wells will significantly increase
Gulfport's production and revenues during the remainder of 2001. With the
additional capital provided from current pricing, the Company anticipates that
it will continue its developmental program to further exploit its reserves. The
Company has plans to begin another three to five intermediate depth well
drilling program during October of 2001, pending rig availability.
The following financial table recaps the Company's operating activity for
the three and six month periods ended June 30, 2001 as compared to the same
periods in 2000.
15
FINANCIAL DATA (unaudited):
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues:
Gas Sales $ 32,000 $ 106,000 $ 166,000 $ 177,000
Oil and condensates sales 4,909,000 3,240,000 8,176,000 6,909,000
Other income, net 46,000 94,000 148,000 367,000
----------- ----------- ----------- -----------
4,987,000 3,440,000 8,490,000 7,453,000
Expenses:
Lease operating expenses 978,000 1,364,000 2,571,000 2,449,000
Production taxes 567,000 317,000 944,000 686,000
General and administrative 403,000 378,000 860,000 718,000
----------- ----------- ----------- -----------
1,948,000 2,059,000 4,375,000 3,853,000
Depreciation, depletion
and amortization 1,082,000 705,000 1,796,000 1,480,000
---------- ---------- ---------- ----------
Income before interest
and taxes 1,957,000 676,000 2,319,000 2,120,000
Gain on settlement of
disputed amounts 482,000 - 482,000 -
Interest expense (72,000) (179,000) (169,000) (391,000)
----------- ----------- ----------- -----------
Income before income taxes 2,367,000 497,000 2,632,000 1,729,000
Income tax expense
(benefit):
Current 947,000 198,000 1,053,000 685,000
Deferred (947,000) (198,000) (1,053,000) (685,000)
----------- ----------- ----------- -----------
Net income $ 2,367,000 $ 497,000 $ 2,632,000 $ 1,729,000
=========== =========== =========== ===========
EBITDA (1) $ 3,039,000 $ 1,381,000 $ 4,115,000 $ 3,600,000
=========== =========== =========== ===========
Per share data:
Net income
$ 0.23 $ 0.05 $ 0.26 $ 0.17
=========== =========== =========== ===========
Weighted average common
shares 10,145,900 10,145,400 10,145,651 10,145,400
=========== =========== =========== ===========
(1) EBITDA is defined as earnings before interest, taxes, depreciation,
depletion and amortization. EBITDA is an analytical measure frequently
used by securities analysts and is presented to provide additional
information about the Company's ability to meet its future debt
service, capital expenditure and working capital requirements. EBITDA
should not be considered as a better measure of liquidity than cash
flow from operations.
16
RESULTS OF OPERATIONS
Comparison of the Three months Ended June 30, 2001 and 2000
During the three months ended June 30, 2001, the Company reported net
income of $2.4 million, a $1.9 million increase from net income of $.50 million
for the corresponding period in 2000. This increase is primarily due to the
following factors:
Oil and Gas Revenues. For the three months ended June 30, 2001, the
Company reported oil and gas revenues of $4.9 million, a 48% increase from $3.3
million for the comparable period in 2000. This increase was due principally to
a 57% increase in oil production from 113,000 barrels to 177,000 barrels for the
three months ended June 30, 2000 and 2001, respectively. This increase in
production was due to the new oil production generated from the Company's
drilling program initiated during the first quarter of 2001. The increase in
total revenues was slightly offset by a decrease in gas revenues due to lower
gas production volumes for the three months ended June 30, 2001 as compared to
the same period in 2000.
The following table summarizes the Company's oil and gas production and related
pricing for the three months ended June 30, 2001 and 2000:
Three months Ended June 30,
2001 2000
---- ----
Oil production volumes (Mbbls) 177 113
Gas production volumes (Mmcf) 12 42
Average oil price (per Bbl) $27.68 $28.67
Average gas price (per Mcf) $2.72 $2.52
Production Costs. Production costs decreased $.42 million from $1.4
million for the three months ended June 30, 2000 to $.98 million for the
comparable period in 2001. This decrease was due primarily to a $.38 million
decrease in gas lift costs for the three months ended June 30, 2001 as compared
to the same period in 2000. This decrease in gas lift costs was a result of
lower volumes of gas used for gas lift during the second quarter of 2001 as
compared to the same period in 2000.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $.37 million from $.71 million for the three months ended
June 30, 2000 to $1.08 million for the comparable period in 2001. This increase
was attributable primarily to an increase in production to 179 MBOE's for the
three months ended June 30, 2001 as compared to 120 MBOE's for the same period
in 2000.
