GPOR-03.31.2015-10Q

Daily Volume
(Bbls/day)

Weighted
Average Price

April 2015 - June 2016

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2015 OR



¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number 000-19514

Gulfport Energy Corporation

(Exact Name of Registrant As Specified in Its Charter)



Delaware		73-1521290
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification Number)
14313 North May Avenue, Suite 100 Oklahoma City, Oklahoma		73134
(Address of Principal Executive Offices)		(Zip Code)

(405) 848-8807

(Registrant Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share		The NASDAQ Stock Market LLC

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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of May 1, 2015, 96,656,652 shares of the registrant’s common stock were outstanding.

Table of Contents

GULFPORT ENERGY CORPORATION

TABLE OF CONTENTS



		Page
PART I FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):	2

	Consolidated Balance Sheets at March 31, 2015 and December 31, 2014	2

	Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014	3

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014	4

	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2015 and 2014	5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	45

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	47

Item 6.	Exhibits	47

Signatures		49

GULFPORT ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)



	March 31, 2015			December 31, 2014
	(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents	$	74,740		$	142,340
Accounts receivable—oil and gas	79,680			103,858
Accounts receivable—related parties	33			46
Prepaid expenses and other current assets	15,777			3,714
Short-term derivative instruments	93,030			78,391
Total current assets	263,260			328,349
Property and equipment:
Oil and natural gas properties, full-cost accounting, $1,546,804 and $1,465,538 excluded from amortization in 2015 and 2014, respectively	4,177,962			3,923,154
Other property and equipment	19,051			18,344
Accumulated depletion, depreciation, amortization and impairment	(1,140,168		)	(1,050,879		)
Property and equipment, net	3,056,845			2,890,619
Other assets:
Equity investments	374,971			369,581
Derivative instruments	41,956			24,448
Other assets	18,566			19,396
Total other assets	435,493			413,425
Total assets	$	3,755,598		$	3,632,393
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	400,096		$	371,410
Asset retirement obligation—current	75			75
Deferred tax liability	29,622			27,070
Short-term derivative instruments	823			—
Current maturities of long-term debt	1,781			168
Total current liabilities	432,397			398,723
Asset retirement obligation—long-term	18,656			17,863
Deferred tax liability	215,122			203,195
Long-term debt, net of current maturities	779,130			716,316
Total liabilities	1,445,305			1,336,097
Commitments and contingencies (Note 8)
Preferred stock, $.01 par value; 5,000,000 authorized, 30,000 authorized as redeemable 12% cumulative preferred stock, Series A; 0 issued and outstanding	—			—
Stockholders’ equity:
Common stock - $.01 par value, 200,000,000 authorized, 85,715,819 issued and outstanding in 2015 and 85,655,438 in 2014	857			856
Paid-in capital	1,832,063			1,828,602
Accumulated other comprehensive loss	(41,659		)	(26,675		)
Retained earnings	519,032			493,513
Total stockholders’ equity	2,310,293			2,296,296
Total liabilities and stockholders’ equity	$	3,755,598		$	3,632,393

See accompanying notes to consolidated financial statements.

Table of Contents

GULFPORT ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three months ended March 31,
	2015			2014
	(In thousands, except share data)
Revenues:
Gas sales	$	118,570		$	18,349
Oil and condensate sales	35,500			73,377
Natural gas liquid sales	22,007			26,136
Other income	240			167
	176,317			118,029
Costs and expenses:
Lease operating expenses	16,980			11,629
Production taxes	4,285			6,957
Midstream gathering and processing	25,381			7,769
Depreciation, depletion and amortization	89,909			56,877
General and administrative	10,799			9,511
Accretion expense	190			188
Gain on sale of assets	—			(11		)
	147,544			92,920
INCOME FROM OPERATIONS	28,773			25,109
OTHER (INCOME) EXPENSE:
Interest expense	8,759			3,885
Interest income	(9		)	(106		)
Litigation settlement	—			18,000
Income from equity method investments	(19,975		)	(128,475		)
	(11,225		)	(106,696		)
INCOME BEFORE INCOME TAXES	39,998			131,805
INCOME TAX EXPENSE	14,479			49,247
NET INCOME	$	25,519		$	82,558
NET INCOME PER COMMON SHARE:
Basic	$	0.30		$	0.97
Diluted	$	0.30		$	0.96
Weighted average common shares outstanding—Basic	85,679,606			85,259,407
Weighted average common shares outstanding—Diluted	86,120,030			85,738,626

See accompanying notes to consolidated financial statements.

Table of Contents

GULFPORT ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three months ended March 31,
	2015			2014
	(In thousands)
Net income	$	25,519		$	82,558
Foreign currency translation adjustment	(14,984		)	(7,278		)
Other comprehensive loss	(14,984		)	(7,278		)
Comprehensive income	$	10,535		$	75,280

See accompanying notes to consolidated financial statements.

Table of Contents

GULFPORT ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)



				Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
	(In thousands, except share data)
Balance at January 1, 2015	85,655,438	$	856	$	1,828,602		$	(26,675	)	$	493,513	$	2,296,296
Net income	—	—		—			—			25,519		25,519
Other Comprehensive Loss	—	—		—			(14,984		)	—		(14,984		)
Stock Compensation	—	—		3,462			—			—		3,462
Issuance of Restricted Stock	60,381	1		(1		)	—			—		—
Issuance of Common Stock through exercise of options	—	—		—			—			—		—
Balance at March 31, 2015	85,715,819	$	857	$	1,832,063		$	(41,659	)	$	519,032	$	2,310,293

Balance at January 1, 2014	85,177,532	$	851	$	1,813,058		$	(9,781	)	$	246,110	$	2,050,238
Net income	—	—		—			—			82,558		82,558
Other Comprehensive Loss	—	—		—			(7,278		)	—		(7,278		)
Stock Compensation	—	—		4,307			—			—		4,307
Issuance of Restricted Stock	63,951	—		—			—			—		—
Issuance of Common Stock through exercise of options	182,908	2		613			—			—		615
Balance at March 31, 2014	85,424,391	$	853	$	1,817,978		$	(17,059	)	$	328,668	$	2,130,440

See accompanying notes to consolidated financial statements.

Table of Contents

GULFPORT ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three months ended March 31,
	2015			2014
	(In thousands)
Cash flows from operating activities:
Net income	$	25,519		$	82,558
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of discount—Asset Retirement Obligation	190			188
Depletion, depreciation and amortization	89,909			56,877
Stock-based compensation expense	2,077			2,584
Gain from equity investments	(12,759		)	(43,688		)
Interest income - note receivable	—			(13		)
Unrealized (gain) loss on derivative instruments	(31,324		)	8,665
Deferred income tax expense	14,479			33,564
Amortization of loan commitment fees	617			294
Amortization of note discount and premium	(528		)	78
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	24,178			(27,944		)
Decrease in accounts receivable—related party	13			2,047
Increase in prepaid expenses	(12,063		)	(771		)
(Decrease) increase in accounts payable and accrued liabilities	(290		)	43,406
Settlement of asset retirement obligation	(981		)	(1,695		)
Net cash provided by operating activities	99,037			156,150
Cash flows from investing activities:
Deductions to cash held in escrow	8			8
Additions to other property and equipment	(632		)	(1,002		)
Additions to oil and gas properties	(226,905		)	(420,431		)
Proceeds from sale of oil and gas properties	1,314			—
Contributions to equity method investments	(6,093		)	(23,687		)
Distributions from equity method investments	817			—
Net cash used in investing activities	(231,491		)	(445,112		)
Cash flows from financing activities:
Principal payments on borrowings	(50,045		)	(42		)
Borrowings on line of credit	115,000			—
Debt issuance costs and loan commitment fees	(101		)	(185		)
Proceeds from issuance of common stock, net of offering costs and exercise of stock options	—			615
Net cash provided by financing activities	64,854			388
Net decrease in cash and cash equivalents	(67,600		)	(288,574		)
Cash and cash equivalents at beginning of period	142,340			458,956
Cash and cash equivalents at end of period	$	74,740		$	170,382
Supplemental disclosure of cash flow information:
Interest payments	$	240		$	18
Income tax payments	$	29,750		$	13,000
Supplemental disclosure of non-cash transactions:
Capitalized stock based compensation	$	1,385		$	1,723
Asset retirement obligation capitalized	$	1,584		$	1,869
Interest capitalized	$	3,694		$	2,318
Foreign currency translation loss on investment in Grizzly Oil Sands ULC	$	(14,984	)	$	(7,278	)

