UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10753
GULPORT ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 73-1521290
(State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.)
6307 Waterford Blvd.
Building D, Suite 100
Oklahoma City, Oklahoma 73118
(405) 848-8807
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive office)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Issuer was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, $0.01 par value,
outstanding as of November 14, 2001 was 10,146,566.
1
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets at September 30, 2001 (unaudited) and December 31, 2000 4
Statements of Income for the Three and Nine Month Periods Ended
September 30, 2001 and 2000 (unaudited) 5
Statement of Stockholders' Equity for the Nine Months Ended
September 30, 2001 and 2000 (unaudited) 6
Statements of Cash Flows for the Nine Months Ended
September 30, 2001 and 2000 (unaudited) 7
Notes to Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 1 Legal Proceedings 22
Item 2 Changes in Securities and Use of Proceeds 22
Item 3 Defaults upon Senior Securities 22
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 22
Signatures 23
2
GULFPORT ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
September 30, 2001 and 2000
Forming a part of Form 10-Q Quarterly Report to the
Securities and Exchange Commission
This quarterly report on Form 10-Q should be read in conjunction with Gulfport
Energy Corporation's Annual Report on Form 10-K for the year ended December 31,
2000.
3
GULFPORT ENERGY CORPORATION
BALANCE SHEETS
September 30, December 31,
2001 2000
------------- -------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,613,000 $ 3,657,000
Accounts receivable - related party 239,000 -
Accounts receivable, net of allowance for
doubtful accounts of $239,000 and $244,000
as of September 30, 2001 and December 31,
2000, respectively 1,692,000 3,608,000
Prepaid expenses and other current assets 179,000 171,000
------------ ------------
Total current assets 3,723,000 7,436,000
------------ ------------
Property and equipment:
Oil and natural gas properties 102,511,000 90,640,000
Other property and equipment 1,969,000 1,919,000
Accumulated depletion,
depreciation, amortization (68,627,000) (65,867,000)
------------ ------------
Property and equipment, net 35,853,000 26,692,000
------------ ------------
Other assets 2,520,000 2,050,000
------------ ------------
$ 42,096,000 $ 36,178,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 4,970,000 $ 6,426,000
Note payable - related party 3,000,000 -
Current maturities of long-term debt 1,341,000 878,000
------------ ------------
Total current liabilities 9,311,000 7,304,000
------------ ------------
Long-term debt 242,000 301,000
------------ ------------
Total liabilities 9,553,000 7,605,000
------------ ------------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock - $.01 par value, 1,000,000
authorized, none issued - -
Common stock - $.01 par value,
15,000,000 authorized, 10,146,566 and
10,145,400 issued and outstanding at
September 30, 2001 and December 31, 2000,
respectively 101,000 101,000
Paid-in capital 84,192,000 84,190,000
Accumulated (deficit) (51,750,000) (55,718,000)
------------ ------------
Total stockholders' equity 32,543,000 28,573,000
------------ ------------
Total liabilities and stockholders' equity $ 42,096,000 $ 36,178,000
============ ============
See accompanying notes to financial statements.
4
GULFPORT ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues:
Gas sales $ 56,000 $ 86,000 $ 222,000 $ 263,000
Oil and condensate sales 4,068,000 3,933,000 12,245,000 10,842,000
Other income 58,000 36,000 118,000 231,000
----------- ----------- ----------- -----------
4,182,000 4,055,000 12,585,000 11,336,000
----------- ----------- ----------- -----------
Costs and expenses:
Operating expenses 1,059,000 1,415,000 3,630,000 3,864,000
Production taxes 447,000 408,000 1,391,000 1,094,000
Depreciation, depletion,
and amortization 991,000 761,000 2,787,000 2,241,000
General and administrative 273,000 355,000 1,132,000 1,073,000
----------- ----------- ----------- -----------
2,770,000 2,939,000 8,940,000 8,272,000
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS: 1,412,000 1,116,000 3,645,000 3,064,000
----------- ----------- ----------- -----------
OTHER (INCOME) EXPENSE:
Gain on settlement of
disputed amounts - - (482,000) -
Interest expense 103,000 136,000 274,000 527,000
Interest income (28,000) (72,000) (115,000) (244,000)
----------- ----------- ----------- -----------
75,000 64,000 (323,000) 283,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,337,000 1,052,000 3,968,000 2,781,000
----------- ----------- ----------- -----------
INCOME TAX EXPENSE (BENEFIT):
Current 535,000 389,000 1,587,000 1,029,000
Deferred (535,000) (389,000) (1,587,000) (1,029,000)
----------- ----------- ----------- -----------
- - - -
----------- ---------- ----------- -----------
NET INCOME $ 1,337,000 $1,052,000 $ 3,968,000 $ 2,781,000
=========== ========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic $ 0.13 $ 0.10 $ 0.39 $ 0.27
=========== ========== =========== ===========
Diluted $ 0.13 $ 0.10 $ 0.38 $ 0.27
=========== ========== =========== ===========
See accompanying notes to financial statements.
