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, 1998
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. Ste. 100
Oklahoma City, Oklahoma 73118
(405) 848-8807
(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
Common Stock, $0.50 par value None
Preferred Stock, $0.01 par value
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 [ ].
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, 1999 was 3,445,206. The aggregate market value
of the voting stock held by non-affiliates of the Company using an average
trading price in December 1998 was $2,019,063.
1
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, 1998(1): 172,260,305
Common Stock Issued Outstanding March 31, 1999(2): 3,445,206
DOCUMENTS INCORPORATED BY REFERENCE
(1) The December 31, 1998 shares have been restated throughout this Annual
Report give effect to the Reverse Stock Split.
(2) On March 5, 1999, the Registrant completed a fifty to one reverse stock
split.
2
TABLE OF CONTENTS
Page
Disclosure Regarding Forward-Looking Statements.......................... 4
Part I
Item 1.Business ................................................... 4
Item 2.Properties ................................................... 7
Item 3.Legal Proceedings................................................. 11
Item 4.Submission of Matters to a Vote of Security Holders............... 12
PART II
Item 5.Market for the Registrant's Common Stock and Related
Shareholder Matters......................................... 12
Item 6.Selected Financial Data .......................................... 13
Item 7.Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 14
Item 8.Financial Statements and Supporting Data.......................... F-1
Item 9.Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .............................. 50
PART III
Item 10.Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act....... 50
Item 11.Executive Compensation........................................... 51
Item 12.Security Ownership of Certain Beneficial Owners and Management... 53
Item 13.Certain Relationships and Related Transactions................... 54
PART IV
Item 14.Exhibits and Reports on Form 8-K................................. 56
Signatures.................................................. 58
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, formerly known as WRT Energy Corporation ("Gulfport" or
"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 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
The Company owns and operates mature oil and gas properties in the
Louisiana Gulf Coast area. The Company seeks to achieve reserve growth and
increased cash flow from operations through low risk development activities on
its existing properties and acquiring additional Louisiana Gulf Coast properties
with exploitation and exploration potential.
Background
On February 14, 1996, Gulfport's predecessor, WRT Energy Corporation
("WRT"), filed a petition in the United States Bankruptcy Court for the Western
District of Louisiana (the "Bankruptcy Court") for protection under Chapter 11
of the Federal Bankruptcy Code. Upon filing of the voluntary petition for
relief, WRT, as debtor-in-possession, was authorized to operate its business for
the benefit of claim holders and interest holders, and continued to do so,
without objection or request for appointment of a trustee. All debts of WRT as
of the petition date were stayed by the Bankruptcy Court and were subject to
compromise pursuant to such proceedings. WRT operated its business and managed
its assets in the ordinary course as debtor-in-possession, and obtained court
approval for transactions outside the ordinary course of business. Based on
these actions, all liabilities of the company outstanding at February 14, 1996
were reclassified to estimated pre-petition liabilities.
By order dated May 5, 1997, the Bankruptcy Court confirmed the Second
Amended Plan of Reorganization (the "Plan"). The Plan was consummated and became
effective on July 11, 1997. On the Effective Date, WRT was merged with and into
Gulfport.
Events Leading to the Reorganization
Entering 1995, the Company's strategic focus was the acquisition and
development of operated working interests in large, mature oil and gas fields in
south Louisiana. To help finance its acquisition and development program, the
Company utilized borrowings under the INCC Credit Facility with Internationale
Nederladen (U.S.) Capital Corporation ("INCC") which was secured by
substantially all of the Company's assets. In addition, in February 1995, the
Company offered 100,000 units consisting of $100,000,000 aggregate principal
amount of 13 7/8% Senior Notes Due 2002 (the "Senior Notes") and warrants (the
"Warrants") to purchase an aggregate of 800,000 shares of the WRT's common stock
(the "1995 Offering"). The net proceeds from the 1995 Offering were used to
acquire working interests in certain oil and gas properties, to repay
substantially all borrowings under the INCC Credit Facility and other
indebtedness and for general corporate purposes.
4
During the remainder of 1995, the Company borrowed additional funds under
the INCC Credit Facility, bringing the outstanding borrowings to $15,000,000,
the maximum amount of borrowings available under the INCC Credit Facility. On
December 31, 1995, the INCC Credit Facility converted to a term loan whereby
quarterly principal payments of one-sixteenth of the outstanding indebtedness
were due and payable.
Following the completion of the acquisition of working interests in certain
oil and gas properties, the Company initiated a significant capital expenditure
program to increase oil and gas production levels in each of its fields. This
program consisted of approximately 70 workover, sidetrack, and recompletion
projects and ten new development wells. Funding was provided from operating cash
flow, remaining proceeds from the 1995 Offering, and borrowings under the INCC
Credit Facility. The Company's production levels increased on a gas equivalent
(MCFE) basis from March 1995, when the oil and gas property acquisitions were
completed, to September 1995; however, the production increases were realized at
a slower pace than expected at the time of acquisition.
The lower than expected level of production resulted from various factors
including a combination of ordinary production declines, unexpected losses of
production from several key wells, mechanical difficulties in the Lac Blanc
field, and significant production declines in the predominantly oil producing
West Cote Blanche Bay field ("WCBB"), which was not then operated by the
Company. Contributing significantly to the shortfall in anticipated production
rates were three major well projects which proved to be unsuccessful in
September 1995, for which the Company expended a total of approximately
$3,600,000. Also, contributing to lower than expected net revenues and operating
cash flow was a significant decline in oil and gas prices during the third and
early fourth quarters of 1995 compared to the corresponding quarters of the
previous year. These lower than expected production rates, together with
decreased oil and gas prices during the third quarter of 1995, had a significant
negative effect on the Company's liquidity and cash flow from operations.
Based on operating results for the quarter ended September 30, 1995, the
Company had not yet realized the oil and gas production levels required at then
current prices and costs to support the Company's capital requirements and fund
existing debt service on the Senior Notes and pay dividends on its 9%
Convertible Preferred Stock ("Convertible Preferred Stock"). In early October
1995, the Company had fully utilized the $15,000,000 borrowing base available
under the INCC Credit Facility; and in response to liquidity and cash flow
concerns, the Company changed its focus from acquisition and development of
non-producing reserves to conservation of cash resources and maintenance of
existing producing properties. The Company curtailed its activities to the
minimum level of maintenance necessary to operate prudently its producing oil
and gas wells. All other activities, including prospect acquisitions, new
drilling and development of the Company's proved non-producing and undeveloped
reserves ceased.
In connection with this strategy, the Company made certain changes to its
corporate structure and organization aimed at reducing costs and improving
operations. On November 10, 1995, Steven S. McGuire resigned as a director,
Chairman of the Board and Chief Executive Officer of the Company. Samuel C. Guy,
the Company's Executive Vice President, also resigned as a director. Mr. Guy's
employment contract, which expired on February 29, 1996, was not renewed by the
Company. The Board of Directors appointed Raymond P. Landry, previously
President and Chief Operating Officer of the Company, to the position of
Chairman of the Board and Chief Executive Officer.
The Company also implemented plans to reduce general and administrative
expenses in Houston, Texas as well as move the corporate offices from The
Woodlands, Texas and reduce its workforce from 76 in October 1995 to 28 in June
1997. The workforce reductions, primarily from the Company's research and
development activities and wireline/logging operations, were consistent with the
Company's focus on conservation of cash and maintenance of existing producing
properties.
The Company experienced further decreases in oil and gas production and
related cash flows in late 1995 and early 1996, which further deteriorated the
Company's already weakened financial condition. At December 31, 1995, the
Company was in default under certain financial covenants of the INCC Credit
Facility. As a result of the declines in oil and gas production and related cash
flows, the Company was not generating and did not expect to generate in the near
term sufficient cash flow to meet its existing obligations, including: the
$6,900,000 interest payment on the Senior Notes due March 1, 1996, trade payable
obligations remaining from the Company's 1995 capital expenditure program,
quarterly principal and interest due on the INCC Credit Facility, dividends on
the Convertible Preferred Stock, and ongoing field operating and general and
administrative expenses. As liquidity problems became more severe, the Company
5
concluded that a comprehensive financial restructuring would provide the best
result to the various stakeholders in the Company.
On February 14, 1996, the Company commenced a voluntary reorganization case
under Chapter 11 of the Bankruptcy Code by filing a voluntary petition for
bankruptcy relief with the Bankruptcy Court (Case No. 96BK-50212). Upon the
filing of the voluntary petition for relief, the Company, as
debtor-in-possession, was authorized to operate its business for the benefit of
claim holders and interest holders, and continued to do so without objection or
request for appointment of a trustee. All debts of the Company as of the
petition date were stayed by the Bankruptcy Court and were subject to compromise
pursuant to such proceedings. The Company did not make the March 1, 1996
interest payment on the Senior Notes and pursuant to an order of the Bankruptcy
Court did not make the scheduled interest payment of $381,000 to INCC on
February 28, 1996, nor did it make any interest payments from that date on the
INCC Credit Facility through July of 1997. In addition, the Company did not make
the first scheduled payment of $938,000 due on the INCC Credit Facility on March
31, 1996, nor did it make any principal payments from that date through July of
1997. On July 11, 1997, the INCC Credit Facility was paid in full, pursuant to
the Plan. During the pendency of the bankruptcy proceedings, the Company was
required to obtain court approval, for transactions outside the ordinary course
of business.
On October 22, 1996, the Company accepted and signed the proposal ("DLBW
Proposal") submitted by DLB Oil & Gas, Inc. ("DLB") and Wexford Management,
L.L.C., on behalf of its affiliated investment funds, providing the terms of a
proposed capital investment in a plan of reorganization of the Company. The
Company subsequently obtained Bankruptcy Court approval of the expense
reimbursement provisions of the DLBW proposal.
Subsequent to the Company's execution of the DLBW Proposal, DLB commenced
negotiations with Texaco Exploration and Production, Inc. ("TEPI") regarding,
(i) the claim asserted by TEPI against the Company and its affiliates ("Texaco
Claim"), (ii) the purchase of certain interests owned by TEPI in the WCBB field
("WCBB Assets") and (iii) the Contract Area Operating Agreement related to the
WCBB Assets and various other agreements relating thereto. As a result of the
negotiations, on March 11, 1997, TEPI and DLB entered into, among other
agreements, the Purchase, Sale and Cooperation Agreement ("PS&C Agreement")
pursuant to which DLB (i) agreed to purchase the Texaco Claim, (ii) agreed to
purchase the WCBB Assets from TEPI and (iii) agreed to guarantee ("P&A
Guarantee") the performance of all plugging and abandonment obligations related
to both the WCBB Assets and the Company's interests in the WCBB field. In order
to implement the P&A Guarantee, the Company paid into a trust ("P&A Trust")
established for the benefit of the State of Louisiana, $1,000,000 on the
Effective Date of the Plan.
Pursuant to the PS&C Agreement, on the Effective Date of the Plan, DLB,
among other things, assigned its rights associated with the WCBB Assets to
Gulfport, and as a result, Gulfport assumed, jointly and severally with DLB, the
liabilities with respect to the WCBB Assets.
By order dated May 5, 1997, the Bankruptcy Court approved the Plan. The
Plan involved (i) the issuance to WRT's unsecured creditors, on account of their
allowed claims, an aggregate of 10,000,000 shares of Common Stock, (ii) the
issuance to WRT's unsecured creditors, on account of their allowed claims, the
right to purchase an additional 3,800,000 shares of Common Stock at a purchase
price of $3.50 per share (the "1997 Rights Offering"), (iii) the issuance to
DLBW and affiliates of the number of shares of Common Stock obtained by dividing
DLBW's Allowed Secured Claim ("Secured Claim") amount by a conversion price of
$3.50 per share, (iv) the purchase by DLBW of all shares of Common Stock not
otherwise purchased pursuant to the 1997 Rights Offering, (v) the transfer by
DLB of the WCBB Assets to Gulfport along with the associated P&A Trust and
associated funding obligation in exchange for 5,000,000 shares of Common Stock,
(vi) the funding by Gulfport of $3,000,000 to an entity (the "Litigation
Entity") to be controlled by an independent party for the benefit of the
Company's existing unsecured creditors and the transferring to the Litigation
Entity any and all causes of action, claims, rights of actions, suits or
proceedings which have been or could be asserted by WRT except for (a) the
action to recover unpaid production proceeds payable to WRT by Tri-Deck and (b)
the foreclosure action to recover title to certain assets, and (vii) the
distribution of warrants to purchase Common Stock at an exercise price of $10.00
per share to holders of certain securities litigation claims against WRT and to
holders of WRT's common stock and preferred stock. The Plan also provided for
the cancellation of WRT's common stock and preferred stock. Pursuant to the
Plan, Gulfport owns a 12% economic interest in the Litigation Entity and the
remainder of the economic interests in the Litigation Entity were allocated to
unsecured creditors based on their ownership percentage of the 13,800,000 shares
of Common Stock distributed and issued as described in (i) and (ii) above. The
Plan became effective on July 11, 1997.
6
Upon the Effective Date of the Plan, Gulfport became the owner of one
hundred percent (100%) of the working interest in the shallow contract area at
WCBB. The proceeds from the 1997 Rights Offering were utilized to provide the
cash necessary to satisfy Administrative and Priority Claims, fund the
Litigation Entity with $3,000,000 and provide Gulfport with working capital.
Item 2. Properties
Principal Oil and Gas Properties
Gulfport owns interests in a number of producing oil and gas properties
located along the Louisiana Gulf Coast. The Company serves as the operator of
all the properties in which it holds a working interest. The following table
presents certain information as of January 1, 1999, reflecting the Company's net
interest in its producing oil and gas properties.
PROVED
PRODUCING RESERVES
WELLS SHUT-IN WELLS ACREAGE(1) AS OF 1/1/99
------------- -------------- ------------- ---------------------------
GAS OIL TOTAL
FIELD GROSS NET GROSS NET GROSS NET MBOE MBOE MBOE
----- ----- ----- ----- ---- ----- ---- ---- ------ ------
E. HACKBERRY 13 8.5 72 37 3147 1574 324 1,033 1,357
W. HACKBERRY 4 4 7 7 592 592 0 12 12
WEST COTE BLANCHE 49 48 305 304 4590 4590 63 22,960 23,023
BAY (2)
OTHER 25 4.66 1 1 508 508 169 276 445
----- ----- ----- ---- ----- ---- ---- ------ ------
TOTAL 91 65.16 385 349 8837 7264 556 24,281 24,837
===== ===== ===== ==== ===== ==== ==== ====== ======
(1) All of the Company's acreage is Developed Acreage.
(2) Includes 1 Producing Well and 3 Shut-in Wells attributable to depths below
the Rob "C" Marker. The Company has a 6.25% non-operated working interest in the
depths below the Rob "C" Marker.
The oil and gas leases in which the Company has an interest are for varying
primary terms and may require the payment of delay rentals to continue the
primary terms. The operator may surrender the leases at any time by notice to
the lessors, or by the cessation of production, or by the failure to pay delay
rentals.
East Hackberry Field
In February 1994, the Company purchased a 100% working interest
(approximately 79% average NRI) in certain producing oil and gas properties
situated in the East Hackberry Field in Cameron Parish, Louisiana. The purchase
included two separate lease blocks, the Erwin Heirs Block, originally developed
by Gulf Oil Company, and the Texaco State Lease 50 Block, originally developed
by Texaco. 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. The properties cover approximately
3,147 acres of oil and gas leases, together with 13 productive wells and 72
shut-in wells that were originally drilled by Gulf Oil Company and Texaco.
In September 1994, the Company sold an overriding royalty interest in
certain producing oil and gas wells situated in the East Hackberry Field to
Milam Royalty Corporation. Milam Royalty Corporation's interest is now owned by
Queen Sand Resources, Inc. ("QSRI"). On an aggregate basis, the overriding
royalty interests provides for payment to QSRI of 62.5% of 80% (equal to 50% on
a 100% working interest basis) of the net profits attributable to the wells
covered by the arrangement until QSRI recovers 150% of its cash investment and
46.875% of 80% thereafter (equal to 37.5% on a 100% working interest basis in
State Lease 50 Block and 41% on a 100% working interest basis on the Erwin Heirs
Block). QSRI may elect to retain an identical royalty interest in the new wells
by participating in the drilling, workover or recompletion expenses on a pro
rata basis. The Company retains operational control over the East Hackberry
Field. In November of 1998 the Company re-logged 5 wells and perforated
additional zones in 4 of the wells and worked over the other well. These
operations yielded an additional 80 net BOPD. Because of prevailing market
7
conditions during 1998, the Company believed it was commercially impractical to
shoot seismic or commence drilling operations on the subject property. As a
result, the Company has agreed to surrender approximately 440 non-producing
acres in the State Lease 50 portion of the field. Currently the Company is
negotiating with QSRI to acquire QSRI interest in the field.