See accompanying notes to consolidated financial statements.

Table of Contents

GULFPORT ENERGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These consolidated financial statements have been prepared by Gulfport Energy Corporation (the “Company” or “Gulfport”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), and reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods, on a basis consistent with the annual audited consolidated 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 consolidated financial statements should be read in conjunction with the consolidated 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. Results for the three month period ended March 31, 2015 are not necessarily indicative of the results expected for the full year.


1.	ACQUISITIONS

In February 2014, the Company entered into a definitive agreement with Rhino Exploration LLC ("Rhino") to acquire additional oil and natural gas properties consisting of approximately 8,000 net acres in the Utica Shale, as well as Rhino's interest in all of the producing wells on this acreage (the "Rhino Acquisition"). The Company purchased approximately $182.0 million ($179.5 million net of purchase price adjustments) of these assets in 2014.

The Rhino Acquisition qualified as a business combination for accounting purposes and, as such, the Company estimated the fair value of the acquired properties as of the March 20, 2014 acquisition date. The fair value of the assets and liabilities acquired was estimated using assumptions that represent Level 3 inputs. See Note 10 - "Fair Value Measurements" for additional discussion of the measurement inputs.

The Company estimated that the consideration paid in the Rhino Acquisition for these properties approximated the fair value that would be paid by a typical market participant. As a result, no goodwill or bargain purchase gain was recognized in conjunction with the purchase.

The following table summarizes the consideration paid in the Rhino Acquisition to acquire the properties and the fair value amount of the assets acquired as of March 20, 2014.



	(In thousands)
Consideration paid
Cash, net of purchase price adjustments	$	179,527
Fair value of identifiable assets acquired
Oil and natural gas properties
Proved	$	31,961
Unproved	6,263
Unevaluated	141,303
Fair value of net identifiable assets acquired	$	179,527


2.	PROPERTY AND EQUIPMENT

The major categories of property and equipment and related accumulated depletion, depreciation, amortization and impairment as of March 31, 2015 and December 31, 2014 are as follows:

Table of Contents



	March 31, 2015			December 31, 2014
	(In thousands)
Oil and natural gas properties	$	4,177,962		$	3,923,154
Office furniture and fixtures	11,133			10,752
Building	5,724			5,398
Land	2,194			2,194
Total property and equipment	4,197,013			3,941,498
Accumulated depletion, depreciation, amortization and impairment	(1,140,168		)	(1,050,879		)
Property and equipment, net	$	3,056,845		$	2,890,619

Included in oil and natural gas properties at March 31, 2015 is the cumulative capitalization of $79.9 million in general and administrative costs incurred and capitalized to the full cost pool. General and administrative costs capitalized to the full cost pool represent management’s estimate of costs incurred directly related to exploration and development activities such as geological and other administrative costs associated with overseeing the exploration and development activities. All general and administrative costs not directly associated with exploration and development activities were charged to expense as they were incurred. Capitalized general and administrative costs were approximately $7.2 million and $6.3 million for the three months ended March 31, 2015 and 2014, respectively.

The following table summarizes the Company’s non-producing properties excluded from amortization by area at March 31, 2015:



	March 31, 2015
	(In thousands)
Colorado	$	5,088
Bakken	96
Southern Louisiana	283
Ohio	1,541,292
Other	45
	$	1,546,804

At December 31, 2014, approximately $1.5 billion of non-producing leasehold costs was not subject to amortization.

The Company evaluates the costs excluded from its amortization calculation at least annually. Subject to industry conditions and the level of the Company’s activities, the inclusion of most of the above referenced costs into the Company’s amortization calculation is expected to occur within three to five years.

Table of Contents

A reconciliation of the Company's asset retirement obligation for the three months ended March 31, 2015 and 2014 is as follows:




	March 31, 2015			March 31, 2014
	(In thousands)
Asset retirement obligation, beginning of period	$	17,938		$	15,083
Liabilities incurred	1,584			1,869
Liabilities settled	(981		)	(1,695		)
Accretion expense	190			188
Asset retirement obligation as of end of period	18,731			15,445
Less current portion	75			795
Asset retirement obligation, long-term	$	18,656		$	14,650

On May 7, 2012, the Company entered into a contribution agreement with Diamondback Energy Inc. ("Diamondback"). Under the terms of the contribution agreement, the Company agreed to contribute to Diamondback, prior to the closing of the Diamondback initial public offering (“Diamondback IPO”), all its oil and natural gas interests in the Permian Basin (the "Contribution"). The Contribution was completed on October 11, 2012. At the closing of the Contribution, Diamondback issued to the Company (i) 7,914,036 shares of Diamondback common stock and (ii) a promissory note for $63.6 million, which was repaid to the Company at the closing of the Diamondback IPO on October 17, 2012. This aggregate consideration was subject to a post-closing cash adjustment based on changes in the working capital, long-term debt and certain other items of Diamondback O&G LLC, formerly Windsor Permian LLC ("Diamondback O&G"), as of the date of the Contribution. In January 2013, the Company received an additional payment from Diamondback of approximately $18.6 million as a result of this post-closing adjustment. Diamondback O&G is a wholly-owned subsidiary of Diamondback. Under the contribution agreement, the Company is generally responsible for all liabilities and obligations with respect to the contributed properties arising prior to the Contribution and Diamondback is responsible for such liabilities and obligations with respect to the contributed properties arising after the Contribution.

Immediately upon completion of the Contribution, the Company owned a 35% equity interest in Diamondback, rather than leasehold interests in the Company’s Permian Basin acreage. Upon completion of the Diamondback IPO in October 2012, Gulfport owned approximately 21.4% of Diamondback's outstanding common stock. Following the Contribution, the Company has accounted for its interest in Diamondback as an equity investment. In November 2014, the Company sold all of the remaining shares of Diamondback common stock that it received in the Contribution and, as of March 31, 2015, Gulfport did not own any shares of Diamondback's common stock. See Note 3, "Equity Investments - Diamondback Energy, Inc."