5
GULFPORT ENERGY CORPORATION
Statements of Stockholders' Equity
(Unaudited)
Additional
Preferred Common Stock Paid-in Accumulated
--------------------
Stock Shares Amount Capital (Deficit)
--------- ---------- -------- ---------- -----------
Balance at December 31, 1999 $ - 10,145,400 $101,000 $84,190,000 $(60,177,000)
Net income - - - - 2,781,000
-------- ---------- -------- ----------- ------------
Balance at September 30, 2000 $ - 10,145,400 $101,000 $84,190,000 $(57,396,000)
======== ========== ======== =========== ============
Balance at December 31, 2000 $ - 10,145,400 $101,000 $84,190,000 $(55,718,000)
Common shares issued - 1,166 - 2,000 -
Net income - - - - 3,968,000
-------- ---------- -------- ----------- ------------
Balance at September 30, 2001 $ - 10,146,566 $101,000 $84,192,000 $(51,750,000)
======== ========== ======== =========== ============
See accompanying notes to financial statements.
6
GULFPORT ENERGY CORPORATION
Statements of Cash Flows
(Unaudited)
For the Nine Months
Ended September 30,
--------------------------
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 3,968,000 $ 2,781,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depletion, depreciation and amortization 2,760,000 2,241,000
Amortization of debt issuance costs 27,000 16,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable -
related party (239,000) -
Decrease (increase) in accounts receivable 1,916,000 (487,000)
(Increase) in prepaid expenses (35,000) (33,000)
(Decrease) increase in accounts payable
and accrued liabilities (1,457,000) 79,000
----------- -----------
Net cash provided by operating activities 6,940,000 4,597,000
----------- -----------
Cash flows from investing activities:
(Additions to) cash held in escrow (469,000) (49,000)
Reductions in other assets - 239,000
(Additions to) other property, plant
and equipment (50,000) (41,000)
Proceeds from sale of oil and gas equipment - 100,000
(Additions to) oil and gas properties (11,871,000) (5,660,000)
----------- -----------
Net cash used in investing activities (12,390,000) (5,411,000)
----------- -----------
Cash flows from financing activities:
Borrowings on note payable - related party 3,000,000 -
Borrowings on note payable 960,000 1,600,000
Principal payments on borrowings (556,000) (3,191,000)
Proceeds from issuance of common stock 2,000 -
----------- -----------
Net cash provided by (used in) financing activities 3,406,000 (1,591,000)
----------- -----------
Net (decrease) in cash and cash equivalents (2,044,000) (2,405,000)
Cash and cash equivalents at beginning of period 3,657,000 5,664,000
----------- -----------
Cash and cash equivalents at end of period $ 1,613,000 $ 3,259,000
=========== ===========
Supplemental disclosure of cash flow information:
Interest payments $ 81,000 $ 203,000
=========== ===========
See accompanying notes to financial statements.
7
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
These condensed financial statements have been prepared by Gulfport Energy
Corporation (the "Company") without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission, and reflect all adjustments, which
are in the opinion of management, necessary for a fair statement of the results
for the interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financials statements should be read in
conjunction with the financial statements and the summary of significant
accounting policies and notes thereto included in the Company's most recent
annual report on Form 10-K.
1. ACCOUNTS RECEIVABLE - RELATED PARTY
Included in the accompanying September 30, 2001 balance sheet are amounts
receivable from entities that have some common control with the Company. These
receivables represent amounts billed by the Company for general and
administrative functions performed by Gulfport's personnel on behalf of the
related party companies during 2001. Gulfport has reduced its corresponding
expenses by $239,000 billed to the companies for performance of these services.
2. PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated
depreciation, depletion and amortization are as follows:
September 30, 2001 December 31, 2000
------------------ -----------------
Oil and gas properties $ 102,511,000 $ 90,640,000
Office furniture and fixtures 1,492,000 1,442,000
Building 217,000 217,000
Land 260,000 260,000
---------------- ---------------
Total property and equipment 104,480,000 92,559,000
Accumulated depreciation, depletion,
amortization and impairment reserve (68,627,000) (65,867,000)
---------------- ---------------
Property and equipment, net $ 35,853,000 $ 26,692,000
================ ===============
8
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
3. OTHER ASSETS
Other assets consist of the following:
September 30, 2001 December 31, 2000
------------------ -----------------
Plugging and abandonment escrow account
on the WCBB properties $ 2,209,000 $ 1,739,000
CD's securing letter of credit 200,000 200,000
Deposits 111,000 111,000
---------------- ---------------
$ 2,520,000 $ 2,050,000
================ ===============
4. LONG-TERM DEBT
The building loan of $153,000 relates to a building in Lafayette,
Louisiana, purchased in 1996 to be used as the Company's Louisiana headquarters.
The building is 12,480 square feet with approximately 6,180 square feet of
finished office area and 6,300 square feet of warehouse space. This building
allows the Company to provide office space for Louisiana personnel, have access
to meeting space close to the fields and to maintain a corporate presence in
Louisiana.