General and Administrative Expenses. General and administrative expenses
remained relatively constant at $.40 million for the three months ended June 30,
2001 as compared to $.38 million during the same period in 2000.
Interest Expense. Interest expense decreased $.11 million, or 60%, from
$.18 million for the three months ended June 30, 2000 to $.07 million for the
comparable period in 2001. This decrease was primarily due to the settlement of
17
the disputed amounts with Texaco in April 2001. Previously, the Company was
accruing interest expense related to the unsettled and disputed amounts.
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 $0.95 million was provided for the three month period
ended June 30, 2001, which was fully offset by an equal income tax benefit due
to operating loss carryforwards.
Gain on settlement of disputed amount. During the three months ended June
30, 2001, the Company reached a settlement with Texaco regarding previously
disputed amounts. As a result of this settlement, the Company recognized a one
time gain of $482,000 for the three months ended June 30, 2001.
Comparison of the Six months Ended June 30, 2001 and 2000
During the six months ended June 30, 2001, the Company reported net income
of $2.6 million, a $.90 million increase from net income of $1.7 million for the
corresponding period in 2000. This increase is primarily due to the following
factors:
Oil and Gas Revenues. During the six months ended June 30, 2001, the
Company reported oil and gas revenues of $8.3 million, a 17% increase from $7.1
million for the comparable period in 2000. This increase was due principally to
an increase in oil production from 240,000 barrels to 291,000 barrels for the
six months ended June 30, 2000 and 2001, respectively. This increase in oil
production was due to the new production generated from the Company's drilling
program initiated during the first quarter of 2001. The increase in total
revenues was slightly offset by a decrease in gas revenues due to lower gas
production volumes for the six months ended June 30, 2001 as compared to the
same period in 2000.
The following table summarizes the Company's oil and gas
production and related pricing for the six months ended June 30, 2001 and 2000:
Six months Ended June 30,
2001 2000
---- ----
Oil production volumes (Mbbls) 291 240
Gas production volumes (Mmcf) 25 70
Average oil price (per Bbl) $28.13 $28.79
Average gas price (per Mcf) $6.77 $2.53
Production Costs. Production costs increased slightly by $.10 million from
$2.5 million for the six months ended June 30, 2000 to $2.6 million for the
comparable period in 2001. This increase was due primarily to a the Company's
non-capitalized well workover activity during the first quarter of 2001 and was
partially offset by a $.21 million decrease in gas lift costs for the six months
ended June 30, 2001 as compared to the same period in 2000. This decrease in
gas lift costs was primarily a result of lower volumes of gas used for gas lift
during the six months ended June 30, 2001 as compared to the same period in
2000.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $.34 million from $1.5 million for the six months ended
18
June 30, 2000 to $1.8 million for the comparable period in 2001. This increase
was attributable primarily to an increase in production to 295 MBOE's for the
six months ended June 30, 2001 as compared to 252 MBOE's for the same period in
2000.
General and Administrative Expenses. General and administrative expenses
increased slightly from $.72 million for the six months ended June 30, 2000 to
$.86 million for the same period in 2001. This was primarily due to the $.11
million the Company expensed during the six month period ended June 30, 2001 for
the NSA engineering report as compared to $0.00 expensed during the same period
in 2000.
Interest Expense. Interest expense decreased $.22 million, or 56%, from
$.39 million for the six months ended June 30, 2000 to $.17 million for the
comparable period in 2001. This decrease was primarily due to a reduction in
average debt outstanding for the period ended June 30, 2001 and the settlement
of the disputed amounts with Texaco in April 2001. Previously, the Company was
accruing interest expense related to the unsettled and disputed amounts.