Table of Contents


3.	EQUITY INVESTMENTS

Investments accounted for by the equity method consist of the following as of March 31, 2015 and December 31, 2014:



			Carrying Value				(Income) loss from equity method investments
	Approximate Ownership %		March 31, 2015		December 31, 2014		Three months ended March 31,
	Approximate Ownership %		March 31, 2015		December 31, 2014		2015			2014
			(In thousands)
Investment in Tatex Thailand II, LLC	23.5	%	$	—	$	—	$	—		$	—
Investment in Tatex Thailand III, LLC	17.9	%	—		—		—			49
Investment in Grizzly Oil Sands ULC	24.9999	%	167,186		180,218		4,142			2,001
Investment in Bison Drilling and Field Services LLC	—	%	—		—		—			1,933
Investment in Muskie Proppant LLC	—	%	—		—		—			534
Investment in Timber Wolf Terminals LLC	50.0	%	1,007		1,013		6			—
Investment in Windsor Midstream LLC	22.5	%	32,292		13,505		(18,787		)	(168		)
Investment in Stingray Pressure Pumping LLC	—	%	—		—		—			513
Investment in Stingray Cementing LLC	50.0	%	2,254		2,647		67			95
Investment in Blackhawk Midstream LLC	48.5	%	—		—		(7,217		)	(84,787		)
Investment in Stingray Logistics LLC	—	%	—		—		—			81
Investment in Diamondback Energy, Inc.	—	%	—		—		—			(48,767		)
Investment in Stingray Energy Services LLC	50.0	%	6,167		5,718		10			41
Investment in Sturgeon Acquisitions LLC	25.0	%	22,258		22,507		(568		)	—
Investment in Mammoth Energy Partners LP	30.5	%	143,807		143,973		2,372			—
			$	374,971	$	369,581	$	(19,975	)	$	(128,475	)

The tables below summarize financial information for the Company's equity investments as of March 31, 2015 and December 31, 2014.

Summarized balance sheet information:



	March 31, 2015		December 31, 2014
	March 31, 2015		December 31, 2014
	(In thousands)
Current assets	$	151,752	$	181,060
Noncurrent assets	$	1,419,656	$	1,306,891
Current liabilities	$	55,369	$	114,506
Noncurrent liabilities	$	213,050	$	230,062

Summarized results of operations:



	Three months ended March 31,
	2015		2014
	(In thousands)
Gross revenue	$	133,556	$	158,281
Net income	$	90,668	$	181,505

Tatex Thailand II, LLC

Table of Contents

The Company has an indirect ownership interest in Tatex Thailand II, LLC (“Tatex”). Tatex holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC (“APICO”), an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering approximately 243,000 acres which includes the Phu Horm Field.

Tatex Thailand III, LLC

The Company has an ownership interest in Tatex Thailand III, LLC ("Tatex III"). Tatex III previously owned a concession covering approximately 245,000 acres in Southeast Asia. As of December 31, 2014, the Company reviewed its investment in Tatex III and made the decision to allow the concession to expire in 2015. As such, the Company fully impaired the asset as of December 31, 2014. The concession expired in January 2015.

Grizzly Oil Sands ULC

The Company, through its wholly owned subsidiary Grizzly Holdings Inc. ("Grizzly Holdings"), owns an interest in Grizzly Oil Sands ULC ("Grizzly"), a Canadian unlimited liability company. The remaining interest in Grizzly is owned by Grizzly Oil Sands Inc. ("Oil Sands"). As of March 31, 2015, Grizzly had approximately 830,000 acres under lease in the Athabasca and Peace River oil sands regions of Alberta, Canada. Initiation of steam injection at its first project, Algar Lake Phase 1, commenced in January 2014 and first bitumen production was achieved during the second quarter of 2014. In April 2015, Grizzly determined to cease bitumen production at its Algar Lake facility due to the current level of commodity prices. Grizzly intends to monitor market conditions as it assesses future plans for the facility. The Company reviewed its investment in Grizzly at March 31, 2015 and determined no impairment was needed. During the three months ended March 31, 2015, Gulfport paid $6.1 million in cash calls. Grizzly’s functional currency is the Canadian dollar. The Company's investment in Grizzly was decreased by $15.0 million and $7.3 million as a result of a foreign currency translation loss for the three months ended March 31, 2015 and 2014, respectively.

Bison Drilling and Field Services LLC

During 2011, the Company invested in Bison Drilling and Field Services LLC (“Bison”). Bison owns and operates drilling rigs. The Company contributed its investment in Bison to Mammoth Energy Partners LP ("Mammoth") during the fourth quarter of 2014. See below under "-Mammoth Energy Partners LP" for a discussion of the contribution.

Muskie Proppant LLC

During 2011, the Company invested in Muskie Proppant LLC (“Muskie”). Muskie processes and sells sand for use in hydraulic fracturing by the oil and natural gas industry and holds certain rights in a lease covering land in Wisconsin for mining oil and natural gas fracture grade sand. The income from equity method investments presented in the table above reflects any intercompany profit eliminations. The Company contributed its investment in Muskie to Mammoth during the fourth quarter of 2014. See below under "-Mammoth Energy Partners LP" for a discussion of the contribution.

Timber Wolf Terminals LLC

During 2012, the Company invested in Timber Wolf Terminals LLC (“Timber Wolf”). Timber Wolf will operate a crude/condensate terminal and a sand transloading facility in Ohio. During the three months ended March 31, 2015, Gulfport did not pay any cash calls related to Timber Wolf.

Windsor Midstream LLC

During 2012, the Company purchased an ownership interest in Windsor Midstream LLC (“Midstream”). Midstream owned a 28.4% interest in Coronado Midstream LLC ("Coronado"), a gas processing plant in West Texas. During the three months ended March 31, 2015, Gulfport did not pay any cash calls to Midstream.

In March 2015, Coronado was sold to Enlink Midstream Partners, LP ("EnLink") for proceeds of approximately $600 million, consisting of cash and units representing a limited partnership interest in Enlink. Based on preliminary information available at the time of the sale, Midstream recorded an approximately $85.5 million gain on the sale of its investment in Coronado, which amount is subject to change.

Stingray Pressure Pumping LLC

Table of Contents

During 2012, the Company invested in Stingray Pressure Pumping LLC ("Stingray Pressure"). Stingray Pressure provides well completion services. The income from equity method investments presented in the table above reflects any intercompany profit eliminations. The Company contributed its investment in Stingray Pressure to Mammoth during the fourth quarter of 2014. See below under "-Mammoth Energy Partners LP" for a discussion of the contribution.

Stingray Cementing LLC

During 2012, the Company invested in Stingray Cementing LLC ("Stingray Cementing"). Stingray Cementing provides well cementing services. During the three months ended March 31, 2015, the Company did not pay any cash calls related to Stingray Cementing. The income from equity method investments presented in the table above reflects any intercompany profit eliminations.

Blackhawk Midstream LLC

During 2012, the Company invested in Blackhawk Midstream LLC ("Blackhawk"). Blackhawk coordinates gathering, compression, processing and marketing activities for the Company in connection with the development of its Utica Shale acreage. On January 28, 2014, Blackhawk closed on the sale of its equity interests in Ohio Gathering Company, LLC and Ohio Condensate Company, LLC for a purchase price of $190.0 million, of which $14.3 million was placed in escrow. Gulfport received $84.8 million in net proceeds from this transaction in the first quarter of 2014, which is included in income from equity method investments in the consolidated statements of operations. During the first quarter of 2015, the Company received net proceeds of approximately $7.2 million from the release of escrow from the Blackhawk sale, which is included in income from equity method investments in the consolidated statements of operations.