A break down of long-term debt is as follows:
September 30, 2001 December 31, 2000
------------------ -----------------
Note payable $ 1,430,000 $ 1,000,000
Building loan 153,000 179,000
----------------- ---------------
1,583,000 1,179,000
Less: current portion 1,341,000 878,000
----------------- ---------------
Long-term debt $ 242,000 $ 301,000
================ ===============
During the first quarter of 2001, the Company refinanced amounts due on its
note payable. Under the terms of the new agreement, the Company was extended a
commitment to borrow up to a total of $1,760,000. Amounts borrowed are to be
repaid through monthly principal payments of $110,000 beginning July 1, 2001,
with any remaining outstanding principal due October 1, 2002. The refinanced
note bears interest at Chase Manhattan Prime rate plus 1%. During April 2001,
the Company borrowed the additional $960,000 available under this commitment.
9
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
5. NOTE PAYABLE - RELATED PARTY
On May 22, 2001, the Company entered in to a revolving line of credit
agreement with Gulfport Funding, LLC, ("Gulfport Funding") which is wholly owned
by one of the Company's stockholders. Under the terms of the agreement, the
Company may borrow up to $3,000,000, with borrowed amounts bearing interest at
Bank of America Prime Rate plus 4%. All outstanding principal amounts along
with accrued interest are due on February 22, 2002. The Company paid a facility
commitment fee of $60,000 in connection with this line of credit. This fee will
be amortized over the life of the agreement. As of September 30, 2001, the
Company had borrowed $3,000,000 available under this line.
In accordance with the revolving credit agreement, the Company issued
108,625 warrants to CD Holdings, LLC. The exercise price of these warrants was
established as the average closing price of the Company's common stock for the
five days following the issuance of the warrants. The warrant agreement provides
for pro-rata adjustments to the number of warrants granted if the Company at any
time increases the number of outstanding shares or otherwise adjusts its
capitalization.
6. SETTLEMENT OF DISPUTED AMOUNTS
During the second quarter of 2001, the Company reached a settlement with
Texaco Exploration and Production, Inc. ("Texaco") regarding previously disputed
amounts, some of which date back to periods which were prior to the Company's
reorganization. The Company's net gain resulting from this settlement is
included in the accompanying statement of income for the nine-month period
ending September 30, 2001, as "Gain on settlement of disputed amounts".
7. EARNINGS PER SHARE
A reconciliation of the components of basic and diluted net income per
common share is presented in the table below:
For the Three Months Ended September 30,
----------------------------------------------------------------------
2001 2000
-------------------------------- --------------------------------
Per Per
Income Shares Share Income Shares Share
---------- ---------- ------- --------- ---------- -------
Basic:
Income attributable to
common stock $1,337,000 10,146,566 $ 0.13 $1,052,000 10,145,400 $0.10
======= =====
Effect of dilutive
securities:
Stock options - 325,187 - 319,470
---------- ---------- ---------- ----------
Diluted:
Income attributable to
common stock, after
assumed dilutions $1,337,000 10,471,753 $ 0.13 $1,052,000 10,464,870 $0.10
========== ========== ======= ========== ========== =====
10
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
For the Nine Months Ended September 30,
----------------------------------------------------------------------
2001 2000
-------------------------------- --------------------------------
Per Per
Income Shares Share Income Shares Share
---------- ---------- ------- --------- ---------- -------
Basic:
Income attributable to
common stock $3,968,000 10,145,960 $ 0.39 $2,781,000 10,145,400 $0.27
======= =====
Effect of dilutive
securities:
Stock options - 345,081 - 232,276
---------- ---------- ---------- ----------
Diluted:
Income attributable to
common stock, after
assumed dilutions $3,968,000 10,491,041 $ 0.38 $2,781,000 10,377,676 $0.27
========== ========== ======= ========== ========== =====
Common stock equivalents not included in the calculation of diluted
earnings per share above consists of 1,163,195 warrants issued at the time of
the Company's reorganization. Also not included in the calculation of 2001
diluted earnings per share are 108,625 warrants issued in connection with the
Company's revolving line of credit with Gulfport Funding, as discussed in Note
5. These potential common shares were not considered in the calculation due to
their anti-dilutive effect during the periods presented.
8. COMMITMENTS
Plugging and Abandonment Funds
In connection with the acquisition of the remaining 50% interest in the
WCBB properties, the Company assumed the obligation to contribute approximately
$18,000 per month through March, 2004, to a plugging and abandonment trust and
the obligation to plug a minimum of 20 wells per year for 20 years commencing
March 11, 1997. Texaco retained a security interest in production from these
properties until abandonment obligations to Texaco have been fulfilled. Once
the plugging and abandonment trust is fully funded, the Company can access it
for use in plugging and abandonment charges associated with the property. As of
September 30, 2001, the plugging and abandonment trust totaled $2,209,000,
including interest received during 2001 of approximately $55,000.