West Hackberry Field
In November 1992, the Company purchased a 100% working interest
(approximately 80% average NRI, subsequently increased to approximately 87.5%
NRI) in 592 acres within the West Hackberry Field in Cameron Parish, Louisiana
with four producing wells. The field was discovered in 1928 and was developed by
Superior Oil Company (now Mobil Corporation) between 1938 and 1988. During 1998,
the gas supply well for gas lift system for the field ceased production, the
Company was able to restore production when a new source of gas was found.
West Cote Blanche Bay
TEPI, the operator of the WCBB field prior to March 1997, discovered the
WCBB Field in 1938. This field lies approximately five miles off the coast of
Louisiana primarily in St. Mary Parish in a shallow bay, with water depths
averaging seven to eight feet. The field overlies one of the largest salt dome
structures on the Gulf Coast. The Company acquired from TEPI a 6.25% working
interest in the WCBB field in July 1988. In April 1995, the Company 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. The
sellers retained their interests in all depths below approximately 10,500 feet.
Pursuant to the Plan, at the Effective Date, the Company acquired the remaining
50% working interest in the WCBB field in depths above the Rob "C" Marker
located at approximately 10,500 feet and became the operator of the field. The
Company also owns 6.25% non-operated working interest in depths below the Rob
"C" Marker and TEPI is the operator. Therefore the Company now owns a 100%
working interest in the depths above the Rob "C" Marker and a 6.25% non-operated
working interest in depths below the Rob "C" Marker.
Other
The Company also owns royalty or overriding royalty interests in an
additional 25 producing oil and gas wells lying in four fields. The Company
retains an overriding royalty interest from 6.57% to 8.67% in the Bayou Penchant
Field (see "Recent Events"). The Company also possesses a 2.5% overriding
royalty interest in the Napoleonville Field (see "Recent Events"). The Company
also owns an override in one well in addition to leasehold rights in the South
Atchafalaya Bay Field. Additionally, the Company owns approximately 250 net
acres of fee minerals and royalty interest in six wells adjacent to its West
Hackberry Field.
Drilling and Recompletion Activities
The following table contains data with respect to certain of the Company's
field operations during the years ended December 31, 1998, 1997, 1996 and 1999
to date. The Company drilled no exploratory wells during the periods presented.
1998 1997 1996 1999 to Date
Gross Net Gross Net Gross Net Gross Net
-------------- ------------- ------------- -------------
Recompletions,
Sidetracks and
Deepenings:
Oil 7 4.7 6 5.5 12 5.7 6 4.8
Gas 0 0 6 4.5 5 3.2 0 0.0
Non-Productive 0 0 6 5.5 7 4.7 1 0.8
- ---- --- ----- --- ----- - ---
TOTAL: 7 4.7 18 15.5 24 13.6 7 5.6
= ==== === ===== === ===== = ===
Development Wells:
Oil 0 0 1 1 0 0 0 0
Gas 0 0 0 0 0 0 0 0
Non-Productive 0 0 0 0 1 0.5 0 0
- - - - - --- - -
TOTAL 0 0 1 1 1 0.5 0 0
= = = = = === = =
8
In January of 1999, the Company commenced a seven well recompletion
program, six of the operations were successful and one was unsuccessful. The
Company added approximately 900 BOPD and 1.8 MCFGPD through this work. The
program also allowed the Company to become a net seller of gas as opposed to a
purchaser of gas lift gas for the WCBB field.
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, the Company will conduct title examinations on material
portions of such properties in a manner generally consistent with industry
practice. Certain of the Company'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 the
Company's operations.
Reserves
The oil and gas reserve information set forth below represents only
estimates. 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 the Company at December 31, 1998, as estimated by a non-employee contract
engineer.
JANUARY 1, 1999
---------------------------------------
Proved Reserves Developed Undeveloped Total
-------------- ----------- -----------
Oil (MBBLS) 5,665 18,616 24,281
Gas (MMCF) 1.250 2.080 3.330
MBOE 5,873 18,963 24,836
Year-end present value of
estimated future net
revenue ($1,058,000) $28,454,000 $27,396,000
Total proved reserves decreased from 27,736 MBOE at January 1, 1998 to
24,836 MBOE at January 1, 1999. This decrease in reserves is attributable to two
sales that occurred in 1998 and the write down of properties. The sale of Bayou
Pigeon, Bayou Penchant, Lac Blanc, Deer Island and Golden Meadow effective April
1, 1998 reduced reserves by 1860 MBOE. The sale of Napoleonville effective July
1, 1998 reduced reserves 189 MBOE. The reserves were reduced on additional 12
MBOE attributable to the lapse of the Abbeville lease. The additional reduction
is due to the two reserve write downs that occurred in 1998.
As a result of ceiling tests performed at June 30, 1998, September 30, 1998
and December 31, 1998, the Company was required to write down the value of its
oil and gas properties by $16,168,000, $28,000,000 and $5,962,000, respectively.
The estimated future net revenues 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, 1998. The estimated future production is priced at December 31, 1998 without
escalation using $11.43 per BBL and $2.21 per MCF.
In compliance with federal law, the Company 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.
9
Production, Prices, and Costs
The Company sells its oil and gas at the wellhead and does not refine
petroleum products. Other than normal production facilities, the Company does
not own an interest in any bulk storage facilities or pipelines. As is customary
in the industry, the Company sells its production in any one area to relatively
few purchasers, including transmission companies that have pipelines near the
Company'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 the Company's crude oil production is 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. The following
table contains certain historical data reflecting the average production costs
incurred by the Company during the years ended December 31, 1998, 1997 and 1996.
Year Ended December 31 Estimated
--------------------------------------------------------
Production Volumes: 1998 1997 1996 1999
Oil (MBBLS) 441 566 615 470*
Gas (MMCF) .421 2.818 3.629 **
Oil Equivalents (MBOE) 512 1,036 1,220 470
Average Prices:
Oil (per BBL) $15.48 $20.93 $22.17
Gas (per MCF) $ 2.30 $ 2.86 $ 2.86
Oil Equivalents (per MBOE) $15.18 $19.20 $19.68
Average Production Costs (per BOE) $14.01 $ 9.05 $10.90
Average Production Taxes (per BOE) $ 1.49 $ 1.48 $ 1.47
* 1999 estimated production is based on an average of actual production from
January and February, 1999 and multiplied by twelve months.
** Actual data are insufficient to estimate gas production for 1999.
During 1998, the sales to Equiva Trading Co., Gathering and Energy
Marketing Co., Black Hills Energy Resources, Inc., and Plains Marketing, L.P.
accounted for 25%, 16%, 23% and 10%, respectively for oil sales. Gas sales to
Prior Energy Company, Texaco Exploration and Production, Inc., and Burlington
Resources, Inc. accounted for 47%, 27% and 11% of the Company's gas revenues.
The Company had no other purchasers that accounted for greater than 10% of its
oil and gas revenues in the year ended December 31, 1998.
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. 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 gas 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.
Environmental Regulation
Operations of Gulfport are subject to numerous federal, state and local
laws and regulations governing environmental protection. Over the last several
10
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
effect 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.
Employees
At December 31, 1998, the Company had no direct employees. Management
services were provided under the Administrative Services Agreement with DLB
Equities, L.L.C. (See Certain Relationships and Related Transactions). A
Louisiana well servicing company serves as contract operator of the fields.
Item 3. Legal Proceedings
During 1995, the Company entered into a marketing agreement with Tri-Deck
pursuant to which Tri-Deck would market all of the Company's oil and gas
production. Subsequent to the agreement, James Florence, who served as both
Tri-Deck's principal and WRT's Director of Marketing, assigned Tri-Deck's right
to market the Company's oil production to Plains Marketing and assigned
Tri-Deck's right to market the Company's gas production to Perry Gas. During
early 1996, Tri-Deck failed to make payments to the Company attributable to
several months of the Company's gas production. Consequently, on May 20, 1996,
the Company filed with the Bankruptcy Court a Motion to Reject the Tri-Deck
Marketing Agreement, and on May 29, 1996, the Company initiated an adversarial
proceeding against Tri-Deck and Perry Gas.
On January 20, 1998, Gulfport and the Litigation Entity entered into a
Clarification Agreement to clarify provisions of the Plan regarding the rights
of the Company and the Litigation Entity to prosecute certain causes of action
arising from the Tri-Deck matter. As a part of the Clarification Agreement, the
Litigation Entity was substituted as the actual party in interest in the
Tri-Deck case and reimbursed the Company $100,000 for legal fees incurred by the
Company. As additional consideration for the contribution of this claim to the
Litigation Entity, the Company is entitled to receive 85% of the recovery of all
Tri-Deck monies held in the court registry and 50% of the recovery from all
other Tri-Deck litigation pursued by the Litigation Entity.
On July 20, 1998, Sanchez Oil & Gas Corporation ("Sanchez") initiated
litigation against the Company in the fifteenth Judicial District Court, Parish
of Lafayette, State of Louisiana. In its petition, Sanchez alleged, among other
things, that the Company was obligated, by virtue of the terms of a letter of
intent, to grant a sublease to Sanchez for an undivided 50% interest in two of
the Company's oil, gas and mineral leases covering lands located in the North
Bayou Penchant area of Terrebonne Parish, Louisiana. Pursuant to this lawsuit,
Sanchez is seeking specific performance by the Company of the contractual
obligation that Sanchez alleges to be present in the letter of intent and
monetary damages. The Company sold North Bayou Penchant in one of the 1998 sales
(see Recent Events). In connection with the sale, the Company, Castex and
Sanchez reached an amicable resolution of this dispute. Settlement papers are
currently being drafted.
11
In connection with WRT's bankruptcy case, LLOG Exploration Company asserted
a secured claim in the Bankruptcy Proceedings for $1.1 million dollars to fund a
plugging escrow with the Department of Natural Resources of Louisiana. WRT
disputed LLOG's claim and filed an objection seeking a disallowance of LLOG's
claim and a determination that any claim asserted by LLOG with regard to
establish a plugging escrow was unsecured. On July 8, 1997, the Bankruptcy Court
ruled that LLOG Exploration Company possessed a secured claim for establishing
the plugging escrows, but did not determine the amount of the claim. On November
20, 1998, the parties settled this action for $450,000.
Item 4. Submission of Matters to a Vote of Security Holders
A proxy statement dated September 24, 1998 was furnished to holders of
Common Stock ("Stockholders") of the Company in connection with the solicitation
by and on behalf of the Board of Directors of proxies for the use at a Special
Meeting of Stockholders to be held at the offices of the Company on October 26,
1998 for the purpose of amending the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of common stock from
50,000,000 to 250,000,000. After sending the Proxy Statement to the
Stockholders, the Company solicited written consents from certain Stockholders
to approve the Proposed Amendment. On October 20, 1998, in accordance with
Section 228 of the General Corporation Law of the State of Delaware, the Company
received written consent of stockholders holding over 50% of the outstanding and
issued stock approving the increase of authorized shares.
The annual shareholder meeting for the Company has not been scheduled as of
the date of this filing.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company'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 commencing with the Effective Date:
BEFORE SPLIT AFTER SPLIT
-------------- -------------
YEAR ENDED DECEMBER 31, 1997 LOW HIGH LOW HIGH
- - ---------------------------- --- ---- --- ----
Third Quarter (commencing July, 1997) No No
Activity Activity
Fourth Quarter $3.75 $5.00
YEAR ENDED DECEMBER 31, 1998 LOW HIGH
- - ---------------------------- --- ----
First Quarter $3.36 $4.63 $168.00 $231.50
Second Quarter $1.12 $3.38 $ 56.00 $169.00
Third Quarter $0.20 $1.50 $ 10.00 $ 75.00
Fourth Quarter $0.02 $0.20 $ 1.00 $ 10.00
Prior to February 29, 1996, WRT's common stock was quoted on the NASDAQ
National Market under the symbol "WRTE". During the period January 1, 1996
through February 29, 1996, the high and low sale prices reported on the NASDAQ
National Market were $1.19 and $0.25, respectively. Effective February 29, 1996,
WRT's common stock was delisted from the NASDAQ National Market.
Holders of Record
At the close of business on March 9, 1999, there were 3,445,206 shares of
Common Stock outstanding held by 334 shareholders of record.
Dividend Policy
The Company has never paid dividends on the Common Stock. The Company
currently intends to retain all earnings to fund its operations. Therefore, the
Company does not intend to pay any cash dividends on the Common Stock in the
foreseeable future.
12
Item 6. Selected Financial Data
The following selected financial data as of and for the years ended
December 31, 1998 and 1997, and as of and for the six months and 10 days ended
July 10, 1997, for the Predecessor Company and the five months 21 days ended
December 31, 1997, for the Company are derived from the consolidated financial
statements of the Company included elsewhere in the Annual Report. The selected
financial data at December 31, 1996, 1995 and 1994 and for the years 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 the Company and the notes thereto
included elsewhere in this Annual Report.
Reorganized Company Predecessor Company
--------------------- -----------------------------------------
July 11, Six Months
1997 to 10 Days
December 31, July 10, Year Ended December 31,
-----------------------------
1998 1997 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
(in thousands, except per
share amounts)
Statement of Operation Data
Oil and gas sales $ 8,298 $ 9,456 $ 10,138 $ 24,019 $ 24,655 $ 11,034
--------- ---------- --------- --------- ---------- ---------
Operating expenses 66,415 11,478(1) 11,002 40,855 139,497(2) 10,126
--------- ---------- --------- --------- ---------- ---------
Net income (loss) from
operations (58,117) (2,022) (864) (16,836) (114,842) 908
--------- ---------- --------- --------- ---------- ---------
Interest expense 1,534 727 1,106 5,562 13,759 19
Reorganization costs - - 7,771 7,345 - -
Net income (loss) before
income taxes and
extraordinary item (59,105) (1,713) (9,615) (29,387) (128,175) 4,266
Extraordinary item - - 88,723 - - -
Net income (loss) before
dividends on preferred
stock (59,105) (1,713) 79,108 (29,387) (128,175) 4,230
Dividends on preferred stock - - (1,510) (2,846) (2,846) (2,846)
Net income (loss) available
to common stock (59,105) (1,713) 77,598 (32,233) (131,021) 1,384
Earnings (loss) per common and
Common equivalent share (72.34) (3.88) N/A N/A N/A N/A
Average common and common
equivalent shares
outstanding 817 442 9,539 9,539 9,466 7,792
Capital expenditures $ 991 $ 5,644 $ 2,562 $ 4,823 $116,730 $40,087
13
Reorganized Company Predecessor Company
--------------------- -----------------------------------------
July 11,
1997 to
December 31, Year Ended December 31,
-----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance Sheet Data (in
thousands)
Working capital (deficit) $ (3,204) $ (719) $(148,932) $(131,601) $ 6,301
Property, plant and
equipment, net 19,990 81,501 56,899 63,913 59,042
Total assets 27,568 92,346 68,076 79,247 81,857
Total long-term debt 381 13,528 - - 6,260
Shareholders' equity (deficit) 18,503 70,280 (60,551) (61,869 63,538
(1) Operating expenses for 1998 include a 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."
(2) Operating expenses for 1995 include a non-cash charge of $103,000,000
related to impairment of long-lived assets pursuant to SFAS No. 121,
non-cash charges of $3,600,000 related to a minimum production guarantee
obligation, a $2,000,000 provision for doubtful accounts, and a
$1,400,000 charge related to restructuring costs incurred. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As a result of the Reorganization Case and Plan, which was consummated and
became effective on July 11, 1997, the Company 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 the Company's 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.
Recent Events
West Cote Blanche Bay
In the first quarter of 1999, the Company completed a seven well
recompletion project increasing production at West Cote by approximately 900
BOPD and 1.8 MCFPD. The Company is currently evaluating additional rework
possibilities and a five well new drill program.
On March 27, 1998, the Company and Tri-C Resources, Inc. executed an
agreement to farmout drilling rights at WCBB. During the course of the three
phase program contemplated by the agreement, Tri-C agreed to either drill 22
wells to an average depth of 6,500 feet or to drill 12 wells to the same depth
and shoot 3-D seismic surveys covering the field. Under the Farmout Agreement,
the Company would be carried for a 30% to 50% working interest in each well.
Once Tri-C successfully completed all three phases of the program, it would earn
a 50% interest in the WCBB field. On December 23, 1998, Tri-C notified the
Company that it was terminating the Farmout Agreement. The Company believes the
termination of the Agreement was a breach of contract and is currently reviewing
its legal course of action.
14
On October 6, 1998, the Company and Plymouth Resources 1998, L.L.C.
