Table of Contents


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 June 30, 2017 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)
3001 Quail Springs Parkway
Oklahoma City, Oklahoma
 
73134
(Address of Principal Executive Offices)
 
(Zip Code)
(405) 252-4600
(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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer  ý    Accelerated filer   ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 August 1, 2017, 182,854,921 shares of the registrant’s common stock were outstanding.



Table of Contents


GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
 
 
 
Page
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

 

1

Table of Contents




GULFPORT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
June 30, 2017
 
December 31, 2016
 
(In thousands, except share data)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
117,555

 
$
1,275,875

Restricted cash

 
185,000

Accounts receivable—oil and natural gas
164,154

 
136,761

Accounts receivable—related parties
185

 
16

Prepaid expenses and other current assets
4,279

 
3,135

Short-term derivative instruments
46,416

 
3,488

Total current assets
332,589

 
1,604,275

Property and equipment:
 
 
 
Oil and natural gas properties, full-cost accounting, $3,109,143 and $1,580,305 excluded from amortization in 2017 and 2016, respectively
8,500,790

 
6,071,920

Other property and equipment
79,521

 
68,986

Accumulated depletion, depreciation, amortization and impairment
(3,937,656
)
 
(3,789,780
)
Property and equipment, net
4,642,655

 
2,351,126

Other assets:
 
 
 
Equity investments
256,265

 
243,920

Long-term derivative instruments
19,761

 
5,696

Deferred tax asset
4,692

 
4,692

Inventories
19,303

 
4,504

Other assets
18,890

 
8,932

Total other assets
318,911

 
267,744

Total assets
$
5,294,155

 
$
4,223,145

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
495,734

 
$
265,124

Asset retirement obligation—current
195

 
195

Short-term derivative instruments
28,106

 
119,219

Current maturities of long-term debt
595

 
276

Total current liabilities
524,630

 
384,814

Long-term derivative instrument
8,198

 
26,759

Asset retirement obligation—long-term
43,934

 
34,081

Long-term debt, net of current maturities
1,802,554

 
1,593,599

Total liabilities
2,379,316

 
2,039,253

Commitments and contingencies (Note 9)

 

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, 182,854,921 issued and outstanding at June 30, 2017 and 158,829,816 at December 31, 2016
1,828

 
1,588

Paid-in capital
4,410,871

 
3,946,442

Accumulated other comprehensive loss
(47,171
)
 
(53,058
)
Retained deficit
(1,450,689
)
 
(1,711,080
)
Total stockholders’ equity
2,914,839

 
2,183,892

Total liabilities and stockholders’ equity
$
5,294,155

 
$
4,223,145


See accompanying notes to consolidated financial statements.

2

Table of Contents


GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands, except share data)
Revenues:
 
 
 
 
 
 
 
Natural gas sales
$
205,367

 
$
75,761

 
$
383,204

 
$
149,855

Oil and condensate sales
29,468

 
23,161

 
53,879

 
39,000

Natural gas liquid sales
24,247

 
10,311

 
55,426

 
19,604

Net gain (loss) on natural gas, oil, and NGL derivatives
64,871

 
(137,392
)
 
164,448

 
(79,657
)
 
323,953

 
(28,159
)
 
656,957

 
128,802

Costs and expenses:

 
 
 
 
 
 
Lease operating expenses
20,721

 
14,661

 
40,024

 
31,318

Production taxes
5,139

 
2,856

 
9,045

 
5,967

Midstream gathering and processing
58,945

 
39,349

 
106,886

 
77,001

Depreciation, depletion and amortization
82,246

 
55,652

 
148,237

 
121,129

Impairment of oil and natural gas properties

 
170,621

 

 
389,612

General and administrative
12,257

 
11,854

 
24,857

 
22,474

Accretion expense
410

 
261

 
692

 
508

Acquisition expense
1,060

 

 
2,358

 

 
180,778

 
295,254

 
332,099

 
648,009

INCOME (LOSS) FROM OPERATIONS
143,175

 
(323,413
)
 
324,858

 
(519,207
)
OTHER (INCOME) EXPENSE:

 
 
 
 
 
 
Interest expense
24,188

 
16,082

 
47,667

 
32,105

Interest income
(48
)
 
(391
)
 
(890
)
 
(485
)
Loss from equity method investments, net
13,301

 
836

 
18,208

 
31,573

Other income
(202
)
 
(7
)
 
(518
)
 
(9
)
 
37,239

 
16,520

 
64,467

 
63,184

INCOME (LOSS) BEFORE INCOME TAXES
105,936

 
(339,933
)
 
260,391

 
(582,391
)
INCOME TAX BENEFIT

 
(157
)
 

 
(348
)
NET INCOME (LOSS)
$
105,936

 
$
(339,776
)
 
$
260,391

 
$
(582,043
)
NET INCOME (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
 
Basic
$
0.58

 
$
(2.71
)
 
$
1.47

 
$
(4.91
)
Diluted
$
0.58

 
$
(2.71
)
 
$
1.47

 
$
(4.91
)
Weighted average common shares outstanding—Basic
182,840,213

 
125,343,723

 
176,591,166

 
118,426,654

Weighted average common shares outstanding—Diluted
182,841,730

 
125,343,723

 
176,842,239

 
118,426,654


See accompanying notes to consolidated financial statements.


