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 MARCH 31, 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 May 14, 2001 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 March 31, 2001 (unaudited) and December 31, 2000 .....4
Statements of Operations for the Three Months Ended
March 31, 2001 and 2000 (unaudited)...................................5
Statement of Stockholders' Equity for the Three Months Ended
March 31, 2001 and 2000 (unaudited)...................................6
Statements of Cash Flow for the Three Months Ended
March 31, 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....................................................19
Item 2 Changes in Securities and Use of Proceeds............................19
Item 3 Defaults upon Senior Securities......................................19
Item 4 Submission of Matters to a Vote of Security Holders..................19
Item 5 Other Information....................................................19
Item 6 Exhibits and Reports on Form 8-K.....................................19
Signatures...........................................................20
2
GULFPORT ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
March 31, 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
- --------------------------------------------------------------------------------
March 31, December 31,
----------- ------------
2001 2000
----------- ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,733,000 $ 3,657,000
Accounts receivable, net of allowance for
doubtful accounts of $244,000 as of March 31,
2001 and December 31, 2000 1,203,000 1,108,000
Prepaid expenses and other current assets 137,000 171,000
----------- ------------
Total current assets 3,073,000 4,936,000
----------- ------------
Property and equipment:
Oil and natural gas properties 98,077,000 90,640,000
Other property and equipment 1,922,000 1,919,000
Accumulated depletion, depreciation, amortization (66,582,000) (65,867,000)
----------- ------------
Property and equipment, net 33,417,000 26,692,000
----------- ------------
Other assets 2,119,000 2,050,000
----------- ------------
$38,609,000 $33,678,000
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 7,635,000 $ 2,904,000
Other liabilities 1,167,000 1,022,000
Current maturities of long-term debt 818,000 878,000
----------- ------------
Total current liabilities 9,620,000 4,804,000
----------- ------------
Long-term debt 152,000 301,000
----------- ------------
Total liabilities 9,772,000 5,105,000
----------- ------------
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, 10,145,400 issued and outstanding at
March 31, 2001 and December 31, 2000 101,000 101,000
Paid-in capital 84,190,000 84,190,000
Accumulated deficit (55,454,000) (55,718,000)
----------- ------------
Total stockholders' equity 28,837,000 28,573,000
----------- ------------
Total liabilities and stockholders' equity $38,609,000 $33,678,000
=========== ============
See accompanying notes to financial statements.
4
GULFPORT ENERGY CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended March 31,
----------------------------
2001 2000
Revenues:
Gas sales $ 134,000 $ 71,000
Oil and condensate sales 3,267,000 3,669,000
Other income 49,000 192,000
----------- -----------
3,450,000 3,932,000
----------- -----------
Costs and expenses:
Operating expenses 1,602,000 1,085,000
Production taxes 368,000 369,000
Depreciation, depletion, and amortization 715,000 775,000
General and administrative 456,000 340,000
----------- -----------
3,141,000 2,569,000
----------- -----------
INCOME FROM OPERATIONS 309,000 1,363,000
----------- -----------
OTHER (INCOME) EXPENSE:
Interest expense 97,000 212,000
Interest income (52,000) (80,000)
----------- -----------
45,000 132,000
----------- -----------
INCOME BEFORE INCOME TAXES 264,000 1,231,000
INCOME TAX EXPENSE (BENEFIT):
Current 106,000 487,000
Deferred (106,000) (487,000)
----------- -----------
- -
----------- -----------
NET INCOME $ 264,000 $1,231,000
=========== ===========
NET INCOME PER COMMON SHARE:
Basic $ 0.03 $ 0.12
=========== ===========
Diluted $ 0.03 $ 0.12
=========== ===========
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 - - - 1,231,000 -
--------- ---------- ----------- -------------- --------------- ---------
Balance at March 31, 2000 $ - 10,145,400 $ 101,000 $ 84,190,000 $ (58,946,000) $ -
========= ========== =========== ============== =============== =========
Balance at December 31, 2000 $ - 10,145,400 $ 101,000 $ 84,190,000 $ (55,718,000) -
Net income - - - - 264,000 -
--------- ---------- ----------- -------------- --------------- ---------
Balance at March 31, 2001 $ - 10,145,400 $ 101,000 $ 84,190,000 $ (55,454,000) $ -
========= ========== =========== ============== =============== =========
See accompanying notes to financial statements.
