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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10753
GULFPORT 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 11, 2000 was 10,145,400.
1
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at June 30, 2000 (unaudited) and December 31, 1999..........4
Statements of Operations for the Three Months and the Six Months Ended
June 30, 2000 and 1999 (unaudited)....................................5
Statements of Stockholders' Equity for the Six Months Ended
June 30, 2000 and 1999 (unaudited)....................................6
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (unaudited)....................................7
Notes to Financial Statements........................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................18
Item 2. Changes in Securities and Use of Proceeds..........................18
Item 3. Defaults upon Senior Securities....................................18
Item 4. Submission of Matters to a Vote of Security Holders................18
Item 5. Other Information..................................................18
Item 6. Exhibits and Reports on Form 8-K...................................18
Signatures.......................................................... 19
2
GULFPORT ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
June 30, 2000 and 1999
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,
1999
3
GULFPORT ENERGY CORPORATION
BALANCE SHEETS
June 30, December 31,
ASSETS 2000 1999
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,322,000 $ 5,664,000
Accounts receivable, net of allowance
for doubtful accounts of $244,000 as
of June 30, 2000 and December 31, 1999 2,333,000 2,055,000
Prepaid expenses and other 86,000 120,000
------------ ------------
6,741,000 7,839,000
------------ ------------
Property and equipment:
Oil and gas properties 87,825,000 84,135,000
Other property, plant and equipment 1,883,000 1,866,000
------------ ------------
89,708,000 86,001,000
Accumulated depreciation, depletion and
amortization (64,012,000) (62,532,000)
------------ ------------
25,696,000 23,469,000
------------ ------------
Other assets 1,946,000 2,176,000
------------ ------------
1,946,000 2,176,000
------------ ------------
$34,383,000 $33,484,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 6,753,000 $ 6,296,000
Current portion of long-term debt 1,217,000 2,895,000
------------ ------------
7,970,000 9,191,000
------------ ------------
Long- term liabilities: 570,000 179,000
------------ ------------
Shareholders' equity (deficit):
Preferred stock - $.01 par value, 1,000,000
authorized, none issued
Common stock - $.01 par value, 15,000,000
authorized, 10,145,400 issued and outstanding 101,000 101,000
Paid-in capital 84,190,000 84,190,000
Accumulated deficit (58,448,000) (60,177,000)
------------- ------------
Total shareholders' equity 25,843,000 24,114,000
------------- ------------
Commitments and contingencies - -
------------- ------------
$34,383,000 $33,484,000
============= ============
See notes to financial statements.
4
GULFPORT ENERGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, For the Six Months Ended June 30,
2000 1999 2000 1999
----------------------------------- ---------------------------------
Revenues:
Gas sales $ 106,000 $ 66,000 $ 177,000 $ 142,000
Oil and condensate sales 3,240,000 2,487,000 6,909,000 4,186,000
Other income 94,000 84,000 367,000 130,000
----------- ----------- ----------- -----------
Total revenues 3,440,000 2,637,000 7,453,000 4,458,000
----------- ----------- ----------- -----------
Expenses:
Lease operating expenses
including gross production
taxes 1,681,000 1,044,000 3,135,000 2,177,000
Depreciation, depletion and
amortization 705,000 1,206,000 1,480,000 1,854,000
General and administrative
expenses 378,000 408,000 718,000 896,000
----------- ----------- ----------- -----------
2,764,000 2,658,000 5,333,000 4,927,000
----------- ----------- ----------- -----------
Income (loss) from operations 676,000 (21,000) 2,120,000 (469,000)
----------- ----------- ----------- -----------
Other (income) expense:
Proceeds from Litigation Trust - (1,267,000) - (1,267,000)
Interest expense 179,000 130,000 391,000 286,000
----------- ----------- ----------- -----------
179,000 (1,137,000) 391,000 (981,000)
----------- ----------- ----------- -----------
Income before income tax 497,000 1,116,000 1,729,000 512,000
----------- ----------- ----------- -----------
Income tax expense (benefit):
Current 198,000 412,000 685,000 189,000