3

Table of Contents


GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Net income (loss)
$
105,936

 
$
(339,776
)
 
$
260,391

 
$
(582,043
)
Foreign currency translation adjustment
4,514

 
(684
)
 
5,887

 
8,374

Other comprehensive income (loss)
4,514

 
(684
)
 
5,887

 
8,374

Comprehensive income (loss)
$
110,450

 
$
(340,460
)
 
$
266,278

 
$
(573,669
)




See accompanying notes to consolidated financial statements.


4

Table of Contents


GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

 
 
 
 
 

Paid-in
Capital
 
Accumulated
Other
Comprehensive Income (loss)
 
Retained
Deficit
 
Total
Stockholders’
Equity
 
Common Stock
 
 
 
 
 
Shares
 
Amount
 
 
 
 
 
(In thousands, except share data)
Balance at January 1, 2017
158,829,816

 
$
1,588

 
$
3,946,442

 
$
(53,058
)
 
$
(1,711,080
)
 
$
2,183,892

Net income

 

 

 

 
260,391

 
260,391

Other Comprehensive Income

 

 

 
5,887

 

 
5,887

Stock Compensation

 

 
5,233

 

 

 
5,233

Issuance of Common Stock for the Vitruvian Acquisition, net of related expenses
23,852,117

 
239

 
459,197

 

 

 
459,436

Issuance of Restricted Stock
172,988

 
1

 
(1
)
 

 

 

Balance at June 30, 2017
182,854,921

 
$
1,828

 
$
4,410,871

 
$
(47,171
)
 
$
(1,450,689
)
 
$
2,914,839

 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
108,322,250

 
$
1,082

 
$
2,824,303

 
$
(55,177
)
 
$
(731,371
)
 
$
2,038,837

Net loss

 

 

 

 
(582,043
)
 
(582,043
)
Other Comprehensive Income

 

 

 
8,374

 

 
8,374

Stock Compensation

 

 
6,561

 

 

 
6,561

Issuance of Common Stock in public offerings, net of related expenses
16,905,000

 
169

 
411,542

 

 

 
411,711

Issuance of Restricted Stock
137,916

 
2

 
(2
)
 

 

 

Balance at June 30, 2016
125,365,166

 
$
1,253

 
$
3,242,404

 
$
(46,803
)
 
$
(1,313,414
)
 
$
1,883,440


See accompanying notes to consolidated financial statements.

5

Table of Contents


GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six months ended June 30,
 
2017
 
2016
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
260,391

 
$
(582,043
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Accretion of discount—Asset Retirement Obligation
692

 
508

Depletion, depreciation and amortization
148,237

 
121,129

Impairment of oil and natural gas properties

 
389,612

Stock-based compensation expense
3,140

 
3,936

Loss from equity investments
18,662

 
31,732

Change in fair value of derivative instruments
(166,667
)
 
206,370

Deferred income tax expense (benefit)

 
(348
)
Amortization of loan commitment fees
2,288

 
1,921

Amortization of note discount and premium

 
(1,135
)
Changes in operating assets and liabilities:
 
 
 
Increase in accounts receivable
(27,393
)
 
(19,590
)
Increase in accounts receivable—related party
(169
)
 
(7
)
Increase in prepaid expenses
(1,144
)
 
(3,877
)
Increase in other assets
(4,425
)
 

Increase (decrease) in accounts payable, accrued liabilities and other
53,385

 
(5,412
)
Settlement of asset retirement obligation
(344
)
 
(72
)
Net cash provided by operating activities
286,653

 
142,724

Cash flows from investing activities:
 
 
 
Deductions to cash held in escrow

 
8

Additions to other property and equipment
(10,645
)
 
(13,410
)
Acquisition of oil and natural gas properties
(1,339,222
)
 

Additions to oil and natural gas properties
(460,765
)
 
(257,222
)
Proceeds from sale of oil and natural gas properties
3,730

 
1,612

Funding of restricted cash
185,000

 

Contributions to equity method investments
(24,151
)
 
(16,690
)
Distributions from equity method investments
1,429

 
4,658

Net cash used in investing activities
(1,644,624
)
 
(281,044
)
Cash flows from financing activities:
 
 
 
Principal payments on borrowings
(47
)
 
(1,685
)
Borrowings on line of credit
210,000

 

Borrowings on term loan
2,951

 
11,962

Debt issuance costs and loan commitment fees
(7,889
)
 
(205
)
Proceeds from issuance of common stock, net of offering costs
(5,364
)
 
411,711

Net cash provided by financing activities
199,651

 
421,783

Net (decrease) increase in cash and cash equivalents
(1,158,320
)
 
283,463

Cash and cash equivalents at beginning of period
1,275,875

 
112,974

Cash and cash equivalents at end of period
$
117,555

 
$
396,437

Supplemental disclosure of cash flow information:
 
 
 
Interest payments
$
48,118

 
$
35,026

Income tax payments
$

 
$

Supplemental disclosure of non-cash transactions:
 
 
 
Capitalized stock based compensation
$
2,093

 
$
2,625

Asset retirement obligation capitalized
$
9,505

 
$
3,195

Interest capitalized
$
6,699

 
$
3,707

Foreign currency translation gain on equity method investments
$
5,887

 
$
8,374

 See accompanying notes to consolidated financial statements.

