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, 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, $0.50 par value,
outstanding as of November 6, 2000 was 10,145,400.
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets at September 30, 2000 (unaudited) and December 31, 1999....4
Statements of Operations for the Three and Nine Months Ended
September 30, 2000 and 1999 (unaudited)...............................5
Statement of Stockholders' Equity for the Nine Months Ended
September 30, 2000 (unaudited) and the year ended
December 31, 1999.....................................................6
Statements of Cash Flow for the Nine Months Ended
September 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..................................20
PART II OTHER INFORMATION
Item 1 Legal Proceedings....................................................18
Item 6 Exhibits and Reports on Form 8-K.....................................18
Signatures...........................................................19
GULFPORT ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
September 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
September 30, 2000 December 31, 1999
(unaudited)
------------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,259,000 $ 5,664,000
Accounts receivable, net of allowance
for doubtful accounts of $244,000
for September 30, 2000
and December 31, 1999 2,542,000 2,055,000
Prepaid expenses and other 153,000 120,000
----------- -----------
Total current assets 5,954,000 7,839,000
----------- -----------
Property and equipment:
Oil and natural gas properties 89,695,000 84,135,000
Building and land 477,000 477,000
Other property and equipment 1,430,000 1,389,000
Accumulated depletion, depreciation
and amortization (64,773,000) (62,532,000)
----------- -----------
Property and equipment, net 26,829,000 23,469,000
Other assets:
Oil and gas plugging and abandonment
funds 1,659,000 1,610,000
Other 311,000 566 ,000
----------- -----------
1,970,000 2,176,000
----------- -----------
Total assets $ 34,753,000 $ 33,484,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 6,375 000 $ 6,296,000
Current maturities of long-term debt 1,318,000 2,895,000
----------- -----------
Total current liabilities 7,693,000 9,191,000
----------- -----------
Long-term liabilities:
Building mortgage 165,000 179,000
----------- -----------
Commitments and contingencies - -
----------- -----------
Shareholders' equity:
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 at September 30, 2000 and
December 31, 1999, respectively 101,000 101,000
Paid-in capital 84,190,000 84,190,000
Accumulated deficit (57,396,000) (60,177,000)
----------- -----------
Total shareholders' equity 26,895,000 24,114,000
----------- -----------
Total liabilities and shareholders' equity $ 34,753,000 $ 33,484,000
=========== ===========
See accompanying notes to financial statements.
4
GULFPORT ENERGY CORPORATION
INCOME STATEMENT
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
----------- ---------- ----------- ----------
Revenues:
Gas sales $ 86,000 $ 76,000 $ 263,000 $ 219,000
Oil and condensate sales 3,933,000 2,436,000 10,842,000 6,621,000
Other Income, net 108,000 49,000 475,000 177,000
---------- ---------- ----------- ----------
Total revenues 4,127,000 2,561,000 11,580,000 7,017,000
---------- ---------- ----------- ----------
Expenses:
Operating expenses including
production taxes 1,823,000 1,083,000 4,958,000 3,260,000
Depreciation, depletion and
amortization 761,000 720,000 2,241,000 2,574,000
General and administrative
expenses 355,000 369,000 1,073,000 1,265,000
---------- --------- ---------- ---------
2,939,000 2,172,000 8,272,000 7,099,000
---------- --------- ---------- ---------
Income from operations 1,188,000 389,000 3,308,000 (82,000)
Proceeds from Litigation Trust - 75,000 - 1,342,000
Lawsuit settlement - (87,000) - (87,000)
Interest expense (136,000) (199,000) (527,000) (484,000)
---------- --------- ---------- ---------
Income before income
tax expense 1,052,000 178,000 2,781,000 689,000
Income tax expense (benefit):
Current 389,000 65,000 1,029,000 254,000
Deferred (389,000) (65,000) (1,029,000) (254,000)
---------- --------- ---------- ----------
Net income 1,052,000 178,000 2,781,000 689,000
---------- --------- ---------- ----------
Net income available to
common shareholders $ 1,052,000 $ 178,000 $ 2,781,000 $ 689,000
========== ========= ========== ==========
Per common share:
Income per common and
common equivalent share $ .10 $ .04 $ .27 $ .18
========== ========= ========== ==========
See accompanying notes to financial statements.