Stingray Logistics LLC

During 2012, the Company invested in Stingray Logistics LLC ("Stingray Logistics"). Stingray Logistics provides well services. The Company contributed its investment in Stingray Logistics to Mammoth during the fourth quarter of 2014. See below under "-Mammoth Energy Partners LP" for a discussion of the contribution.

Diamondback Energy, Inc.

As noted above in Note 2, on October 11, 2012, following the closing of the Diamondback IPO, the Company owned 7,914,036 shares of Diamondback's outstanding common stock for an initial investment in Diamondback valued at $138.5 million. In 2013, the Company sold an aggregate of 4,534,536 shares of its Diamondback common stock and received aggregate net proceeds of approximately $192.7 million. In June and September of 2014, the Company sold 1,000,000 and 1,437,500 shares of its Diamondback common stock, respectively, and received aggregate net proceeds of approximately $197.6 million. On November 12, 2014, the Company sold its remaining 942,000 shares of Diamondback common stock for net proceeds of approximately $60.8 million. As of March 31, 2015, the Company did not own any shares of Diamondback common stock.

The Company accounted for its interest in Diamondback as an equity method investment and had elected the fair value option of accounting for this investment. While the Company's ownership interest in Diamondback was below 20% prior to the Company's sale of its remaining Diamondback common stock in November 2014, the Company had appointed a member of Diamondback's Board. The individual appointed by the Company continues to serve on Diamondback's Board and the Company had influence through this board seat. The Company recognized an aggregate gain of approximately $48.8 million on its investment in Diamondback for three months ended March 31, 2014, which is included in income from equity method investments in the consolidated statements of operations.

Stingray Energy Services LLC

During 2013, the Company invested in Stingray Energy Services LLC ("Stingray Energy"). Stingray Energy provides rental tools for land-based oil and natural gas drilling, completion and workover activities as well as the transfer of fresh water to wellsites. During the three months ended March 31, 2015, the Company did not pay any cash calls to Stingray Energy. The income from equity method investments presented in the table above reflects any intercompany profit eliminations.

Sturgeon Acquisitions LLC

Table of Contents

During 2014, the Company invested $20.7 million and received an ownership interest of 25% in Sturgeon Acquisitions LLC ("Sturgeon"). Sturgeon owns and operates sand mines that produce hydraulic fracturing grade sand. During the three months ended March 31, 2015, Gulfport received $0.8 million in distributions from Sturgeon.

Mammoth Energy Partners LP

In the fourth quarter of 2014, the Company contributed its investments in Stingray Pressure, Stingray Logistics, Bison and Muskie to Mammoth for a 30.5% interest in this newly formed limited partnership. Mammoth has filed a registration statement on Form S-1 with the SEC in connection with its proposed initial public offering. Mammoth intends to pursue this offering in 2015 subject to market conditions.

The Company accounted for the contribution as a sale of financial assets under ASC 860. The Company estimated the fair market value of its investment in Mammoth as of the contribution date using an average of the market approach and the income approach, based on an independently prepared valuation of the contributed assets. The fair market value was reduced by a discount factor for lack of marketability due to the Company's minority interest, resulting in a fair value of $143.5 million for the Company's 30.5% interest. The fair value of the assets and liabilities acquired was estimated using assumptions that represent Level 3 inputs. See "Note 10 - Fair Value Measurements" for additional discussion of the measurement inputs.


4.	OTHER ASSETS

Prepaid expenses and other current assets consist of the following at March 31, 2015: prepaid taxes of $12.1 million, prepaid insurance of $2.3 million and prepaid other expense of $1.4 million.

Other assets consist of the following as of March 31, 2015 and December 31, 2014:




	March 31, 2015		December 31, 2014
	(In thousands)
Plugging and abandonment escrow account on the WCBB properties (Note 8)	$	3,089	$	3,097
Certificates of Deposit securing letter of credit	275		275
Prepaid drilling costs	269		483
Loan commitment fees	14,771		15,390
Deposits	34		34
Other	128		117
	$	18,566	$	19,396


5.	LONG-TERM DEBT

Long-term debt consisted of the following items as of March 31, 2015 and December 31, 2014:




	March 31, 2015			December 31, 2014
	(In thousands)
Revolving credit agreement (1)	$	165,000		$	100,000
Building loans (2)	1,781			1,826
7.75% senior unsecured notes due 2020 (3)	600,000			600,000
Unamortized original issue (discount) premium, net (4)	14,130			14,658
Less: current maturities of long term debt	(1,781		)	(168		)
Debt reflected as long term (5)	$	779,130		$	716,316

The Company capitalized approximately $3.7 million and $2.3 million in interest expense to oil and natural gas properties during the three months ended March 31, 2015 and 2014, respectively.

(1) On December 27, 2013, the Company entered into an Amended and Restated Credit Agreement with The Bank of Nova Scotia, as administrative agent, sole lead arranger and sole bookrunner, Amegy Bank National Association, as syndication

Table of Contents

agent, KeyBank National Association, as documentation agent, and other lenders (The "Amended and Restated Credit Agreement") that provides for a maximum facility amount of $1.5 billion. The Amended and Restated Credit Agreement matures on June 6, 2018. The Company’s wholly-owned subsidiaries have guaranteed the obligations of the Company under the Amended and Restated Credit Agreement.

On April 23, 2014, the Company entered into a first amendment to the Amended and Restated Credit Agreement. The first amendment increased the letter of credit sublimit from $20.0 million to $70.0 million and provided for an increase in the borrowing base availability from $150.0 million to $275.0 million. The first amendment also made certain changes to the lenders and their respective lending commitments thereunder.

On November 26, 2014, the Company entered into a second amendment to the Amended and Restated Credit Agreement. The second amendment changed the definition of EBITDAX to exclude proceeds from the disposition of equity method investments and changed the ratio of funded debt to EBITDAX to be the ratio of net funded debt to EBITDAX. Net funded debt is funded debt less the amount of cash and short-term investments the Company has at the end of the relevant fiscal quarter. The second amendment increases the ratio from 2.00 to 1.00 to 3.50 to 1.00 for the period December 31, 2014 through June 30, 2015 and then decreases the ratio to 3.25 to 1.00 for the periods thereafter. Further, the second amendment increased the letter of credit sublimit from $70.0 million to $125.0 million and provided for an increase in the borrowing base availability from $275.0 million to $450.0 million. As of March 31, 2015, $165.0 million was outstanding under the Amended and Restated Credit Agreement. At March 31, 2015, the total availability for future borrowings under the Amended and Restated Credit Agreement, after giving effect to an aggregate of $68.2 million of letters of credit, was $216.8 million.

On April 10, 2015, the Company entered into a third amendment to the Amended and Restated Credit Agreement. The third amendment increased the borrowing base from $450.0 million to $575.0 million and increased the Company's basket for unsecured debt issuances to $1.2 billion. The third amendment also made certain changes to the lenders and their respective lending commitments thereunder.