6

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 and six month periods ended June 30, 2017 are not necessarily indicative of the results expected for the full year.
1.
ACQUISITIONS
Vitruvian Acquisition
In December 2016, the Company, through its wholly-owned subsidiary Gulfport MidCon LLC (“Gulfport MidCon”) (formerly known as SCOOP Acquisition Company, LLC), entered into an agreement to acquire certain assets of Vitruvian II Woodford, LLC (“Vitruvian”), an unrelated third-party seller (the “Vitruvian Acquisition”). The assets included in the Vitruvian Acquisition include 46,400 net surface acres located in Grady, Stephens and Garvin Counties, Oklahoma. On February 17, 2017, the Company completed the Vitruvian Acquisition for a total initial purchase price of approximately $1.85 billion, consisting of $1.35 billion in cash, subject to certain adjustments, and approximately 23.9 million shares of the Company’s common stock (of which approximately 5.2 million shares were placed in an indemnity escrow). The cash portion of the purchase price was funded with the net proceeds from the December 2016 common stock and senior note offerings and cash on hand. Acquisition costs of $1.1 million and $2.4 million were incurred during the three and six months ended June 30, 2017, respectively, related to the Vitruvian Acquisition.
Allocation of Purchase Price    
The Vitruvian 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 February 17, 2017 acquisition date. The fair value of the assets acquired and liabilities assumed was estimated using assumptions that represent Level 3 inputs. See Note 11 for additional discussion of the measurement inputs.
The Company estimated that the consideration paid in the Vitruvian 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 Vitruvian Acquisition to acquire the properties and the fair value amount of the assets acquired as of February 17, 2017. Both the consideration paid and the fair value assigned to the assets is preliminary and subject to adjustment.

7

Table of Contents


 
 
(In thousands)
Consideration:
 
 
     Cash, net of purchase price adjustments
 
$
1,354,093

     Fair value of Gulfport’s common stock issued
 
464,639

Total Consideration
 
$
1,818,732

 
 
 
Estimated Fair value of identifiable assets acquired and liabilities assumed:
 
 
     Oil and natural gas properties
 
 
       Proved properties
 
$
362,264

       Unproved properties
 
1,462,957

     Asset retirement obligations
 
(6,489
)
Total fair value of net identifiable assets acquired
 
$
1,818,732


The equity consideration included in the initial purchase price was based on an equity offering price of $20.96 on December 15, 2016. The decrease in the price of Gulfport’s common stock from $20.96 on December 15, 2016 to $19.48 on February 17, 2017 resulted in a decrease to the fair value of the total consideration paid as compared to the initial purchase price of approximately $35.3 million, which resulted in a closing date fair value lower than the initial purchase price.
Post-Acquisition Operating Results
    
For the three months ended June 30, 2017 and the period from the acquisition date of February 17, 2017 to June 30, 2017, the assets acquired in the Vitruvian Acquisition have contributed the following amounts of revenue to the Company’s consolidated statements of operations. The amount of net income contributed by the assets acquired is not presented below as it is impracticable to calculate due to the Company integrating the acquired assets into its overall operations using the full cost method of accounting.
 
 
 
 
Period from
 
 
 
 
February 17, 2017
 
 
Three months ended
 
to
 
 
June 30, 2017
 
June 30, 2017
 
 
(In thousands)
Revenue
 
$
51,069

 
$
77,997

Pro Forma Information (Unaudited)

The following unaudited pro forma combined financial information presents the Company’s results as though the Vitruvian Acquisition had been completed at January 1, 2016. The pro forma combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the Vitruvian Acquisition taken place on January 1, 2016; furthermore, the financial information is not intended to be a projection of future results.
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In thousands, except share data)
Pro forma revenue
 
$
323,953

 
$
(28,012
)
 
$
692,856

 
$
175,700

Pro forma net income (loss)
 
$
105,936

 
$
(461,007
)
 
$
281,817

 
$
(735,214
)
Pro forma earnings (loss) per share (basic)
 
$
0.58

 
$
(3.09
)
 
$
1.60

 
$
(5.17
)
Pro forma earnings (loss) per share (diluted)
 
$
0.58

 
$
(3.09
)
 
$
1.59

 
$
(5.17
)

8

Table of Contents


2.
PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated depletion, depreciation, amortization and impairment as of June 30, 2017 and December 31, 2016 are as follows:
 
June 30, 2017
 
December 31, 2016
 
(In thousands)
Oil and natural gas properties
$
8,500,790

 
$
6,071,920

Office furniture and fixtures
30,227

 
21,204

Building
44,474

 
42,530

Land
4,820

 
5,252

Total property and equipment
8,580,311

 
6,140,906

Accumulated depletion, depreciation, amortization and impairment
(3,937,656
)
 