During March 2001, Gulfport intended to begin to fulfill its yearly
plugging commitment of 20 wells at WCBB for the twelve month period ending March
2001. Due to equipment and crew unavailability however, this activity commenced
in the third quarter of 2001. During October 2001, Gulfport completed the yearly
program to meet its plugging liability for the twelve month period ending March
2001. The Company plugged 26 non-producing wells at West Cote Blanche Bay.
9. RECLASSIFICATION
Certain reclassifications have been made to the 2000 financial statements
presentation in order to conform to the 2001 financial statements presentation.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). All
statements, other than statements of historical facts, included in this Form
10-Q that address activities, events or developments that Gulfport Energy
Corporation ("Gulfport" or the "Company"), a Delaware corporation, expects or
anticipates will or may occur in the future, including such things as estimated
future net revenues from oil and gas reserves and the present value thereof,
future capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of the Company's business and operations, plans, references
to future success, references to intentions as to future matters and other such
matters are forward-looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate in the
circumstances. However, whether actual results and developments will conform
with the Company's expectations and predictions is subject to a number of risks
and uncertainties; general economic, market or business conditions; the
opportunities (or lack thereof) that may be presented to and pursued by the
Company; competitive actions by other oil and gas companies; changes in laws or
regulations; and other factors, many of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this Form
10-Q are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized, or even if realized, that they will have the expected consequences to
or effects on the Company or its business or operations.
The following discussion is intended to assist in an understanding of the
Company's financial position as of September 30, 2001 and its results of
operations for the three and nine-month periods ended September 30, 2001 and
2000. The Financial Statements and Notes included in this report contain
additional information and should be referred to in conjunction with this
discussion. It is presumed that the readers have read or have access to
Gulfport Energy Corporation's 2000 annual report on Form 10-K.
Overview
Gulfport is an independent oil and gas exploration and production company
with properties located in the Louisiana Gulf Coast. Gulfport has a market
enterprise value of approximately $51.2 million dollars on November 9, 2001 and
generated EBITDA of $6.5 and $5.5 million dollars for the nine months ended
September 30, 2001 and September 30, 2000, respectively.
The Company is currently consulting with its financial advisors to
determine how to take advantage of the current markets whether through internal
value creation or a capital markets transaction which could include the sale of
all or a part of the Company.
As of January 1, 2001, the Company had in excess of 25 MMBOE proved
reserves with a present value (discounted at 10%) of estimated future net
reserves of $280 million dollars.
12
Gulfport is actively pursuing further development of its properties in
order to fully exploit its reserves. The Company has a substantial portfolio of
low risk developmental projects for the next several years providing the
opportunity to increase production and cash flow. Gulfport's developmental
program is designed to reach the Company's high impact, higher potential rate of
return prospects through the penetration of several producing horizons.
Additionally, Gulfport owns 3-D seismic data, which along with the
Company's technical expertise, will be used to identify exploratory prospects
and test undrilled fault blocks in its existing fields.
The Company's operations are concentrated in two fields: West Cote Blanche
Bay and the Hackberry Fields.
West Cote Blanche Bay
West Cote Blanche Bay ("WCBB") Field lies approximately five miles off the
coast of Louisiana primarily in St. Mary's Parish in a shallow bay, with water
depths averaging eight to ten feet. WCBB overlies one of the largest salt dome
structures in the Gulf Coast. There are over 100 distinct sandstone reservoirs
throughout most of the field and nearly 200 major and minor discrete intervals
have been tested. Within almost 900 wellbores that have been drilled to date in
the field, over 4,000 potential zones have been penetrated. The sands are
highly porous and permeable reservoirs primarily with a strong water drive.
Estimated cumulative field gross production as of January 1, 2001 is 190
MBO and 232 BCF of gas. There have been 871 wells drilled at WCBB, and of these
42 are currently producing, 297 are shut-in and 5 are utilized as salt water
disposal wells. The balance of the wells (or 532) have been plugged and
abandoned. During September 2001, Gulfport's net current daily production in
this field averaged 1,438 barrels of oil equivalent.
During April 2001, Gulfport finished the seven well drilling program it
commenced in January of 2001. The Company successfully drilled, completed and is
currently producing six intermediate depth wells, with total depths averaging
approximately 9,000' and one shallow well, with a total depth of 2,500'. These
wells found significant oil and gas deposits in multiple targets ranging from
relatively low risk proven undeveloped objectives to higher potential
exploratory targets. Gulfport feels that by taking most future wells to a depth
of 9,000' there will be an increased chance of converting reserves currently
classified as possible and probable to proved. The Company has plans to begin
another two to three intermediate depth well drilling program during the first
quarter of 2002. Gulfport had originally planned to begin this drilling program
in October 2001, but postponed the project to take advantage of the declining
drilling rig rates and related services.
Gulfport has an ongoing plan to review and increase production from
existing marginal and non-producing wells. Since January of 2001, the Company
has worked over or recompleted eight wells in order to restore or increase
production. Gulfport has several additional workovers and recompletions
scheduled for the remainder of the year.
Gulfport also has an ongoing program to modernize and service the existing
production facilities at West Cote Blanche Bay. Since the beginning of the
second quarter the Company has put two new gas compressors into full time
service at the field replacing two outdated compressors. The new compressors
increased efficiency and together with a new header valve Gulfport installed at
13
one of the tank batteries reduced the Company's gas usage by 50%. Gulfport is
in the process of back flowing and cleaning sand from the five salt-water
disposal wells at West Cote Blanche Bay, which will allow the wells to handle a
higher volume of water.