Deferred (198,000) (412,000) (685,000) (189,000)
----------- ----------- ----------- -----------
- - - -
----------- ----------- ----------- -----------
Net income $ 497,000 $ 1,116,000 $ 1,729,000 $ 512,000
=========== ============ ============ ============
Income per common share:
Basic and diluted $ 0.05 $ 0.32 $ 0.17 $ 0.15
============ ============= ============= =============
See notes to financial statements
5
GULFPORT ENERGY CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Common Additional
Preferred Stock Paid-In Accumulated Treasury
------------------------
Stock Shares Amount Capital Deficit Stock
----------------------------------------------------------------------------
Balance,
December 31, 1998 $ - 3,445,400 $ 34,000 $79,287,000 $(60,818,000) $ -
Additional offering
costs-stock rights
offering - - - (43,000) - -
Net income - - - - 512,000 -
-----------------------------------------------------------------------------
Balance,
June 30, 1999 $ - 3,445,400 $ 34,000 $79,244,000 $(60,306,000) $ -
=============================================================================
Balance,
December 31, 1999 $ - 10,145,400 $101,000 $84,190,000 $(60,177,000) $ -
Net income - - - - 1,729,000 -
-----------------------------------------------------------------------------
Balance,
June 30, 2000 $ - 10,145,400 $101,000 $84,190,000 $(58,448,000) $ -
=============================================================================
See notes to financial statements.
6
GULFPORT ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
2000 1999
------------ ------------
Cash flow from operating activities:
Net income $ 1,729,000 $ 512,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion, and amortization 1,480,000 1,854,000
Amortization of debt issuance costs 84,000 97,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (278,000) 123,000
(Increase) decrease in prepaid expenses and
other 29,000 69,000
Increase (decrease) in accounts payable,
distribution payables and accrued
liabilities 482,000 (919,000)
------------ ------------
Net cash provided by operating activities 3,526,000 1,736,000
------------ ------------
Cash flow from investing activities:
(Additions) reductions to oil and gas escrow
accounts 182,000 (117,000)
Additions to other assets (56,000) -
Additions to other property, plant and equipment (17,000) -
Proceeds from sale of oil and gas equipment 100,000 8,000
Costs capitalized to the full cost pool (3,790,000) (3,157,000)
------------ ------------
Net cash used in investing activities (3,581,000) (3,266,000)
------------ ------------
Cash flow from financing activities:
Other - (21,000)
Borrowings on note payable 1,600,000 -
Principal payments on borrowings (2,887,000) (946,000)
------------ ------------
Net cash used in financing activities (1,287,000) (967,000)
------------ ------------
Net decrease in cash and cash equivalents (1,342,000) (2,497,000)
Cash and cash equivalents - beginning of period 5,664,000 3,714,000
------------ ------------
Cash and cash equivalents - end of period $ 4,322,000 $ 1,217,000
============ ============
Supplemental Disclosures Of Cash Flow Information:
Interest paid $ 137,000 $ 189,000
See 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 financial 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, 2000 December 31, 1999
------------- -----------------
Oil and gas properties $ 87,825,000 $ 84,135,000
Office furniture and fixtures 1,406,000 1,389,000
Building 217,000 217,000
Land 260,000 260,000
------------- --------------
Total property and equipment 89,708,000 86,001,000
Accumulated depreciation, depletion,
amortization and impairment reserve (64,012,000) (62,532,000)
------------- --------------
Property and equipment, net $ 25,696,000 $ 23,469,000
============= ==============
2. OTHER ASSETS
Other assets consist of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Plugging and abandonment escrow account
on the WCBB properties $ 1,635,000 $ 1,610,000
Prepaid loan fees, net of amortization - 34,000
CD's securing letter of credit 200,000 400,000
Deposits 111,000 132,000
------------- --------------
$ 1,946,000 $ 2,176,000
============= ==============
3. LONG-TERM DEBT
On June 28, 2000, the Company repaid in full its credit facility at ING in
the amount of $2,500,000 and established a new credit facility at Bank of
Oklahoma in the amount of $1,600,000. This new credit facility calls for
interest to be paid monthly in addition to twelve monthly principal reductions
of $100,000 each with the remaining balance due on August 31, 2001.