(3,789,780
)
Property and equipment, net
$
4,642,655

 
$
2,351,126


Under the full cost method of accounting, the Company is required to perform a ceiling test each quarter. The test determines a limit, or ceiling, on the book value of the oil and natural gas properties. At June 30, 2017, the calculated ceiling was greater than the net book value of the Company’s oil and natural gas properties, thus no ceiling test impairment was required for the six months ended June 30, 2017. An impairment of $170.6 million and $389.6 million was required for oil and natural gas properties for the three and six months ended June 30, 2016, respectively.
Included in oil and natural gas properties at June 30, 2017 is the cumulative capitalization of $146.6 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 $8.3 million and $16.7 million for the three and six months ended June 30, 2017, respectively, and $7.9 million and $15.0 million for the three and six months ended June 30, 2016, respectively.
The following table summarizes the Company’s non-producing properties excluded from amortization by area at June 30, 2017:
 
June 30, 2017
 
(In thousands)
Utica
$
1,614,824

MidCon
1,491,144

Niobrara
2,173

Southern Louisiana
536

Bakken
98

Other
368

 
$
3,109,143

At December 31, 2016, approximately $1.6 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 typically occurs within three to five years. However, the majority of the Company’s non-producing leases have five-year extension terms which could extend this time frame beyond five years.

9

Table of Contents


A reconciliation of the Company’s asset retirement obligation for the six months ended June 30, 2017 and 2016 is as follows:
 
June 30, 2017
 
June 30, 2016
 
(In thousands)
Asset retirement obligation, beginning of period
$
34,276

 
$
26,437

Liabilities incurred
9,505

 
3,195

Liabilities settled
(344
)
 
(72
)
Accretion expense
692

 
508

Asset retirement obligation as of end of period
44,129

 
30,068

Less current portion
195

 
75

Asset retirement obligation, long-term
$
43,934

 
$
29,993

3.
EQUITY INVESTMENTS
Investments accounted for by the equity method consist of the following as of June 30, 2017 and December 31, 2016:
 
 
 
Carrying value
 
(Income) loss from equity method investments

 
Approximate ownership %
 
June 30, 2017
 
December 31, 2016
 
Three months ended June 30,
 
Six months ended June 30,
 
 
 
 
2017
 
2016
 
2017
 
2016
 
 
 
(In thousands)
Investment in Tatex Thailand II, LLC
23.5
%
 
$

 
$

 
$
(211
)
 
$

 
$
(454
)
 
$
(159
)
Investment in Tatex Thailand III, LLC
17.9
%
 

 

 

 

 

 

Investment in Grizzly Oil Sands ULC
24.9999
%
 
51,604

 
45,213

 
208

 
763

 
573

 
24,448

Investment in Timber Wolf Terminals LLC
50.0
%
 
987

 
991

 

 
1

 
4

 
4

Investment in Windsor Midstream LLC
22.5
%
 
270

 
25,749

 
25,545

 
(2,881
)
 
25,234

 
(3,048
)
Investment in Stingray Cementing LLC(1)
%
 

 
1,920

 
77

 
78

 
205

 
108

Investment in Blackhawk Midstream LLC
48.5
%
 

 

 

 

 

 

Investment in Stingray Energy Services LLC(1)
%
 

 
4,215

 
85

 
139

 
282

 
641

Investment in Sturgeon Acquisitions LLC(1)
%
 

 
20,526

 
(139
)
 
134

 
(71
)
 
511

Investment in Mammoth Energy Services, Inc.(1)
25.1
%
 
150,458

 
111,717

 
(12,181
)
 
2,543

 
(10,023
)
 
9,009

Investment in Strike Force Midstream LLC
25.0
%
 
52,946

 
33,589

 
(83
)
 
59

 
2,458

 
59

 
 
 
$
256,265


$
243,920


$
13,301

 
$
836

 
$
18,208

 
$
31,573

 
 
 
 
(1)
On June 5, 2017, Mammoth Energy Services, Inc. acquired Stingray Cementing LLC, Stingray Energy Services LLC and Sturgeon Acquisitions LLC. See below under Mammoth Energy Partners LP/Mammoth Energy Services, Inc. for information regarding these transactions.
 
 
 
 
The tables below summarize financial information for the Company’s equity investments as of June 30, 2017 and December 31, 2016.

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Summarized balance sheet information:
 
June 30, 2017
 
December 31, 2016
 
 
 
(In thousands)
Current assets
$
145,857

 
$
148,733

Noncurrent assets
$
1,414,377

 
$
1,305,407

Current liabilities
$
102,011

 
$
57,173

Noncurrent liabilities
$
137,215

 
$
67,680

Summarized results of operations:    
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Gross revenue
$
99,640

 
$
86,732

 
$
194,118

 
$
130,039

Net loss
$
(67,336
)
 
$
(560
)
 
$
(92,675
)
 