6
GULFPORT ENERGY
Statements of Cash Flows
(UNAUDITED)
- --------------------------------------------------------------------------------
For the Three Months
Ended March 31,
2001 2000
---------- ----------
Cash flows from operating activities:
Net income $ 264,000 $1,231,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depletion, depreciation and amortization 715,000 775,000
Amortization of debt issuance costs - 59,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (95,000) 9,000
Decrease in prepaid expenses 34,000 25,000
Increase (decrease) in accounts payable
and accrued liabilities 4,731,000 (1,109,000)
Increase in other liabilities 145,000 181,000
---------- ----------
Net cash provided by operating activities 5,794,000 1,171,000
---------- ----------
Cash flows from investing activities:
(Additions) reductions to cash held in escrow (55,000) 195,000
(Additions) to other assets (14,000) (50,000)
(Additions) to other property, plant and equipment (3,000) (7,000)
(Additions) to oil and gas properties (7,437,000) (1,172,000)
---------- ----------
Net cash used in investing activities (7,509,000) (1,034,000)
---------- ----------
Cash flows from financing activities:
Principle payments on borrowings (209,000) (383,000)
---------- ----------
Net cash used in financing activities (209,000) (383,000)
---------- ----------
Net (decrease) in cash and cash equivalents (1,924,000) (246,000)
Cash and cash equivalents at beginning of period 3,657,000 5,664,000
---------- ----------
Cash and cash equivalents at end of period $1,733,000 $5,418,000
========== ==========
Supplemental disclosure of cash flow information:
Interest payments $ 22,000 $ 78,000
========== ==========
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:
March 31, 2001 December 31, 2000
-------------- -----------------
Oil and gas properties $ 98,077,000 $ 90,640,000
Office furniture and fixtures 1,445,000 1,442,000
Building 217,000 217,000
Land 260,000 260,000
-------------- ---------------
Total property and equipment 99,999,000 92,559,000
Accumulated depreciation, depletion,
Amortization and impairment reserve (66,582,000) (65,867,000)
-------------- ---------------
Property and equipment, net $ 33,417,000 $ 26,692,000
============== ===============
8
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS ~ CONTINUED
(UNAUDITED)
2. OTHER ASSETS
Other assets consist of the following:
March 31, 2001 December 31, 2000
-------------- -----------------
Plugging and abandonment escrow account
on the WCBB properties $ 1,808,000 $ 1,739,000
CD's securing letter of credit 200,000 200,000
Deposits 111,000 111,000
-------------- ---------------
Other Assets $ 2,119,000 $ 2,050,000
============== ===============
3. AMOUNTS IN DISPUTE
Included in the accompanying balance sheets at March 31, 2001 and
December 31, 2000, under the caption "Other Liabilities" are net recorded
amounts due to Texaco Exploration and Production, Inc. ("Texaco"). The Company
owns and operates a production facility at West Cote Blanche Bay ("WCBB").
Pursuant to a facility use agreement, 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.
4. LONG-TERM DEBT
The building loan of $170,000 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:
March 31, 2001 December 31, 2000
-------------- -----------------
Note payable $ 800,000 $ 1,000,000
Building loan 170,000 179,00
-------------- ---------------
970,000 1,179,000
Less current portion (818,000) (878,000)
-------------- ---------------
Long-term debt $ 152,000 $ 301,000
============== ===============
9
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS ~ CONTINUED
(UNAUDITED)
During the three months ended March 31, 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%.
Subsequent to March 31, 2001, the Company borrowed the additional $960,000
available under this commitment.
5. 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 March 31, 2001
-----------------------------------------
Per
Income Shares Share
---------- ----------- --------
Basic:
Income attributable to
common stock $ 264,000 10,145,400 $ 0.03
========
Effect of dilutive securities:
Stock options - 323,499
---------- -----------
Diluted:
Income attributable to
common stock, after assumed
dilutions $ 264,000 10,468,899 $ 0.03
========== =========== ========
For the Three Months Ended March 31, 2000
-----------------------------------------
Per
Income Shares Share
----------- ----------- -------
Basic:
Income attributable to
common stock $1,231,000 10,145,400 $ 0.12
========
Effect of dilutive securities:
Stock options - 97,760
------------ ------------
Diluted:
Income attributable to
common stock, after assumed
dilutions $1,231,000 10,243,160 $ 0.12
============ ============ ========
Common stock equivalents not included in the calculation of diluted earning
per share above consists of 1,163,195 warrants issued at the time of the
Company's reorganization. This potential common stock was not considered in the
calculation due to its anti-dilutive effect during the periods presented.
10
6. 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 and the plugging and abandonment trust until such time as
the Company's obligations to Texaco have been fulfilled. Once the plugging and
abandonment trust is fully funded, the Company can access it for use in plugging
and abandonment charges associated with the property. As of March 31, 2001, the
plugging and abandonment trust totaled $1,808,000, including interest received
during 2001 of approximately $22,000. 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 March 31, 2001. 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 will
be delayed until summer 2001.