During October, 2001, Gulfport completed the yearly program to meet its
plugging liability. The Company plugged 26 non-producing wells at West Cote
Blanche Bay.
Hackberry Fields
The Hackberry fields are located along the shore of Lake Calcasieu in
Cameron Parish, Louisiana. The Hackberry Field is a major salt intrusive
feature, elliptical in shape with East Hackberry on the east end of the ridge
with West Hackberry located on the western end of the ridge. There are over 30
pay zones in this field. The salt intrusion at East Hackberry trapped Oligocene
through Lower Miocene rocks in a series of complex, steeply dipping fault
blocks. The Camerina sand series at East Hackberry is a prolific producer with
1-2 MMBL per well oil potential. West Hackberry consists of a series of fault
bounded traps in the Oligocene-age Vincent and Keough sands associated with the
Hackberry Salt Ridge.
The East Hackberry field was discovered in 1926 by Gulf Oil Company (now
Chevron Corporation) by a gravitational anomaly survey. The massive shallow salt
stock presented an easily recognizable gravity anomaly indicating a productive
field. Initial production began in 1927 and has continued to the present. The
estimated cumulative oil and condensate production through 1999 was 111 million
barrels of oil with casinghead gas production being 60 billion cubic feet of
gas. There have been a total of 170 wells drilled on Gulfport's portion of the
field with 13 having current daily production; 3 produce intermittently; 77
wells are shut-in and 4 wells have been converted to salt water disposal wells.
The remaining 73 wells have been plugged and abandoned.
At West Hackberry, the first discovery well was drilled in 1938 and was
developed by Superior Oil Company (now Exxon-Mobil Corporation) between 1938 and
1988. The estimated cumulative oil and condensate production through 2000 was
170 million barrels of oil with casinghead gas production of 120 billion cubic
feet of gas. There have been 36 wells drilled to date on Gulfport's portion of
West Hackberry and currently 3 are producing, 24 are shut-in and 1 well has been
converted to a saltwater disposal well. The remaining 8 wells have been plugged
and abandoned. During the first quarter of 2001, Gulfport unsuccessfully
sidetracked an existing non-producing well at West Hackberry and conducted
remedial operations to increase production.
During the 3rd quarter of 2001 Gulfport tested 22 shut-in wells on the
State Lease 50 portion of East Hackberry Field to check the viability of putting
these wells back into production. After the tests were completed the Company
elected to reactivate seven of the 22 wells that were tested. To put the wells
back on production certain parts of the field's infrastructure had to be
repaired or replaced. Gulfport repaired the main gas lift supply line in order
to reactivate a satellite tank battery at State Lease 50 and made other minor
repairs to the battery. The Company also repaired and or replaced flow lines
and gas lift lines to the seven wells that were restored to production.
Gulfport also performed an unsuccessful coiled tubing job on a well at
State Lease 50 during early 2001 and plans to re-complete the well during the
4th quarter of 2001. The Company also plans on recompleting two additional
14
wells at State Lease 50 during the 4th quarter of 2001, both of these additional
operations involve dredging and the dredging permits have only recently been
approved.
Gulfport's continued plan of development includes the testing of additional
wells that are currently inactive, mostly in the southern portion of State Lease
50, which will also entail dredging. These additional tests should allow the
Company to restore more wells to productive status in the near future.
Gulfport plans to plug four wells located on State Lease 50 during the
fourth quarter of 2001.
Total net production per day for both Hackberry fields was 340 barrels of
oil equivalent per day for the nine month period ended September 30, 2001.
Third Quarter Overview
Gulfport's main focus during the third quarter was the testing of inactive
wells and facility upgrades at the State Lease 50 portion of the East Hackberry
Field. The Company tested 22 shut-in wells at State Lease 50 and placed seven
of the wells back on production. Gulfport repaired the main gas lift supply
line, reactivated a satellite tank battery and made several other repairs to the
production facilities at State Lease 50.
The Company also continued to perform workovers and recompletions at the
West Cote Blanche Bay Field.
The following financial table recaps the Company's operating activity for
the three and nine month periods ended September 30, 2001 as compared to the
same periods in 2000.