("Plymouth") executed a wellbore farmout on WCBB in which Plymouth agreed to
rework 15 wells in the first year of the farmout. Each year thereafter, Plymouth
agreed to rework at least 22 wells a year. The Company was to receive a 50%
reversionary interest calculated on a well by well basis. The effectiveness of
the agreement was subject to the prior consent of Texaco Exploration and
Production, Inc. In December 1998, Texaco informed the Company that it would not
consent to the Farmout Agreement as written. By letters dated January 4, 1999
and February 24, 1999, Plymouth alleged that Gulfport breached the August 1998
Farmout Agreement by engaging in a rework program at WCBB. The Company does not
agree with the contention that it breached the Farmout Agreement since the
required consents could not be obtained.
Rights Offering
On November 20, 1998, the Company completed a $7.5 million Rights Offering.
The Company distributed 200,000,000 nontransferable rights at an exercise price
of $0.05 per right equal to 4,000,000 rights at $2.50 after giving effect to the
Stock Split to the Company'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
150,183,199 rights were exercised for $7,509,000. As of the date of the Rights
Offering, Affiliated Shareholders were owed $4.6 million by the Company. In the
Rights Offering, the Affiliated Shareholders exercised 87,609,761 rights through
the forgiveness of $4,380,000 of debt. (See Certain Relationships and Related
Transactions.)
Sale of Properties
The Company sold, effective July 1, 1998, its interest in the Napoleonville
field for $1.1 million and a 2.5% overriding royalty interest in field. In
connection with the sale, the purchaser agreed to establish a plugging and
abandoning escrow account in accordance with the provisions of LSA R.S. 30:88,
et. seq. The establishment of this escrow account is intended to protect the
Company from future liability associated with the plugging and abandoning of the
field and associated environmental liabilities.
The Company and Castex Energy 1996, L.P. ("Castex") entered into a purchase
and sale agreement whereby Castex agreed to purchase Bayou Penchant, Bayou
Pigeon, Deer Island, Golden Meadow and Lac Blanc for $7.8 million plus
overriding royalties and reversionary interests in the properties. Prior to the
closing, Castex notified the Company of a title defect at Lac Blanc. As a
result, the $936,000 purchase price attributable to Lac Blanc was placed in a
closing escrow until the title defect could be resolved. Additionally, the
$911,000 held in a plugging escrow for Lac Blanc was also placed in the closing
escrow. Once the title defect is cured, the $936,000 purchase price shall be
released to the Company's principal lender, ING, and the $911,000 plugging
escrow will be distributed to Castex.
Spin-Off
After consummation of the Plan, DLB owned 48.89% of the issued and
outstanding shares of Gulfport Common Stock. On April 28, 1998, DLB merged into
Chesapeake Energy Corporation. Immediately prior to the merger, DLB distributed
all of DLB's equity interest in the Company to the then existing DLB
shareholders.
15
Credit Facility
In December 1994, WRT entered into a $40,000,000 credit facility with
International Nederlanden (U.S.) Capital Corporation ("INCC") ("INCC Credit
Facility") that was secured by substantially all of WRT's assets. At December
31, 1996, WRT had borrowings outstanding of $15,000,000, the maximum amount of
borrowings available under the INCC Credit Facility. At December 31, 1995, the
revolving loan borrowings were converted to a term loan whereby quarterly
principal payments of one-sixteenth of the outstanding indebtedness were due and
payable. Amounts outstanding under the INCC Credit Facility bore interest at an
annual rate selected by WRT of either (i) the London Inter-Bank offered rate
("LIBOR") plus 3%, or (ii) the Lender's prime lending rate plus 1.25%.
At December 31, 1996, WRT was in default under certain financial covenants
of the INCC Credit Facility. Accordingly, WRT classified the debt as current at
December 31, 1996. While WRT was in bankruptcy, INCC was stayed from enforcing
certain remedies provided for in the ING Credit Agreement and the indenture. On
the Effective Date, this loan was repaid in full along with $3,154,000 in
accrued interest and legal fees.
On the Effective Date, the Company entered into a new $15,000,000 Credit
Agreement (the "ING Credit Agreement") with ING (U.S.) Capital Corporation
(successor to INCC) ("ING") that was secured by substantially all of the
Company's assets. Initial loan fees of $188,000 were paid on or prior to the
Effective Date, an additional loan fee of $100,000 was made on December 31, 1997
and a loan fee of $100,000 was due on or before December 31, 1998. The loan
matures on July 11, 1999, with interest to be paid quarterly and with three
interim principal payments of $1,000,000 each to be made in September 1998,
December 1998, and March 1999. This loan bears interest at the option of the
Company at either (i) LIBOR plus 3% or (ii) ING's fluctuating "reference rate"
plus $1.25%. This loan is collateralized by substantially all of the Company's
assets. At December 31, 1998, this rate was 8.6875%.
The ING Credit Agreement contains restrictive covenants which impose
limitations on the Company with respect to, among other things: (i) the
maintenance of current assets equal to at least 110% of current liabilities
(excluding any current portion of the ING Credit Agreement); (ii) the incurrence
of debt outside the ordinary course of business; (iii) dividends and similar
payments; (iv) the creation of additional liens on, or the sale of, the
Company's oil and gas properties and other assets; (v) the Company's ability to
enter into forward, future swap or hedging contracts; (vi) mergers or
consolidations; (vii) the issuance of securities other than Common Stock and
options or warrants granting the right to purchase Common Stock; (viii) the
sale, transfer, lease, exchange, alienation or disposal of Company properties or
assets; (ix) investments outside the ordinary course of business; (x)
transactions with affiliates; (xi) general and administrative expenditures in
excess of $1 million during any fiscal quarter or in excess of $3 million during
each fiscal year; and (xii) the maintenance of an aggregate net present value
attributable to all collateral as determined from engineering reports equal to
120% of the principal amount of the ING Credit Agreement on such date.
On August 18, 1998, the Company amended the ING Credit Agreement (the
"Amended ING Credit Agreement") to, among other things: (i) delete the coverage
ratio set forth in the ING Credit Agreement, and (ii) require interest payments
to be made by the Company on a monthly basis. The principal amount and the
interest rate set forth in the ING Credit Agreement remain unchanged. In
connection with the execution and delivery of the Amended ING Credit Agreement,
ING waived certain provisions of the ING Credit Agreement to permit certain
actions by the Company. In consideration for entering into the Amended ING
Credit Agreement and granting certain waivers, the Company and ING further
agreed that (a) the Company will pay a $250,000 amendment fee to ING on July 11,
1999, provided that such amendment fee will be waived if the amounts owed to ING
under the Amended ING Credit Agreement have been paid in full by July 10, 1999;
and (b) the Company shall issue warrants to ING, in that such warrants will
permit ING to purchase 2% of the outstanding shares of Common Stock on a fully
diluted basis.
On November 20, 1998, the Company and ING entered into a letter agreement
wherein ING consented to the Castex sale and the Company agreed to issue ING
warrants to purchase .05% of the outstanding shares of Common Stock on a fully
diluted basis if (1) the Company elected not to complete the November 20, 1998
Rights Offering, (2) did not spend the proceeds from the Rights Offering as
specified in the letter agreement or (3) raise less than $10,000,000 in the
November 20, 1998 Rights Offering. The Rights Offering was completed and raised
$7,500,000. On November 20, 1998, ING was issued the additional warrants.
16
The Company did not make the $100,000 loan fee due on December 31, 1998 and
does not plan to make the $1.0 million principal payment due on March 31, 1999.
The Company has requested ING to capitalize the two payments and extend the note
for two years with principal reduction beginning in the Fourth Quarter of 1999.
ING has agreed to extend the March 31, 1999 principal payment due date until
April 30, 1999 so that the parties can discuss the terms of an extension. The
approval of an extension on the terms thereof are unknown and cannot be
guaranteed by the Company. Currently the Company has prioritized utilization of
cash flow to develop underdeveloped reserves. Only 1% of the Company's reserves
are currently developed. The Board believes that profitability of the Company
depends on tapping into the undeveloped reserves.
For further information regarding the filing for protection under Chapter
11 of the Federal Bankruptcy Code see Item 1 "Business - Events Leading to the
Reorganization Case".
Accounting Change
Before July 11, 1997, the Company used the successful efforts method for
reporting oil and gas operations. Commencing on the Effective Date, the Company
converted to the full cost pool method of accounting for its oil and gas
operations to be in conformity with the method used by DLB, its principal
shareholder.
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 on the Effective Date,
comparison of depreciation, depletion, and amortization expense for the years
ended December 31, 1998 and 1997, with prior years will not be meaningful.
Results of Operations
Prices and Production Volumes.
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 the Company. Set forth in the table below are the average
prices received by the Company and production volumes during the periods
indicated.
Year Ended December 31,
---------------------------------------
1998 1997 1996
---------- ----------- -----------
Production Volumes
Oil (MBBLS 441 566 615
Gas (MMCF) 421 2,818 3,629
Oil equivalents (MBOE) 512 1,036 1,220
Average Prices
Oil (per BBL) $15.48 $20.93 $22.17
Gas (per MCF) $ 2.30 $ 2.86 $ 2.86
Oil equivalents (per MBOE) $15.18 $19.20 $19.68
Average production costs (per BOE) $14.01 $ 9.05 $10.90
Average production taxes (per BOE) $ 1.49 $ 1.48 $ 1.47
17
Comparison of Years Ended December 31, 1998 and 1997
The Company reported net (loss) attributable to common stock of
$(59,105,000) for the year ended December 31, 1998, as compared with net income
attributable to common stock of $77,598,000, for the year ended December 31,
1997. The major change in earnings attributable to common stock of $136,703,000
was due primarily to the following factors: (1) the write-down of oil and gas
properties totaling $50,131,000, (2) the decrease in oil and gas revenues, (3)
the sale of oil and gas properties resulting in an additional decrease in
production and (4) the gain on discharge of debt in the amount of $88,723,000
which dramatically affected 1997 earnings.
Impairment of oil and gas properties. During 1998, the Company incurred an
impairment of oil and gas properties of $50,130,000. The value of the oil and
gas properties was impaired due primarily to the reduction in the present value
of anticipated future cash flow 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.
Oil and Gas Revenues. During 1998, the Company reported oil and gas
revenues of $8,298,000, a 58% decrease from revenues of $19,894,000 for 1997.
The decreased revenues are attributable to a decrease in production volumes of
512 MBOE along with a decrease of $4.02 per BOE in average sales price for the
year.
Decrease in Production. During 1998, production decreased only 512 MBOE
resulting primarily from the sale of producing oil and gas properties effective
April 1, 1998 located in Bayou Pigeon, Bayou Penchant, Deer Island, Lac Blanc,
and Golden Meadow and the sale of Napoleonville effective September 1, 1998.
Extraordinary Gain. During 1997, the Company recognized an extraordinary
gain of $88,723,000 related to the forgiveness of debt recognized in connection
with implementing the Plan of Reorganization.
In 1998, the Company reduced several key expenditures including production
costs, general and administrative expenses, taxes and interest expense.
Production Costs. Production costs decreased $1,604,000, or 17%, to
$7,782,000 in 1998 from $9,386,000 in 1997. Production costs per BOE increased
49% from $9.41 per BOE in 1997 to $14.01 per BOE in 1998. Overall costs
decreased in part because of decreases in lease operating expenses and the sale
of various producing properties. However, the production costs per BOE rose in
1998 because of the sale of various producing properties which decreased the
number of BOE to carry production costs and the added expenditure of plugging 40
wells at WCBB.
General and Administrative Expense. General and administrative expenses
decreased by 22% from $3,642,000 in 1997 to $2,849,000 in 1998. The decrease is
due primarily to a reduction in contract services incurred in connection with
implementing the plan of reorganization during 1997. In addition, during 1998
management reduced its work force and implemented other cost savings. During
1997, the Company capitalized $417,000 in general and administrative expenses.
Considering the total G&A incurred for 1997, the expenses were reduced by 30%.
Gross Production Taxes. Production taxes decreased by $719,000, or 47%,
from $1,533,000 in 1997 to $814,000 in 1998. This decrease is attributable to
the reduction in oil and gas sales.
Interest Expense. Interest expense decreased $299,000, from $1,833,000 for
1997 to $1,534,000 for 1998.
Other changes in income for the year ended December 31, 1998 as compared to
the year ended December 31, 1997 were attributable to the following factors:
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization expense was $4,324,000 in 1998 consisting of $4,136,000 in
depletion on oil and gas properties and $189,000 in depreciation of other
property and equipment. 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 on the Effective
Date, comparisons of 1997 depreciation, depletion, and amortization expense with
prior years will not be meaningful.
18
Provision for Doubtful Accounts. Bad Debt expense increased $173,000 from
$71,000 in 1997 to $244,000 in 1998.
Restructuring Charges and Reorganization Costs. During 1997, the Company
incurred $7,771,000 in reorganization costs, consisting of $3,000,000
contributed to the Litigation Entity as called for in the Plan of
Reorganization, $1,515,000 reimbursed to DLB for restructuring costs it incurred
on the Company's behalf.
Abandonment of Long-Lived Assets. During 1998, the Company abandoned
computer software costs in the amount of $271,000.
Comparison of Years Ended December 31, 1997 and 1996
The Company reported net income attributable to common stock of $77,598,000
for the year ended December 31, 1997, as compared with net loss attributable to
common stock of $32,233,000, for the year ended December 31, 1996. The change in
earnings attributable to common stock of $109,628,000 was due to the following
factors: (1) the extraordinary gain of $88,723,000 related to the forgiveness of
debt, (2) the decrease in production costs and (3) the decrease in interest
expense.
Extraordinary Gain. During 1997, the Company recognized an extraordinary
gain of $88,723,000 related to the forgiveness of debt recognized in connection
with implementing the Plan of Reorganization.
Production Costs. Production costs decreased $3,918,000, or 29%, to
$9,386,000 in 1997 from $13,304,000 in 1996. Production costs per BOE decreased
14% from $10.92 in 1996 to $9.41 per BOE in 1997. This decrease in production
costs per BOE was due primarily to the addition in 1996, the following, as
additional production costs (1) disputed claims adjustments totaling
approximately $2,814,000, (2) the Milam Royalty Corp. settlement in the amount
of $1,172,000, and (3) the Lac Blanc purchase price adjustment in the amount of
$479,000. Production costs per BOE excluding the previously mentioned items
increased by $0.81 in 1997 as compared with 1996, due primarily to increased
workover activities.
Interest Expense. Interest expense decreased $3,729,000, from $5,562,000
for 1996 to $1,833,000, primarily due to the termination of the interest accrual
on the $100,000,000 in Senior Notes as of February 14, 1996 (the filing date of
the Chapter 11 proceedings). The decrease is primarily due to payment of
principal totaling $10,580.000.
Oil and Gas Revenues. During 1997, the Company reported oil and gas
revenues of $19,894,000, a 17% decrease from revenues of $24,019,000 for 1996.
The decreased revenues are attributable to a decrease in production volumes of
184 MBOE along with a decrease of $ .48 per BOE in average sales price for the
year. The production declines are due primarily to normal production declines
and the loss of production from two large oil wells on the Deer Island lease
during 1997, offset in part by the addition of an additional 50% interest in the
WCBB properties on the Effective Date.
Gross Production Taxes. Production taxes decreased by $258,000, or 14%,
from $1,791,000 in 1996 to $1,533,000 in 1997. This decrease is partially
attributable to the fact that in Louisiana, gross production taxes on gas sales
are computed on a volumetric basis rather than on the sales price, and gas
volumes decreased by 811 MMCF, and partially due to a decrease of $1,792,000 in
oil sales in 1997 as compared with 1996.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization expense was $7,856,000 in 1997. 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 on the Effective Date, comparisons of 1997 depreciation, depletion,
and amortization expense with prior years will not be meaningful.
General and Administrative Expense. General and administrative expenses
increased by 13% from $3,210,000 in 1996 to $3,642,000 in 1997 due primarily to
a decrease of $616,000 in administrative costs charged to operations resulting
from certain changes in billing practices implemented in 1997. Also contributing
to this increase was a substantial increase in audit fees and contract labor
incurred in connection with implementing the plan of reorganization. These
increases were partially offset by lower salaries expenses and other cost
savings implemented by management.
19
Provision for Doubtful Accounts. Provision for doubtful accounts decreased
$462,000 from $5,158,000 in 1996 to $4,696,000 in 1997. The provision for
doubtful accounts for 1996 consists primarily of an allowance of a receivable in
the amount of $4,278,000 relating to the Tri-Deck legal proceeding (See "Legal
Proceedings"). On January 20, 1998, the Company's rights to its claims against
Tri-Deck were assigned to the Litigation Trust in consideration for the right to
receive 50% of the net proceeds from the settlement of these claims. In
addition, during 1996 the Company charged an additional $880,000 to bad debts
expense related to receivable deemed uncollectible as a result of the
Reorganization Case.