7. 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 March 31, 2001 and its results of
operations for the three month periods ended March 31, 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 $45 million dollars on May 14, 2001 and
generated EBITDA of $8.4 and $1.08 million dollars for the twelve months ended
December 31, 2000 and the three months ended March 31, 2001, respectively. As of
December 31, 2000, 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
program is designed to reach the Company's high impact, higher potential rate of
return prospects through the penetration of several producing horizons.
12
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 it's 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
MMBO and 232 BCF of gas. There have been 871 wells drilled in WCBB, and of these
61 are currently producing, 306 are shut-in and 5 have been converted to salt
water disposal wells. The balance of the wells (or 499) have been plugged and
abandoned. At the end of the first quarter of 2001, Gulfport's net current daily
production in this field averaged 1,088 barrels of oil and 250 MCF of gas.
During March 2001, the Company brought on line three new wells drilled
and completed during the first quarter. The Company also recompleted one well at
WCBB during the first quarter of 2001. In addition, Gulfport commenced a project
to replace the three existing outdated gas compressors at West Cote Blanche Bay
with two new, more efficient compressors. The Company is currently testing the
new compressors and is finalizing all necessary permits. When the work is
completed and the compressors are on line full time, Gulfport hopes to increase
efficiency and realize fuel savings by reducing gas usage by 50%. During
April and May 2001, the Company brought on line four more new wells drilled and
completed during 2001 and recompleted three additional 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
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.
13
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 2000, daily net production averaged 46 barrels of oil and
167 barrels of water with a limited amount of gas. During the first quarter of
2001, Gulfport unsuccessfully sidetracked an existing non-producing well at West
Hackberry and conducted remedial operations to increase production.
First Quarter Overview
The focus of the Company in the first quarter was completion of the
drilling and development program prepared in 2000 and commenced in January 2001.
The primary emphasis of this drilling program is in the WCBB field. During this
time, the Company was able to access available drilling rigs and proceed with
the drilling program. As discussed above, all three wells the Company drilled
and completed at WCBB during the first quarter of 2001 were successful. At the
date of this filing, these three wells plus an additional four drilled and
completed wells at WCBB have increased the Company's net production to
approximately 2,200 barrels of oil and 400 Mcfs of gas per day as of May 14,
2001. The Company anticipates these new wells will significantly increase
Gulfport's production and revenues during the remainder of 2001. The Company
also conducted remedial operations in the Hackberry fields to increase
production and had one unsuccessful sidetrack.
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 month period ended March 31, 2001 as compared to the same period
in 2000.
14
FINANCIAL DATA (unaudited):
Three Months Ended March 31,
2001 2000
---------- -----------
Revenues:
Gas sales $ 134,000 $ 71,000
Oil and condensates sales 3,267,000 3,669,000
Other income, net 101,000 272,000
---------- -----------
3,502,000 4,012,000
Expenses
Lease operating expenses 1,602,000 1,085,000
Production taxes 368,000 369,000
General and administrative 456,000 340,000
---------- -----------
2,426,000 1,794,000
EBITDA (1) 1,076,000 2,218,000
Depreciation, depletion
and amortization 715,000 775,000
---------- -----------
Income before interest and taxes 361,000 1,443,000
Interest expense 97,000 212,000
---------- -----------
Income before income taxes 264,000 1,231,000
Income tax expense (benefit):
Current 106,000 487,000
Deferred (106,000) (487,000)
---------- -----------
Net income $ 264,000 $ 1,231,000
========== ===========
Per share data:
Net income $ 0.03 $ 0.12
========== ============
Weighted average common shares 10,145,400 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.
15
RESULTS OF OPERATIONS
Comparison of the Three months Ended March 31, 2001 and 2000
During the three months ended March 31, 2001, the Company reported net
income of $.26 million, a $.97 million decrease from net income of $1.23 million
for the corresponding period in 2000. This decrease is primarily due to the
following factors:
Oil and Gas Revenues. During the three months ended March 31, 2001, the
Company reported oil and gas revenues of $3.4 million, a 9% decrease from $3.7
million for the comparable period in 2000. This decrease was due principally to
a decrease in oil production from 127,000 barrels to 113,000 barrels for the
three months ended March 31, 2000 and 2001, respectively. This decrease in
production was due to natural production declines and was partially offset by
the additional production generated from the Company's new wells that went
on-line in March 2001. The decrease in revenues was slightly offset by an
increase in gas revenues due to increased prices for the three months ended
March 31, 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 March 31, 2001 and 2000:
Three months Ended March 31,
2001 2000
---- ----
Oil production volumes (Mbbls) 113 127
Gas production volumes (Mmcf) 13 28
Average oil price (per Bbl) $28.85 $28.89
Average gas price (per Mcf) $10.51 $ 2.51
Production Costs. Production costs increased $.51 million from $1.09
million for the three months ended March 31, 2000 to $1.60 million for the
comparable period in 2001. This increase was due in part to a $.23 million
increase in gas lift costs for the three months ended March 31, 2001 as compared
to the same period in 2000. This increase in gas lift costs was primarily a
result of higher gas prices during the first quarter of 2001 as compared to the
same period in 2000. In addition, production costs also increased slightly as
a result of the Company's non-capitalized well workover activity during the
three month period ended March 31, 2001. For the same period of 2000, there was
no non-capitalized workover activity.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization decreased $.60 million, or 8% from $.78 million for the three
months ended March 31, 2000 to $.72 million for the comparable period in 2001.