$
(25,868
)
Tatex Thailand II, LLC
The Company has an indirect ownership interest in Tatex Thailand II, LLC (“Tatex II”). Tatex II holds an 8.5% interest in 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 180,000 acres which includes the Phu Horm Field. The Company received $0.5 million and $0.2 million in distributions from Tatex II during the six months ended June 30, 2017 and 2016, respectively.
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, together with Tatex III, made the decision to allow the concession to expire in January 2015. As such, the Company fully impaired the asset as of December 31, 2014.
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 June 30, 2017, 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 level of commodity prices. Grizzly continues to monitor market conditions as it assesses future plans for the facility. The Company reviewed its investment in Grizzly at March 31, 2016 for impairment based on FASB ASC 323 due to certain qualitative factors and as such, engaged an independent third party to assist management in determining fair value calculations of its investment. As a result of the calculated fair values and other qualitative factors, the Company concluded that an other than temporary impairment was required under FASB ASC 323, resulting in an impairment loss of $23.1 million for the three months ended March 31, 2016, which is included in loss from equity method investments, net in the consolidated statements of operations. As of and during the period ended June 30, 2017, commodity prices had increased as compared to the quarter ended March 31, 2016, and there were no impairment indicators that required further evaluation for impairment. If commodity prices decline in the future however, further impairment of the investment in Grizzly may be necessary. During the six months ended June 30, 2017, Gulfport paid $1.2 million in cash calls. Grizzly’s functional currency is the Canadian dollar. The Company’s investment in Grizzly was increased by $4.5 million and $5.8 million as a result of a foreign currency translation gain for the three and six months ended June 30, 2017, respectively. The Company's investment in Grizzly was decreased by $0.6 million as a result of a foreign currency translation loss and increased by $9.7 million as a result of a foreign currency translation gain for the three and six months ended June 30, 2016, respectively.

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Timber Wolf Terminals LLC
During 2012, the Company invested in Timber Wolf Terminals LLC (“Timber Wolf”). Timber Wolf was formed to operate a crude/condensate terminal and a sand transloading facility in Ohio.
Windsor Midstream LLC
At June 30, 2017, the Company held a 22.5% interest in Windsor Midstream LLC (“Midstream”), an entity controlled and managed by an unrelated third party. Midstream previously owned a 28.4% interest in Coronado Midstream LLC (“Coronado”), a gas processing plant in West Texas. In March 2015, Coronado was sold to EnLink Midstream Partners, LP (“EnLink”). As a result of the sale of Coronado to EnLink, Midstream received common units of EnLink, which were subsequently sold by Midstream. During the six months ended June 30, 2017, the Company noted that Midstream had not recorded certain activity and fair value treatment of Midstream's investment in EnLink common units in a timely manner. The corresponding effect of this treatment was immaterial to the Company's previously issued financial statements and the recording of the correction in the current periods' financial statements was not material to the Company's estimated net income for the current full fiscal year. For the three and six months ended June 30, 2017, approximately $23.4 million of the loss from equity method investments, net was related to the out-of-period activity associated with the accounting for Midstream's investment in EnLink common units. The Company received $0.2 million and $4.9 million in distributions from Midstream during the six months ended June 30, 2017 and 2016, respectively.
Stingray Cementing LLC
During 2012, the Company invested in Stingray Cementing LLC (“Stingray Cementing”). Stingray Cementing provides well cementing services. The (income) loss from equity method investments presented in the table above reflects any intercompany profit eliminations. On June 5, 2017, Mammoth Energy Services, Inc. (“Mammoth Energy”) acquired Stingray Cementing. See below under Mammoth Energy Partners LP/Mammoth Energy Services, Inc. for information regarding this transaction.
Blackhawk Midstream LLC
During 2012, the Company invested in Blackhawk Midstream LLC (“Blackhawk”). Blackhawk coordinated gathering, compression, processing and marketing activities for the Company in connection with the development of its Utica Shale acreage. Blackhawk does not have any current activities.
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. The (income) loss from equity method investments presented in the table above reflects any intercompany profit eliminations. On June 5, 2017, Mammoth Energy acquired Stingray Energy. See below under Mammoth Energy Partners LP/Mammoth Energy Services, Inc. for information regarding this transaction.
Sturgeon Acquisitions LLC
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. On June 5, 2017, Mammoth Energy acquired Sturgeon. See below under Mammoth Energy Partners LP/Mammoth Energy Services, Inc. for information regarding this transaction.
Mammoth Energy Partners LP/Mammoth Energy Services, Inc.
In the fourth quarter of 2014, the Company contributed its investments in four entities to Mammoth Energy Partners LP (“Mammoth”) for a 30.5% interest in this entity. Mammoth originally intended to pursue its initial public offering in 2014 or 2015; however, due to low commodity prices, the offering was postponed. In October 2016, Mammoth converted from a limited partnership into a limited liability company named Mammoth Energy Partners LLC (“Mammoth LLC”) and the Company and the other members of Mammoth LLC contributed their interests in Mammoth LLC to Mammoth Energy. The Company received 9,150,000 shares of Mammoth Energy common stock in return for its contribution. Following the contribution, Mammoth Energy completed its initial public offering (the “IPO”) of 7,750,000 shares of its common stock at a