15
FINANCIAL DATA (unaudited):
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues:
Gas sales $ 56,000 $ 86,000 $ 222,000 $ 263,000
Oil and condensate sales 4,068,000 3,933,000 12,245,000 10,842,000
Other income 86,000 108,000 233,000 475,000
----------- ----------- ----------- -----------
4,210,000 4,127,000 12,700,000 11,580,000
Expenses:
Operating expenses 1,059,000 1,415,000 3,630,000 3,864,000
Production taxes 447,000 408,000 1,391,000 1,094,000
General and administrative 273,000 355,000 1,132,000 1,073,000
----------- ----------- ----------- -----------
1,779,000 2,178,000 6,153,000 6,031,000
Depreciation, depletion
and amortization 983,000 761,000 2,787,000 2,241,000
----------- ----------- ----------- -----------
Income before interest and
taxes 1,448,000 1,188,000 3,760,000 3,308,000
----------- ----------- ----------- -----------
Gain on settlement of
disputed amounts - - 482,000 -
Interest expense (111,000) (136,000) (274,000) (527,000)
----------- ----------- ----------- -----------
Income before income
taxes 1,337,000 1,052,000 3,968,000 2,781,000
Income tax expense (benefit):
Current 534,800 389,000 1,587,000 1,029,000
Deferred (534,800) (389,000) (1,587,000) (1,029,000)
----------- ----------- ----------- -----------
- - - -
----------- ----------- ----------- -----------
Net income $ 1,337,000 $ 1,052,000 $ 3,968,000 $ 2,781,000
=========== =========== =========== ===========
EBITDA (1) $ 2,431,000 $ 1,949,000 $ 6,547,000 $ 5,549,000
=========== =========== =========== ===========
Per share data:
Net income $ 0.13 $ 0.10 $ 0.39 $ 0.27
=========== =========== =========== ===========
Weighted average common
shares 10,146,566 10,145,400 10,145,960 10,145,400
=========== =========== =========== ===========
(1) EBITDA is defined as earnings before interest, taxes, depreciation,
depletion and amortization. EBITDA is an analytical measure frequently
used by securities analysts and is presented to provide additional
information about the Company's ability to meet its future debt
service, capital expenditure and working capital requirements. EBITDA
should not be considered as a better measure of liquidity than cash
flow from operations.
16
RESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 2001 and 2000
During the three months ended September 30, 2001, the Company reported net
income of $1.3 million, a 27% increase from net income of $1.1 million for the
corresponding period in 2000. This increase is primarily due to the following
factors:
Oil and Gas Revenues. For the three months ended September 30, 2001, the
Company reported oil and gas revenues of $4.1 million, a slight increase from
$4.0 million for the comparable period in 2000. This increase was due
principally to a 26% increase in oil production from 124,000 barrels to 156,000
barrels for the three months ended September 2000 and 2001, respectively. This
increase in production was due to the new oil production generated from the
Company's drilling program initiated during the first quarter of 2001. The
increase in total revenues due to higher production was offset by a decrease in
product prices for the three months ended September 30, 2001 as compared to the
same period in 2000.
The following table summarizes the Company's oil and gas production and
related pricing for the three months ended September 30, 2001 and 2000:
Three Months Ended September 30,
--------------------------------
2001 2000
---- ----
Oil production volumes (Mbbls) 156 124
Gas production volumes (Mmcf) 20 20
Average oil price (per Bbl) $26.05 $31.78
Average gas price (per Mcf) $2.81 $4.30
Operating Expenses. Lease operating expenses decreased $.36 million from
$1.4 million for the three months ended September 30, 2000 to $1.1 million for
the comparable period in 2001. This decrease was due primarily to a $.33
million decrease in gas lift costs for the three months ended September 30, 2001
as compared to the same period in 2000. This decrease in gas lift costs was a
result of lower volumes of gas used for gas lift during the third quarter of
2001 as compared to the same period in 2000.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $.22 million from $.76 million for the three months ended
September 30, 2000 to $.98 million for the comparable period in 2001. This
increase was attributable primarily to an increase in production to 159 MBOE's
for the three months ended September 30, 2001 as compared to 127 MBOE's for the
same period in 2000.
General and Administrative Expenses. General and administrative expenses
decreased 23% from $.36 million for the three months ended September 30, 2000 to
$.27 million for the comparable period in 2001. This decrease is due to a
general and administrative expense reimbursement of $.21 million by entities
that have some common control with the Company. Included in this administrative
reimbursement amount are costs incurred and offsetting reimbursements recorded
during the first, second and third quarters of 2001.
17
Interest Expense. Interest expense decreased $.03 million, or 18%, from
$.14 million for the three months ended September 30, 2000 to $.11 million for
the comparable period in 2001. This decrease was primarily due to the
settlement of the disputed amounts with Texaco in April 2001. Previously, the
Company was accruing interest expense related to the unsettled and disputed
amounts. This decrease was partially offset by an increase in interest expense
due to the loan from the related party.
Income Taxes. As of December 31, 2000, the Company had a net operating
loss carryforward of approximately $69 million, in addition to numerous timing
differences which gave rise to a deferred tax asset of approximately $41
million, which was fully reserved by a valuation allowance at that date.
Utilization of net operating loss carryforwards and other timing differences
will be recognized as a reduction in income tax expense in the year utilized. A
current tax provision of $.53 million was provided for the three month period
ended September 30, 2001, which was fully offset by an equal income tax benefit
due to operating loss carryforwards.
Comparison of the Nine Months Ended September 30, 2001 and 2000
During the nine months ended September 30, 2001, the Company reported net
income of $4.0 million, a 43% or $1.2 million increase from net income of $2.8
million for the corresponding period in 2000. This increase is primarily due to
the following factors:
Oil and Gas Revenues. During the nine months ended September 30, 2001, the
Company reported oil and gas revenues of $12.5 million, an 11% increase from
$11.1 million for the comparable period in 2000. This increase was due
principally to an increase in oil production from 364,000 barrels to 445,000
barrels for the nine months ended September 30, 2000 and 2001, respectively.