Advances under the Amended and Restated Credit Agreement may be in the form of either base rate loans or eurodollar loans. The interest rate for base rate loans is equal to (1) the applicable rate, which ranges from 0.50% to 1.50%, plus (2) the highest of: (a) the federal funds rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by agent as its “prime rate,” and (c) the eurodollar rate for an interest period of one month plus 1.00%. The interest rate for eurodollar loans is equal to (1) the applicable rate, which ranges from 1.50% to 2.50%, plus (2) the London interbank offered rate that appears on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate for deposits in U.S. dollars, or, if such rate is not available, the rate as administered by ICE Benchmark Administration (or any other person that takes over administration of such rate) per annum equal to the offered rate on such other page or service that displays on average London interbank offered rate as determined by ICE Benchmark Administration (or any other person that takes over administration of such rate) for deposits in U.S. dollars, or, if such rate is not available, the average quotations for three major New York money center banks of whom the agent shall inquire as the “London Interbank Offered Rate” for deposits in U.S. dollars. At March 31, 2015, amounts borrowed under the Amended and Restated Credit Agreement bore interest at the Eurodollar rate (2.18%).

The Amended and Restated Credit Agreement contains customary negative covenants including, but not limited to, restrictions on the Company’s and its subsidiaries’ ability to:

•incur indebtedness;

•grant liens;

•pay dividends and make other restricted payments;

•make investments;

•make fundamental changes;

•enter into swap contracts and forward sales contracts;

•dispose of assets;

•change the nature of their business; and

•enter into transactions with affiliates.

Table of Contents

The negative covenants are subject to certain exceptions as specified in the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement also contains certain affirmative covenants, including, but not limited to the following financial covenants:

(i) the ratio of net funded debt to EBITDAX (net income, excluding (i) any non-cash revenue or expense associated with swap contracts resulting from ASC 815 and (ii) any cash or noncash revenue or expense attributable to minority investments plus without duplication and, in the case of expenses, to the extent deducted from revenues in determining net income, the sum of (a) the aggregate amount of consolidated interest expense for such period, (b) the aggregate amount of income, franchise, capital or similar tax expense (other than ad valorem taxes) for such period, (c) all amounts attributable to depletion, depreciation, amortization and asset or goodwill impairment or writedown for such period, (d) all other non-cash charges, (e) exploration costs deducted in determining net income under successful efforts accounting, (f) actual cash distributions received from minority investments, (g) to the extent actually reimbursed by insurance, expenses with respect to liability on casualty events or business interruption, and (h) all reasonable transaction expenses related to dispositions and acquisitions of assets, investments and debt and equity offerings (provided that expenses related to any unsuccessful disposition will be limited to $3.0 million in the aggregate) for a twelve-month period may not be greater than 3.50 to 1.00; for the period December 31, 2014 through June 30, 2015 and 3.25 to 1.00 for the twelve-month period ending September 30, 2015 and periods thereafter; and

(ii) the ratio of EBITDAX to interest expense for a twelve-month period may not be less than 3.00 to 1.00.

The Company was in compliance with all covenants at March 31, 2015.

(2) In March 2011, the Company entered into a new building loan agreement for the office building it occupies in Oklahoma City, Oklahoma. The new loan agreement refinanced the $2.4 million outstanding under the previous building loan agreement. The new agreement matures in February 2016 and bears interest at the rate of 5.82% per annum. The new building loan requires monthly interest and principal payments of approximately $22,000 and is collateralized by the Oklahoma City office building and associated land.

(3) On October 17, 2012, the Company issued $250.0 million in aggregate principal amount of senior unsecured notes due 2020 (the "October Notes") to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in accordance with Regulation S under the Securities Act (the "October Notes Offering") under an indenture among the Company, its subsidiary guarantors and Wells Fargo Bank, National Association, as the trustee (the "senior note indenture"). On December 21, 2012, the Company issued an additional $50.0 million in aggregate principal amount of senior unsecured notes due 2020 (the "December Notes") to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in accordance with Regulation S under the Securities Act ("the December Notes Offering"). The December Notes were issued as additional securities under the senior note indenture. The Company used a portion of the net proceeds from the October Notes Offering to repay all amounts outstanding at such time under its revolving credit facility. The Company used the remaining net proceeds of the October Notes Offering and the net proceeds of the December Notes Offering for general corporate purposes, which included funding a portion of its 2013 capital development plan. The October Notes and the December Notes were exchanged for substantially identical notes in the same aggregate principal amount that were registered under the Securities Act in October 2013 (the "Exchange Notes").

On August 18, 2014, the Company issued an additional $300.0 million in aggregate principal amount of senior unsecured notes due 2020 (the "August Notes") to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in accordance with Regulation S under the Securities Act ("the August Notes Offering"). The August Notes were issued as additional securities under the senior note indenture. The Company used a portion of the net proceeds from the August Notes Offering to repay all amounts outstanding at such time under its revolving credit facility. The Company intends to use the remaining net proceeds of the August Notes Offering for general corporate purposes, including funding a portion of its 2014 and 2015 capital development plans. The October Notes Offering, December Notes Offering and the August Notes Offering are collectively referred to as the "Notes Offerings" and the Exchange Notes, and the August Notes are collectively referred to as the "Old Notes".

In connection with the issuance of the August Notes, the Company and the subsidiary guarantors entered into a registration rights agreement with the initial purchasers on August 18, 2014, pursuant to which the Company and the subsidiary guarantors have agreed to file a registration statement with respect to an offer to exchange the August Notes for a new issue of substantially identical debt securities registered under the Securities Act. The registration statement relating to the exchange offer for the August Notes was filed on November 6, 2014, as amended on February 3, 2015, and declared effective by the SEC on February 4, 2015. The exchange offer for the August Notes was completed in March 2015.

Table of Contents

Under the senior note indenture relating to the Old Notes, interest on the Old Notes accrues at a rate of 7.75% per annum on the outstanding principal amount from October 17, 2012, payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2013. The Old Notes are the Company's senior unsecured obligations and rank equally in the right of payment with all of the Company's other senior indebtedness and senior in right of payment to any future subordinated indebtedness. All of the Company's existing and future restricted subsidiaries that guarantee the Company's secured revolving credit facility or certain other debt guarantee the Old Notes; provided, however, that the Old Notes are not guaranteed by Grizzly Holdings, Inc. and will not be guaranteed by any of the Company's future unrestricted subsidiaries. The Company may redeem some or all of the Old Notes at any time on or after November 1, 2016, at the redemption prices listed in the senior note indenture. Prior to November 1, 2016, the Company may redeem the Old Notes at a price equal to 100% of the principal amount plus a “make-whole” premium. In addition, prior to November 1, 2015, the Company may redeem up to 35% of the aggregate principal amount of the Old Notes with the net proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the Old Notes initially issued remains outstanding immediately after such redemption.

(4) The October Notes were issued at a price of 98.534% resulting in a gross discount of $3.7 million and an effective rate of 8.000%. The December Notes were issued at a price of 101.000% resulting in a gross premium of $0.5 million and an effective rate of 7.531%. The August Notes were issued at a price of 106.000% resulting in a gross premium of $18.0 million and an effective rate of 6.561%. The premium and discount are being amortized using the effective interest method.

(5) Does not reflect the Company's issuance of $350.0 million in aggregate principal amount of 6.625% Senior Notes due 2023 on April 21, 2015. See Note 14 - "Subsequent Events" below.