5
GULFPORT ENERGY CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Additional
Preferred Stock Paid-In Accumulated
Stock Shares Amount Capital Deficit
--------- --------- -------- ------------ ------------
Balance,
December 31, 1998 - 3,445,400 $ 34,000 $79,287,000 $(60,818,000)
Regulation D Private
Placement - 6,700,000 67,000 4,903,000 -
Net income - - - - 641,000
----- ---------- ------- ---------- -----------
Balance
December 31, 1999 - 10,145,400 101,000 84,190,000 (60,177,000)
Net income - - - 2,781,000
----- ---------- ------- ---------- -----------
Balance,
September 30, 2000 - 10,145,400 $101,000 $84,190,000 $(57,396,000)
===== ========== ======= ========== ===========
See accompanying notes to financial statements.
6
GULFPORT ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
2000 1999
---- ----
Cash flow from operating activities:
Net income $ 2,781 ,000 $ 689,000
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation, depletion, and amortization 2,241,000 2,574,000
Amortization of debt issuance costs 16,000 102,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (487,000) 298,000
(Increase) in prepaid expenses
and other (33,000) (42,000)
Increase in accounts payable and
accrued liabilities 79,000 86,000
---------- ----------
Net cash provided by operating activities 4,597,000 3,707,000
---------- -----------
Cash flow from investing activities:
(Additions to) cash held in escrow (49,000) (128,000)
(Additions to) reductions in other assets 239,000 -
(Additions to) other property, plant
and equipment (41,000) (10,000)
Proceeds from sale of other property,
plant and equipment 100,000 8,000
Costs capitalized to the full cost pool (5,660,000) (4,602,000)
---------- ----------
Net cash used in investing activities (5,411,000) (4,732,000)
Cash flow from financing activities:
Proceeds from private placement - 5,016,000
Other payments - (43,000)
Proceeds from borrowings 1,600,000 3,213,000
Principal payments on borrowings (3,191,000) (5,102,000)
---------- ----------
Net cash provided by (used in) financing
activities (1,591,000) 3,084,000
Net increase (decrease) in cash and
cash equivalents (2,405,000) 2,059,000
Cash and cash equivalents - beginning
of period 5,664,000 3,714,000
---------- ----------
Cash and cash equivalents - end of period $ 3,259,000 $ 5,773,000
========== ==========
Supplemental disclosures of cash flow information
Interest paid $ 203,000 $ 382,000
========== =========
See accompanying notes to financial statements.
7
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated
depreciation, depletion and amortization are as follows:
September 30, December 31,
2000 1999
------------- -------------
Oil and gas properties $ 89,695,000 $ 84,135,000
Office furniture and fixtures 1,430,000 1,389,000
Building 217,000 217,000
Land 260,000 260,000
----------- -----------
Total property and equipment 91,602,000 86,001,000
Accumulated depreciation, depletion,
amortization and impairment reserve (64,773,000) (62,532,000)
----------- -----------
Property and equipment, net $ 26,829,000 $ 23,469,000
=========== ===========
2. OTHER ASSETS
Other assets consist of the following:
September 30, December 31,
2000 1999
------------- -------------
Plugging and abandonment escrow account
On the WCBB properties $ 1,659,000 $ 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
----------- -----------
$ 1,970,000 $ 2,176,000
=========== ===========
3. LONG-TERM DEBT
On June 28, 2000, the Company repaid in full its credit facility at ING with
cash and proceeds from a new credit facility established 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 $183,000 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.
