-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QeLtWHMP1LP9HjCKVa8Q6f2Jn8WF6dI1dECcpld6Ii22g/l/HTSUdHU3K/xA1khI J0EnyeA0XmQ9a+mf0y1nDw== 0001060830-01-500085.txt : 20010815 0001060830-01-500085.hdr.sgml : 20010815 ACCESSION NUMBER: 0001060830-01-500085 CONFORMED SUBMISSION TYPE: 10-Q CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULFPORT ENERGY CORP CENTRAL INDEX KEY: 0000874499 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731521290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10753 BUSINESS ADDRESS: STREET 1: 6307 WATERFORD BLVD STREET 2: SUTIE 100 CITY: OKLAHOMA CITY STATE: OK ZIP: 73118-1401 BUSINESS PHONE: 4058488808 MAIL ADDRESS: STREET 1: 3303 FM 1960 W STREET 2: STE 460 CITY: HOUSTON STATE: TX ZIP: 77057 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN RESOURCE TECHNOLOGIES INC DATE OF NAME CHANGE: 19600201 FORMER COMPANY: FORMER CONFORMED NAME: WRT ENERGY CORP DATE OF NAME CHANGE: 19930328 10-Q 1 gulfport10q-2ndqtr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-10753 GULPORT ENERGY CORPORATION (Exact name of Registrant as specified in its charter) Delaware 73-1521290 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6307 Waterford Blvd. Building D, Suite 100 Oklahoma City, Oklahoma 73118 (405) 848-8807 (Address, including zip code, and telephone number, including area code, of registrant's principal executive office) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes[X] No[ ] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING FIVE YEARS. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] The number of shares of the Registrant's Common Stock, $0.01 par value, outstanding as of August 14, 2001 was 10,146,656. GULFPORT ENERGY CORPORATION TABLE OF CONTENTS FORM 10-Q QUARTERLY REPORT PART I FINANCIAL INFORMATION Item 1 Financial Statements Balance Sheets at June 30, 2001 (unaudited) and December 31, 2000 4 Statements of Income for the Three and Six Month periods Ended June 30, 2001 and 2000 (unaudited) 5 Statement of Stockholders' Equity for the Six Months Ended June 30, 2001 and 2000 (unaudited) 6 Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 (unaudited) 7 Notes to Financial Statements 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II OTHER INFORMATION Item 1 Legal Proceedings 22 Item 2 Changes in Securities and Use of Proceeds 22 Item 3 Defaults upon Senior Securities 22 Item 4 Submission of Matters to a Vote of Security Holders 22 Item 5 Other Information 22 Item 6 Exhibits and Reports on Form 8-K 22 Signatures 23 2 GULFPORT ENERGY CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements June 30, 2001 and 2000 Forming a part of Form 10-Q Quarterly Report to the Securities and Exchange Commission This quarterly report on Form 10-Q should be read in conjunction with Gulfport Energy Corporation's Annual Report on Form 10-K for the year ended December 31, 2000. 3 GULFPORT ENERGY CORPORATION BALANCE SHEETS
JUNE 30, DECEMBER 31, 2001 2000 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 2,199,000 $ 3,657,000 Accounts receivable, net of allowance for doubtful accounts of $239,000 and $244,000 as of June 30, 2001, and December 31, 2000, respectively 1,757,000 3,608,000 Prepaid expenses and other current assets 187,000 171,000 ----------- ----------- Total current assets 4,143,000 7,436,000 ----------- ----------- Property and equipment: Oil and natural gas properties 101,241,000 90,640,000 Other property and equipment 1,924,000 1,919,000 Accumulated depletion, depreciation, amortization (67,663,000) (65,867,000) ----------- ----------- Property and equipment, net 35,502,000 26,692,000 ----------- ----------- Other assets 2,210,000 2,050,000 ----------- ----------- $ 41,855,000 $36,178,000 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 5,836,000 $ 6,426,000 Note payable - related party 3,000,000 - Current maturities of long-term debt 1,340,000 878,000 ------------ ----------- Total current liabilities 10,176,000 7,304,000 ----------- ----------- Long-term debt 472,000 301,000 ------------ ----------- Total liabilities 10,648,000 7,605,000 ------------ ----------- Commitments and contingencies - - Stockholders' equity (deficit): Preferred stock - $.01 par value, 1,000,000 Authorized, none issued - - Common stock - $.01 par value, 15,000,000 authorized, 10,146,656 and 10,145,400 issued and outstanding at June 30, 2001 and December 31, 2000, respectively 101,000 101,000 Paid-in capital 84,192,000 84,190,000 Accumulated deficit (53,086,000) (55,718,000) ------------ ----------- Total stockholders' equity 31,207,000 28,573,000 ------------ ----------- Total liabilities and stockholder's equity $ 41,855,000 $36,178,000 ============ ===========
See accompanying notes to financial statements 4 GULFPORT ENERGY CORPORATION STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE FOR THE SIX MONTHS ENDED JUNE 30, MONTHS ENDED JUNE 30, 2001 2000 2001 2000 --------- ---------- ---------- ---------- Revenues: Gas sales $ 32,000 $ 106,000 $ 166,000 $ 177,000 Oil and condensate sales 4,909,000 3,240,000 8,176,000 6,909,000 Other income 12,000 2,000 61,000 195,000 ---------- ---------- ---------- ---------- 4,953,000 3,348,000 8,403,000 7,281,000 ---------- ---------- ---------- ---------- Cost and expenses: Operating expenses 978,000 1,364,000 2,571,000 2,449,000 Production taxes 567,000 317,000 944,000 686,000 Depreciation, depletion 1,082,000 705,000 1,796,000 1,480,000 and amortization General and administrative 403,000 378,000 860,000 718,000 ---------- ---------- ---------- ---------- 3,030,000 2,764,000 6,171,000 5,333,000 ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS: 1,923,000 584,000 2,232,000 1,948,000 ---------- ---------- ---------- ---------- OTHER (INCOME) EXPENSE: Gain on settlement of disputed amounts (482,000) - (482,000) - Interest expense 72,000 179,000 169,000 391,000 Interest income (34,000) (92,000) (87,000) (172,000) ---------- ---------- ---------- ---------- (444,000) 87,000 (400,000) 219,000 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 2,367,000 497,000 2,632,000 1,729,000 INCOME TAX EXPENSE (BENEFIT): Current 947,000 198,000 1,053,000 685,000 Deferred (947,000) (198,000) (1,053,000) (685,000) ---------- ---------- ---------- ---------- - - - - ---------- ---------- ---------- ---------- NET INCOME $2,367,000 $ 497,000 $2,632,000 $1,729,000 ========== ========== ========== ========== NET INCOME PER COMMON SHARE: Basic $ 0.23 $ 0.05 $ 0.26 $ 0.17 ========== ========== ========== ========== Diluted $ 0.23 $ 0.05 $ 0.25 $ 0.17 ========== ========== ========== ==========