6.	STOCK-BASED COMPENSATION

During the three months ended March 31, 2015 and 2014, the Company’s stock-based compensation cost was $3.5 million and $4.3 million, respectively, of which the Company capitalized $1.4 million and $1.7 million, respectively, relating to its exploration and development efforts.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. Expected volatilities are based on the historical volatility of the market price of Gulfport’s common stock over a period of time ending on the grant date. Based upon the historical experience of the Company, the expected term of options granted is equal to the vesting period plus one year. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The 2013 Restated Stock Incentive Plan (which amended and restated the 2005 Plan) provides that all options must have an exercise price not less than the fair value of the Company’s common stock on the date of the grant.

No stock options were issued during the three months ended March 31, 2015 and 2014.

The Company has not declared dividends and does not intend to do so in the foreseeable future, and thus did not use a dividend yield. In each case, the actual value that will be realized, if any, depends on the future performance of the common stock and overall stock market conditions. There is no assurance that the value an optionee actually realizes will be at or near the value estimated using the Black-Scholes model.

A summary of the status of stock options and related activity for the three months ended March 31, 2015 is presented below:



	Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (In thousands)
Options outstanding at December 31, 2014	5,000	$	9.07	0.69	$	163
Granted	—	—
Exercised	—	—			—
Forfeited/expired	—	—
Options outstanding at March 31, 2015	5,000	$	9.07	0.44	$	184
Options exercisable at March 31, 2015	5,000	$	9.07	0.44	$	184

The following table summarizes information about the stock options outstanding at March 31, 2015:

Table of Contents



Exercise Price		Number Outstanding	Weighted Average Remaining Life (in years)	Number Exercisable
$	9.07	5,000	0.44	5,000
		5,000		5,000

The following table summarizes restricted stock activity for the three months ended March 31, 2015:



	Number of Unvested Restricted Shares		Weighted Average Grant Date Fair Value
Unvested shares as of December 31, 2014	387,245		$	55.87
Granted	100,226		44.04
Vested	(60,381	)	52.94
Forfeited	—		—
Unvested shares as of March 31, 2015	427,090		$	53.51

Unrecognized compensation expense as of March 31, 2015 related to outstanding stock options and restricted shares was $18.9 million. The expense is expected to be recognized over a weighted average period of 1.55 years.

Table of Contents


7.	EARNINGS PER SHARE

Reconciliations of the components of basic and diluted net income per common share are presented in the tables below:



	Three months ended March 31,
	2015					2014
	Income		Shares	Per Share		Income		Shares	Per Share
	(In thousands, except share data)
Basic:
Net income	$	25,519	85,679,606	$	0.30	$	82,558	85,259,407	$	0.97
Effect of dilutive securities:
Stock options and awards	—		440,424			—		479,219
Diluted:
Net income	$	25,519	86,120,030	$	0.30	$	82,558	85,738,626	$	0.96

There were no potential shares of common stock that were considered anti-dilutive for the three months ended March 31, 2015 and 2014.

Table of Contents


8.	COMMITMENTS AND CONTINGENCIES

Plugging and Abandonment Funds

In connection with the Company's acquisition in 1997 of the remaining 50% interest in its WCBB properties, the Company assumed the seller’s (Chevron) 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. Chevron retained a security interest in production from these properties until the Company's abandonment obligations to Chevron have been fulfilled. Beginning in 2009, the Company could access the trust for use in plugging and abandonment charges associated with the property, although it has not yet done so. As of March 31, 2015, the plugging and abandonment trust totaled approximately $3.1 million. At March 31, 2015, the Company had plugged 463 wells at WCBB since it began its plugging program in 1997, which management believes fulfills its current minimum plugging obligation.

Employment Agreements

Effective November 1, 2012, the Company entered into an employment agreement with Messrs. James Palm, Mike Liddell and Michael G. Moore, each with an initial three-year term expiring on November 1, 2015 subject to automatic one-year extensions unless terminated by either party to the agreement at least 90 days prior to the end of the then current term. These agreements provided for minimum salary and bonus levels, subject to review and potential increase by the Compensation Committee and/or the Board of Directors, as well as participation in the Company's incentive plans and other employee benefits.

Effective February 15, 2014, Gulfport's former Chief Executive Officer, James D. Palm, retired and his employment agreement with the company terminated. The Company entered into a separation agreement with Mr. Palm, under which agreement certain benefits are provided to, and obligations imposed on, Mr. Palm. As of March 31, 2015, the minimum commitment under Mr. Palm's separation agreement was approximately $0.4 million.

Mr. Liddell resigned as the Company's Chairman effective June 2013 at which date his employment agreement with Gulfport terminated. At that same time, the Company entered into a consulting agreement with Mr. Liddell. Mr. Liddell terminated his consulting agreement with the Company effective January 1, 2015.

On April 22, 2014, the Board of Directors appointed Michael G. Moore as Chief Executive Officer of the Company. The Company and Mr. Moore entered into an amended and restated employment agreement. The agreement has a three-year term commencing effective April 22, 2014. This agreement provides, among other things, for a minimum salary level, subject to review and potential increase by the Compensation Committee and/or the Board of Directors, as well as participation in the Company's incentive plans and other employee benefits.

On March 13, 2015, the Company entered into an employment agreement with Ross Kirtley, the Company's Chief Operating Officer. The agreement has a two-year term commencing effective April 22, 2014. This agreement provides, among other things, for a minimum salary level, subject to review and potential increase by the Compensation Committee and/or the Board of Directors, as well as participation in the Company's incentive plans and other employee benefits.

On March 13, 2015, the Company entered into an employment agreement with Aaron Gaydosik, the Company's Chief Financial Officer. The agreement has a three-year term commencing effective August 11, 2014. This agreement provides, among other things, for a minimum salary level, subject to review and potential increase by the Compensation Committee and/or the Board of Directors, as well as participation in the Company's incentive plans and other employee benefits.

The aggregate minimum commitment for future salary at March 31, 2015 under the above listed employment agreements was approximately $2.0 million.

Effective as of April 29, 2015, the Company amended and restated its existing employment agreement with Mr. Moore. For a description of the amendments to Mr. Moore’s employment agreement, see Note 14 - “Subsequent Events.”

Table of Contents

Operating Leases

The Company leases office facilities under non-cancellable operating leases exceeding one year. Future minimum lease commitments under these leases at March 31, 2015 were as follows:



	(In thousands)
Remaining 2015	$	450
2016	524
2017	451
2018	20
2019	—
Total	$	1,445

Other Commitments

Effective October 1, 2014, the Company entered into a Sand Supply Agreement with Muskie that expires on September 30, 2018. Pursuant to this agreement, the Company has agreed to purchase annual and monthly amounts of proppant sand subject to exceptions specified in the agreement at a fixed price per ton, subject to certain adjustments, plus agreed costs and expenses. Failure by either Muskie or the Company to deliver or accept the minimum monthly amount results in damages calculated per ton based on the difference between the monthly obligation amount and the amount actually delivered or accepted, as applicable. The Company did not incurred any expenses related to non-utilization fees during the three months ended March 31, 2015.

Effective October 1, 2014, the Company entered into an Amended and Restated Master Services Agreement for pressure pumping services with Stingray Pressure that expires on September 30, 2018. Pursuant to this agreement, Stingray Pressure has agreed to provide hydraulic fracturing, stimulation and related completion and rework services to the Company and the Company has agreed to pay Stingray Pressure a monthly service fee plus the associated costs of the services provided.