The building loan of $187,000 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
8
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, 2000 December 31, 1999
------------- -----------------
Credit facility $ 1,600,000 $ 2,879,000
Building loan 187,000 195,000
------------- --------------
1,787,000 3,074,000
Less current portion 1,217,000 2,895,000
------------- --------------
$ 570,000 $ 179,000
============= ==============
4. COMMON STOCK OPTIONS
During the first quarter of 2000, the Company's Chief Executive Officer,
employees, and non-employee directors were granted a total of 313,635 stock
options with an exercise price of $2.00 per share. The options vest 35% in
January 2001, and 35% in January 2002, with the remaining options vesting in
January 2003. The option agreements provide for pro-rata adjustments to options
granted if the Company at any time increases the number of outstanding shares or
otherwise alters its capitalization. The Company did not recognize any
compensation expense related to these options, as fair value at the grant date
approximated the exercise price. Options outstanding as of June 30, 2000 totaled
599,087. Of this total, 98,771 options were exercisable at June 30, 2000, with
the remaining 500,316 options vesting in future periods.
5. EARNINGS (LOSS) PER SHARE
A reconciliation of the components of basic and diluted net income (loss)
per common share is presented in the table below:
For the Three Months Ended June 30,
----------------------------------------------------------------------
2000 1999
--------------------------------- ---------------------------------
Per Per
Income Shares Shares Income Shares Shares
----------- ---------- ------ ---------- --------- ------
Basic:
Income attributable to
common Stock $ 497,000 10,145,400 $.05 $1,116,000 3,445,400 $.32
==== ====
Effect of Dilutive Securities:
Stock options plans - 214,405 - -
---------- ---------- ---------- ---------
Diluted:
Income attributable to
common Stock after
assumed dilutions $ 497,000 10,359,805 $.05 $1,116,000 3,445,400 $.32
========== ========== ==== ========== ========= ====
For the Three Months Ended June 30,
----------------------------------------------------------------------
2000 1999
--------------------------------- ---------------------------------
Per Per
Income Shares Shares Income Shares Shares
----------- ---------- ------ ---------- --------- ------
Basic:
Income attributable to
common Stock $1,729,000 10,145,400 $.17 $ 512,000 3,445,400 $.15
==== ====
Effect of Dilutive Securities:
Stock options plans - 161,312 - -
---------- ---------- ---------- ---------
Diluted:
Income attributable to
common Stock after
assumed dilutions $1,729,000 10,306,712 $.17 $ 512,000 3,445,400 $.15
========== ========== ==== ========== ========= ====
9
Not included in the calculation of diluted earnings per share above are
221,000 warrants issued at the time of the Company's reorganization. Also not
included in the calculation of the 1999 diluted earnings per share are 253,635
stock options issued to an officer of the Company in June, 1999. These potential
common shares were not considered in the calculations due to their anti-dilutive
effect during the periods presented.
6. COMMITMENTS
In connection with the acquisition of the remaining 50% interest in the West
Cote Blanche Bay properties ("WCBB"), 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 Exploration and Production, Inc.
("Texaco") retained a security interest in production from these properties and
the plugging and abandonment trust until such time as the Company's plugging and
abandonment obligations to Texaco have been fulfilled. Once the plugging and
abandonment trust is fully funded, the Company can access it for use in plugging
and abandonment charges associated with the property. As of June 30, 2000, the
plugging and abandonment trust totaled $1,635,000, including interest received
during 2000 of approximately $40,000. The Company was in arrears on its escrow
payments in the amount of $257,000 as of June 30, 2000.