See accompanying notes to financial statements. 5 GULFPORT ENERGY CORPORATION Statements of Stockholders' Equity (Deficit) (Unaudited)
Additional Preferred Common Stock Paid-in Accumulated Treasury Stock Shares Amount Capital Deficit Stock --------- ---------- -------- ----------- ------------ -------- Balance at December 31, 1999 $ - 10,145,400 $101,000 $84,190,000 $(60,177,000) $ - Net Income - - - - 1,729,000 - ----- ---------- -------- ----------- ------------ ------ Balance at June 30, 2000 $ - 10,145,400 $101,000 $84,190,000 $(58,448,000) $ - ===== ========== ======== =========== ============ ====== Balance at December 31, 2000 $ - 10,145,400 $101,000 $84,190,000 $(55,718,000) $ - Common shares issued - 1,166 - 2,000 - - Net income - - - - 2,632,000 - ----- ---------- -------- ----------- ------------ ------ Balance at June 30, 2001 $ - 10,146,566 $101,000 $84,192,000 $(53,086,000) $ - ===== ========== ======== =========== ============ ======
See accompanying notes to financial statements. 6 GULFPORT ENERGY CORPORATION Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, -------------------------- 2001 2000 ----------- ----------- Cash flows from operating activities: Net income $ 2,632,000 $ 1,729,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 1,796,000 1,480,000 Amortization of debt issuance costs - 84,000 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 1,851,000 (278,000) (Increase) decrease in prepaid expenses and other (15,000) 29,000 (Decrease) increase in accounts payable, and accrued liabilities (590,000) 482,000 ----------- ----------- Net cash provided by operating activities 5,674,000 3,526,000 ----------- ----------- Cash flows from investing activities: (Additions) reductions to cash held in escrow (128,000) 182,000 (Additions) to other assets (32,000) (56,000) (Additions) to other property, plant and equipment (5,000) (17,000) Proceeds from sale of oil and gas equipment - 100,000 (Additions) to oil and gas properties (10,602,000) (3,790,000) ----------- ----------- Net cash provided by (used in) investing activities (10,767,000) (3,581,000) ----------- ----------- Cash flows from financing activities: Borrowings on note payable - related party 3,000,000 - Borrowings on note payable 960,000 1,600,000 Principal payments on borrowings (327,000) (2,887,000) Proceeds from issuance of common stock 2,000 - ----------- ----------- Net cash provided by (used in) financing activities 3,635,000 (1,287,000) ----------- ----------- Net (decrease) in cash and cash equivalents (1,458,000) (1,342,000) Cash and cash equivalents at beginning of period 3,657,000 5,664,000 ----------- ----------- Cash and cash equivalents at end of period $ 2,199,000 $ 4,322,000 =========== =========== Supplemental disclosure of cash flow information: Interest payments $ 29,000 $ 137,000 =========== ===========
See accompanying notes to financial statements 7 GULFPORT ENERGY CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) These condensed financial statements have been prepared by Gulfport Energy Corporation (the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financials statements should be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Company's most recent annual report on Form 10-K. 1. PROPERTY AND EQUIPMENT The major categories of property and equipment and related accumulated depreciation, depletion and amortization are as follows:
June 30, 2001 December 31, 2000 ------------- ----------------- Oil and gas properties $101,241,000 $ 90,640,000 Office furniture and fixtures 1,447,000 1,442,000 Building 217,000 217,000 Land 260,000 260,000 ------------ ------------ Total property and equipment 103,165,000 92,559,000 Accumulated depreciation, depletion, amortization and impairment reserve (67,663,000) (65,867,000) ------------ ------------ Property and equipment, net $ 35,502,000 $ 26,692,000 ============ ============
8 GULFPORT ENERGY CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED (Unaudited) 2. OTHER ASSETS Other assets consist of the following:
June 30, 2001 December 31, 2000 ------------- ----------------- Plugging and abandonment escrow account on the WCBB properties $ 1,899,000 $ 1,739,000 CD's securing letter of credit 200,000 200,000 Deposits 111,000 111,000 ----------- ----------- $ 2,210,000 $ 2,050,000 =========== ===========
3. LONG-TERM DEBT The building loan of $162,000 relates to a building in Lafayette, Louisiana, purchased in 1996 to be used as the Company's Louisiana headquarters. The building is 12,480 square feet with approximately 6,180 square feet of finished office area and 6,300 square feet of warehouse space. This building allows the Company to provide office space for Louisiana personnel, have access to meeting space close to the fields and to maintain a corporate presence in Louisiana. A break down of long-term debt is as follows:
June 30, 2001 December 31, 2000 ------------- ----------------- Note payable $ 1,650,000 $ 1,000,000 Building loan 162,000 179,000 ------------ ------------ 1,812,000 1,179,000 Less current portion (1,340,000) (878,000) ------------ ------------ Long-term debt $ 472,000 $ 301,000 ============ ============