Future minimum commitments under these agreements at March 31, 2015 are as follows:



	(In thousands)
Remaining 2015	$	39,330
2016	52,440
2017	52,440
2018	39,330
Total	$	183,540

Litigation

Due to the nature of the Company's business, it is, from time to time, involved in routine litigation or subject to disputes or claims related to its business activities, including workers' compensation claims and employment related disputes. In the opinion of the Company's management, none of the pending litigation, disputes or claims against the Company, if decided adversely, will have a material adverse effect on its financial condition, cash flows or results of operations.


9.	HEDGING ACTIVITIES

Oil Price Hedging Activities

The Company seeks to reduce its exposure to unfavorable changes in oil and natural gas prices, which are subject to significant and often volatile fluctuation, by entering into fixed price swaps and basis swaps. These contracts allow the Company to predict with greater certainty the effective oil and natural gas prices to be received for hedged production and benefit operating cash flows and earnings when market prices are less than the fixed prices provided in the contracts. However, the Company will not benefit from market prices that are higher than the fixed prices in the contracts for hedged production.

Table of Contents

The Company accounts for its oil and natural gas derivative instruments as cash flow hedges for accounting purposes under FASB ASC 815 and related pronouncements. All derivative contracts are marked to market each quarter end and are included in the accompanying consolidated balance sheets as derivative assets and liabilities.

During 2014 and 2015, the Company entered into fixed price swap contracts for 2014 through 2018 with four financial institutions. The Company’s fixed price swap contracts are tied to the commodity prices on Argus and NYMEX. The Company will receive the fixed price amount stated in the contract and pay to its counterparty the current market price as listed on Argus for Louisiana Light Sweet Crude for oil and on the NYMEX Henry Hub for natural gas. At March 31, 2015, the Company had the following fixed price swaps in place:



	Daily Volume (MMBtu/day)	Weighted Average Price
April 2015	191,250	$	4.05
May 2015 - June 2015	201,250	$	4.05
July 2015 - August 2015	216,875	$	4.04
September 2015	246,875	$	3.97
October 2015 - December 2015	262,500	$	3.96
January 2016 - March 2016	252,500	$	3.82
April 2016	242,500	$	3.81
May 2016 - December 2016	172,500	$	3.73
January 2017 - June 2017	142,500	$	3.67
July 2017 - December 2017	80,000	$	3.45
January 2018 - December 2018	30,000	$	3.40

In addition, the Company has entered into natural gas basis swap positions, which settle on the pricing index to basis differential of MichCon to the NYMEX Henry Hub natural gas price. As of March 31, 2015, the Company's natural gas basis swap positions were as follows:

At March 31, 2015 the fair value of derivative assets and liabilities related to the fixed price swaps and basis swaps was as follows:



	(In thousands)
Short-term derivative instruments - asset	$	93,030
Long-term derivative instruments - asset	$	41,956
Short-term derivative instruments - liability	$	823

All fixed price swaps and basis swaps have been executed in connection with the Company’s oil and natural gas price hedging program. For fixed price swaps and basis swaps qualifying as cash flow hedges pursuant to FASB ASC 815, the realized contract price is included in oil and gas sales in the period for which the underlying production was hedged.

For derivatives designated as cash flow hedges and meeting the effectiveness guidelines of FASB ASC 815, changes in fair value are recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings.

Table of Contents

The Company had no cash flow hedges in place for the three months ending March 31, 2015 and 2014, as all fixed price swaps and basis swaps were deemed ineffective at their inception.

At March 31, 2015, no amounts related to fixed price swaps or basis swaps remain in accumulated other comprehensive loss.

Hedge effectiveness is measured at least quarterly based on the relative changes in fair value between the derivative contract and the hedged item over time. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings. The Company recognized a gain of $31.3 million related to hedge ineffectiveness for the three months ended March 31, 2015 which is included in oil and condensate and gas sales in the consolidated statements of operations. The Company recognized a loss of $8.7 million related to hedge ineffectiveness for the three months ended March 31, 2014 which is included in oil and condensate and gas sales in the consolidated statements of operations.


10.	FAIR VALUE MEASUREMENTS

The Company records certain financial and non-financial assets and liabilities on the balance sheet at fair value in accordance with FASB ASC 820. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The statement establishes market or observable inputs as the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The statement requires fair value measurements be classified and disclosed in one of the following categories:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Significant inputs to the valuation model are unobservable.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

The following tables summarize the Company’s financial and non-financial liabilities by FASB ASC 820 valuation level as of March 31, 2015:



	March 31, 2015
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
Fixed price swaps	$	134,986	$	—	$	—
Liabilities:
Fixed price swaps	$	823	$	—	$	—

The estimated fair value of the Company’s fixed price and basis swap contracts were based upon forward commodity prices based on quoted market prices, adjusted for differentials. See Note 9 for further discussion of the Company's hedging activities.

The estimated fair values of proved oil and gas properties assumed in business combinations are based on a discounted cash flow model and market assumptions as to future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates, and risk-adjusted discount rates. The estimated fair values of unevaluated oil and gas properties was based on geological studies, historical well performance, location and applicable mineral lease terms. Based on the unobservable nature of certain of the inputs the estimated fair value of the oil and gas properties assumed is deemed to use Level 3 inputs. See Note 1 for further discussion of the Company's acquisitions.

The Company estimates asset retirement obligations pursuant to the provisions of FASB ASC Topic 410, “Asset Retirement and Environmental Obligations” (“FASB ASC 410”). The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated

Table of Contents

with oil and gas properties. Given the unobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the asset retirement obligation liability is deemed to use Level 3 inputs. See Note 2 for further discussion of the Company’s asset retirement obligations. Asset retirement obligations incurred during the three months ended March 31, 2015 were approximately $1.6 million.

Due to the unobservable nature of the inputs, the fair value of the Company's initial investment in Mammoth was estimated using assumptions that represent level 3 inputs. The Company estimated the fair value of the investment as of the November 24, 2014 contribution date. See Note 3 for further discussion of the Company's contribution to Mammoth. The estimated fair value of the Company's investment in Mammoth was $143.5 million at December 31, 2014.


11.	FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts on the accompanying consolidated balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and current debt are carried at cost, which approximates market value due to their short-term nature. Long-term debt related to the building loan is carried at cost, which approximates market value based on the borrowing rates currently available to the Company with similar terms and maturities.

At March 31, 2015, the carrying value of the outstanding debt represented by the Notes was $614.1 million, including the remaining unamortized discount of approximately $2.8 million related to the October Notes and the remaining unamortized premium of approximately $0.4 million related to the December Notes and $16.5 million related to the August Notes. Based on the quoted market price, the fair value of the Notes was determined to be approximately $615.8 million at March 31, 2015.

The fair value of the derivative instruments is computed based on the difference between the prices provided by the fixed-price contracts and forward market prices as of the specified date, as adjusted for basis differentials, and for the Company's swaptions, market implied volatilities of the underlying commodity are also evaluated. Forward market prices for oil and natural gas are dependent upon supply and demand factors in such forward market and are subject to significant volatility.


12.	CONDENSED CONSOLIDATING FINANCIAL INFORMATION

On October 17, 2012, December 21, 2012, and August 18, 2014, the Company issued an aggregate of $600.0 million principal amount of its 7.75% Senior Notes. The October Notes and the December Notes were exchanged for substantially identical notes in the same aggregate principal amount that were registered under the Securities Act. The Exchange Notes and the August Notes are collectively referred to as the "Notes". The Notes are guaranteed on a senior unsecured basis by all existing consolidated subsidiaries that guarantee the Company's secured revolving credit facility or certain other debt (the "Guarantors"). The Notes are not guaranteed by Grizzly Holdings, Inc. (the "Non-Guarantor"). The Guarantors are 100% owned by Gulfport (the "Parent"), and the guarantees are full, unconditional, joint and several. There are no significant restrictions on the ability of the Parent or the Guarantors to obtain funds from each other in the form of a dividend or loan.