This increase in oil production was due to the new production generated from the
Company's drilling program initiated during the first quarter of 2001. The
increase in total revenues was slightly offset by a decrease in gas revenues due
to lower gas production volumes and lower oil prices for the nine months ended
September 30, 2001 as compared to the same period in 2000.
The following table summarizes the Company's oil and gas production and
related pricing for the nine months ended September 30, 2001 and 2000:
Nine Months Ended September 30,
-------------------------------
2001 2000
---- ----
Oil production volumes (Mbbls) 445 364
Gas production volumes (Mmcf) 45 90
Average oil price (per Bbl) $27.50 $29.78
Average gas price (per Mcf) $4.96 $2.92
Operating Expenses. Lease operating expenses decreased by $.23 million
from $3.9 million for the nine months ended September 30, 2000 to $3.6 million
for the comparable period in 2001. This decrease was due primarily to a decrease
of $.54 million in gas lift costs for the nine months ended September 30, 2001
as compared to the same period in 2000, which was offset by costs incurred for
non-capitalized well workovers during the first quarter of 2001. The decrease in
gas lift costs was primarily a result of lower volumes of gas used for gas lift
during the nine months ended September 30, 2001 as compared to the same period
in 2000.
18
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $.55 million from $2.2 million for the nine months ended
September 30, 2000 to $2.8 million for the comparable period in 2001. This
increase was attributable primarily to an increase in production to 453 MBOE's
for the nine months ended September 30, 2001 as compared to 379 MBOE's for the
same period in 2000.
General and Administrative Expenses. General and administrative expenses
increased slightly from $1.07 million for the nine months ended September 30,
2000 to $1.13 million for the same period in 2001. This was primarily due to
$.16 million expensed for the NSA engineering report and $.05 million expensed
in brokers' fees during the nine months ended September 30, 2001. No such costs
were incurred during the nine months ended September 30, 2000. These expense
increases, along with an overall increase in salaries expense for the nine
months ended September 30, 2001 were partially offset by administrative
reimbursements billed to related parties of $.21 million.
Interest Expense. Interest expense decreased $.25 million, or 48%, from
$.53 million for the nine months ended September 30, 2000 to $.27 million for
the comparable period in 2001. This decrease was due to a reduction in average
debt outstanding for the period ended September 30, 2001, an overall decrease in
prevailing interest rates, and the settlement of the disputed amounts with
Texaco in April 2001. Previously, the Company was accruing interest expense
related to the unsettled and disputed amounts.
Income Taxes. As of December 31, 2000, the Company had a net operating
loss carryforward of approximately $69 million, in addition to numerous timing
differences which gave rise to a deferred tax asset of approximately $41
million, which was fully reserved by a valuation allowance at that date.
Utilization of net operating loss carryforwards and other timing differences
will be recognized as a reduction in income tax expense in the year utilized. A
current tax provision of $1.59 million was provided for the nine months ended
September 30, 2001, which was fully offset by an equal income tax benefit due to
operating loss carryforwards.
Gain on Settlement of Disputed Amounts. Effective April of 2001, the
Company reached a settlement with Texaco regarding previously disputed amounts.
As a result of this settlement, the Company recognized a one-time gain of
$482,000 for the nine months ended September 30, 2001.
Capital Expenditures, Capital Resources and Liquidity
Net cash flow provided by operating activities for the nine month period
ended September 30, 2001 was $6.9 million, as compared to net cash flow provided
of $4.6 million for the comparable period in 2000. This was primarily due to an
increase in the Company's net income resulting from the increased levels of
production as a result of the Company's drilling program initiated in January
2001 and the gain on the settlement of amounts previously in dispute with
Texaco.
Net cash used in investing activities during the nine months ended
September 30, 2001 was $12.4 million as compared to $5.4 million used during the
same period of 2000. This increase was a result of the Company's drilling
program it initiated in January 2001 along with other well related capitalized
workover activity.
19
Net cash provided in financing activities for the nine months ended
September 30, 2001 was $3.4 million as compared to net cash used of $1.6 million
during the same period of 2000. The difference primarily represents the loan
from a related third party during the nine months ended September 30, 2001.
Capital Expenditures. During the nine months ended September 30, 2001,
Gulfport invested $11.9 million in oil and gas properties and other property and
equipment as compared to $5.7 million invested during the comparable period in
2000. Of the $11.9 million the Company spent in the first nine months of 2001,
$8.4 million was spent on drilling and completion activity on new wells and $3.5
million was spent on workover activity on existing wells.
During the nine month period ended September 30, 2001, Gulfport financed
its capital expenditures payment requirements with cash flows provided by
operations, borrowings under the Company's credit facilities and borrowings from
a related third party.