During the first quarter of 2001, the Company refinanced amounts due on its note payable. Under the terms of the new agreement, the Company was extended a commitment to borrow up to a total of $1,760,000. Amounts borrowed are to be repaid through monthly principal payments of $110,000 beginning July 1, 2001, with any remaining outstanding principal due October 1, 2002. The refinanced note bears interest at Chase Manhattan Prime rate plus 1%. During April 2001, the Company borrowed the additional $960,000 available under this commitment. The first principal payment of $110,000 was made during June 2001. 9 GULFPORT ENERGY CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED (Unaudited) 4. NOTE PAYABLE - RELATED PARTY On May 22, 2001, the Company entered in to a revolving line of credit agreement with Gulfport Funding, LLC, ("Gulfport Funding") which is wholly owned by one of the Company's stockholders. Under the terms of the agreement, the Company may borrow up to $3,000,000, with borrowed amounts bearing interest at Bank of America Prime Rate plus four percent. All outstanding principal amounts along with accrued interest are due on February 22, 2002. The Company paid a facility commitment fee of $60,000 in connection with this line of credit. This fee will be amortized over the life of the agreement. At June 30, 2001, the Company had borrowed $3,000,000 available under this line. In accordance with the revolving credit agreement, the Company issued 108,625 warrants to CD Holdings LLC. The exercise price of these warrants was established as the average closing price of the Company's common stock for the five days following the issuance of the warrants. The warrant agreement provides for pro-rata adjustments to the number of warrants granted if the Company at any time increases the number of outstanding shares or otherwise adjusts its capitalization. 5. SETTLEMENT OF DISPUTED AMOUNTS During the second quarter of 2001, the Company reached a settlement with Texaco Exploration and Production, Inc. ("Texaco") regarding previously disputed amounts, some of which date back to periods which were prior to the Company's reorganization. The Company's net gain resulting from this settlement is included in the accompanying statements of income for the three and six-month periods ending June 30, 2001, as "Gain on settlement of disputed amounts". 6. EARNINGS PER SHARE A reconciliation of the components of basic and diluted net income per common share is presented in the table below:
FOR THE THREE MONTHS ENDED JUNE 30, ---------------------------------------------------------------------- 2001 2000 -------------------------------- -------------------------------- PER PER INCOME SHARES SHARE INCOME SHARES SHARE ---------- ---------- ------- --------- ---------- ------- BASIC: Income attributable to common stock $2,367,000 10,145,900 $ 0.23 $ 497,000 10,145,400 $ 0.05 ====== ====== Effect of dilutive securities: Stock options - 368,526 - 214,405 --------- ---------- -------- ---------- Diluted: Income attributable to common stock, after assumed dilutions $2,367,000 10,514,426 $ 0.23 $ 497,000 10,359,805 $ 0.05 ========= ========== ====== ======== ========== ======
10 GULFPORT ENERGY CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, ---------------------------------------------------------------------- 2001 2000 -------------------------------- -------------------------------- PER PER INCOME SHARES SHARE INCOME SHARES SHARE ---------- ---------- ------- --------- ---------- ------- BASIC: Income attributable to common stock $2,632,000 10,145,651 $ 0.26 $1,729,000 10,145,400 $ 0.17 ====== ===== Effect of dilutive securities: Stock options - 350,026 - 161,312 --------- ---------- -------- ---------- Diluted: Income attributable to common stock, after assumed dilutions $2,632,000 10,495,677 $ 0.25 $1,729,000 10,306,712 $ 0.17 ========= ========== ====== ========= ========== ======
Common stock equivalents not included in the calculation of diluted earnings per share above consists of 1,163,195 warrants issued at the time of the Company's reorganization. Also not included in the calculation of 2001 diluted earnings per share are 108,625 warrants issued in connection with the Company's revolving line of credit with Gulfport Funding, as discussed in Note 4. These potential common shares were not considered in the calculation due to their anti-dilutive effect during the periods presented. 7. COMMITMENTS Plugging and Abandonment Funds In connection with the acquisition of the remaining 50% interest in the WCBB properties, the Company assumed the obligation to contribute approximately $18,000 per month through March, 2004, to a plugging and abandonment trust and the obligation to plug a minimum of 20 wells per wells per year for 20 years commencing March 11, 1997. Texaco retained a security interest in production from these properties until abandonment obligations to Texaco have been fulfilled. Once the plugging and abandonment trust is fully funded, the Company can access it for use in plugging and abandonment charges associated with the property. During March 2001, Gulfport intended to begin to fulfill its yearly plugging commitment of 20 wells at WCBB for the twelve month period ending March 2001. Due to equipment and crew unavailability however, this activity commenced in the third quarter of 2001. As of June 30, 2001, the plugging and abandonment trust totaled $1,899,000, including interest received during 2001 of approximately $32,000. The Company was in arrears on its escrow payments for the period of June 1999 to September 2000 in the amount of $275,000 as of June 30, 2001. However, as a result of the settlement reached with Texaco in April 2001, the Company is now current with its escrow obligations. 