8
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
A break down of long-term debt is as follows:
September 30, December 31,
2000 1999
------------- -------------
Credit facility $ 1,300,000 $ 2,879,000
Building loan 183,000 195,000
----------- -----------
1,483,000 3,074,000
Less current portion 1,318,000 2,895,000
----------- -----------
$ 165,000 $ 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 September 30, 2000
totaled 599,087. Of this total, 98,771 options were exercisable at September 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 September 30,
2000 1999
---------------------------- --------------------------
Per Per
Income Shares Share Income Shares Share
---------- ---------- ----- -------- --------- -----
Basic:
Income attributable
to Common Stock $1,052,000 10,145,400 $.10 $178,000 4,537,796 $.04
==== ====
Effect of Dilutive
Securities:
Stock options
plans - 319,470 - -
--------- ---------- ------- ---------
Diluted:
Income attributable
to common stock after
assumed dilutions $1,052,000 10,464,870 $.10 $178,000 4,537,796 $.04
========= ========== ==== ======= ========= ====
9
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
For the Nine Months Ended September 30,
2000 1999
---------------------------- --------------------------
Per Per
Income Shares Share Income Shares Share
---------- ---------- ----- -------- --------- -----
Basic:
Income attributable
to Common Stock $2,781,000 10,145,400 $.27 $689,000 3,813,537 $.18
==== ====
Effect of Dilutive
Securities:
Stock options plans - 232,276 - -
--------- ---------- ------- ---------
Diluted:
Income attributable
to Common Stock after
assumed dilutions $2,781,000 10,377,676 $.27 $689,000 3,813,537 $.18
========= ========== ==== ======== ========= ====
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 and
30,000 stock options issued to certain directors in September of 1999. These
potential common shares were not considered in the calculations due to their
anti-dilutive effect during the periods presented. At the effective date of the
Plan of reorganization, 5% of new WRT common stock was reserved to issue
warrants in settlement of the reorganized Company debts. These warrants, if
exercised, would entitle the holders of such warrants to acquire 272,188 of the
Company's common stock. The exercise of these warrants is considered to be
anti-dilutive in the calculation of earnings per share at September 30, 2000
and 1999.
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 September 30, 2000 and its results of
operations for the three month and the nine month periods ended September 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 864 wells drilled in WCBB, and of these 41 have daily current
production, 40 produce intermittently, 303 are shut-in and 5 have been converted
to salt water disposal wells.
11
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.
Third Quarter Overview
The Company has enjoyed a strong third quarter with revenues of $4.1 million
dollars and net income of $1.1 million dollars. The focus of the Company in the
third 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. Due to increased oil and gas activity related to substantial
improvements in oil and gas prices, however, the Company was unable to find
available drilling rigs. As a result, this program will be delayed until the 4th
quarter of 2000. 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
three months and nine month periods ended September 30, 2000 as compared to the
same periods in 1999.
12
FINANCIAL DATA (Unaudited) Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ----------- ----------
Revenues:
Gas sales $ 86,000 $ 76,000 $ 263,000 $ 219,000
Oil and condensate sales 3,933,000 2,436,000 10,842,000 6,621,000
Other income, net 108,000 49,000 475,000 177,000
--------- --------- ---------- ---------
4,127,000 2,561,000 11,580,000 7,017,000
--------- --------- ---------- ---------
Expenses:
Operating expenses including
production taxes 1,823,000 1,083,000 4,958,000 3,260,000
General & administrative 355,000 369,000 1,073,000 1,265,000
--------- --------- ---------- ---------
2,178,000 1,452,000 6,031,000 4,525,000
--------- --------- ---------- ---------
Lawsuit settlement - (87,000) - (87,000)
Proceeds from Litigation Trust - 75,000 - 1,342,000
--------- --------- ---------- ---------
- (12,000) - 1,255,000
--------- ---------
EBITDA (1) 1,949,000 1,097,000 5,549,000 3,747,000
Depreciation, depletion
& amortization 761,000 720,000 2,241,000 2,574,000
--------- --------- ---------- ---------
Income before interest,
and taxes 1,188,000 375,000 3,308,000 1,173,000
Interest expense 136,000 198,000 527,000 484,000
--------- --------- ---------- ----------
Income before income
taxes 1,052,000 177,000 2,781,000 689,000
--------- --------- ---------- ----------
Income tax expense (benefit):
Current 389,000 65,000 1,029,000 254,000
Deferred (389,000) (65,000) (1,029,000) (254,000)