7. CONTINGENCIES
On October 1, 1999, Plymouth Resources Group 1998 LLC (Plymouth) filed a
complaint in the Western District of Louisiana alleging breach of contract
regarding rework operations at WCBB. Plymouth and the Company entered into
a settlement agreement on July 25, 2000 to resolve all disputes in the above
referenced action. As part of the settlement, the Company agreed to grant a 120
day Option on a wellbore farmout at WCBB to Plymouth. If the conditions of the
Option are met and the Option is exercised, Plymouth will be entitled to
recomplete ten wellbores at West Cote Blanche Bay during a one year farmout
period.
The Company owns and operates a production facility at WCBB. Pursuant to
facility use agreements, the Company charges third parties including Texaco for
use of the facility. In addition, Texaco provides natural gas, boats and other
services to the Company at its WCBB facility. The Company and Texaco are
currently negotiating past due amounts related to the facility. The Company
believes that it has adequately recorded in its financial statements all
material obligations arising from the operations of WCBB as well as revenues
earned attributed to operating these facilities.
10
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, 2000 and its results of operations
for the three month and the six month periods ended June 30, 2000 and 1999. 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 1999 annual report on Form 10-K.
Overview
Gulfport Energy Corporation is a domestic independent energy company
engaged in the production of oil and gas. 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") 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
recognized throughout most of the field and nearly 200 major and minor discrete
intervals have been tested. Within over 800 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 is 190 MMBO and 226 BCF of gas.
There have been 860 wells drilled in WCBB, and of these 42 have daily current
production, 37 produce intermittently, 297 are shut-in and 4 have been converted
to salt water disposal wells.
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
11
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.
Second Quarter Overview
The Company has enjoyed a strong second quarter with revenues of $3.4
million dollars and net income of $0.5 million dollars. The focus of the Company
in the second quarter was implementation of the drilling and development program
prepared early in the year. The primary emphasis of this drilling program is in
the WCBB field. The Company has also conducted remedial operations in the
Hackberry fields to increase production. With the additional capital provided
from current pricing, the Company anticipates that it will continue its
developmental program to further exploit its reserves.
The following financial table recaps the Company's operating activity for the
first three months and six months of 2000 as compared to the first three months
and six months of 1999.
12
FINANCIAL DATA
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues:
Gas sales $ 106,000 $ 66,000 $ 177,000 $ 142,000
Oil and condensate sales 3,240,000 2,487,000 6,909,000 4,186,000
Other income, net 94,000 84,000 367,000 130,000
---------- ---------- ---------- ----------
3,440,000 2,637,000 7,453,000 4,458,000
----------- ---------- ---------- ----------
Expenses:
Operating expenses including
production taxes 1,681,000 1,044,000 3,135,000 2,177,000
General & administrative 378,000 408,000 718,000 896,000
----------- ---------- ---------- ----------
2,059,000 1,452,000 3,853,000 3,073,000
----------- ---------- ---------- ----------
Proceeds from Litigation Trust - 1,267,000 - 1,267,000
----------- ---------- ---------- ----------
EBITDA (1) 1,381,000 2,452,000 3,600,000 2,652,000
Depreciation, depletion & amortization 705,000 1,206,000 1,480,000 1,854,000
----------- ---------- ---------- ----------
Income before interest, and
taxes 676,000 1,246,000 2,120,000 798,000
Interest expense 179,000 130,000 391,000 286,000
----------- ---------- ---------- ----------
Income before income taxes 497,000 1,116,000 1,729,000 512,000
----------- ---------- ---------- ----------
Income tax expense (benefit):
Current 198,000 412,000 685,000 189,000
Deferred (198,000) (412,000) (685,000) (189,000)
---------- ---------- ---------- ----------
- - - -
---------- ---------- ---------- ----------
Net income $ 497,000 $1,116,000 $1,729,000 $ 512,000
========== ========== ========== ==========
Per share data:
Net income $ 0.05 $ 0.32 $ 0.17 $ 0.15
========== ========== ========== ==========
Weighted average common shares 10,145,400 3,445,400 10,145,400 3,445,400
========== ========== ========== =========
(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.