8. RECLASSIFICATION Certain reclassifications have been made to the 2000 financial statements presentation in order to conform to the 2001 financial statements presentation. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that Gulfport Energy Corporation ("Gulfport" or the "Company"), a Delaware corporation, expects or anticipates will or may occur in the future, including such things as estimated future net revenues from oil and gas reserves and the present value thereof, future capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, competitive strengths, goals, expansion and growth of the Company's business and operations, plans, references to future success, references to intentions as to future matters and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties; general economic, market or business conditions; the opportunities (or lack thereof) that may be presented to and pursued by the Company; competitive actions by other oil and gas companies; changes in laws or regulations; and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized, or even if realized, that they will have the expected consequences to or effects on the Company or its business or operations. The following discussion is intended to assist in an understanding of the Company's financial position as of June 30, 2001 and its results of operations for the three and six-month periods ended June 30, 2001 and 2000. The Financial Statements and Notes included in this report contain additional information and should be referred to in conjunction with this discussion. It is presumed that the readers have read or have access to Gulfport Energy Corporation's 2000 annual report on Form 10-K. Overview Gulfport is an independent oil and gas exploration and production company with properties located in the Louisiana Gulf Coast. Gulfport has a market enterprise value of approximately $48.7 million dollars on August 13, 2001 and generated EBITDA of $4.1 and $3.0 million dollars for the six months ended June 30, 2001 and the three months ended June 30, 2001, respectively. The Company is consulting with its financial advisors to determine how to take advantage of the current markets whether through internal value creation or a capital markets transaction which could include a sale of all or part of the Company. As of January 1, 2001, the Company had in excess of 25 MMBOE proved reserves with a present value (10%) of estimated future net reserves of $280 million dollars. Gulfport is actively pursuing further development of its properties in order to fully exploit its reserves. The Company has a substantial portfolio of low risk developmental projects for the next several years providing the opportunity to increase production and cash flow. Gulfport's developmental 12 program is designed to reach the Company's high impact, higher potential rate of return prospects through the penetration of several producing horizons. Additionally, Gulfport owns 3-D seismic data, which along with the Company's technical expertise, will be used to identify exploratory prospects and test undrilled fault blocks in its existing fields. The Company's operations are concentrated in two fields: West Cote Blanche Bay and the Hackberry Fields. West Cote Blanche Bay West Cote Blanche Bay ("WCBB") Field lies approximately five miles off the coast of Louisiana primarily in St. Mary's Parish in a shallow bay, with water depths averaging eight to ten feet. WCBB overlies one of the largest salt dome structures in the Gulf Coast. There are over 100 distinct sandstone reservoirs throughout most of the field and nearly 200 major and minor discrete intervals have been tested. Within almost 900 wellbores that have been drilled to date in the field, over 4,000 potential zones have been penetrated. The sands are highly porous and permeable reservoirs primarily with a strong water drive. Estimated cumulative field gross production as of January 1, 2001 is 190 MBO and 232 BCF of gas. There have been 871 wells drilled at WCBB, and of these 61 are currently producing, 306 are shut-in and 5 are utilized as salt water disposal wells. The balance of the wells (or 499) have been plugged and abandoned. During June 2001, Gulfport's net current daily production in this field averaged 1,474 barrels of oil. During April 2001, Gulfport finished the seven well drilling program it had commenced in January of 2001. The Company successfully drilled, completed and is currently producing six intermediate depth wells, with total depths averaging approximately 9,000' and one shallow well, with a total depth of 2,500'. These wells found significant oil and gas deposits in multiple targets ranging from relatively low risk proven undeveloped objectives to higher potential exploratory targets. Gulfport feels that by taking most future wells to a depth of 9,000' there will be an increased chance of converting reserves currently classified as possible and probable to proved. The Company has plans to begin another three to five intermediate depth well drilling program during October of 2001, pending rig availability. Gulfport has an ongoing plan to review and increase production from existing marginal and non-producing wells. Since January of 2001, the Company has worked over or re-completed six wells in order to restore or increase production. Gulfport has several additional workovers and recompletions scheduled for the remainder of the year. Gulfport also has an ongoing program to modernize and service the existing production facilities at West Cote Blanche Bay. Since the beginning of the second quarter the Company has put two new gas compressors into full time service at the field replacing two outdated compressors. The new compressors increased efficiency and, together with a new header valve Gulfport installed at one of the tank batteries reduced the Company's gas usage by 50%. Gulfport is in the process of back flowing and cleaning sand from the five salt-water disposal wells at West Cote Blanche Bay, which will allow the wells to handle a higher volume of water. 