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 $1.05 million was provided for the six months ended
June 30, 2001, which was fully offset by an equal income tax benefit due to
operating loss carryforwards.
Gain on settlement of disputed amounts. During the six months ended June
30, 2001, the Company reached a settlement with Texaco regarding previously
disputed amounts. As a result of this settlement, the Company recognized a one
time gain of $482,000 for the six months ended June 30, 2001.
Capital Expenditures, Capital Resources and Liquidity
Net cash flow provided by operating activities for the six month period
ended June 30, 2001 was $5.7 million, as compared to net cash flow provided of
$3.5 million for the comparable period in 2000. This was primarily due to an
increase in the Company's net income resulting from the increased levels of
production as a result of the Company's drilling program initiated in January
2001.
Net cash used in investing activities during the six months ended June 30,
2001 was $10.8 million as compared to $3.6 million used during the same period
of 2000. This increase was a result of the Company's drilling program it
initiated in January 2001 along with other well related capitalized workover
related activity.
Net cash provided in financing activities for the six months ended June
30, 2001 was $3.6 million as compared to net cash used of $1.3 million during
the same period of 2000. The difference represents net borrowings during the
six month period ended June 30, 2001 as compared to net borrowings payback
during the same period in 2000.
Capital Expenditures. During the six months ended June 30, 2001,
Gulfport invested $10.60 million in oil and gas properties and other property
and equipment as compared to $3.79 million invested during the comparable period
in 2000. Of the $10.60 million the Company spent in the first six months of
2001, $8.23 million was spent on drilling and completion activity on new wells
and $2.37 million was spent on workover activity on existing wells.
19
During the six month period ended June 30, 2001, Gulfport financed
its capital expenditures payment requirements with cash flows provided by
operations, borrowings under the Company's credit facilities and borrowings from
a related third party.
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 completed 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"). 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 called
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. In April 2001, the
Company borrowed the amount remaining and available on its BOK credit facility.
On May 22, 2001, the Company entered in to a revolving line of credit
agreement with Gulfport Funding, LLC, ("Gulfport Funding") which is wholly owned
by one of the Company's stockholders. Under the terms of the agreement, the
Company may borrow up to $3,000,000, with borrowed amounts bearing interest at
Bank of America Prime Rate plus four percent. All outstanding principal amounts
along with accrued interest are due on February 22, 2002. At June 30, 2001, the
Company had borrowed the $3,000,000 available under this line.
As a result of the completion of the NSA engineering report as of January
1, 2001, the Company has initiated discussions with other banking institutions
and is attempting to put in a place a larger and longer-term revolving credit
facility. The Company cannot be sure however that it will be successful.
The Company is consulting with its financial advisors to determine how to
take advantage of the current market whether through internal value creation or
a capital markets transaction which could include a sale of all or part of the
Company.
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 Credit
Facilities.
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.
20
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 several intermediate drilling programs. 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 or related third party
financing, a long-term credit facility or by accessing the capital markets. The
cash flow generated from these new projects will be used to make the Company's
required principal payments on its debt with the remainder reinvested in the
field to complete more capital projects.
COMMITMENTS
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
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. As a result of the settlement reached with
Texaco in April 2001, the Company became current in its escrow payments.
As of June 30, 2001, the plugging and abandonment trust totaled $1,899,000.
These funds are invested in a U.S. Treasury Money Market.
During March 2001, Gulfport intended to begin to fulfill its yearly
plugging commitment of 20 wells at WCBB for the twelve month period ending March
2001. Due to equipment and crew unavailability, however, this activity commenced
in the third quarter of 2001. As a result of the April 2001 settlement with
Texaco, the Company will plug a total of 27 wells at WCBB this year.
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.
21
PART II.
OTHER INFORMATION
ITEM 1. 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 effect on
the Company's financial condition or results of operations for the periods
presented in the financial statements
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports filed on Form 8-K during the quarter.
22
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULFPORT ENERGY CORPORATION
Date: August 14, 2001
/s/Mike Liddell
-----------------------------------------
Mike Liddell
Chief Executive Officer
/s/Mike Moore
-----------------------------------------
Mike Moore
Chief Financial Officer
23