13
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2000 and 1999
During the three months ended June 30, 2000, the Company reported a net
income of $0.5 million, a $0.6 million decrease from net income of $1.1 million
for the corresponding period in 1999. This decrease is primarily due to the
following factors:
Oil and Gas Revenues. During the three months ended June 30, 2000, the
Company reported oil and gas revenues of $3.3 million, a 27% increase from $2.6
million for the comparable period in 1999. This increase was due principally
to an increase of 85% in the price of oil from $15.45 for the three months ended
June 30, 1999 to $28.67 for the comparable period in 2000. The increase in oil
revenues was offset in part by a 48 mbbls decrease in oil production. The
following table summarizes the Company's oil and gas production and related
pricing for the three months ended June 30, 2000 and 1999:
Three Months Ended June 30,
2000 1999
---- ----
Oil production volumes (Mbbls) 113 161
Gas production volumes (Mmcf) 42 32
Average oil price (per Bbl) $28.67 $15.45
Average gas price (per Mcf) $2.52 $2.06
Production Costs. Production costs, including lease operating costs and
gross production taxes, increased $.64 million, or 62%, from $1.04 million for
the three months ended June 30, 1999 to $1.68 million for the comparable period
in 2000. This increase is due primarily to an increase in gas lift costs from
$0.12 million in 1999 to $0.60 million in 2000.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization decreased $.5 million, or 42% from $1.2 million for the three
months ended June 30, 1999 to $0.7 million for the comparable period in 2000.
This decrease was attributable primarily to a 48 mbbls or 30% decrease in oil
production.
General and Administrative Expenses. General and administrative expenses
decreased $0.03 million, or 7%, from $0.40 million for the three months ended
June 30, 1999 to $0.37 million for the comparable period in 2000. This decrease
was due primarily to the Company's efforts to reduce personnel and overall
general and administrative costs.
Interest Expense. Interest expense increased $.05 million, or 38%, from
$0.13 million for the three months ended June 30, 1999 to $0.18 million for the
comparable period in 2000. This increase was principally due to accrual of $.07
million in interest on amounts owed to Texaco during the three months ended June
30, 2000.
Litigation Trust. In June 1999, the Company received proceeds of $1,267,000
from the Trust. Since the Company had no basis in the Litigation Trust, the
Company recognized the entire proceeds of $1,267,000 as income in the month in
which it was received. No revenues were received from the Litigation Trust for
the comparable period in 2000.
Income Taxes. As of December 31, 1999, the Company had a net operating loss
carryforward of approximately $70 million, in addition to numerous timing
differences which gave rise to a deferred tax asset of approximately $43
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 $0.2 million was provided for the three month period
ending June 30, 2000 due to the above, which was fully offset by an equal income
tax benefit due to operating loss carryforwards.
14
Comparison of the Six Months Ended June 30, 2000 and 1999
During the six months ended June 30, 2000, the Company reported a net income
of $1.7 million, a $1.2 million increase from net income of $0.5 million for the
corresponding period in 1999. This increase is primarily due to the following
factors:
Oil and Gas Revenues. During the six months ended June 30, 2000, the Company
reported oil and gas revenues of $7.1 million, a 65% increase from $4.3 million
for the comparable period in 1999. This increase was due principally to an
increase of 109% in the price of oil from $13.76 for the six months ended June
30, 1999 to $28.79 for the comparable period in 2000. The increase in oil
revenues was offset in part by a 64 mbbls decrease in oil production. The
following table summarizes the Company's oil and gas production and related
pricing for the six months ended June 30, 2000 and 1999:
Three Months Ended June 30,
2000 1999
---- ----
Oil production volumes (Mbbls) 240 304
Gas production volumes (Mmcf) 70 61
Average oil price (per Bbl) $28.79 $13.76
Average gas price (per Mcf) $ 2.53 $ 2.33
Other Income. Other income increased by $.2 million due to receipt of
holdover funds held by escrow agent in connection with the bankruptcy
reorganization in 1997 of WRT Energy Corporation (now Gulfport Energy
Corporation) during the six months ended June 30, 2000.