--------- --------- ---------- ----------
- - - -
--------- --------- ---------- ----------
Net income $1,052,000 $ 177,000 $ 2,781,000 $ 689,000
========= ========= ========== ==========
Per share data:
Net income $ 0.10 $ 0.04 $ 0.27 $ 0.18
========= ========= ========== ==========
Weighted average common shares 10,145,400 4,537,796 10,145,400 3,813,537
========== ========= ========== ==========
(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 September, 2000 and 1999
During the three months ended September 30, 2000, the Company reported net
income of $1.05 million, a $0.9 million increase from net income of $.2 million
for the corresponding period in 1999. This increase is primarily due to the
following factors:
Oil and Gas Revenues. During the three months ended September 30, 2000, the
Company reported oil and gas revenues of $4.0 million, a 60% increase from $2.5
million for the comparable period in 1999. This increase was due principally to
an increase of 93% in the price of oil from $16.49 for the three months ended
September 30, 1999 to $31.78 for the comparable period in 2000. The increase in
oil revenues was offset in part by a 24 mbbls decrease in oil production. The
following table summarizes the Company's oil and gas production and related
pricing for the three months ended September 30, 2000 and 1999:
Three Months Ended September 30,
2000 1999
---- ----
Oil production volumes (Mbbls) 124 148
Gas production volumes (Mmcf) 20 32
Average oil price (per Bbl) $31.78 $16.49
Average gas price (per Mcf) $4.30 $2.38
Production Costs. Production costs, including lease operating costs and gross
production taxes, increased $.74 million, or 68%, from $1.08 million for the
three months ended September 30, 1999 to $1.82 million for the comparable period
in 2000. This increase is due in part to a $.251 million increase in gas lift
costs and a $.14 million increase in gross production taxes.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased by $.04 million, or 6% from $.72 million for the three
months ended September 30, 1999 to $0.76 million for the comparable period in
2000. This increase was attributable primarily to an adjustment in the third
quarter of 1999 to correct for over accrual of depreciation, depletion and
amortization during the first six months of 1999.
General and Administrative Expenses. General and administrative expenses
remained constant at $.355 million for both the three months ended September 30,
1999 and 2000.
Interest Expense. Interest expense decreased $.08 million, or 40%, from $0.20
million for the three months ended September 30, 1999 to $0.12 million for the
comparable period in 2000. This decrease was principally due to principal
reductions on the Company's credit facility.
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 $0.39 million was provided for the three month period
ending September 30, 2000, which was fully offset by an equal income tax benefit
due to operating loss carryforwards.
14
Comparison of the Nine Months Ended September 30, 2000 and 1999
During the nine months ended September 30, 2000, the Company reported a net
income of $2.78 million, a $2.01 million increase from net income of $0.69
million for the corresponding period in 1999. This increase is primarily due to
the following factors:
Oil and Gas Revenues. During the nine months ended September 30, 2000, the
Company reported oil and gas revenues of $11.11 million, a 63% increase from
$6.84 million for the comparable period in 1999. This increase was due
principally to an increase of 103% in the price of oil from $14.65 for the nine
months ended September 30, 1999 to $29.78 for the comparable period in 2000. The
increase in oil revenues was offset in part by a 88 mbbls decrease in oil
production. The following table summarizes the Company's oil and gas production
and related pricing for the nine months ended September 30, 2000 and 1999:
Nine Months Ended September 30,
2000 1999
---- ----
Oil production volumes (Mbbls) 364 452
Gas production volumes (Mmcf) 90 93
Average oil price (per Bbl) $29.78 $14.65
Average gas price (per Mcf) $2.92 $2.35
Production Costs. Production costs, including lease operating costs and gross
production taxes, increased $1.70 million, or 52%, from $3.26 million for the
nine months ended September 30, 1999 to $4.96 million for the comparable period
in 2000. This increase was due primarily to an increase in gas lift cost from
$0.43 million in 1999 to $1.24 million in 2000 combined with an increase in
gross production taxes from $.67 million in 1999 to $1.09 million in 2000.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization decreased $.33 million, or 13% from $2.574 million for the nine
months ended September 30, 1999 to $2.241 million for the comparable period in
2000. This decrease was attributable primarily to a 88 mbbls or 19% decrease in
oil production.