Gulfport's strategy is to continue to increase cash flows generated by its
properties by undertaking new drilling, workover, sidetrack and recompletion
projects in the fields to exploit its extensive reserves. The Company has
upgraded its infrastructure by enhancing its existing facilities to increase
operating efficiencies, increase volume capacities and lower lease operating
expenses. Additionally, Gulfport completed the reprocessing of its 3-D seismic
data in its principal property, West Cote Blanche Bay. The reprocessed data will
enable the Company's geophysicists to generate new prospects and enhance
existing prospects in the intermediate zones in the field thus creating a
portfolio of new drilling opportunities in the most prolific depths of the
field.
Capital Resources. On July 11, 1997 Gulfport entered into a $15,000,000
credit facility with ING (U.S.) Capital Corporation ("ING"). During 1998 and
1999, there were two amendments to the facility and the maturity date was reset
to September 30, 2000. On September 28, 2000, the Company repaid in full its
credit facility at ING and established a new credit facility at Bank of Oklahoma
("BOK"). Gulfport was advanced $1.6 million on this new facility, which called
for interest payments to be made monthly in addition to twelve monthly principal
payments of $100,000, with the remaining unpaid balance due on August 31, 2001.
On March 22, 2001, Gulfport executed a new note with BOK increasing the
availability to $1,760,000, increasing the monthly payments slightly to $110,000
beginning July 1, 2001 and extending the maturity date to October 1, 2002. This
new note replaces the original BOK note dated September 28, 2000. In April 2001,
the Company borrowed the amount remaining and available on its BOK credit
facility.
On May 22, 2001, the Company entered in to a revolving line of credit
agreement with Gulfport Funding, LLC, ("Gulfport Funding") which is wholly owned
by one of the Company's stockholders. Under the terms of the agreement, the
Company may borrow up to $3,000,000, with borrowed amounts bearing interest at
Bank of America Prime Rate plus four percent. All outstanding principal amounts
along with accrued interest are due on February 22, 2002. At September 30, 2001,
the Company had borrowed the $3,000,000 available under this line.
As a result of the completion of the NSA engineering report as of January
1, 2001, the Company has initiated discussions with other banking institutions
and is attempting to put in place a larger and longer-term revolving credit
facility. The Company cannot be sure however that it will be successful.
20
The Company is currently consulting with its financial advisors to
determine how to take advantage of the current market whether through internal
value creation or a capital markets transaction which could include the sale of
all or a part of the Company.
Liquidity. The primary capital commitments faced by the Company are the
capital requirements needed to continue developing the Company's proved reserves
and to continue meeting the required principal payments on its Credit
Facilities.
In Gulfport's January 1, 2001 reserve report, 86% of Gulfport's net
reserves were categorized as proved undeveloped. The proved reserves of
Gulfport will generally decline as reserves are depleted, except to the extent
that Gulfport conducts successful exploration or development activities or
acquires properties containing proved developed reserves, or both.
To realize reserves and increase production, the Company must continue its
exploratory drilling, undertake other replacement activities or utilize third
parties to accomplish those activities. In the year 2001, Gulfport expects to
undertake several intermediate drilling programs. It is anticipated that these
reserve development projects will be funded either through the use of cash flow
from operations when available, interim bank financing or related third party
financing, a long-term credit facility or by accessing the capital markets. The
cash flow generated from these new projects will be used to make the Company's
required principal payments on its debt with the remainder reinvested in the
field to complete more capital projects.
COMMITMENTS
Plugging and Abandonment Funds
In connection with the acquisition of the remaining 50% interest in the
WCBB properties, the Company assumed the obligation to contribute approximately
$18,000 per month through March 2004 to a plugging and abandonment trust and the
obligation to plug a minimum of 20 wells per year for 20 years commencing March
11, 1997. Texaco retained a security interest in production from these
properties and the plugging and abandonment trust until such time the Company's
obligations to Texaco have been fulfilled. Once the plugging and abandonment
trust is fully funded, the Company can access it for use in plugging and
abandonment charges associated with the property. As of September 30, 2001, the
plugging and abandonment trust totaled $2,209,000. These funds are invested in
a U.S. Treasury Money Market.
During March 2001, Gulfport intended to begin to fulfill its yearly
plugging commitment of 20 wells at WCBB for the twelve month period ending March
2001. Due to equipment and crew unavailability, however, this activity commenced
in the third quarter of 2001. During October, 2001, Gulfport completed the
yearly program to meet its plugging liability. The Company plugged 26
non-producing wells at West Cote Blanche Bay.
In addition, the Company has letters of credit totaling $200,000 secured by
certificates of deposit being held for plugging costs in the East Hackberry
field. Once specific wells are plugged and abandoned the $200,000 will be
returned to the Company.
21
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Gulfport has been named as a defendant in various lawsuits. The ultimate
resolution of these matters is not expected to have a material adverse effect on
the Company's financial condition or results of operations for the periods
presented in the financial statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports filed on Form 8-K during the quarter.
22
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULFPORT ENERGY CORPORATION
Date: November 14, 2001
/s/Mike Liddell
-----------------------------------------
Mike Liddell
Chief Executive Officer
/s/Mike Moore
-----------------------------------------
Mike Moore
Chief Financial Officer
23