This decrease was attributable primarily to a decrease in production to 115
MBOE's for the three months ended March 31, 2001 as compared to 132 MBOE's for
the same period in 2000.
General and Administrative Expenses. General and administrative expenses
increased $.12 million from $.34 million for the three months ended March 31,
2000 to $.46 million for the comparable period in 2001. This increase was due
primarily to the Company's contribution of $.04 million to its 401(k) plan and
$.06 million spent on the Company's engineering reserve report during the three
months ended March 31, 2001.
16
Interest Expense. Interest expense decreased $.12 million, or 54%, from
$.21 million for the three months ended March 31, 2000 to $.97 million for the
comparable period in 2001. This decrease was principally due to the reduction of
the Company's outstanding loan debt balance from $2.7 million at March 31, 2000
as compared to approximately $1.0 million at March 31, 2001.
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 $0.11 million was provided for the three month period
ended March 31, 2001, which was fully offset by an equal income tax benefit due
to operating loss carryforwards.
Capital Expenditures, Capital Resources and Liquidity
Net cash flow provided by operating activities for the three month period
ended March 31, 2001 was $5.8 million, as compared to net cash flow provided of
$1.2 million for the comparable period in 2000. This was primarily due to an
increase in the Company's accounts payable as a result of the capital
expenditure program began in January 2001.
Net cash used in investing activities during the three months ended
March 31, 2001 was $7.5 million as compared to $1.0 million used during the same
period of 2000. This increase was a result of the initiation of the Company's
drilling program in January 2001 along with other well related capitalized
workover related activity.
Net cash used in financing activities for the three months ended March 31,
2001 was $.21 million as compared to net cash used of $.38 million during the
same period of 2000. For both periods, net cash used in financing activities
consisted of principle payments on bank borrowings.
Capital Expenditures. During the three months ended March 31, 2001,
Gulfport invested $7.4 million in oil and gas properties and other property and
equipment as compared to $1.2 million invested during the comparable period in
2000. Of the $7.4 million the company spent in the first quarter, $5.4 million
was spent on drilling and completion costs on new wells and $1.9 million was
spent on workover activity on existing wells.
During the three month period ended March 31, 2001, Gulfport financed
its capital expenditures payment requirements with cash flows provided by
operations and borrowings under the Company's credit facilities. In April 2001,
the Company borrowed the amount remaining and available on its bank credit
facility.
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.
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Capital Resources. On July 11, 1997 Gulfport entered into a $15,000,000
credit facility with ING (U.S.) Capital Corporation ("ING") 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.
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 they will be
successful.
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 term Credit
Facility.
In Gulfport's January 1, 2001 reserve report, 86% of Gulfport's net
reserves were categorized as proved undeveloped. The proved reserves of Gulfport
will generally decline as reserves are depleted, except to the extent that
Gulfport conducts successful exploration or development activities or acquires
properties containing proved developed reserves, or both.
To realize reserves and increase production, the Company must continue
its exploratory drilling, undertake other replacement activities or utilize
third parties to accomplish those activities. In the year 2001, Gulfport expects
to undertake several intermediate drilling programs. It is anticipated that
these reserve development projects will be funded either through the use of cash
flow from operations when available, interim bank financing, 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 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. The
Company ceased making the required monthly contributions to the plugging and
abandonment escrow account from June 1999 to September 2000 and is currently
negotiating a settlement of this issue with Texaco. As of March 31, 2001, the
plugging and abandonment trust totaled $1,808,000. These funds are invested in a
U.S. Treasury Money Market.
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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 will be delayed
until summer 2001.
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.
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.
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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: May 14, 2001
/s/Mike Liddell
-------------------------
Mike Liddell
Chief Executive Officer
/s/Mike Moore
-------------------------
Mike Moore
Chief Financial Officer
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