Production Costs. Production costs, including lease operating costs and
gross production taxes, increased $0.9 million, or 44%, from $2.2 million for
the six months ended June 30, 1999 to $3.1 million for the comparable period in
2000. This increase was due primarily to an increase in gas lift cost from $0.3
million in 1999 to $1.0 million in 2000.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization decreased $.4 million, or 21% from $1.9 million for the six months
ended June 30, 1999 to $1.5 million for the comparable period in 2000. This
decrease was attributable primarily to a 64 mbbls or 21% decrease in oil
production.
General and Administrative Expenses. General and administrative expenses
decreased $0.18 million, or 20%, from $0.90 million for the six months ended
June 30, 1999 to $0.72 million for the comparable period in 2000. This decrease
was due primarily to the Company's efforts to reduce personnel and overall
general and administrative costs.
Interest Expense. Interest expense increased $.1 million, or 34%, from $0.29
million for the six months ended June 30, 1999 to $0.39 million for the
comparable period in 2000. This increase was principally due to accrual of $.15
million in interest on amounts owed to Texaco during the six months ended June
30, 2000.
Litigation Trust. In June 1999, the Company received proceeds of $1,267,000
from the Trust. Since the Company had no basis in the Litigation Trust, the
Company recognized the entire proceeds of $1,267,000 as income in the month in
which it was received. No revenues were received from the Litigation Trust for
the comparable period in 2000.
Income Taxes. As of December 31, 1999, the Company had a net operating loss
carryforward of approximately $70 million, in addition to numerous timing
differences which gave rise to a deferred tax asset of approximately $43
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 $0.7 million was provided for the six month period
ending June 30, 2000 due to the above, which was fully offset by an equal income
tax benefit due to operating loss carryforwards.
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Liquidity and Capital Resources
Operating Activities
The Company's strategy is to continue to increase cash flows generated by it's
properties by undertaking new drilling, workover, sidetrack and recompletion
projects in the fields to exploit its extensive reserves. The Company drilled
four wells in the first half of 2000 in the West Cote Blanche Bay field
resulting in three completed wells. One shallow well was drilled on the
perimeter of the field, which resulted in a dry hole. Two deeper tests and one
shallow test were drilled and completed in the central portion of the
productive area, which confirmed 477,000 BO proved undeveloped reserves and
added 310,000 BO from serendipitous horizons. These wells were drilled on a
recently reprocessed and interpreted 3D data set confirming geological and
geophysical mapping techniques.
In the first quarter, the Company reprocessed 3-D seismic data at West Cote
Blanche Bay. The Company has completed approximately 75% of the interpretation
of the seismic data. 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.
The Company has used the reprocessed 3-D seismic data to delineate the locations
of two new wells at West Cote Blanche Bay to be in drilled in October 2000. Both
wells will be drilled to depths of approximately 9,000 feet.
During the six months ended June 30, 2000 the Company has undertaken a program
to upgrade its infrastructure by enhancing its existing facilities to increase
operating efficiencies, increase volume capacities and lower lease operating
expense. During the second quarter, the Company received state approval to
convert an existing shut-in wellbore to a saltwater disposal well. The
additional saltwater disposal well is expected to relieve pressure from the
exisiting disposal wells thus increasing the life of the existing wells. The
conversion was completed in the third quarter. The Company has capacity to
dispose of 32,000 barrels of saltwater a day at West Cote Blanche Bay and
currently averages approximately 20,000 barrels to 25,000 barrels a day.