13 Gulfport has recently commenced the yearly program to meet its plugging liability. The Company will plug 27 non-producing wells at West Cote Blanche Bay. Hackberry Fields The Hackberry fields are located along the shore of Lake Calcasieu in Cameron Parish, Louisiana. The Hackberry Field is a major salt intrusive feature, elliptical in shape with East Hackberry on the east end of the ridge with West Hackberry located on the western end of the ridge. There are over 30 pay zones in this field. The salt intrusion at East Hackberry trapped Oligocene through Lower Miocene rocks in a series of complex, steeply dipping fault blocks. The Camerina sand series at East Hackberry is a prolific producer with 1-2 MMBL per well oil potential. West Hackberry consists of a series of fault bounded traps in the Oligocene-age Vincent and Keough sands associated with the Hackberry Salt Ridge. The East Hackberry field was discovered in 1926 by Gulf Oil Company (now Chevron Corporation) by a gravitational anomaly survey. The massive shallow salt stock presented an easily recognizable gravity anomaly indicating a productive field. Initial production began in 1927 and has continued to the present. The estimated cumulative oil and condensate production through 1999 was 111 million barrels of oil with casinghead gas production being 60 billion cubic feet of gas. There have been a total of 170 wells drilled on Gulfport's portion of the field with 13 having current daily production; three produce intermittently; 77 wells are shut-in and 4 wells have been converted to salt water disposal wells. The remaining 72 wells have been plugged and abandoned. During 2000, daily net production averaged 306 barrels of oil and 4,404 barrels of water with a limited amount of gas. At West Hackberry, the first discovery well was drilled in 1938 and was developed by Superior Oil Company (now Exxon-Mobil Corporation) between 1938 and 1988. The estimated cumulative oil and condensate production through 2000 was 170 million barrels of oil with casinghead gas production of 120 billion cubic feet of gas. There have been 36 wells drilled to date on Gulfport's portion of West Hackberry and currently 3 are producing, 24 are shut-in and 1 well has been converted to a saltwater disposal well. The remaining 8 wells have been plugged and abandoned. During the first quarter of 2001, Gulfport unsuccessfully sidetracked an existing non-producing well at West Hackberry and conducted remedial operations to increase production. Gulfport is in the process of testing fourteen shut-in wells in the State Lease 50 portion of East Hackberry to detemine current production potential. To date, the Company believes that at least six of the wells that have been tested warrant continuous production. The work to restore these wells is underway. The Company estimates one of these wells will satisfy the gas lift needs of the East Hackberry Field. The testing has also indicated some of the wells need to be worked over and possibly recompleted and the Company is in the process of scheduling this work. Gulfport is in the process of re-activating a satellite tank battery to service the wells that are being returned to production. The average daily production during June 2001 for both Hackberry fields was 370 barrels of oil per day. 14 Gulfport will plug four wells at the State Lease 50 portion of East Hackberry during the third quarter of 2001. Second quarter Overview The focus of the Company in the second quarter was completion of the drilling and development program prepared in 2000 and commenced in January 2001. The primary emphasis of this drilling program was in the WCBB field. During April 2001, Gulfport finished the seven well drilling program it had commenced in January of 2001 in its West Cote Blanche Field. The Company successfully drilled, completed and is currently producing six intermediate depth wells, with total depths averaging approximately 9,000' and one shallow well, with a total depth of 2,500'. These wells found significant oil and gas deposits in multiple targets ranging from relatively low risk proven undeveloped objectives to higher potential exploratory targets. The Company anticipates these new wells will significantly increase Gulfport's production and revenues during the remainder of 2001. With the additional capital provided from current pricing, the Company anticipates that it will continue its developmental program to further exploit its reserves. The Company has plans to begin another three to five intermediate depth well drilling program during October of 2001, pending rig availability. The following financial table recaps the Company's operating activity for the three and six month periods ended June 30, 2001 as compared to the same periods in 2000. 15 FINANCIAL DATA (unaudited):
Three Months Ended Six Months Ended JUNE 30, JUNE 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Revenues: Gas Sales $ 32,000 $ 106,000 $ 166,000 $ 177,000 Oil and condensates sales 4,909,000 3,240,000 8,176,000 6,909,000 Other income, net 46,000 94,000 148,000 367,000 ----------- ----------- ----------- ----------- 4,987,000 3,440,000 8,490,000 7,453,000 Expenses: Lease operating expenses 978,000 1,364,000 2,571,000 2,449,000 Production taxes 567,000 317,000 944,000 686,000 General and administrative 403,000 378,000 860,000 718,000 ----------- ----------- ----------- ----------- 1,948,000 2,059,000 4,375,000 3,853,000 Depreciation, depletion and amortization 1,082,000 705,000 1,796,000 1,480,000 ---------- ---------- ---------- ---------- Income before interest and taxes 1,957,000 676,000 2,319,000 2,120,000 Gain on settlement of disputed amounts 482,000 - 482,000 - Interest expense (72,000) (179,000) (169,000) (391,000) ----------- ----------- ----------- ----------- Income before income taxes 2,367,000 497,000 2,632,000 1,729,000 Income tax expense (benefit): Current 947,000 198,000 1,053,000 685,000 Deferred (947,000) (198,000) (1,053,000) (685,000) ----------- ----------- ----------- ----------- Net income $ 2,367,000 $ 497,000 $ 2,632,000 $ 1,729,000 =========== =========== =========== =========== EBITDA (1) $ 3,039,000 $ 1,381,000 $ 4,115,000 $ 3,600,000 =========== =========== =========== =========== Per share data: Net income $ 0.23 $ 0.05 $ 0.26 $ 0.17 =========== =========== =========== =========== Weighted average common shares 10,145,900 10,145,400 10,145,651 10,145,400 =========== =========== =========== ===========