Restructuring Charges and Reorganization Costs. During 1997, the Company
incurred $7,771,000 in reorganization costs, consisting of $3,000,000
contributed to the Litigation Entity as called for in the Plan of
Reorganization, $1,515,000 reimbursed to DLB for restructuring costs it incurred
on the Company's behalf, professional fees totaling $2,213,000 and an accrual of
$1,043,000 for estimated future costs to be incurred in connection with the
reorganization. During 1996, the Company incurred reorganization costs of
$7,345,000, consisting primarily of professional fees totaling $2,594,000, and
the write-off of previously capitalized debt issuance costs on the Senior Notes
in the amount of $3,834,000.
Impairment of Long-Lived Assets. During 1996, the Company recognized an
impairment loss related to its oil and gas properties and long-lived assets in
the amount of $3,864,000. The 1996 impairment loss was due primarily to further
declines in the Company's estimated oil and gas reserves and the write-down of
certain other equipment to its appraised value.
Based primarily on an analysis of the independent engineers reserve report
dated January 1, 1998, management has determined that there was no impairment of
long-lived assets during 1997.
Liquidity and Capital Resources
The primary capital commitment faced by the Company is the payments due
under the ING Credit Facility. At December 31, 1998, the outstanding principal
balance under the ING Credit Agreement was $4,779,000. Pursuant to the terms of
the ING Credit Agreement, the Company may elect to be charged at either (i)
LIBOR plus 3% or (ii) ING's fluctuating "reference rate" plus 1.25%. A principal
payment of $1,000,00 is due March 31, 1999 with the remaining principal balance
due at maturity on July 10, 1999. A loan commitment fee of $100,000 was due on
December 31, 1998 with a final commitment fee of $250,000 due at July 10, 1999
if the loan has not been paid off by that date.
The Company did not pay the December 31, 1998 loan commitment fee and does
not plan on paying the March 31, 1999 principal payment. During a year of record
low product prices, the Company drastically reduced general and administration
expenses, production costs, taxes and decreased the outstanding loan balance
from $10,000,000 at December 31, 1997 to $4,779,000 at December 31, 1998. The
closing escrow of $936,000 from the Castex sale is expected to break in early
April further reducing the ING loan balance to $3,843,000.
At this point, the Company is confident in its ability to service the loan
and make monthly interest payments. Management has determined that it is in the
best interest of the Company to utilize its cash flow to develop undeveloped
reserves rather than making principal payments to ING. In the First Quarter of
1999, the Company completed seven workovers in WCBB adding approximately 900
BOPD and 1.8 MCFGPD. The gas production alone equates to a cost savings of an
average $60,000 a month since the Company no longer has to purchase gas lift gas
for the field. With only 1% of the Company's reserves currently producing,
Management believes that tapping into the non-producing reserves with the
limited cash flow available is in the best interest of the Company's
Stockholders.
The Company has requested ING to extend the Note for two years with
principal reduction payments beginning in the Fourth Quarter of 1999. ING has
agreed to extend the principal payment due on March 31, 1999 to April 30, 1999
to allow the parties time to negotiate the extension. The ability to negotiate
an extension or terms thereof are uncertain at the date of this filing.
20
Net cash flow used by operating activities for the year ended December 31,
1998 was $3,851,000 as compared to net cash flow used by operating activities of
$3,890,000 for year ended December 31, 1997. The Company expects to positively
cash flow for 1999. After making reductions in production costs, finding costs,
general and administrative expenses, taxes and interest expenses, the Company
believes it has substantially improved its cash flow position.
Net cash provided in financing activities for 1998 was $6,217,000 as
compared to $5,137,000 during 1997. The 1998 net cash flows from financing
occurred as a result of the $3,000,000 from the Stockholder Credit Facility and
the net proceeds from the 1998 Rights Offering. The 1998 Rights offering after
expenses yielded $7,328,000 to the Company. Affiliated Stockholders exercised
rights in the 1998 Rights Offering through the forgiveness of $4.6 million in
debt, thus netting $3,217,000 to the Company for the net cash proceeds from the
1998 Rights Offering. Net cash provided in financing activities in 1997 was
$5,137,000.
Commitments and Contingencies
During 1995, the Company entered into a marketing agreement with Tri-Deck
pursuant to which Tri-Deck would market all of the Company's oil and gas
production. Subsequent to the agreement, James Florence, who served as both
Tri-Deck's principal and WRT's Director of Marketing, assigned Tri-Deck's right
to market the Company's oil production to Plains Marketing and assigned
Tri-Deck's right to market the Company's gas production to Perry Gas. During
early 1996, Tri-Deck failed to make payments to the Company attributable to
several months of the Company's gas production. Consequently, on May 20, 1996,
the Company filed with the Bankruptcy Court a Motion to Reject the Tri-Deck
Marketing Agreement, and on May 29, 1996, the Company initiated an adversarial
proceeding against Tri-Deck and Perry Gas. Perry Gas was the party which
ultimately purchased the Company's gas production for the months in question.
On January 20, 1998, Gulfport and the Litigation Entity entered into a
Clarification Agreement to clarify provisions of the Plan regarding the rights
of the Company and the Litigation Entity to prosecute certain causes of action
arising from the Tri-Deck matter. As a part of the Clarification Agreement, the
Litigation Entity will intervene or be substituted as the actual party in
interest in the Tri-Deck case and reimbursed the Company $100,000 for legal fees
incurred by the Company. As additional consideration for the contribution of
this claim to the Litigation Entity, the company is entitled to receive 85% of
the recovery of all monies held in the court registry and 50% of the recovery
from all other Tri-Deck litigation pursued by the Litigation Entity.
On July 20, 1998, Sanchez Oil & Gas Corporation ("Sanchez") initiated
litigation against the Company in the fifteenth Judicial District Court, Parish
of Lafayette, State of Louisiana. In its petition, Sanchez alleged, among other
things, that the Company was obligated, by virtue of the terms of a letter of
intent, to grant a sublease to Sanchez for an undivided 50% interest in two of
the Company's oil, gas and mineral leases covering lands located in the North
Bayou Penchant area of Terrebonne Parish, Louisiana. Pursuant to this lawsuit,
Sanchez is seeking specific performance by the Company of the contractual
obligation that Sanchez alleges to be present in the letter of intent and
monetary damages. The Company sold North Bayou Penchant in one of the 1998 sales
(see Recent Events). In connection with the sale, the Company, Castex and
Sanchez reached an amicable resolution of this dispute. Settlement papers are
currently being drafted.
Year 2000 Compliance
The Company has and will continue to make investments in software systems
and applications to ensure it is Year 2000 compliant. It is not anticipated that
the process of ensuring that the Company is Year 2000 compliant will have a
material impact on the Company's financial condition.
21
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
Independent Auditors' Reports F-2
Balance Sheets, December 31, 1998 and 1997 F-4
Statements of Operations, The Year Ended December 31, 1998,
Periods July 11, 1997 to December 31, 1997, January 1,
1997 to July 10, 1997, and the Year Ended December 31, 1996 F-5
Statements of Shareholders' Equity, The Year Ended December
31, 1998, and the Periods July 11, 1997 to December 31, 1997,
January 1, 1997 to July 10, 1997 F-6
Statements of Cash Flows, The Year Ended December 31, 1998,
Periods July 11, 1997 to December 31, 1997, January 1, 1997
to July 10, 1997, and the Year Ended December 31, 1996 F-7
Notes to Financial Statements F-9
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
PRE-EMERGENCE CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and
Shareholders of Gulfport Energy Corporation:
We have audited the accompanying statements of operations, shareholders'
equity, and cash flows for the period from January 1, 1997 to July 10, 1997 and
the year ended December 31, 1996 of Gulfport Energy Corporation (formerly WRT
Energy Corporation a Texas corporation) (the "Company"). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations of Gulfport Energy
Corporation and its cash flows for the period from January 1, 1997 to July 10,
1997 and the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, on May 2, 1997, the
Company's plan of reorganization (the "Plan") was confirmed by the bankruptcy
court. The Plan was substantially consummated on July 11, 1997 and the Company
emerged from bankruptcy. In connection with its emergence from bankruptcy, the
Company adopted fresh start reporting. As a result of the adoption of fresh
start reporting, the post-emergence financial statements are not comparable to
the pre-emergence consolidated financial statements.
HOGAN & SLOVACEK
Oklahoma City, OK
March 25, 1999
F-2
INDEPENDENT AUDITORS' REPORT
POST-EMERGENCE FINANCIAL STATEMENTS
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, 1998 and 1997, and the related statements of
operations, shareholders' equity, and cash flows for the year ended December 31,
1998 and for the period from July 11, 1997 to December 31, 1997. These financial
statements are the responsibility of the Company'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. 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.
As discussed in Note 2 to the financial statements, the Company's reserve
report prepared as of January 1, 1999, which estimates proven reserves,
indicates that substantial future capital expenditures are necessary to fully
develop its total proven reserves of which only approximately 1% are currently
producing. At December 31, 1998, the levels of production and the price of oil
and gas revenues from these producing properties will not be sufficient to
finance the estimated future capital expenditures necessary to fully develop the
existing proven reserves, nor recover the carrying value of the Company's oil
and natural gas properties. These conditions have caused us to change our
unqualified opinion dated March 27,1998, regarding the financial position of the
Company at December 31,1997. Management's plans regarding the financing of
anticipated future development costs are also discussed in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
In our opinion, except for the effect of the matters discussed in the
preceding paragraph, the financial statements referred to above present fairly,
in all material respects, the financial position of Gulfport Energy Corporation
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the year ended December 31, 1998 and for the period from July 11, 1997
to December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, on May 2, 1997, the
Company's plan of reorganization (the "Plan") was confirmed by the bankruptcy
court. The Plan was substantially consummated on July 11, 1997 and the Company
emerged from bankruptcy. In connection with its emergence from bankruptcy, the
Company adopted fresh start reporting. As a result of the adoption of fresh
start reporting, the post-emergence financial statements are not comparable to
the pre-emergence consolidated financial statements.
As discussed in Note 1 to the financial statements, on July 11, 1997, the
Company changed its method of accounting for oil and natural gas properties.
HOGAN & SLOVACEK
Oklahoma City, OK
March 25, 1999
F-3
GULFPORT ENERGY CORPORATION
BALANCE SHEETS
- - -----------------------------------------------------------------------------------------
December 31,
---------------------------------
1998 1997
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,778,000 $ 1,203,000
Cash, restricted 936,000 2,060,000
Accounts receivable, net of allowance
for doubtful accounts of $4,607,000 and
$4,696,000 for 1998 and 1997, respectively 1,656,000 4,364,000
Prepaid expenses and other 110,000 192,000
---------------- ----------------
Total current assets 5,480,000 7,819,000
---------------- ----------------
Property and equipment:
Oil and natural gas properties 77,042,000 84,466,000
Other property and equipment 1,867,000 1,577,000
Accumulated depletion, depreciation,
amortization and impairment reserve (58,919,000) (4,542,000)
---------------- ----------------
Property and equipment, net 19,990,000 81,501,000
---------------- ----------------
Other assets 2,098,000 3,026,000
---------------- ----------------
$ 27,568,000 $ 92,346,000
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,890,000 $ 6,346,000
Current maturities of long-term debt 4,794,000 2,192,000
---------------- ----------------
Total current liabilities 8,684,000 8,538,000
Long-term debt 381,000 13,528,000
---------------- ----------------
Total liabilities 9,065,000 22,066,000
---------------- ----------------
Commitments and contingencies - -
Shareholders' equity:
Preferred stock - $.01 par value, 1,000,000
authorized, none issued - -
Common stock - $.50 par value, 250,000,000
authorized, 3,445,206 and 441,526
issued and outstanding at December 31,
1998 and 1997, respectively 1,723,000 221,000
Paid-in capital 77,598,000 71,772,000
Accumulated deficit (60,818,000) (1,713,000)
---------------- ----------------
Total shareholders' equity 18,503,000 70,280,000
---------------- ----------------
$ 27,568,000 $ 92,346,000
================ ================
See accompanying notes to financial statements.
F-4
GULFPORT ENERGY CORPORATION
STATEMENTS OF OPERATIONS
- - ----------------------------------------------------------------------------------------------
Reorganized Company Predecessor Company
-------------------------- --------------------------
Year Ended, July 11, January 1, Year Ended
December 31, through through December 31,
------------- December 31, July 10, -------------
1998 1997 1997 1996
------------- ------------ ------------- -------------
REVENUES:
Gas sales $ 1,346,000 $ 3,344,000 $ 4,706,000 $ 10,382,000
Oil and condensate sales 6,952,000 6,412,000 5,432,000 13,637,000
Other income, net 546,000 736,000 126,000 356,000
------------- ------------ ------------- -------------
8,844,000 10,492,000 10,264,000 24,375,000
------------- ------------ ------------- -------------
COSTS AND EXPENSES:
Operating expenses including
production taxes 8,596,000 5,397,000 5,514,000 15,095,000
Impairment of oil and gas properties 50,130,000 - - -
Depletion, depreciation
and amortization 4,325,000 4,542,000 3,314,000 7,973,000
General and administrative 2,849,000 1,539,000 2,103,000 3,210,000
Interest 1,534,000 727,000 1,106,000 5,562,000
Provision for doubtful accounts 244,000 - 71,000 5,158,000
Impairment of long-lived assets 271,000 - - 3,864,000
Minimum production
guarantee obligation - - - 5,555,000
------------- ------------ ------------- -------------
67,949,000 12,205,000 12,108,000 46,417,000
------------- ------------ ------------- -------------
LOSS BEFORE REORGANIZATION EXPENSES
AND INCOME TAXES (59,105,000) (1,713,000) (1,844,000) (22,042,000)
Reorganization expenses - - 7,771,000 7,345,000
------------- ------------ ------------- -------------
LOSS BEFORE INCOME TAXES (59,105,000) (1,713,000) (9,615,000) (29,387,000)
Income tax expense - - - -
------------- ------------ -------------- -------------
LOSS FROM OPERATIONS BEFORE
EXTRAORDINARY ITEM- (59,105,000) (1,713,000) (9,615,000) (29,387,000)
EXTRAORDINARY GAIN - - 88,723,000 -
------------- ------------ -------------- -------------
NET INCOME (LOSS) (59,105,000) (1,713,000) 79,108,000 (29,387,000)
Preferred stock dividends, net - - (1,510,000) (2,846,000)
------------- ------------ -------------- -------------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK $(59,105,000) $(1,713,000) $ 77,598,000 $(32,233,000)
============= ============ ============== =============
PER SHARE (LOSS) OF COMMON
STOCK AMOUNTS $ (72.35) $ (3.88) N/A N/A
============= ============ ============== =============
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 816,986 441,526 9,539,000 9,539,000
============= ============ ============== =============
See accompanying notes to financial statements.
F-5
GULFPORT ENERGY CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
- - ------------------------------------------------------------------------------------------------------------
Common
Stock Additional
Preferred ----------------------- Paid-In Accumulated Treasury
Stock Shares Amount Capital Deficit Stock
- - ------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1996 $ 27,677,000 9,539,207 $ 95,000 $ 39,571,00 $ (157,562,000 $ (332,000)
Net income - - - - 79,108,000 -
Effect of fresh
start reporting $(27,677,000) 12,537,108 126,000 32,201,000 78,454,000 332,000
------------------------------------------------------------------------------------
Balance,
July 11, 1997 - 22,076,315 221,000 71,772,000 - -
Net loss - - - - (1,713,000) -
Reverse stock split - (21,634,789) - - - -
------------------------------------------------------------------------------------
Balance,
December 31, 1997 - 441,526 221,000 71,772,000 (1,713,000) -
Stock Rights
offering - 3,003,680 1,502,000 5,826,000 - -
Net loss - - - - (59,105,000) -
------------------------------------------------------------------------------------
Balance,
December 31, 1998 $ - 3,445,206 $ 1,723,000 $ 77,598,00 $ (60,818,000) $ -
====================================================================================
See accompanying notes to financial statements.