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public offering price of $15.00 per share, of which 7,500,000 shares were sold by Mammoth Energy, and 250,000 shares were sold by certain selling stockholders, including 76,250 shares sold by the Company for which it received net proceeds of $1.1 million.
On June 5, 2017, the Company contributed all of its membership interests in Sturgeon (which owns Taylor Frac, LLC, Taylor Real Estate Investments, LLC and South River Road, LLC), Stingray Energy and Stingray Cementing to Mammoth Energy in exchange for approximately 2.0 million shares of Mammoth Energy common stock. As of June 30, 2017, the Company held approximately 25.1% of Mammoth Energy’s outstanding common stock. The Company accounted for the transactions as a sale of financial assets under FASB ASC 860. The Company valued the shares of Mammoth Energy common stock it received in the transactions at $18.50 per share, which was the closing price of Mammoth Energy common stock on June 5, 2017. The Company recognized a gain of $12.5 million from the transactions, which is included in loss from equity method investments, net in the accompanying consolidated statements of operations.
The Company’s investment in Mammoth Energy was increased by a $0.02 million and $0.1 million foreign currency gain resulting from Mammoth Energy’s foreign subsidiary for the three and six months ended June 30, 2017, respectively. The Company's investment in Mammoth Energy was decreased by a $0.1 million and $1.3 million foreign currency loss resulting from Mammoth Energy's foreign subsidiary for the three and six months ended June 30, 2016, respectively. The (income) loss from equity method investments presented in the table above reflects any intercompany profit eliminations.
Strike Force Midstream LLC
In February 2016, the Company, through its wholly owned subsidiary Gulfport Midstream Holdings, LLC (“Midstream Holdings”), entered into an agreement with Rice Midstream Holdings LLC (“Rice”), a subsidiary of Rice Energy Inc., to develop natural gas gathering assets in eastern Belmont County and Monroe County, Ohio (the “dedicated areas”). The Company contributed certain gathering assets for a 25% interest in the newly formed entity called Strike Force Midstream LLC (“Strike Force”). Rice acts as operator and owns the remaining 75% interest in Strike Force. Construction of the gathering assets, which is underway, is expected to provide gathering services for Gulfport operated wells and connectivity of existing dry gas gathering systems. During the six months ended June 30, 2017, Gulfport paid $23.0 million in cash calls to Strike Force and received distributions of $1.2 million from Strike Force. During the six months ended June 30, 2016, Gulfport paid $3.0 million in cash calls to Strike Force.
The Company accounted for its initial contribution to Strike Force at fair value under applicable codification guidance. The Company estimated the fair market value of its investment in Strike Force as of the contribution date using the discounted cash flow method under the income approach, based on an independently prepared valuation of the contributed assets. The fair market value was reduced by a discount factor for the lack of marketability due to the Company’s minority interest, resulting in a fair value of $22.5 million for the Company’s 25% interest. The fair value of the assets contributed was estimated using assumptions that represent Level 3 inputs. See “Note 11 - Fair Value Measurements” for additional discussion of the measurement inputs. The Company has elected to report its proportionate share of Strike Force’s earnings on a one-quarter lag as permitted under FASB ASC 323. The (income) loss from equity method investments presented in the table above reflects any intercompany profit eliminations.
4.
VARIABLE INTEREST ENTITIES
As of June 30, 2017, the Company held variable interests in the following variable interest entities (“VIEs”), but was not the primary beneficiary: Midstream and Timber Wolf. These entities have governing provisions that are the functional equivalent of a limited partnership and are considered VIEs because the limited partners or non-managing members lack substantive kick-out or participating rights which causes the equity owners, as a group, to lack a controlling financial interest. The Company is a limited partner or non-managing member in each of these VIEs and is not the primary beneficiary because it does not have a controlling financial interest. The general partner or managing member has power to direct the activities that most significantly impact the VIEs’ economic performance. The Company also held a variable interest in Strike Force due to the fact that it does not have sufficient equity capital at risk. The Company is not the primary beneficiary of this entity. Prior to Mammoth Energy’s IPO, Mammoth LLC was considered a variable interest entity. As a result of the Company’s contribution of its interest in Mammoth LLC to Mammoth Energy in exchange for Mammoth Energy common stock and Mammoth Energy’s IPO, the Company determined that it no longer held an interest in a variable interest entity. Prior to the contribution of Stingray Energy, Stingray Cementing and Sturgeon to Mammoth Energy, these entities were considered VIEs. As a result of the Company’s contribution of its membership interests in Stingray Energy, Stingray Cementing and Sturgeon to Mammoth Energy in exchange for Mammoth Energy common stock, the Company determined that it no longer held an interest in a variable interest entity.

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The Company accounts for its investment in these VIEs following the equity method of accounting. The carrying amounts of the Company’s equity investments are classified as other non-current assets on the accompanying consolidated balance sheets. The Company’s maximum exposure to loss as a result of its involvement with these VIEs is based on the Company’s capital contributions and the economic performance of the VIEs, and is equal to the carrying value of the Company’s investments which is the maximum loss the Company could be required to record in the consolidated statements of operations. See Note 3 for further discussion of these entities, including the carrying amounts of each investment.
5.
LONG-TERM DEBT
Long-term debt consisted of the following items as of June 30, 2017 and December 31, 2016:
 
June 30, 2017
 
December 31, 2016
 
(In thousands)
Revolving credit agreement (1)
$
210,000

 
$

7.75% senior unsecured notes due 2020 (2)

 