(1) EBITDA is defined as earnings before interest, taxes, depreciation, depletion and amortization. EBITDA is an analytical measure frequently used by securities analysts and is presented to provide additional information about the Company's ability to meet its future debt service, capital expenditure and working capital requirements. EBITDA should not be considered as a better measure of liquidity than cash flow from operations. 16 RESULTS OF OPERATIONS Comparison of the Three months Ended June 30, 2001 and 2000 During the three months ended June 30, 2001, the Company reported net income of $2.4 million, a $1.9 million increase from net income of $.50 million for the corresponding period in 2000. This increase is primarily due to the following factors: Oil and Gas Revenues. For the three months ended June 30, 2001, the Company reported oil and gas revenues of $4.9 million, a 48% increase from $3.3 million for the comparable period in 2000. This increase was due principally to a 57% increase in oil production from 113,000 barrels to 177,000 barrels for the three months ended June 30, 2000 and 2001, respectively. This increase in production was due to the new oil production generated from the Company's drilling program initiated during the first quarter of 2001. The increase in total revenues was slightly offset by a decrease in gas revenues due to lower gas production volumes for the three months ended June 30, 2001 as compared to the same period in 2000. The following table summarizes the Company's oil and gas production and related pricing for the three months ended June 30, 2001 and 2000:
Three months Ended June 30, 2001 2000 ---- ---- Oil production volumes (Mbbls) 177 113 Gas production volumes (Mmcf) 12 42 Average oil price (per Bbl) $27.68 $28.67 Average gas price (per Mcf) $2.72 $2.52
Production Costs. Production costs decreased $.42 million from $1.4 million for the three months ended June 30, 2000 to $.98 million for the comparable period in 2001. This decrease was due primarily to a $.38 million decrease in gas lift costs for the three months ended June 30, 2001 as compared to the same period in 2000. This decrease in gas lift costs was a result of lower volumes of gas used for gas lift during the second quarter of 2001 as compared to the same period in 2000. Depreciation, Depletion and Amortization. Depreciation, depletion and amortization increased $.37 million from $.71 million for the three months ended June 30, 2000 to $1.08 million for the comparable period in 2001. This increase was attributable primarily to an increase in production to 179 MBOE's for the three months ended June 30, 2001 as compared to 120 MBOE's for the same period in 2000. General and Administrative Expenses. General and administrative expenses remained relatively constant at $.40 million for the three months ended June 30, 2001 as compared to $.38 million during the same period in 2000. Interest Expense. Interest expense decreased $.11 million, or 60%, from $.18 million for the three months ended June 30, 2000 to $.07 million for the comparable period in 2001. This decrease was primarily due to the settlement of 17 the disputed amounts with Texaco in April 2001. Previously, the Company was accruing interest expense related to the unsettled and disputed amounts. Income Taxes. As of December 31, 2000, the Company had a net operating loss carryforward of approximately $69 million, in addition to numerous timing differences which gave rise to a deferred tax asset of approximately $41 million, which was fully reserved by a valuation allowance at that date. Utilization of net operating loss carryforwards and other timing differences will be recognized as a reduction in income tax expense in the year utilized. A current tax provision of $0.95 million was provided for the three month period ended June 30, 2001, which was fully offset by an equal income tax benefit due to operating loss carryforwards. Gain on settlement of disputed amount. During the three months ended June 30, 2001, the Company reached a settlement with Texaco regarding previously disputed amounts. As a result of this settlement, the Company recognized a one time gain of $482,000 for the three months ended June 30, 2001. Comparison of the Six months Ended June 30, 2001 and 2000 During the six months ended June 30, 2001, the Company reported net income of $2.6 million, a $.90 million increase from net income of $1.7 million for the corresponding period in 2000. This increase is primarily due to the following factors: Oil and Gas Revenues. During the six months ended June 30, 2001, the Company reported oil and gas revenues of $8.3 million, a 17% increase from $7.1 million for the comparable period in 2000. This increase was due principally to an increase in oil production from 240,000 barrels to 291,000 barrels for the six months ended June 30, 2000 and 2001, respectively. This increase in oil production was due to the new production generated from the Company's drilling program initiated during the first quarter of 2001. The increase in total revenues was slightly offset by a decrease in gas revenues due to lower gas production volumes for the six months ended June 30, 2001 as compared to the same period in 2000. The following table summarizes the Company's oil and gas production and related pricing for the six months ended June 30, 2001 and 2000:
Six months Ended June 30, 2001 2000 ---- ---- Oil production volumes (Mbbls) 291 240 Gas production volumes (Mmcf) 25 70 Average oil price (per Bbl) $28.13 $28.79 Average gas price (per Mcf) $6.77 $2.53
Production Costs. Production costs increased slightly by $.10 million from $2.5 million for the six months ended June 30, 2000 to $2.6 million for the comparable period in 2001. This increase was due primarily to a the Company's non-capitalized well workover activity during the first quarter of 2001 and was partially offset by a $.21 million decrease in gas lift costs for the six months ended June 30, 2001 as compared to the same period in 2000. This decrease in gas lift costs was primarily a result of lower volumes of gas used for gas lift during the six months ended June 30, 2001 as compared to the same period in 2000. Depreciation, Depletion and Amortization. Depreciation, depletion and amortization increased $.34 million from $1.5 million for the six months ended 18 June 30, 2000 to $1.8 million for the comparable period in 2001. This increase was attributable primarily to an increase in production to 295 MBOE's for the six months ended June 30, 2001 as compared to 252 MBOE's for the same period in 2000. General and Administrative Expenses. General and administrative expenses increased slightly from $.72 million for the six months ended June 30, 2000 to $.86 million for the same period in 2001. This was primarily due to the $.11 million the Company expensed during the six month period ended June 30, 2001 for the NSA engineering report as compared to $0.00 expensed during the same period in 2000. Interest Expense. Interest expense decreased $.22 million, or 56%, from $.39 million for the six months ended June 30, 2000 to $.17 million for the comparable period in 2001. This decrease was primarily due to a reduction in average debt outstanding for the period ended June 30, 2001 and the settlement of the disputed amounts with Texaco in April 2001. Previously, the Company was accruing interest expense related to the unsettled and disputed amounts. Income Taxes. As of December 31, 2000, the Company had a net operating loss carryforward of approximately $69 million, in addition to numerous timing differences which gave rise to a deferred tax asset of approximately $41 million, which was fully reserved by a valuation allowance at that date. Utilization of net operating loss carryforwards and other timing differences will be recognized as a reduction in income tax expense in the year utilized. A current tax provision of $1.05 million was provided for the six months ended June 30, 2001, which was fully offset by an equal income tax benefit due to operating loss carryforwards. Gain on settlement of disputed amounts. During the six months ended June 30, 2001, the Company reached a settlement with Texaco regarding previously disputed amounts. As a result of this settlement, the Company recognized a one time gain of $482,000 for the six months ended June 30, 2001. Capital Expenditures, Capital Resources and Liquidity Net cash flow provided by operating activities for the six month period ended June 30, 2001 was $5.7 million, as compared to net cash flow provided of $3.5 million for the comparable period in 2000. This was primarily due to an increase in the Company's net income resulting from the increased levels of production as a result of the Company's drilling program initiated in January 2001. Net cash used in investing activities during the six months ended June 30, 2001 was $10.8 million as compared to $3.6 million used during the same period of 2000. This increase was a result of the Company's drilling program it initiated in January 2001 along with other well related capitalized workover related activity. Net cash provided in financing activities for the six months ended June 30, 2001 was $3.6 million as compared to net cash used of $1.3 million during the same period of 2000. The difference represents net borrowings during the six month period ended June 30, 2001 as compared to net borrowings payback during the same period in 2000. Capital Expenditures. During the six months ended June 30, 2001, Gulfport invested $10.60 million in oil and gas properties and other property and equipment as compared to $3.79 million invested during the comparable period in 2000. Of the $10.60 million the Company spent in the first six months of 2001, $8.23 million was spent on drilling and completion activity on new wells and $2.37 million was spent on workover activity on existing wells. 19 During the six month period ended June 30, 2001, Gulfport financed its capital expenditures payment requirements with cash flows provided by operations, borrowings under the Company's credit facilities and borrowings from a related third party. Gulfport's strategy is to continue to increase cash flows generated by its properties by undertaking new drilling, workover, sidetrack and recompletion projects in the fields to exploit its extensive reserves. The Company has upgraded its infrastructure by enhancing its existing facilities to increase operating efficiencies, increase volume capacities and lower lease operating expenses. Additionally, Gulfport completed the reprocessing of its 3D seismic data in its principal property, West Cote Blanche Bay. The reprocessed data will enable the Company's geophysicists to generate new prospects and enhance existing prospects in the intermediate zones in the field thus creating a portfolio of new drilling opportunities in the most prolific depths of the field. Capital Resources. On July 