F-6
GULFPORT ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
- - -----------------------------------------------------------------------------------------------------------------
Reorganized Company Predecessor Company
---------------------------- ----------------------------
July 11, January 1,
Year Ended through through Year Ended
December 31, December 31, July 10, December 31,
1998 1997 1997 1996
- - -------------------------------- ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $(59,105,000) $(1,713,000) $ 79,476,000 (29,387,000)
Adjustments to reconcile
net income
(loss) to net cash provided by
(used in) operating activities:
Extraordinary item -
Gain on debt discharge - - (88,723,000) -
Impairment of oil and gas properties 50,130,000 - - -
Depletion, depreciation
and amortization 4,519,000 4,633,000 3,314,000 8,882,000
Provision for doubtful
accounts receivable 244,000 - 71,000 5,158,000
Gain on sale of equipment - (587,000) - -
Write-off of debt issuance costs
and Senior Notes discount - - - 5,263,000
Impairment of long-lived assets 271,000 - - 3,864,000
Gain on sale of oil and gas properties - - - (5,000)
Write-off of accounts receivable
included in production costs - - - (1,172,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 2,464,000 (1,077,000) 307,000 (515,000)
(Increase) decrease in prepaid expenses 82,000 (117,000) (331,000) 132,000
Increase (decrease) in accounts payable
and accrued liabilities (2,456,000) 556,000 301,000 11,365,000
Increase in minimum production
guarantee obligation - - - 5,555,000
----------- ------------ ----------- ------------
Net cash provided by (used in)
operating activities (3,851,000) 1,695,000 (5,585,000) 9,140,000
----------- ------------ ----------- ------------
Cash flows from investing activities:
Additions to cash held in escrow (280,000) (133,000) (22,000) (121,000)
Capital expenditures (1,330,000) (5,644,000) (2,562,000) (4,823,000)
Proceeds from sale of oil and gas properties 8,966,000 35,000 - 5,000
Proceeds from sale of equipment 49,000 2,081,000 - -
Decrease in other assets 114,000 138,000 - -
----------- ------------ ----------- ------------
Net cash provided by (used in)
investing activities 7,519,000 (3,523,000) (2,584,000) (4,939,000)
----------- ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from Rights offering 7,328,000 - - -
Proceeds from borrowings 35,000 - 15,000,000 -
Payment of pre-petition liabilities
and administrative claims - - (8,105,000) -
Proceeds for issuance of warrants - - 13,300,000 -
Principle payments on borrowing (10,580,000) (20,000) (15,014,000) (130,000)
Payment of loan origination fees - (200,000) - -
----------- ------------ ----------- ------------
Net cash provided by (used in)
financing activities (3,217,000) (220,000) 5,181,000 (130,000)
----------- ------------ ----------- ------------
Net increase (decrease) in cash and
cash equivalents 451,000 (2,048,000) (2,988,000) 4,071,000
Cash and cash equivalents -
beginning of period 3,263,000 5,311,000 5,679,000 1,608,000
----------- ------------ ----------- ------------
Cash and cash equivalents - end
of period $ 3,714,000 $ 3,263,000 $ 2,691,000 $ 5,679,000
=========== ============ =========== ============
See accompanying notes to the financial statements.
F-7
GULFPORT ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
- - -----------------------------------------------------------------------------------------------------------------
Reorganized Company Predecessor Company
---------------------------- ----------------------------
July 11, January 1,
Year Ended through through Year Ended
December 31, December 31, July 10, December 31,
1998 1997 1997 1996
- - -------------------------------- ------------ ------------ ------------ ------------
Supplemental Disclosures of Cash
Flow Information:
Interest paid $ 1,334,000 $ 505,000 $ 28,000 $ -
Supplemental Information of Non-Cash
Investing and Financing Activities:
Accrued dividends on preferred stock - - (1,510,000) (712,000)
See accompanying notes to financial statements.
F-8
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Reorganization Proceedings
Gulfport Energy Corporation (the "Company"), formerly known as WRT Energy
Corporation ("WRT"), is a domestic independent energy company engaged in the
production of oil and natural gas. On July 11, 1997, the Company's subsidiaries
were merged into the Company. On the Effective Date of the reorganization, the
state of incorporation of the Company was changed from the State of Texas to the
State of Delaware. Prior to July 11, 1997, the financial statements represented
the consolidated financial statements of the Company and its subsidiaries.
As discussed in Note 3, on February 14, 1996, (the "Petition Date"), the
Company filed a voluntary petition with the Bankruptcy Court for the Western
District of Louisiana (the "Bankruptcy Court") for protection under Chapter 11
of the Bankruptcy Code. On May 2, 1997, the Bankruptcy Court confirmed an
Amended Plan of Reorganization (the "Plan") for the Company and on the Effective
Date an order of substantial consummation regarding the Plan became final and
nonappealable. On the Effective Date, the Debtor was merged with and into a
newly formed Delaware corporation named "WRT Energy Corporation" which on March
30, 1998 underwent a name change to "Gulfport Energy Corporation". Effective
July 11, 1997 (the "Election Date"), the Company implemented fresh start
reporting, as defined by the Accounting Standards Division of the American
Institute of Certified Public Accountants Statement of Position Number 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7").
Principles of Consolidation
In November 1995, the Company formed a wholly owned subsidiary, WRT
Technologies, Inc., which was established to own and operate the Company's
proprietary, radioactive, cased-hole logging technology. Prior to July 11, 1997,
the financial statements were consolidated and include the accounts of the
Company and its wholly owned subsidiary, WRT Technologies, Inc., which was
merged into the Company on that date. All significant intercompany transactions
were eliminated during the consolidation periods.
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.
Fair Value of Financial Instruments
At December 31, 1998, the carrying amounts of all financial instruments
approximate their fair market values.
Oil and Natural Gas Properties
Before July 11, 1997, the Company used the successful efforts method for
reporting oil and gas operations. Commencing with the reorganization, the
Company converted to the full cost pool method of accounting.
Commencing July 11, 1997
In connection with the implementation of fresh start reporting, as
described in Note 3, the Company implemented the full cost pool 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 natural 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
natural 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 natural gas to barrels at the ratio
F-9
of six MCF of natural 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 natural gas reserves.
During 1998, the Company recorded a loss impairment on its oil and gas
properties of $50,130,000. This impairment reduced the carrying value of the oil
and gas properties to $18,405,000, which is $9,018,000 less than the 10%
discounted present value of these properties. Management elected to reduce the
carrying value of the properties below the 10% discounted present value due to
the significant amount of undeveloped reserves included in total proven
reserves.
Included in costs capitalized to the full cost pool are $417,000 in general
and administrative costs incurred in 1997. 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.
Oil and natural 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 natural gas properties subject to amortization. Factors considered by
management in its impairment assessment include drilling results by the Company
and other operators, the terms of oil and gas leases not held by production, and
available funds for exploration and development. During 1998, $5,097,000 of
undeveloped leasehold cost was determined to be impaired and was included in the
cost of oil and gas properties subject to amortization, and in the $5,130,000
improvement of oil and gas properties. At December 31, 1998, the Company had no
oil and gas properties not subject to amortization.
Prior to July 11, 1997
Prior to July 11, 1997, the Company followed the successful efforts method
of accounting for its oil and gas operations. Under the successful efforts
method, costs of productive wells, development dry holes and productive leases
are capitalized and amortized on a unit-of-production basis over the life of the
remaining proven reserves as estimated by the Company's independent engineers.
The Company's estimate of future dismantlement and abandonment costs was
considered in computing the aforementioned amortization.
Cost centers for amortization purposes were determined based on a
reasonable aggregation of properties with common geological structures or
stratigraphic conditions, such as a reservoir or field. The Company performed a
review for impairment of proven oil and gas properties on a depletable unit
basis when circumstances suggest the need for such a review. For each depletable
unit determined to be impaired, an impairment loss equal to the difference
between the carrying value and the fair value of the depletable unit was
recognized. Fair value, on a depletable unit basis, was estimated to be the
present value of expected future net cash flows computed by applying estimated
future oil and gas prices, as determined by management, to estimated future
production of oil and gas reserves over the economic lives of the reserves.
Exploration expenses, including geological, geophysical and costs of
carrying and retaining undeveloped properties were charged to expense as
incurred.
Unproven properties were assessed periodically and a loss was recognized to
the extent, if any, that the cost of the property had been impaired. If proven
reserves were not discovered within one year after drilling was completed, costs
were charged to expense.
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 7 to
30 years.
F-10
Implementation of Statement of Accounting Standards No. 121
During December 31, 1996, the Company incurred a non-cash charge of
$2,545,000 related to the impairment of its oil and gas properties as well as
the impairment of some of its field equipment.
During 1996, the Company also incurred a non-cash charge of $1,319,000
related to the impairment of its office and field equipment. Of this balance,
$815,000 relates primarily to a write down of the Company's office equipment and
computer software to its appraised fair market value, and the balance of
$504,000 relates to a write down of the wireline equipment to its appraised fair
value.
During 1998, the Company abandoned $271,000 in software costs.
Earnings (Loss) per Share
Earnings (loss) per share computations are calculated on the
weighted-average of common shares and common share equivalents outstanding
during the year. Common stock options and warrants are considered to be common
share equivalents and are used to calculate earnings per common and common share
equivalents except when they are anti-dilutive. See Note 11 for effects of
reverse stock split.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities and 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 in income in the year in which
realization becomes determinable.
Revenue Recognition
Natural 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 the Company's entitlement is received, the underproduction is recorded
as a receivable. Oil revenues are recognized in the month produced.
Concentration of Credit Risk
The Company operates in the oil and natural 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 natural gas industry, the Company 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. Unrelated to economic fluctuations, during 1996,
the Company incurred a bad debt in the amount of $4,278,000 related to marketing
of its oil and gas by Tri-Deck Oil & Gas Company ("Tri-Deck"). See Notes 5 and
15 for further discussion. During 1998, the Company incurred a bad debt of
$244,000 related to a disputed pre-bankruptcy receivable which was determined to
be uncollectible.
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, 1998 and 1997 the Company held cash in excess of
insured limits in these banks totaling $3,983,000 and $3,455,000 respectively.
During the year ended December 31, 1998, approximately 76%, of the
Company's revenues from oil and natural gas sales were attributable 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. During the year ended December 31, 1997, approximately 99%, of
the Company's revenues from oil and natural gas sales were attributable to sales
to five primary customers: Prior Energy Company, Wickford Energy Marketing,
Inc., Gathering and Energy Marketing Corp., Texaco Trading and Transportation
and Mobil Oil Corporation. During the year ended December 31, 1996,
F-11
approximately 89% of the Company's revenues from oil and gas sales were
attributable to sales to five primary customers: Tri-Deck, Plains Marketing and
Transportation, Inc., Texas-Ohio Gas, Inc., Riverside Pipeline Company and Prior
Energy Company.
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. The financial statements are highly dependent on oil and gas
reserve estimates, which are inherently imprecise. Actual results could differ
materially from those estimates.
Stock Options and Warrant Agreements
Effective at the date of reorganization, all previously issued stock option
plans of the Company were terminated and all outstanding options were canceled.
On that date, a Warrant Agreement, mandated under the Plan, went into effect.
These warrants are exercisable at $10 per share and will expire on July 11,
2002. The Plan authorized the issuance of up to 1,104,000 warrants. As of
December 31, 1998, there were 221,000 warrants issued and outstanding.
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.
2. REALIZATION OF THE CARRYING VALUE OF OIL AND GAS PROPERTIES
As of January 1, 1999, based on the Company's reserve report, the Company
had 24,837,000 barrel of oil equivalents ("BOE") in total proven reserves of
which proven developed producing reserves were only 621,400 BOE. The Company's
reserve report prepared as of that date anticipated future capital expenditures
of $116,000,000 to fully develop its total proven reserves.
The Company sold certain oil and gas producing properties during 1998 and
realized approximately $9.8 million in connection with these sales with most of
the funds used to reduce the debt of the Company. December 31, 1998 oil sales
prices were at levels where potential funding of oil and gas operations were
limited; however, management believes that recent increases in oil and gas
prices will provide the availability of future funding for the development of
the Company's reserves. Historically, the oil industry has experienced periods
of price declines which effect the development of reserves but these periods
have tended to be short lived. Management believes the current situation of
depressed oil prices will adjust upward and the carrying value of the oil and
gas properties, as reflected in the financial statements, will be realized by
future operations.
3. REORGANIZATION PROCEEDING
On February 14, 1996, the Company filed a voluntary petition in the United
States Bankruptcy Court for the Western District of Louisiana (the "Bankruptcy
Court") for reorganization pursuant to Chapter 11 of the Federal Bankruptcy Code
(the "Reorganization Proceeding"). During the balance of 1996 and a portion of
1997, the Company operated as a debtor-in-possession, continuing in possession
of its estate and the operation of its business and management of its property.
On May 5, 1997, the Bankruptcy Court confirmed an Amended Plan of Reorganization
(the "Plan") for the Company. On July 11, 1997, the Bankruptcy Court determined
that the Plan had been substantially consummated, and the Bankruptcy Court's
order of substantial consummation became final and nonappealable on July 11,
1997 (the "Effective Date").
As a result of the consummation of the Plan and due to (1) the reallocation
of the voting rights of equity interest owners and (2) the reorganization value
of the Company's assets being less than the total of all post-petition
liabilities and allowed claims, the effects of the Reorganization Proceeding
were accounted for in accordance with fresh start reporting standards
promulgated under SOP 90-7.
In conjunction with implementing fresh start reporting, management
determined a reorganized value of the Company's assets and liabilities in the
following manner:
F-12
To determine the value allocated to the Company's assets, the Company
looked to the fair value of its equity securities. On the date of reorganization
there were 22,076,315 shares outstanding to which a value of $71,993,000 or
$3.26 per share was assigned. The Company believes that the 1997 Rights Offering
of 3.8 million shares at $3.50 per share, in addition to approximately 2,655,000
shares issued to fully secured creditors in exchange for the conversion of their
fully secured claims to equity at an exchange rate of $3.50 per share, help to
support the $3.26 value per share used in the fresh start accounting. Once the
value of the Company was established, the value allocated to assets complied
with the procedures outlined in APB Opinion 16.
DLB Oil & Gas, Inc. ("DLB") contributed certain interests previously owned
by Texaco Exploration and Production. Inc. ("TEPI") in the West Cote Blanche Bay
Field ("WCBB Assets") along with a $1,000,000 deposit to a plugging and
abandonment trust for 5,616,300 shares of the Gulfport's common stock. This
transaction was recorded at DLB's net basis in the WCBB Assets of $15,144,000.
In connection with this acquisition, the Company assumed the obligation to
contribute approximately $18,000 per month through March 2004 to this plugging
and abandonment trust and the obligation to plug a minimum of 20 wells per year
for 20 years commencing March 11, 1997. TEPI retained a security interest in
production from these properties and the plugging and abandonment trust until
such time the Company's obligations for plugging and abandonment to TEPI 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.
In accordance with the Plan, $3,000,000 was set aside by the Company to
form a Litigation Entity. The Company owns a 12% interest in this Litigation
Entity. The entire $3,000,000 was included in reorganization expense on the
financial statements for the six months and ten day period ended July 10, 1997.
No value was assigned to the Company's interest in the Litigation Entity on the
reorganized balance sheet as management was not able to determine with any
certainty the amount, if any, that the Company might recover from this
investment.
Current assets and liabilities were recorded at book value, which
approximates their fair market value. Long-term liabilities were recorded at
present values of amounts to be paid and the pre-consummation stockholders'
deficit was adjusted to reflect the par value of pre-consummation equity
interests and the recognition of $88,723,000 in debt forgiveness income. On the
Effective Date, the shareholders' deficit was closed into paid in capital and
the Company started with no deficit or retained earnings.
It should be noted that the reorganized value was determined by management
on the basis of its best judgment of what it considers to be current fair market
value of the Company's assets and liabilities after reviewing relevant facts
concerning the price at which similar assets are being sold between willing
buyers and sellers. However, there can be no assurances that the reorganized
value and the fair market value are comparable and the difference between the
Company's calculated reorganized value and the fair market value may, in fact,
be material.