6.625% senior unsecured notes due 2023 (3)
350,000

 
350,000

6.000% senior unsecured notes due 2024 (4)
650,000

 
650,000

6.375% senior unsecured notes due 2025 (5)
600,000

 
600,000

Net unamortized debt issuance costs (6)
(30,804
)
 
(27,174
)
Construction loan (7)
23,953

 
21,049

Less: current maturities of long term debt
(595
)
 
(276
)
Debt reflected as long term
$
1,802,554

 
$
1,593,599

The Company capitalized approximately $3.6 million and $6.7 million in interest expense to undeveloped oil and natural gas properties during the three and six months ended June 30, 2017, respectively. The Company capitalized approximately $1.4 million and $3.0 million in interest expense to undeveloped oil and natural gas properties during the three and six months ended June 30, 2016, respectively. During the three and six months ended June 30, 2016, the Company also capitalized approximately $0.4 million and $0.7 million, respectively, in interest expense related to building construction. Construction on the building was completed in December 2016 and, as such, the Company did not capitalize any interest expense related to building construction for the three and six months ended June 30, 2017.
(1) The Company has entered into a senior secured revolving credit facility, as amended, with The Bank of Nova Scotia, as the lead arranger and administrative agent and certain lenders from time to time party thereto. The credit agreement provides for a maximum facility amount of $1.5 billion and matures on June 6, 2018. On December 13, 2016, the Company further amended its revolving credit facility to, among other things, (a) reset the maturity date to December 31, 2021, (b) adjust lenders, (c) increase the basket for unsecured debt issuances to $1.6 billion, (d) increase the interest rates by 50 basis points, (e) increase the mortgage requirement to 85% (from 80%), and (f) add deposit account control agreement language. On March 29, 2017, the Company further amended its revolving credit facility to, among other things, amend the definition of the term EBITDAX to permit pro forma treatment of acquisitions that involve the payment of consideration by Gulfport and its subsidiaries in excess of $50.0 million and of dispositions of property or series of related dispositions of properties that yields gross proceeds to Gulfport or any of its subsidiaries in excess of $50.0 million. On May 4, 2017, the revolving credit facility was further amended to increase the borrowing base from $700.0 million to $1.0 billion, adjust certain of the Company’s investment baskets and add five additional banks to the syndicate.
As of June 30, 2017, $210.0 million was outstanding under the revolving credit facility and the total availability for future borrowings under this facility, after giving effect to an aggregate of $237.5 million of letters of credit, was $552.5 million. The Company’s wholly-owned subsidiaries have guaranteed the obligations of the Company under the revolving credit facility.
Advances under the revolving credit facility 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 1.00% to 2.00%, 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 2.00% to 3.00%, 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

14

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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 June 30, 2017, amounts borrowed under the credit facility bore interest at the eurodollar rate (3.46%).
The revolving credit facility 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.
The negative covenants are subject to certain exceptions as specified in the revolving credit facility. The revolving credit facility 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 non-cash 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 4.00 to 1.00; 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 June 30, 2017.
(2) On October 17, 2012, the Company issued $250.0 million in aggregate principal amount of 7.75% Senior Notes due 2020 (the “October Notes”) 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 7.75% Senior Notes due 2020 (the “December Notes”) as additional securities under the senior note indenture. On August 18, 2014, the Company issued an additional $300.0 million in aggregate principal amount of 7.75% Senior Notes due 2020 (the “August Notes”). The August Notes were issued as additional securities under the senior note indenture. The October Notes, December Notes and the August Notes are collectively referred to as the “2020 Notes.”
In October 2016, the Company repurchased (in a cash tender offer) or redeemed all of the 2020 Notes, of which $600.0 million in aggregate principal amount was then outstanding, with the net proceeds from the issuance of its 6.000% Senior Notes due 2024 (the “2024 Notes”) discussed below and cash on hand, and the indenture governing the 2020 Notes was fully satisfied and discharged.
(3) On April 21, 2015, the Company issued $350.0 million in aggregate principal amount of 6.625% Senior Notes due 2023 (the “2023 Notes”) to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S.