The Company also continued to perform remedial work at the Hackberry fields. The
Company continues to decrease its reliance on gas lift in the Hackberry fields,
by converting the lifting methods of selected wells to downhole submersible
pumps or pumping units thereby lowering lease operating expenses.
Capital Requirements and Resources
The primary capital commitments faced by the Company are the capital
expenditures required to continue developing the Company's proved reserves and
the required principal payments on its Bank of Oklahoma Credit Facility.
In the Company's January 1, 2000 reserve report, 95% of the Company's
reserves were categorized as non-developed non-producing. The proved reserves of
the Company will generally decline as reserves are depleted, except to the
extent that the Company conducts successful exploration or development
activities or acquires properties containing proved developed reserves, or both.
To realize reserves and increase production, the Company must commence
exploratory drilling, undertake other replacement activities or utilize third
parties to accomplish those activities. It is anticipated that these reserve
development projects will be funded either through the use of cash flow from
operations when available or by accessing the capital markets.
In August 2000, the Company engaged Netherland, Sewell and Associates, to
prepare an engineering report on the Company's oil and gas reserves.
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During the six month period ended June 30, 2000, the Company invested $3.8
million in property and equipment and other long-term assets as compared to $3.2
million during the comparable period in 1999.
Net cash flow provided by operating activities for the six months ended June
30, 2000 was $3.5 million as compared to net cash flow provided by operating
activities of $1.7 million for six months ended June 30, 1999. Management
anticipates that future operations will continue to contribute sufficient cash
flows to develop its remaining reserves and service the Company's existing debt.
Net cash used in financing activities was $1.29 million for the six months
ended June 30, 2000 compared to $.97 million used in financing activities for
the same period in 1999. This increase is principally due to principal reduction
of $2.9 million on the ING credit facility during the six months ended June 30,
2000, offset by new borrowings from Bank of Oklahoma of $1.6 million.
On June 28, 2000, the Company repaid in full its credit facility at ING and
established a new credit facility at Bank of Oklahoma. A total of $1.6 million
was advanced on this new facility, which calls for interest payments to be made
monthly in addition to twelve monthly principal payments of $100,000, with the
remaining unpaid balance due on August 31, 2001.
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 plugging and abandonment obligations to Texaco have been fulfilled.
Once the plugging and abandonment trust is fully funded, the Company can access
it for use in plugging and abandonment charges associated with the property. The
Company ceased making the required monthly contributions to the plugging and
abandonment escrow account in June 1999 and is currently negotiating a
settlement of this issue with Texaco. As of June 30, 2000, the plugging and
abandonment trust totaled $1,635,000. These funds are invested in a U.S.
Treasury Money Market.
In addition, the Company has letters of credit totaling $200,000 secured by
certificates of deposit being held for plugging costs in the East Hackberry
field. Once specific wells are plugged and abandoned the $200,000 will be
returned to the Company.
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 1, 1999, Plymouth Resources Group 1998 LLC (Plymouth) filed a
complaint in the Western District of Louisiana alleging breach of contract
regarding rework operations at West Cote Blanch Bay. Plymouth and the Company
entered into a settlement agreement on July 25, 2000 to resolve all disputes
in the above referenced action. As part of the settlement, the Company agreed
to grant a 120 day Option on a wellbore farmout at WCBB to Plymouth. If the
conditions of the Option are met and the Option is exercised, Plymouth will be
entitled to recomplete ten wellbores at West Cote Blanche Bay during a one year
farmout period.
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
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports filed on Form 8-K during the quarter.
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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, 2000
/s/Mike Liddell
-----------------------------------------
Mike Liddell
Chief Executive Officer
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