The following condensed consolidating balance sheets, statements of operations, statements of comprehensive income (loss) and statements of cash flows are provided for the Parent, the Guarantors and the Non-Guarantor and include the consolidating adjustments and eliminations necessary to arrive at the information for the Company on a condensed consolidated basis. The information has been presented using the equity method of accounting for the Parent's ownership of the Guarantors and the Non-Guarantor.

Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEETS

(Amounts in thousands)



	March 31, 2015
	Parent			Guarantors			Non-Guarantor			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	73,667		$	1,072		$	1		$	—		$	74,740
Accounts receivable - oil and gas	79,621			59			—			—			79,680
Accounts receivable - related parties	33			—			—			—			33
Accounts receivable - intercompany	48,154			26			—			(48,180		)	—
Prepaid expenses and other current assets	15,777			—			—			—			15,777
Short-term derivative instruments	93,030			—			—			—			93,030
Total current assets	310,282			1,157			1			(48,180		)	263,260
Property and equipment:
Oil and natural gas properties, full-cost accounting	4,139,903			38,769			—			(710		)	4,177,962
Other property and equipment	19,008			43			—			—			19,051
Accumulated depletion, depreciation, amortization and impairment	(1,140,142		)	(26		)	—			—			(1,140,168		)
Property and equipment, net	3,018,769			38,786			—			(710		)	3,056,845
Other assets:
Equity investments and investments in subsidiaries	365,840			—			167,186			(158,055		)	374,971
Derivative instruments	41,956			—			—			—			41,956
Other assets	18,566			—			—			—			18,566
Total other assets	426,362			—			167,186			(158,055		)	435,493
Total assets	$	3,755,413		$	39,943		$	167,187		$	(206,945	)	$	3,755,598

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	399,912		$	184		$	—		$	—		$	400,096
Accounts payable - intercompany	—			48,072			108			(48,180		)	—
Asset retirement obligation - current	75			—			—			—			75
Short-term derivative instruments	823			—			—			—			823
Deferred tax liability - current	29,622			—			—			—			29,622
Current maturities of long-term debt	1,781			—			—			—			1,781
Total current liabilities	432,213			48,256			108			(48,180		)	432,397
Long-term derivative instrument	—			—			—			—			—
Asset retirement obligation - long-term	18,656			—			—			—			18,656
Deferred tax liability	215,122			—			—			—			215,122
Long-term debt, net of current maturities	779,130			—			—			—			779,130
Total liabilities	1,445,121			48,256			108			(48,180		)	1,445,305

Stockholders' equity:
Common stock	857			—			—			—			857
Paid-in capital	1,832,062			321			233,174			(233,494		)	1,832,063
Accumulated other comprehensive income (loss)	(41,659		)	—			(41,659		)	41,659			(41,659		)
Retained earnings (accumulated deficit)	519,032			(8,634		)	(24,436		)	33,070			519,032
Total stockholders' equity	2,310,292			(8,313		)	167,079			(158,765		)	2,310,293
Total liabilities and stockholders' equity	$	3,755,413		$	39,943		$	167,187		$	(206,945	)	$	3,755,598

Table of Contents

CONDENSED CONSOLIDATING BALANCE SHEETS

(Amounts in thousands)



	December 31, 2014
	Parent			Guarantors			Non-Guarantor			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	141,535		$	804		$	1		$	—		$	142,340
Accounts receivable - oil and gas	103,762			96			—			—			103,858
Accounts receivable - related parties	46			—			—			—			46
Accounts receivable - intercompany	45,222			27			—			(45,249		)	—
Prepaid expenses and other current assets	3,714			—			—			—			3,714
Short-term derivative instruments	78,391			—			—			—			78,391
Total current assets	372,670			927			1			(45,249		)	328,349

Property and equipment:
Oil and natural gas properties, full-cost accounting,	3,887,874			35,990			—			(710		)	3,923,154
Other property and equipment	18,301			43			—			—			18,344
Accumulated depletion, depreciation, amortization and impairment	(1,050,855		)	(24		)	—			—			(1,050,879		)
Property and equipment, net	2,855,320			36,009			—			(710		)	2,890,619
Other assets:
Equity investments and investments in subsidiaries	360,238			—			180,217			(170,874		)	369,581
Derivative instruments	24,448			—			—			—			24,448
Other assets	19,396			—			—			—			19,396
Total other assets	404,082			—			180,217			(170,874		)	413,425
Total assets	$	3,632,072		$	36,936		$	180,218		$	(216,833	)	$	3,632,393

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	371,089		$	321		$	—		$	—		$	371,410
Accounts payable - intercompany	—			45,143			106			(45,249		)	—
Asset retirement obligation - current	75			—			—			—			75
Deferred tax liability	27,070			—			—			—			27,070
Current maturities of long-term debt	168			—			—			—			168
Total current liabilities	398,402			45,464			106			(45,249		)	398,723

Asset retirement obligation - long-term	17,863			—			—			—			17,863
Deferred tax liability	203,195			—			—			—			203,195
Long-term debt, net of current maturities	716,316			—			—			—			716,316
Total liabilities	1,335,776			45,464			106			(45,249		)	1,336,097

Stockholders' equity:
Common stock	856			—			—			—			856
Paid-in capital	1,828,602			322			227,079			(227,401		)	1,828,602
Accumulated other comprehensive income (loss)	(26,675		)	—			(26,675		)	26,675			(26,675		)
Retained earnings (accumulated deficit)	493,513			(8,850		)	(20,292		)	29,142			493,513
Total stockholders' equity	2,296,296			(8,528		)	180,112			(171,584		)	2,296,296
Total liabilities and stockholders' equity	$	3,632,072		$	36,936		$	180,218		$	(216,833	)	$	3,632,393

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Amounts in thousands)



	Three months ended March 31, 2015
	Parent			Guarantors		Non-Guarantor			Eliminations			Consolidated

Total revenues	$	175,832		$	485	$	—		$	—		$	176,317

Costs and expenses:
Lease operating expenses	16,787			193		—			—			16,980
Production taxes	4,253			32		—			—			4,285
Midstream gathering and processing	25,374			7		—			—			25,381
Depreciation, depletion, and amortization	89,908			1		—			—			89,909
General and administrative	10,761			36		2			—			10,799
Accretion expense	190			—		—			—			190
	147,273			269		2			—			147,544

INCOME FROM OPERATIONS	28,559			216		(2		)	—			28,773

OTHER (INCOME) EXPENSE:
Interest expense	8,759			—		—			—			8,759
Interest income	(9		)	—		—			—			(9		)
(Income) loss from equity method investments and investments in subsidiaries	(20,189		)	—		4,142			(3,928		)	(19,975		)
	(11,439		)	—		4,142			(3,928		)	(11,225		)

INCOME (LOSS) BEFORE INCOME TAXES	39,998			216		(4,144		)	3,928			39,998
INCOME TAX EXPENSE	14,479			—		—			—			14,479

NET INCOME (LOSS)	$