11, 1997 Gulfport entered into a $15,000,000 credit facility with ING (U.S.) Capital Corporation ("ING"). During 1998 and 1999, there were two amendments to the facility and the maturity date was reset to June 30, 2000. On June 28, 2000, the Company repaid in full its credit facility at ING and established a new credit facility at Bank of Oklahoma ("BOK"). Gulfport was advanced $1.6 million on this new facility, which called for interest payments to be made monthly in addition to twelve monthly principal payments of $100,000, with the remaining unpaid balance due on August 31, 2001. On March 22, 2001, Gulfport executed a new note with BOK increasing the availability to $1,760,000, increasing the monthly payments slightly to $110,000 beginning July 1, 2001 and extending the maturity date to October 1, 2002. This new note replaces the original BOK note dated June 28, 2000. In April 2001, the Company borrowed the amount remaining and available on its BOK credit facility. On May 22, 2001, the Company entered in to a revolving line of credit agreement with Gulfport Funding, LLC, ("Gulfport Funding") which is wholly owned by one of the Company's stockholders. Under the terms of the agreement, the Company may borrow up to $3,000,000, with borrowed amounts bearing interest at Bank of America Prime Rate plus four percent. All outstanding principal amounts along with accrued interest are due on February 22, 2002. At June 30, 2001, the Company had borrowed the $3,000,000 available under this line. As a result of the completion of the NSA engineering report as of January 1, 2001, the Company has initiated discussions with other banking institutions and is attempting to put in a place a larger and longer-term revolving credit facility. The Company cannot be sure however that it will be successful. The Company is consulting with its financial advisors to determine how to take advantage of the current market whether through internal value creation or a capital markets transaction which could include a sale of all or part of the Company. Liquidity. The primary capital commitments faced by the Company are the capital requirements needed to continue developing the Company's proved reserves and to continue meeting the required principal payments on its Credit Facilities. In Gulfport's January 1, 2001 reserve report, 86% of Gulfport's net reserves were categorized as proved undeveloped. The proved reserves of Gulfport will generally decline as reserves are depleted, except to the extent that Gulfport conducts successful exploration or development activities or acquires properties containing proved developed reserves, or both. 20 To realize reserves and increase production, the Company must continue its exploratory drilling, undertake other replacement activities or utilize third parties to accomplish those activities. In the year 2001, Gulfport expects to undertake several intermediate drilling programs. It is anticipated that these reserve development projects will be funded either through the use of cash flow from operations when available, interim bank financing or related third party financing, a long-term credit facility or by accessing the capital markets. The cash flow generated from these new projects will be used to make the Company's required principal payments on its debt with the remainder reinvested in the field to complete more capital projects. COMMITMENTS Plugging and Abandonment Funds In connection with the acquisition of the remaining 50% interest in the WCBB properties, the Company assumed the obligation to contribute approximately $18,000 per month through March 2004 to a plugging and abandonment trust and the obligation to plug a minimum of 20 wells per year for 20 years commencing March 11, 1997. Texaco retained a security interest in production from these properties and the plugging and abandonment trust until such time the Company's obligations to Texaco have been fulfilled. Once the plugging and abandonment trust is fully funded, the Company can access it for use in plugging and abandonment charges associated with the property. The Company ceased making the required monthly contributions to the plugging and abandonment escrow account from June 1999 to September 2000. As a result of the settlement reached with Texaco in April 2001, the Company became current in its escrow payments. As of June 30, 2001, the plugging and abandonment trust totaled $1,899,000. These funds are invested in a U.S. Treasury Money Market. During March 2001, Gulfport intended to begin to fulfill its yearly plugging commitment of 20 wells at WCBB for the twelve month period ending March 2001. Due to equipment and crew unavailability, however, this activity commenced in the third quarter of 2001. As a result of the April 2001 settlement with Texaco, the Company will plug a total of 27 wells at WCBB this year. In addition, the Company has letters of credit totaling $200,000 secured by certificates of deposit being held for plugging costs in the East Hackberry field. Once specific wells are plugged and abandoned the $200,000 will be returned to the Company. 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Gulfport has been named as a defendant in various lawsuits. The ultimate resolution of these matters is not expected to have a material adverse effect on the Company's financial condition or results of operations for the periods presented in the financial statements ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports filed on Form 8-K during the quarter. 22 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GULFPORT ENERGY CORPORATION Date: August 14, 2001 /s/Mike Liddell ----------------------------------------- Mike Liddell Chief Executive Officer /s/Mike Moore ----------------------------------------- Mike Moore Chief Financial Officer 23 -----END PRIVACY-ENHANCED MESSAGE-----