As of July 11, 1997, the effect on the Company's balance sheet of
consummating the Plan and implementing the fresh start reporting was:
F-13
Stock Texaco Paymemt of
Fresh Issued Claim Refinancing Claims
July 11, Start Stock For Paid Acquisition Of and
1997 Consummation Rights Secured With of WCBB Secured Litigation Reorganized
Prior To Adjustments Offering Debt Stock Assets Debt Trust Balance
Consummation (1) (2) (3) (4) (5) Note 9 (6&7) Sheet
----------- ----------- ---------- ----------- ---------- -------- --------- --------- ---------
(in thousands except
per share amounts)
ASSETS
Current assets:
Cash and cash
equivalents $ 3,714 $ $ 13,300 $ $ $ $ (3,247) $ (8,455) $ 5,312
Accounts receivable, net 3,287 3,287
Prepaid expenses and
other 870 870
----------------------------------------------------------------------------------------------------------
Total current assets 7,871 13,300 (3,247) (8,455) 9,469
----------------------------------------------------------------------------------------------------------
Property and equipment:
Properties subject
to depletion 80,120 (20,187) 15,144 75,077
Properties not subject
to depletion - 5,000 5,000
Other property, plant
and equipment 5,300 (2,362) 2,938
-----------------------------------------------------------------------------------------------------------
85,420 (17,549) 15,144 83,015
Less accumulated
depreciation,
depletion and
amortization (29,274) 29,274 -
-----------------------------------------------------------------------------------------------------------
56,146 11,725 15,144 83,015
-----------------------------------------------------------------------------------------------------------
Other assets 1,231 (285) 94 1,040
-----------------------------------------------------------------------------------------------------------
$ 65,248 $ 11,440 $ 13,300 $ $ $ 15,144 $ (3,153) $ (8,455) $ 93,524
===========================================================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 9,545 $ (757) $ $ $ $ $ (1,238) $ (1,776) $ 5,774
Pre-petition secured
debt 16,915 (16,915) -
-----------------------------------------------------------------------------------------------------------
Total current
liabilities 26,460 (757) (18,153) $ (1,776) 5,774
-----------------------------------------------------------------------------------------------------------
Pre-petition current
liabilities subject to
compromise:
Unsecured debt 136,818 (123,845) (3,332) (5,962) (3,679) -
-----------------------------------------------------------------------------------------------------------
Long-term liabilities:
Other non-current
liabilities 757 757
Notes payable 15,000 15,000
-----------------------------------------------------------------------------------------------------------
757 15,000 15,757
-----------------------------------------------------------------------------------------------------------
Stockholders' equity
(deficit):
Common stock 95 5 38 9 17 57 221
Preferred stock 27,677 (27,677) -
Additional paid in
capital 39,570 (5,415) 13,262 3,323 5,945 15,087 71,772
Treasury stock (333) 333 -
Retained earnings (165,039) 168,039 (3,000) -
-----------------------------------------------------------------------------------------------------------
(98,030) 135,285 13,300 3,332 5,962 15,144 (3,000) 71,993
-----------------------------------------------------------------------------------------------------------
$ 65,248 $ 11,440 $ 13,300 $ - $ - $ 15,144 $ (3,153) $(8,455) $ 93,524
===========================================================================================================
F-14
Substantial consummation adjustments are those involving cash transactions
occurring on the Effective Date. Fresh Start Reporting adjustments are those
involving non-cash transactions occurring on the Effective Date.
In accordance with the provisions of the Plan, the Company:
(1)Issued to its unsecured creditors, on account of their allowed claims, an
aggregate of 10 million shares of the Company's Common Stock. At the
Effective Date, 1,412,000 of the above-described shares were held in escrow
to cover the settlement of disputed unsecured claims in the amount of
$18,339,000.
(2)Issued 3,800,000 shares of the Company's Common Stock for $13,300,000 in
cash in connection with a stock rights offering to its unsecured creditors.
(3)Issued 952,000 shares of the Company's Common Stock in payment of $3,332,000
in secured claims.
(4)Issued 1,703,000 shares of the Company's Common Stock in payment of a
$5,961,000 claim purchased by DLB from Texaco Exploration and Production,
Inc. ("TEPI").
(5)Issued 5,616,000 shares of the Company's Common Stock in exchange for the
WCBB Assets acquired by DLB from TEPI along with the associated P&A trust
fund and associated funding and plugging obligations. In connection with this
transaction the Company transferred to TEPI certain assets and non-producing
acreage.
(6)The Company paid $2,492,000 in administrative claims and $2,963,000 in
secured and priority claims.
(7)The Company transferred $3,000,000 to the Litigation Entity along with the
Company's rights to any and all causes of action, claims, rights of actions,
suits or proceedings which have been or could be asserted by it except for
(a) the action to recover unpaid production proceeds payable to the Company
by Tri-Deck Oil & Gas Company and (b) the foreclosure action to recover title
to certain assets (See Note 17 regarding the subsequent transfer of these
claims to the Litigation Entity). This transfer was treated as a
pre-reorganization expense on the financial statements for the six months and
ten day period ended July 10, 1997. The Company owns a 12% economic interest
in the Litigation Entity and the remainder of the economic interests in the
Litigation Entity was allocated to former unsecured creditors based on their
ownership percentage of the 10 million shares as described above.
4. RELATED PARTY TRANSACTIONS
Subsequent to the Effective Date of the Plan of Reorganization,
substantially all of the Company's former unsecured creditors became
shareholders. In the ordinary course of business, the Company still conducts
business activities with a substantial number of these shareholders.
DLB paid $1,515,000 in reorganization costs incurred on the Company's
behalf, which was satisfied by the issuance of stock in connection with the
Company's 1997 stock rights offering. These costs were included in
reorganization cost incurred during the six months and 10 days ended July 10,
1997. In addition, DLB charged the Company $465,000 for management services
provided to it during the period July 11, 1997 through December 31, 1997. During
the period May 1, 1997 through July 10, 1997, DLB was the operator on the WCBB
properties in which the Company had a 50% working interest at that time.
Subsequent to that date, the WCBB properties were contributed to the Company for
common stock, as described above, and the Company became the operator of these
properties.
DLB Oil & Gas, Inc. ("DLB") and Wexford Management LLC ("Wexford") were,
along with the Company, co-proponents in the Plan of Reorganization. As of
December 31, 1997, DLB and Wexford owned approximately 49% and 8%, respectively,
of the Company's outstanding common stock. During April of 1998, DLB distributed
all of its shares in the Company to its shareholders prior to its acquisition by
Chesapeake Energy Corporation.
F-15
Administrative Service Agreement
Pursuant to the terms and conditions of the Administrative Services
Agreement, DLB agreed to make available to the Company personnel, services,
facilities, supplies, and equipment as the Company may need, 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 continues for successive
one-year periods unless terminated by either party by written notice no less
than 60 days prior to the anniversary date of the Administrative Services
Agreement. During the year ended December 31, 1997, the services of Gary C.
Hanna and Ronald D. Youtsey, the Company's then President and Secretary,
respectively, were provided under this agreement. On April 28, 1998, in
connection with the acquisition of DLB by Chesapeake Energy Corporation, the
obligations of DLB under the Administrative Services Agreement were assigned to
DLB Equities, L.L.C. Currently, the services of Mike Liddell, Chief Executive
Officer, and Mark Liddell, President, are provided under the Administrative
Services Agreement. DLB Equities, L.L.C. is owned equally by Mike and Mark
Liddell.
In return for the services rendered under the Administrative Services
Agreement, the Company pays a monthly service charge based on the pro rata
proportion of the Company's use of services, personnel, facilities, supplies and
equipment provided by DLB Equities, L.L.C. as determined by DLB Equities, L.L.C.
in a good-faith, reasonable manner. The service charge was calculated as the sum
of (i) DLB Equities, L.L.C.'s fully allocated internal costs of providing
personnel and/or performing services, (ii) the actual costs to DLB Equities,
L.L.C. of any third-party services required, (iii) the equipment, occupancy,
rental, usage, or depreciation and interest charges, and (iv) the actual cost to
DLB Equities, L.L.C. of supplies. The fees provided for in the Administrative
Services Agreement were approved by the Bankruptcy Court as part of the Plan and
the Company believes that such fees are comparable to those that would be
charged by an independent third party. The Company paid fees totaling $969,000
during 1998.
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 Oil & Gas, Inc. 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.
Liddell Investments, L.L.C., Liddell Holdings, L.L.C., and CD Holdings,
L.L.C., exercised 632,484 rights in the November 20, 1998 Rights Offering
through debt forgiveness.
During the year ended December 31, 1998, the Company sold $2,058,000 in oil
to a DLB subsidiary. During the period July 11, 1997 through December 31, 1997,
the Company sold $4,335,000 in oil to a DLB subsidiary GEMCO. These sales
occurred at prices which the Company could be expected to obtain from an
unrelated third party.
Stockholder Credit Facility
On August 18, 1998, the Company entered into the Stockholder Credit
Facility, 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 Stockholder Credit Facility, the Company paid the Affiliated Eligible
Stockholders an aggregate commitment fee equal to $60,000. The Company 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 in the Rights Offering through the
forgiveness of the amount owed to them under the Stockholder Credit Facility.
F-16
5. PROPERTY AND EQUIPMENT
1998 1997
------------------- -------------------
Oil and gas properties $ 77,042,000 $ 84,466,000
Office furniture and fixtures 1,390,000 1,100,000
Building 217,000 217,000
Land 260,000 260,000
------------------- -------------------
Total property and equipment 78,909,000 86,043,000
Accumulated depreciation, depletion
Amortization and impairment reserve (58,919,000) (4,542,000)
------------------- -------------------
Property and equipment, net $ 19,990,000 $ 81,501,000
=================== ===================
The major categories of property and equipment and related accumulated
depreciation, depletion and amortization as of December 31, 1998 and 1997 are as
follows:
On the Effective Date, DLB transferred its interest in the WCBB Assets to
the Company in exchange for one hundred thousand (100,000) shares of the Company
Common Stock and the assumption by the Company of certain plugging and
abandonment obligations related to the West Cote Blanche Bay Field (see Note 3
for further details). This transaction was valued at $12,987,000, which included
a $1,000,000 plugging and abandonment escrow account required by TEPI. In
connection with this transaction, DLB paid an additional $2,157,000 in
development costs on these properties for which it received an additional 12,320
shares of the Company Common Stock.
During December 1997, the Company sold substantially all of its field
equipment for approximately $2,100,000 resulting in a net gain on the sale of
$594,000.
During 1998, the Company sold oil and gas properties totaling $8,800,000,
which was treated as a reduction of the full cost pool.
6. PROVISION FOR ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company has certain amounts due from transactions occurring prior to
bankruptcy. The collectibility of these receivables is uncertain. Accordingly,
all such amounts due have been fully covered by the allowance for doubtful
accounts which totals $4,607,000 at December 31, 1998.
During the year ended December 31, 1998 and during the period ended July
10, 1997, the Company charged $244,000 and $71,000, respectively, to bad debts
expense.
F-17
7. OTHER ASSETS
Other assets as of December 31, 1998 and 1997, consist of the following:
December 31,
------------------------------
1998 1997
--------------- ------------
Plugging and abandonment escrow account
on the Lac Blanc properties - See Note 15 $ - $ 871,000
Plugging and abandonment escrow account
on the WCBB properties - See Note 15 1,453,000 1,203,000
Prepaid loan fees, net of amortization 103,000 296,000
CD's securing Letter of credit 400,000 400,000
Deposits 142,000 256,000
--------------- ------------
$ 2,098,000 $ 3,026,000
=============== ============
8. RESTRUCTURING CHARGES AND REORGANIZATION COSTS
During 1996, the Company incurred $7,345,000 in reorganization costs,
primarily consisting of professional fees totaling $2,594,000 and the write-off
of previously capitalized debt issuance costs on the Senior Notes (herein
defined) in the amount of $3,834,000.
During 1997, the Company incurred $7,771,000 in reorganization costs,
consisting of $3,000,000 contributed to the Litigation Trust (See Note 17 for
further details), $1,515,000 in reimbursements to DLB for restructuring costs it
incurred on the Company's behalf, professional fees totaling $2,213,000, and an
accrual of $1,044,000 for estimated future costs to be incurred in connection
with the reorganization.
9. LONG-TERM LIABILITIES
As of December 31, 1998 and 1997, a break down of long term debt is as
follows:
1998 1997
------------------- -----------------
Long-term debt:
Credit facility $ 4,779,000 $ 15,000,000
Priority tax claims 186,000 527,000
Building loan 210,000 193,000
------------------- -----------------
5,175,000 15,720,000
Less current portion 4,794,000 2,192,000
=================== =================
$ 381,000 $ 13,528,000
=================== =================
Credit Facility
At December 31, 1996, WRT had borrowings outstanding of $15,000,000, the
maximum amount of borrowings available under the Nederlanden (U.S.) Capital
Corporation ("INCC") ("INCC Credit Facility"). Amounts outstanding under the
INCC Credit Facility bore interest at an annual rate selected by WRT of either
(I) the London Inter-Bank offered rate ("LIBOR") plus 3%, or (ii) the Lender's
prime lending rate plus 1.25%.
At December 31, 1996, WRT was in default under certain financial covenants
of the INCC Credit Facility. Accordingly, the Company classified the debt as
current at December 31, 1996. While in bankruptcy, INCC was stayed from
enforcing certain remedies provided for in the ING Credit Agreement and the
indenture. On the Effective Date, this loan was repaid in full along with
$3,154,000 in accrued interest and legal fees.
F-18
On the Effective Date, the Company entered into a new $15,000,000 Credit
Agreement (the "ING Credit Agreement") with ING (U.S.) Capital Corporation
(successor to INCC) ("ING") that was secured by substantially all of the
Company's assets. Initial loan fees of $188,000 were paid on or prior to closing
with two additional loan fee payments of $100,000; a $100,000 payment was made
on December 31, 1997 and a loan fee of $100,000 was due on or before December
31, 1998. The loan matures on July 11, 1999, with interest to be paid quarterly
and with three interim principal payments of $1,000,000 each to be made in
September 1998, December 1998, and March 1999. This loan bears interest at the
option of the Company at either (1) LIBOR plus 3% or (2) ING's fluctuating
"reference rate" plus 1.25%. This loan is collateralized by substantial all of
the Company's assets. At December 31, 1998 this rate was 8.6875%.
On August 18, 1998, the Company amended the ING Credit Agreement (the
"Amended ING Credit Agreement") to, among other things: (i) delete the coverage
ratio set forth in the ING Credit Agreement, and (ii) require interest payments
to be made by the Company on a monthly basis. The principal amount and the
interest rate set forth in the ING Credit Agreement remain unchanged. In
connection with the execution and delivery of the Amended ING Credit Agreement,
ING waived certain provisions of the ING Credit Agreement to permit certain
waivers, the Company and ING further agreed that (a) the Company will pay a
$250,000 amendment fee to ING on July 11, 1999, provided that such amendment fee
will be waived if the amounts owed to ING under the Amended ING Credit Agreement
have been paid in full by July 10, 1999; and (b) the Company shall issue
warrants to ING, in that such warrants will permit ING to purchase 2% of the
outstanding shares of Common Stock on a fully diluted basis after giving effect
to future Rights Offerings.
On November 20, 1998, the Company and ING entered into a letter agreement
wherein ING consented to the Castex sale and the Company agreed to issue ING
warrants to purchase .05% of the outstanding shares of Common Stock on a fully
diluted basis if (1) the Company elected not to complete the November 20, 1998
Rights Offering, (2) did not spend the proceeds from the Rights Offering as
specified in the letter agreement or (3) raise less than $10,000,000 in the
November 20, 1998 Rights Offering. The Rights Offering was completed and raised
$7,500,000. On November 20, 1998, ING was issued the additional warrants.
Priority Tax Claims
In accordance with the Plan of Reorganization, priority taxes totaling
$703,000 are to be paid in four annual installments without interest. The first
annual installment of $176,000 was made on the Effective Date. The second annual
installment of $186,091 was paid July 1998. During August 1998, priority taxes
for severance taxes totaling $150,251 were paid to the State of Louisiana to
release liens on the West Cote Blanche Bay field.
Building Loan
During early 1996, the Company entered into a loan agreement with MC Bank &
Trust Company to finance the acquisition of land and a building located in
Lafayette, Louisiana. 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. The loan paid interest at 9.5% per
annum and was collateralized by the land and building.
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.
F-19
Long Term Debt Maturities
Following are the maturities of long-term liabilities for each of the next
five years:
1999 $4,794,000
2000 202,000
2001 18,000
2002 20,000
2003 22,000
Thereafter 119,000
------------
$5,175,000
============
10. PREFERRED STOCK OFFERING
The Preferred Stock for WRT before bankruptcy had a liquidation preference
of $25 per share and was convertible, at the option of the holder, into 2.083
shares of the Company's Common Stock. The Preferred Stock was not redeemable
before October 20, 1995. Dividends on the Preferred Stock were to accrue and
were cumulative from October 20, 1993, and were payable quarterly in arrears
when declared by the Board of Directors. The Company was precluded under the
terms of the Senior Note Indenture and INCC Credit Facility from declaring any
dividends during 1996. As a result of this and the bankruptcy proceedings, the
Company did not accrue dividends payable on its Preferred Stock during 1996. In
addition, accrued and unpaid Preferred Stock dividends at December 31, 1995 have
been reversed in the 1996 financial statements. All outstanding Preferred Stock
issued by WRT was canceled effective July 11, 1997, and the former preferred
shareholders were given Warrants exercisable at a price of $10 per share for a
total of 221,000 shares in the Company Common Stock.
11. COMMON STOCK OPTIONS AND WARRANTS
All outstanding stock options and warrants issued prior to July 11, 1997,
were canceled in connection with the Plan of Reorganization.
In connection with the Plan of Reorganization, new warrants for 221,000
shares of the Company Common Stock were issued to the former shareholders of
WRT. Under the warrant agreement, warrants are initially exercisable for one
share of Common Stock at an initial exercise price of $10.00 per share. The
warrants will expire on July 11, 2002.