General and Administrative Expenses. General and administrative expenses
decreased $0.18 million, or 14%, from $1.27 million for the nine months ended
September 30, 1999 to $1.09 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 $.03 million, or 5%, from $0.48
million for the nine months ended September 30, 1999 to $0.51 million for the
comparable period in 2000. This increase was principally due to accrual of $.23
million in interest on amounts owed to Texaco during the nine months ended
September 30, 2000 offset in part by principal reductions in the Company's
credit facility.
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 $1.03 million was provided for the nine month period
ended September 30, 2000, 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
Net cash flow provided by operating activities for the nine months ended
September 30, 2000 was $4.60 million, as compared to net cash flow provided by
operating activities of $3.71 million for the comparable period in 1999. This
increase is due primarily to increased oil prices and continued decreases in
general and administrative expenses, offset in part by the decrease in oil and
gas production volumes and increases in production costs.
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, Gulfport reprocessed 3-D seismic data at West Cote Blanche
Bay. To date the Company has completed approximately 80% of the interpretation
of the seismic data. The reprocessed data will enable the Company's
geophysicists to generate new prospects and confirm 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.
During the six months ended June 30, 2000 Gulfport undertook a program to
upgrade its infrastructure by enhancing its existing facilities to increase
operating efficiencies, increase volume capacities and lower lease operating
expenses. Among the specific projects the Company chose to undertake was the
expansion of the saltwater disposal capacity and the replacement of gas
compressors at West Cote Blanche Bay and the replacement of the gas lift system
with pumping units in a portion of the Hackberry Field.
During the third quarter of 2000, the Company completed the conversion of an
existing inactive wellbore into a salt-water disposal well at West Cote Blanche
Bay. The new well is capable of disposing in excess of 10,000 barrels of
saltwater per day, which reduces the strain on the entire disposal system. The
new disposal well also allows Gulfport to produce wells with high water and low
oil cut thereby increasing overall field production. The Company now has
capacity to dispose of in excess of 40,000 barrels of saltwater per day at West
Cote Blanche Bay and currently averages 25,000 barrels to 30,000 barrels a day.
Also during the third quarter, Gulfport worked over and performed recompletion
operations on several wells at their West Cote Blanche Bay and Hackberry Fields.
These recompletions and workovers served to replace declining production. The
Company completed the installation of pumping units in their West Hackberry and
M.P. Erwin Leases which makes it unnecessary to purchase natural gas from third
parties for gas lift during this time of record natural gas prices for these
leases.
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 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.
On June 28, 2000, the Company repaid in full its credit facility at ING and
established a new credit facility at Bank of Oklahoma. $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.
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Management anticipates that future operations will continue to contribute
sufficient cash flows to develop its remaining reserves and service the
Company's existing debt.
During the nine month ended September 30, 2000, the Company invested $5.66
million in property and equipment as compared to $4.6 million during the
comparable period in 1999.
Net cash used in financing activities was $1.59 million for the nine months
ended September 30, 2000 compared to $3.08 million contributed by financing
activities for the same period in 1999. During 1999 financing activities
included $5.02 million in proceeds from a private placement. The net cash used
in financing activities during 2000 reflects principal reductions on the
Company's credit facility and building loan.
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 September 30, 2000, the plugging and
abandonment trust totaled $1,659,000. These funds are invested in a U.S.
Treasury Money Market. In October, 2000, the Company started making its required
monthly contribution again.
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 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.
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
1. Proxy Statement
2. Election of Directors
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: November 14, 2000
/s/Mike Liddell
-----------------------------------------
Mike Liddell
Chief Executive Officer
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