The warrant agreement contains several antidilution provisions that provide
for adjustments to the terms of the warrants in case of an adjustment to the
outstanding shares. As a result of the 1998 Rights Offering, the 221,000
warrants had an adjusted exercise quantity of 7.3 with an exercise price of
$10.00. After giving effect to the March 5, 1999 reverse stock split, the
221,000 warrants have newly adjusted exercise quantity of .146 at an exercise
price of $10.00. For example a holder of 100 warrants could exercise the
warrants for $1,000 and receive 15 shares of the Company's Common Stock.
Pursuant to the Plan, the Company entered into a two-year employment
agreement with Ray Landry beginning on July 11, 1997. As part of that employment
agreement, Mr. Landry was granted 60,000 stock options with an exercise price of
$3.50 a share. No expiration term for the options was specified under the
employment agreement.
ING (US) Capital Corporation ("ING") posses warrants permitting ING to
purchase 2.5% of the outstanding shares of Common Stock on a fully diluted
basis. The exercise price for these warrants is $2.50 a share. ING received its
warrants in two traunches. On August 18, 1998, the Company issued warrants
entitling ING to purchase 2% of the outstanding shares of Common Stock as
partial consideration for the Amendment to the ING Credit Agreement (See "Recent
Events"). The remaining warrants were issued to ING pursuant to a letter
agreement dated November 20, 1998. In that letter agreement, the Company agreed
to issue ING warrants to purchase .05% of the outstanding shares of Common Stock
if 1) the Company elected not to complete the November 20, 1998 Rights Offering,
2) did not spend the proceeds from the 1998 Rights Offering as specified in the
letter agreement or 3) raised less than $10,000,000 in the November 20, 1998
Rights Offering. The Rights Offering was completed raising $7,500,000. On
November 20, 1998, ING was issued the additional warrants.
F-20
Rights Offering
On November 20, 1998, the Company completed a $7,500,000 Rights Offering.
The Company distributed 200,000,000 nontransferable rights at an exercise price
of $2.50 per right, after the effect of the reverse stock split, to the
Company'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. (See Related Parties' Transactions.) The balance of $220,000
was repaid in cash prior to December 31, 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
3,445,206, and increasing the par value of each share to $.50. All references in
the accompanying financial statements to the number of common shares and per
share amounts for 1997 have been restated to reflect the reverse stock split.
12. INCOME TAXES
A reconciliation of the statutory federal income tax amount to the recorded
expense follows:
July 11, January 1, 1997
1997
Through Through
December 31, July 10,
1998 1997 1997 1996
------------- ------------- -------------- -------------
Income (loss) before
Federal income taxes $(59,105,000) $ (1,713,000) $ 79,108,000 $ (29,387,000)
------------- ------------- -------------- -------------
Expected income tax
(benefit)
At statutory rate (22,460,000) (651,000) 30,061,000 (10,285,000)
Valuation allowance 22,460,000 651,000 - 9,358,000
Net operating loss
carryforward
Utilized - - (30,061,000) -
Reorganization costs - - - 923,000
Other - - - 4,000
------------- ------------- -------------- -------------
Income tax expense
recorded $ - $ - $ - $ -
============= ============= ============== =============
F-21
The tax effects of temporary differences and net operating loss
carryforwards, which give rise to deferred tax assets (liabilities) at December
31, 1998 and 1997, respectively, are as follows:
1998 1997
------------- -------------
Net operating loss carryforward $ 17,630,000 $ 3,740,000
Oil and gas property basis
difference 23,089,000 22,362,000
Other 1,953,000 1,953,000
------------- -------------
Total deferred tax asset 42,672,000 28,055,000
Valuation allowance (42,672,000) (28,055,000)
------------- -------------
Net deferred tax asset(liability) $ - $ -
============= =============
The Company filed a short period tax return for the six months and ten days
ended July 10, 1997. On that return, the Company utilized $30,061,000 of its
deferred tax asset. Since the deferred tax asset was fully reserved by a
valuation allowance at December 31, 1996, no income tax expense was recognized
on the financial statements for the period ended July 10, 1997.
The Company has an available tax net operating loss carry forward of
approximately $67,000,000 as of December 31, 1998. This carryforward will begin
to expire in the year 2013.
13. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share for all periods were computed based on common
stock equivalents outstanding on that date during the applicable periods.
14. JOINT VENTURE AGREEMENT
By a Joint Venture Agreement dated October 18, 1991, the Company entered
into a joint venture to develop certain oil and gas properties with Tricore
Energy Venture, L.P., a Texas limited partnership ("Tricore") and Stag Energy
Corporation ("Stag").
Under the terms of the Tricore agreements, Tricore contributed the
capitalization required to complete the development of selected prospects, and
Stag and the Company contributed, or arranged for contribution of, the prospects
to be developed.
The Company provided Tricore with a limited production guarantee based on
the minimum production schedule attached to the Tricore joint venture agreement.
As a result of significant production declines from jointly-owned
properties, the Company has recorded in 1996 minimum production guarantee
charges of $5,555,000. The $9,146,000 liability recognized at December 31, 1996
represented the Company's estimated ultimate obligation to the joint venture,
including the disallowance of certain tax credits.
On December 9, 1997, this claim was settled as an Allowed General Unsecured
Claim in the amount of $6,800,000 for which Tricore received 10,480 shares of
the Company common stock and 524,000 Litigation Entity interests. As a part of
this settlement, Tricore transferred its interest in the Joint Venture to the
Company with the stipulation that if the Company sold any of the Joint Venture's
properties within one year, the Company will pay to Tricore the net proceeds
from such sale.
F-22
15. COMMITMENTS
Leases
As of December 31, 1998, the Company had no long-term, non-cancelable
operating lease commitments.
Rental expense for all operating leases for the year ended December 31,
1998, the period commencing July 11, 1997 and ending December 31, 1997, the
period commencing January 1, 1997 and ending July 10, 1997, and for the year
ended December 31, 1996 was $120,000, $77,000, $109,000, and $207,000,
respectively.
During 1996, the Company terminated its office lease covering approximately
24,000 square feet in The Woodlands, Texas. The lessor asserted a secured claim
in connection with the Company's reorganization case in the amount of $250,000
and an unsecured claim in the amount of $127,000, attributable to rental
obligations and lease rejection damages associated with such lease. On April 22,
1997, the Bankruptcy Court granted the claimant an allowed secured claim of
$118,000 and an allowed unsecured claim in the amount of $150,000.
Lac Blanc Escrow Account
During 1998, the Company sold the Lac Blanc field to an unrelated third
party. The Company maintained an escrow account related to the future plugging
and abandonment of oil and gas wells for the field. As part of the sale of the
field, this escrow is to be transferred to the purchaser. The Company and the
purchaser are working to cure a title defect in the field. Once that title
defect is cured, the escrow will be transferred to the purchaser and the
purchase price of $936,000 for the field will be released to ING.
Accordingly, the Company has treated the $936,000 as restricted cash.
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. TEPI retained a security interest in production from these properties
and the plugging and abandonment trust until such time the Company's obligations
plugging and abandonment obligations to TEPI 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, 1998, the plugging and abandonment trust totaled $1,454,000. The
Company was $37,000 in arrears on its escrow payments as of December 31, 1998.
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 the Company's East
Hackberry Field, the Company 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, the Company has agreed
to surrender approximately 440 non-producing acres in this field to the State of
Louisiana.
Reimbursement of Employee Expenses & Contributions to 401(k) Plan
The Company sponsored a 401(k) savings plan under which eligible employees
chose to contribute up to 15% of salary income on a pre-tax basis, subject to
certain IRS limits. The Company contribution to the 401(k) plan was
discretionary and was 25% of employee contributions up to 6% of their salary.
This benefit vests to employees over a five-year employment period or at a rate
of 20% per each year of participation. During year ended December 31, 1998, the
period commencing July 11, 1997 and ending on December 31, 1997, the period
commencing January 1, 1997 and ending on July 10, 1997, and the year ended
December 31, 1996, the Company incurred $4,000, $13,000, $23,000, and $32,000,
respectively, in matching contributions expense associated with this plan.
On February 17, 1999, the Company sponsored 401(k) savings plan was
terminated and all contributions were distributed to the participants.
F-23
Stay Bonus
The Company's Board of Directors determined that it was necessary to
provide a "stay bonus" to facilitate retention of employees during the
Reorganization Case in view of the uncertainties of the future of the Company.
On November 6, 1996, the Bankruptcy Court entered an order authorizing the stay
bonuses. The Company accrued $614,000 for these stay bonuses in December of 1996
and the bonuses were paid in June 1997.
16. CONTINGENCIES
During 1995, the Company entered into a marketing agreement with Tri-Deck
pursuant to which Tri-Deck would market all of the Company's oil and gas
production. Subsequent to the agreement, James Florence, who served as both
Tri-Deck's principal and WRT's Director of Marketing, assigned Tri-Deck's right
to market the Company's oil production to Plains Marketing and assigned
Tri-Deck's right to market the Company's gas production to Perry Gas. During
early 1996, Tri-Deck failed to make payments to the Company attributable to
several months of the Company's gas production. Consequently, on May 20, 1996,
the Company initiated an adversarial proceeding against Tri-Deck and Perry Gas.
Perry Gas was the party, which ultimately purchased the Company's gas production
for the months in question.
On January 20, 1998, Gulfport and the Litigation Entity entered into a
Clarification Agreement to clarify provisions of the Plan regarding the rights
of the Company and the Litigation Entity to prosecute certain causes of action
arising from the Tri-Deck matter. As a part of the Clarification Agreement, the
Litigation Entity will intervene or be substituted as the actual party in
interest in the Tri-Deck case and reimbursed the Company $100,000 for legal fees
incurred by the Company. As additional consideration for the contribution of
this claim to the Litigation Entity, the Company is entitled to receive 85% of
the recovery of all monies held in the court registry and 50% of the recovery
from all other Tri-Deck litigation pursued by the Litigation Entity. No
provision for the recognition of income concerning this matter has been
reflected in the financial statements.
On July 20, 1998, Sanchez Oil & Gas Corporation ("Sanchez") initiated
litigation against the Company in the fifteenth Judicial District court, Parish
of Lafayette, State of Louisiana. In its petition, Sanchez alleged, among other
things, that the Company was obligated, by virtue of the terms of a letter of
intent, to grant a sublease to Sanchez for an undivided 50% interest in two of
the Company's oil, gas and mineral leases covering lands located in the North
Bayou Penchant area of Terrebonne Parish, Louisiana. Pursuant to this lawsuit,
Sanchez is seeking specific performance by the Company of the contractual
obligation that Sanchez alleges to be present in the letter of intent and
monetary damages.
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.
17. LITIGATION TRUST ENTITY
On August 13, 1996, the Bankruptcy Court executed and entered its Order
Appointing Examiner directing the United States Trustee to appoint a
disinterested person as examiner in the Company's bankruptcy case.
The Court ordered the appointed examiner ("Examiner") to file a report of
the investigation conducted, including any fact ascertained by the examiner
pertaining to fraud, dishonesty, incompetence, misconduct, mismanagement or
irregularity in the management of the affairs of the Company.
The Examiner's final report dated April 2, 1997, recommended numerous
actions for recovery of property or damages for the Company's estate which
appear to exist and should be pursued. Management does not believe the
resolution of the matters referred to in the Examiner's report will have a
material impact on the Company's consolidated financial statements or results of
operations.
F-24
Pursuant to the Plan of Reorganization, all of the Company'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 the 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 Entity was funded by a $3,000,000 cash payment from the
Company, which was made on the Effective Date. The Company owns a 12% interest
in the Litigation Trust with the other 88% being owned by the former general
unsecured creditors of the Company. For financial statement reporting purposes,
the Company 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 incurred
during the period commencing January 1, 1997 and ending on July 10, 1997.
On January 20, 1998, the Company and the Litigation Entity entered into a
Clarification Agreement whereby the rights to pursue various claims reserved by
the Company in 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 the Company had incurred in connection these
claims. As additional consideration for the contribution of this claim to the
Litigation Trust, the Company is entitled to 20% to 80% of the net proceeds from
these claims.
18. 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
1998 1997
----------------- ----------------
Proved Properties $ 77,042,000 $ 79,349,000
Accumulated depreciation, depletion,
amortization and impairment reserve (58,637,000) (4,371,000)
----------------- ----------------
Proved properties , net $ 18,405,000 $ 74,978,000
================= ================
Costs Incurred in Oil and Gas Property Acquisition and Development Activities
1988 1997 1996
---------------- ----------------- ----------------
Acquisition $ - $ 15,144,000 $ -
Development 746,000 6,787,000 4,282,000
---------------- ----------------- ----------------
$ 746,000 $ 21,931,000 $4,282,000
================ ================= ================
F-25
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.
July 11, 1997 January 1, 1997
Through Through
1998 December 31, 1997 July 10, 1997 1996
----------------- ----------------------- ------------------- -----------------
Revenues $ 8,298,000 $ 9,328,000 $ 10,138,000 $ 24,019,000
Production costs 8,596,000 4,541,000 5,143,000 15,095,000
Impairment of oil and gas properties 50,130,000 - - -
Depletion 4,136,000 4,371,000 3,314,000 7,216,000
----------------- ----------------------- ------------------- -----------------
(54,564,000) 416,000 1,681,000 1,708,000
Income tax expense - - - 34,000
----------------- ----------------------- ------------------- -----------------
Results of operations from
producing activities $(54,564,000) $ 416,000 $ 1,681,000 $1,674,000
================= ======================= =================== =================
Oil and Gas Reserves
The following table presents estimated volumes of proven and proven
developed oil and gas reserves, prepared by reserve engineers, as of December
31, 1998, 1997, and 1996 and changes in proven reserves during the last three
years, assuming continuation of economic conditions prevailing at the end of
each year. Estimated volumes as of July 11, 1997 were extrapolated from the
December 31, 1997 numbers and were not prepared by independent reserve
engineers. Volumes for oil are stated in thousands of barrels (MBbls) and
volumes for natural gas are stated in millions of cubic feet (MMCF). The
weighted average prices at December 31, 1998 used for reserve report purposes
are $11.47 and $2.24 for oil and gas reserves, respectively.
The Company 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.
July 11 to January 1 to
1998 December 31, 1997 July 10, 1997 1996
----------------- ------------------ ------------------ -------------------
Oil Gas Oil Gas Oil Gas Oil Gas
-------- --------- -------- --------- -------- --------- --------- ---------
Proven Reserves:
Beginning of the period 25,817 11,576 13,677 13,409 14,012 15,502 21,488 59,755
Purchases of oil and gas
Reserves in place - - 11,612 163 - - - -
Extensions, discoveries
and Other additions - - - - - - - -
Revisions of prior
reserve Estimates - - 848 (890) - - (89) (381)
Current production (441) (421) (320) (1,106) (246) (1,712) (615) (3,629)
Sales of oil and gas
Reserves in place (1,094) (7,824) - - - - - -
------- --------- -------- --------- -------- --------- --------- ---------
End of period 24,282 3,331 25,817 11,576 13,677 13,409 14,012 15,502
======= ========= ======== ========= ======== ========= ========= =========
Proven developed
reserves 5,665 1,250 7,219 8,259 7,248 8,252 9,550 11,687
======= ========= ======== ========= ======== ========= ========= =========
F-26
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 the Company's proven oil and gas reserves as of December
31, 1998, 1997, and 1996, assuming continuation of economic conditions
prevailing at the end of each year.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proven
Oil and Gas Reserves
1998 1997 1996
------------------ ------------------ -----------------
Future cash flows $ 286,086,000 $ 492,680,000 $ 421,954,000
Future development costs (116,000,000) (166,812,000) (107,627,000)
Future production costs (58,582,000) (119,235,000) (90,558,000)
Future production taxes (35,116,000) (58,807,000) (46,703,000)
------------------ ------------------ -----------------
Future net cash flows before
income taxes 76,388,000 147,826,000 177,066,000
10% annual discount for
estimated timing of cash flows (48,965,000) (71,396,000) (78,399,000)
------------------ ------------------ -----------------
Discounted future net
cash flows 27,423,000 76,430,000 98,667,000
Future income taxes, net of
10% annual discount - - -
------------------ ------------------ -----------------
Standardized measure of
discounted future net cash
flows $ 27,423,000 $ 76,430,000 $ 98,667,000
================== ================== =================
Changes in Standardized Measure of Discounted Future Net Cash Flows
Relating to Proven Oil and Gas Reserves
1998 1997 1996
--------------- --------------- ---------------
Sales and transfers of oil and
gas produced, net of production
costs $ 298,000 $ (9,354,000) $ (8,924,000)
Net changes in prices and
development and production costs (59,354,000) (50,101,000) 55,345,000
Acquisition of oil and gas reserves
in place, less related production costs - 27,195,000 -
Extensions, discoveries and
improved recovery, less related costs - - -
Revisions of previous quantity
estimates, less related
production costs 4,438,000 5,720,000 (914,000)
Sales of reserves in place (16,679,000) - -
Abandoned properties (140,000)
Accretion of discount 22,430,000 6,248,000 5,137,000
Net change in income taxes - - -
Other (1,945,000) (3,344,000)
--------------- --------------- ---------------
Total change in standardized
measure of discounted future
net cash flows $ (49,007,000) $ (22,237,000) $ 47,300,000
=============== =============== ===============
F-27
Comparison of Standardized Measure of Discounted Future Net Cash Flows to
the Net Carrying Value of Proven Oil and Gas Properties at December 31, 1998 and
1997 is as follows:
1998 1997
----------------- ----------------
Standardized measure of discounted future net cash flows $ 27,423,000 $ 76,430,000
----------------- ----------------
Proven oil and gas properties 77,042,000 79,349,000
Less accumulated depreciation, depletion,
amortization and impairment reserve (58,637,000) (4,371,000)
----------------- ----------------
Net carrying value of proven oil and gas properties 18,405,000 74,978,000
----------------- ----------------
Standardized measure of discounted future net cash
flows in excess of net carry value of proven oil and
gas properties $ 9,018,000 $ 1,452,000
================= ================
F-28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant.
The officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Mark Liddell 44 President and Director
Mike Liddell 45 Chairman of the Board, Chief
Executive Officer and Director
Robert E. Brooks 51 Director
David L. Houston 46 Director
Mickey Liddell 37 Director
Mark Liddell has served as a director of Gulfport since July 11, 1997 and
as its President since April 28, 1998. Until April 28, 1998, Mr. Liddell held
the position of President of DLB, a position he held since October 1994. Mr.
Liddell was Vice President of DLB from 1991 to 1994. From 1985 to 1991, he was
Vice President of DLB Energy. Since November 1997, Mr. Liddell has served as a
director of Bayard Drilling Technologies, Inc., a publicly held drilling
company, from 1991 to May 1995, Mr. Liddell served as a director of TGX
Corporation, a publicly held oil and gas company, and from 1989 to 1990, he
served as a director of Kaneb Services, Inc., a publicly held industrial
services and pipeline transportation company. He received a B.S. degree in
education and a J.D. degree from the University of Oklahoma. He is the brother
of Mike Liddell and Mickey Liddell.
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. 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
Mark Liddell and Mickey Liddell.
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 Mark Liddell and Mike Liddell.
50
Item 11. Executive Compensation
The following table provides summary information concerning compensation
paid or accrued during the three fiscal years December 31, 1998, 1997 and 1996
to the Company's Chief Executive Officer and each of the four most highly
compensated executive officers of the Company, 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 1998 $133,333 --- --- ---
Chief Executive
Officer(3)
Mark Liddell 1998 $133,333 --- --- ---
President(4)
Raymond P. Landry 1998 $156,000 --- --- ---
Executive Vice- 1997 $156,000 $78,000 $60,000 ---
President(5) 1996 $161,962 $25,000 --- ---
Wayne A. Benninger 1998 --- --- --- ---
Vice-President 1997 $ 95,506 $65,500 --- ---
Strategic Planning(6) 1996 $116,804 --- --- ---
Thomas Stewart 1998 --- --- --- ---
Vice-President of 1997 $ 83,359 $53,000 --- ---
Operations(7) 1996 $108,808 --- --- ---
- - ----------------
(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) The Company 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) Mr. Mike Liddell became the Chief Executive Officer of the Company on April
28, 1998. Mr. Liddell's salary was not paid directly by Gulfport. His services
were provided pursuant to the Administrative Services Agreement and the
compensation amount reflects the portion of his compensation from DLB Equities,
L.L.C. that was allocated to the Company under such agreement. See "Certain
Transactions".
(4) Mr. Mark Liddell was named President of the Company on April 28, 1998. Mr.
Liddell's salary was not directly paid by Gulfport. His services were provided
pursuant to the Administrative Services Agreement and the compensation amount
reflects the portion of his compensation from DLB Equities, L.L.C. that was
allocated to the Company under such agreement. See "Certain Transactions".
(5) Mr. Landry received a $25,000 sign-on bonus per the terms of his employment
contract, payment of which was deferred to 1996. Mr. Landry received $78,000 in
compensation during 1997 as a participant of the employee stay bonus program.
Mr. Landry ceased to be an Executive Vice President on May 5, 1998, but
continues to serve as an employee of the Company.
(6) Mr. Beninger resigned as Vice President of Strategic Planning on August 31,
1997. During 1997, Mr. Beninger received $65,500 in compensation as a
participant of the employee stay bonus program.
(7) Mr. Stewart resigned as Vice President of Operations on July 11, 1997.
During 1997, Mr. Stewart received $53,000 in compensation as a participant of
the employee stay bonus program.
51
Stock Options Granted
There were no grants of stock options to named executive employees in 1998.
The following table sets forth information concerning the grant of stock options
during 1997 to the named executives.
Individual Grants Potential Realizable
Number of #of Total Value Assumed Annual
Securities Options Rates at of Stock Price
Underlying Granted Appreciation for Option
Options Employers Exercise Expiration Terms(1)
Name Granted(#) in 1997 Price ($/SH) Date(2) 5% ($) 10%($)
- - --------------------------------------------------------------------------------------------------------------
Raymond P. Landry 60,000 100% $3.50 -- $132,068 $334,686
(1) The assumed annual rates of increase are based on an annually compounded
increase of the exercise price of $3.50 per share through a presumed ten year
option term.
(2) Mr. Landry's options were granted under an employment agreement that was
part of the Plan, which was confirmed on July 11, 1997. No expiration term for
the options was specified under the employment agreement.
Stock Option Holdings
The following table sets forth the number of unexercised options held by
named executives as of December 31, 1998. No options were exercised in 1997 and
no options were in-the-money as of December 31, 1998.
Number of Unexercised
Options at FY-End(1)
Name Exercisable Unexercisable
- - --------------------------------------------------------------------------------------
Raymond P. Landry --- 60,000
(1) These options were exercisable at $3.50 per share.
Director Compensation
Up to the Effective Date, each director who was not a salaried employee of
the Company 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
Pursuant to the Plan, Mr. Landry entered into a two-year employment
agreement with Gulfport commencing on the Effective Date. This employment
agreement provides for a salary of $156,000 per year and stock options to
purchase 60,000 shares of Common Stock at $3.50 per share pursuant to a stock
option agreement to be established by Gulfport. In addition, Gulfport assumed
the rights and obligations of existing employment contracts with Wayne A.
Beninger and Thomas C. Stewart, both of which expired on August 31, 1997, and
called for annual salaries of $125,000 and $100,000, respectively.
52
Compensation Committee Interlocks and Insider Trading
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.
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) 234,390 6.8%
6307 Waterford Blvd., Suite 100
Oklahoma City, OK 73118
Mark Liddell(4) 119,466 3.4%
6307 Waterford Blvd., Suite 100
Oklahoma City, OK 73118
Charles E. Davidson(5) 1,339,053 38.8%
411 West Putnam Avenue
Greenwich, CT 06830
Wexford Managment, LLC(6) 551,228 15.9%
411 West Putnam Avenue
Greenwich, CT 06830
Peter M. Faulkner(7) 240,773 6.9%
767 Third Avenue, Fifth Floor
New York, New York 10017
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 353,857 10.27%
(5 individuals)
- - --------------------
* 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.
(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 shares of Common Stock held of record by Liddell Holdings, L.L.C.
Mr. Liddell is the sole member of Liddell Holdings, L.L.C.
53
(5) Includes 1,322,250 shares of Common Stock held of record by CD Holding,
L.L.C. and 16,802.5 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
551,228 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
551,228 shares owned by the Wexford Entities.
(6) Includes 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.
(7) 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
Reorganization of the Company
By Order dated May 2, 1997, the Bankruptcy Court confirmed the Plan of WRT
and co-proponents DLB Oil & Gas, Inc. and Wexford Management. On July 11, 1997,
DLB Oil & Gas, Inc. and Wexford Management received, pursuant to the Plan, an
aggregate of 13.2 million shares of Common Stock for various claims, assets and
cash as detailed below:
Unsecured debt of $34.3 million 2.88 million shares
Contribution of DLB's interest in certain WCBB properties 5.62 million shares
Cash of $5.0 million 1.43 million shares
Contribution of $11.5 million of secured and asserted
secured claims 3.27 million shares
Total shares issued to DLB and Wexford Management 13.20 million shares
For additional information concerning the Company's bankruptcy
reorganization, see "Business - Events Leading to the Reorganization Case."
Administrative Services Agreement
Pursuant to the terms and conditions of the Administrative Services
Agreement, DLB Oil & Gas, Inc. agreed to make available to the Company
personnel, services, facilities, supplies, and equipment as the Company may
need, 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
continues for successive one-year periods unless terminated by either party by
written notice no less than 60 days prior to the anniversary date of the
Administrative Services Agreement. During the year ended December 31, 1997, the
services of Gary C. Hanna and Ronald D. Youtsey, the Company's then-President
and Secretary, respectively, were provided under this agreement. On April 28,
1998, in connection with the acquisition of DLB Oil & Gas, Inc. by Chesapeake
Energy Corporation, the obligations of DLB Oil & Gas, Inc. under the
Administrative Services Agreement were assigned to DLB Equities, L.L.C.
Currently, the services of Mike Liddell, Chief Executive Officer, and Mark
Liddell, President, are provided under the Administrative Services Agreement.
DLB Equities, L.L.C. is owned equally by Mike and Mark Liddell.
54
In return for the services rendered under the Administrative Services
Agreement, the Company pays a monthly service charge based on the pro rata
proportion of the Company's use of services, personnel, facilities, supplies and
equipment provided by DLB Equities, L.L.C. as determined by DLB Equities, L.L.C.
in a good-faith, reasonable manner. The service charge was calculated as the sum
of (i) DLB Equities, L.L.C.'s fully allocated internal costs of providing
personnel and/or performing services, (ii) the actual costs to DLB Equities,
L.L.C. of any third-party services required, (iii) the equipment, occupancy,
rental, usage, or depreciation and interest charges, and (iv) the actual cost to
DLB Equities, L.L.C. of supplies. The fees provided for in the Administrative
Services Agreement were approved by the Bankruptcy Court as part of the Plan and
the Company believes that such fees are comparable to those that would be
charged by an independent third party. Liddell Investments, L.L.C., Liddell
Holdings, L.L.C., and CD Holdings, L.L.C., exercised 31,624,178 rights, equal to
632,483 after giving effect to the 50-1 reverse stock split, in the November 20,
1998 Rights Offering through debt forgiveness. No amount under the receivable
remains outstanding.
At December 31, 1997, Gulfport owed DLB Oil & Gas, Inc. approximately $1.6
million for services rendered pursuant to the Administrative Services Agreement.
In March 1998, in order to facilitate the acquisition of DLB Oil & Gas, Inc. by
Chesapeake Energy Corp., Mike Liddell, Mark Liddell and Charles Davidson
purchased the receivable from DLB Oil & Gas, Inc. for its then outstanding
amount of approximately $1.6 million. 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 Holding, respectively. The
receivable accrued interest at the rata of LIBOR plus 3% per annum.
Stockholder Credit Facility
On August 18, 1998, the Company entered into the Stockholder Credit
Facility, a $3.0 million 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"). Borrowings under the Stockholder
Credit Facility are due on August 17, 1999 and bear interest at LIBOR plus 3%.
Pursuant to the Stockholder Credit Facility, the Company agreed to pay to the
Affiliated Eligible Stockholders an aggregate commitment fee equal to $60,000.
As of October 7, 1998, $3.0 million was outstanding under the Stockholder Credit
Facility. The Company repaid $2.0 million of principal under the Amended ING
Credit Agreement with borrowings under the Stockholder Credit Facility. The
remaining $1.0 million was used for working capital and general corporate
purposes. The Affiliated Stockholders paid the Subscription Price for 60,000,000
rights, equal to 1,200,000 rights after giving effect to the reverse stock
split, in the Rights Offering through the forgiveness of the amount owed to them
under the Stockholder Credit Facility.
55
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Exhibits:
(1) Financial Statements
(2) Financial Statement Schedules
(3) Exhibits required by Item 601 of Regulation 8-K are as follows:
EXHIBIT NO. DESCRIPTION
- - ----------- -----------
2.1**-- Final order authorizing use of proceeds from oil and gas operations(1)
2.2**-- Letter agreement by and among WRT Energy Corporation, DLB Oil & Gas,
Inc. and Wexford Management, LLC, dated October 22, 1996 and amended
October 28, 1996.(2)
2.3**-- Debtor's and DLBW's First Amended Joint Plan of Reorganization
Under chapter 11 of the United States Bankruptcy Code, dated
January 20, 1997.(3)
2.4**-- First Amended Disclosure Statement Under 11 U.S.C.ss. 1125 In Support
of Debtor's and DLBW's First Amended Joint Plan of Reorganization
Under Chapter 11 of the United States Bankruptcy Code, dated January
20, 1997.(3)
2.5**-- Agreement and Plan of Merger, dated as of July 10, 1997 by and between
WRT Energy Corporation, a Texas corporation and WRT Energy
Corporation, a Delaware corporation.(4)
3.1**-- Restated Certificate of Incorporation.(6)
3.2**-- Certificate of Amendment of the Restated Certificate of Incorporation.
(6)
3.3**-- Bylaws.(6)
4.1**-- Form of Rights Certificate.
4.2**-- Form of Transmittal Letter from registrant to stockholders in
connection with the Rights Offering.
4.3**-- Credit Agreement, dated as of July 10, 1997, by and between WRT Energy
Corporation and ING (U.S.) Capital Corporation ("ING").(6)
4.4**-- Amendment No. 1 to Credit Agreement, dated as of August 18, 1998, by
and between the Company and ING.
4.5**-- Subordination Agreement, dated as of August 18, 1998, by and between
ING and the Subordinated Creditors named therein.
4.6**-- Warrant issued to ING.
5** -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
8** -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1**-- Employment Agreement, dated as of July 10, 1997 by and between WRT
Energy Corporation and Raymond P. Landry.(6)
10.2**-- Revolving Line of Credit Agreement, dated as of August 18, 1998, by
and among the Company, 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 LLC, Wexford Capital Partners II,
L.P., Wexford Overseas Partners I, L.P., CD Holdings, L.L.C., Liddell
Investments LLC and Liddell Holdings LLC.
23.1**-- Consent of Hogan & Slovacek, independent public accountants.
23.2**-- Consent of Netherland, Sewell & Associates, independent petroleum
engineers.
24.1 -- Power of Attorney (included on signature page of this Registration
Statement).
27.1 -- Financial Data Schedule.(7)
56
(b) The Registrant filed the following reports on Form 8-K:
Form 8-K filed on June 13, 1997 reporting the plan of reorganization for
WRT Energy Corporation with DLB Oil and Gas, Inc. and Wexford Management
LLC.
Form 8-K filed on July 11, 1997 reporting the reorganized WRT Energy
Corporation, a Delaware corporation, noting the emergence from bankruptcy.
Form 8-K filed on December 10, 1997 reporting changes in registrants
certified accountants.
Form 8-KA filed on February 17, 1998 reporting letter to the SEC from KPMG
Peat Marwick LLP regarding termination of their client - auditor
relationship.
Form 8-K filed on December 18, 1998 reporting the completed Stock Rights
offering as described in its S-1A registration statement filed October 30,
1998.
Form 8-K filed on January 12, 1998 reporting the termination of the Farmout
Agreement with Tri-C Resources, Inc.
- - - ----------
* Filed herewith.
** Previously filed.
(1) Filed with Form 8-K dated March 14, 1997.
(2) Filed with Form 8-K dated November 6, 1996.
(3) Filed with Form 8-K dated March 3, 1997.
(4) Filed with Form 8-K dated July 22, 1997.
(5) Filed with Form 10-Q dated May 15, 1998.
(6) Filed with Form 10-Q dated December 1, 1997.
(7) Filed with Form 10-Q dated June 30, 1998.
57
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 31, 1999.
GULFPORT ENERGY CORPORATION
By: /s/ Mark Liddell
-------------------------------
Mark Liddell, President
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 31, 1999 By: /s/ Mark Liddell
------------------------------------
Mark Liddell, President and Director
Date: March 31, 1999 By: /s/ Mike Liddell
------------------------------------
Mike Liddell, Chief Executive Officer
and Director
Date: March 31, 1999 By: /s/ Robert Brooks
------------------------------------
Robert Brooks, Director
Date: March 31, 1999 By: /s/ David L. Houston
------------------------------------
David L. Houston, Director
Date: March 31, 1999 By: Mickey Liddell
------------------------------------
Mickey Liddell, Director
- - --------
1 The December 31, 1998 shares have been restated throughout this Annual Report
giving effect to the Reverse Stock Split. 2 On March 5, 1999, the Registrant
completed a fifty to one reverse stock split.
58