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persons in accordance with Regulation S under the Securities Act (the “2023 Notes Offering”). The Company received net proceeds of approximately $343.6 million after initial purchaser discounts and commissions and estimated offering expenses.
The 2023 Notes were issued under an indenture, dated as of April 21, 2015, among the Company, the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as trustee. In October 2015, the 2023 Notes were exchanged for a new issue of substantially identical debt securities registered under the Securities Act. Pursuant to the indenture relating to the 2023 Notes, interest on the 2023 Notes accrues at a rate of 6.625% per annum on the outstanding principal amount thereof, payable semi-annually on May 1 and November 1 of each year. The 2023 Notes are not guaranteed by Grizzly Holdings, Inc. and will not be guaranteed by any of the Company’s future unrestricted subsidiaries.
(4) On October 14, 2016, the Company issued the 2024 Notes in aggregate principal amount of $650.0 million. The 2024 Notes were issued under an indenture, dated as of October 14, 2016, among the Company, the subsidiary guarantors party thereto and the senior note indenture trustee (the “2024 Indenture”), 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 “2024 Notes Offering”). Under the 2024 Indenture, interest on the 2024 Notes accrues at a rate of 6.000% per annum on the outstanding principal amount thereof from October 14, 2016, payable semi-annually on April 15 and October 15 of each year, commencing on April 15, 2017. The 2024 Notes will mature on October 15, 2024. The Company received approximately $638.9 million in net proceeds from the offering of the 2024 Notes, which was used, together with cash on hand, to purchase the outstanding 2020 Notes in a concurrent cash tender offer, to pay fees and expenses thereof, and to redeem any of the 2020 Notes that remained outstanding after the completion of the tender offer.
(5) On December 21, 2016, the Company issued $600.0 million in aggregate principal amount of 6.375% Senior Notes due 2025 (the “2025 Notes”). The 2025 Notes were issued under an indenture, dated as of December 21, 2016, among the Company, the subsidiary guarantors party thereto and the senior note indenture trustee (the “2025 Indenture”), to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. Under the 2025 Indenture, interest on the 2025 Notes accrues at a rate of 6.375% per annum on the outstanding principal amount thereof from December 21, 2016, payable semi-annually on May 15 and November 15 of each year, commencing on May 15, 2017. The 2025 Notes will mature on May 15, 2025. The Company received approximately $584.7 million in net proceeds from the offering of the 2025 Notes, which was used, together with the net proceeds from the Company’s December 2016 common stock offering and cash on hand, to fund the cash portion of the purchase price for the Vitruvian Acquisition. See “Note 1 – Acquisitions” for additional discussion of the Vitruvian Acquisition.
(6) In accordance with ASU 2015-03, loan issuance costs related to the 2023 Notes, the 2024 Notes and the 2025 Notes (collectively the “Notes”) have been presented as a reduction to the Notes. At June 30, 2017, total unamortized debt issuance costs were $5.6 million for the 2023 Notes, $10.5 million for the 2024 Notes and $14.6 million for the 2025 Notes. In addition, loan commitment fee costs for the construction loan agreement described immediately below were $0.1 million at June 30, 2017.
(7) On June 4, 2015, the Company entered into a construction loan agreement (the “Construction Loan”) with InterBank for the construction of a new corporate headquarters in Oklahoma City, which was substantially completed in December 2016. The Construction Loan allows for maximum principal borrowings of $24.5 million and required the Company to fund 30% of the cost of the construction before any funds could be drawn, which occurred in January 2016. Interest accrues daily on the outstanding principal balance at a fixed rate of 4.50% per annum and was payable on the last day of the month through May 31, 2017. Monthly interest and principal payments are due beginning June 30, 2017, with the final payment due June 4, 2025. At June 30, 2017, the total borrowings under the Construction Loan were approximately $24.0 million.
6.
COMMON STOCK AND CHANGES IN CAPITALIZATION
Issuance of Common Stock
On March 15, 2016, the Company issued 16,905,000 shares of its common stock in an underwritten public offering (which included 2,205,000 shares sold pursuant to an option to purchase shares sold pursuant to an option to purchase additional shares of the Company’s common stock granted by the Company to, and exercised in full by, the underwriters). The net proceeds from this equity offering were approximately $411.7 million, after underwriting discounts and commissions and offering expenses. The Company used the net proceeds from this offering primarily to fund a portion of its 2017 capital development plan and for general corporate purposes.

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On February 17, 2017, the Company completed the Vitruvian Acquisition for a total initial purchase price of approximately $1.85 billion, consisting of $1.35 billion in cash, subject to certain adjustments, and approximately 23.9 million shares of the Company’s common stock (of which approximately 5.2 million shares are subject to the indemnity escrow). See “Note 1 - Acquisitions” for additional discussion of the Vitruvian Acquisition.
7.
STOCK-BASED COMPENSATION
During the three and six months ended June 30, 2017, the Company’s stock-based compensation cost was $2.6 million and $5.2 million, respectively, of which the Company capitalized $1.1 million and $2.1 million, respectively, relating to its exploration and development efforts. During the three and six months ended June 30, 2016, the Company's stock-based compensation cost was $3.3 million and $6.6 million, respectively, of which the Company capitalized $1.3 million and $2.6 million, respectively, relating to its exploration and development efforts.
The following table summarizes restricted stock activity for the six months ended June 30, 2017:
 
 
Number of
Unvested
Restricted Shares
 
Weighted
Average
Grant Date
Fair Value
Unvested shares as of January 1, 2017
613,056

 
$
32.90

Granted
525,808

 
17.31

Vested
(172,988
)
 
32.06

Forfeited
(66,661
)
 
31.18

Unvested shares as of June 30, 2017
899,215

 
$
24.08

Unrecognized compensation expense as of June 30, 2017 related to restricted shares was $16.1 million. The expense is expected to be recognized over a weighted average period of 1.59 years.

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8.
EARNINGS PER SHARE
Reconciliations of the components of basic and diluted net income (loss) per common share are presented in the tables below:
 
Three months ended June 30,
 
2017
 
2016
 
Income
 
Shares
 
Per
Share
 
(Loss)
 
Shares
 
Per
Share
 
(In thousands, except share data)
Basic:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
105,936

 
182,840,213

 
$
0.58

 
$
(339,776
)
 
125,343,723

 
$
(2.71
)
Effect of dilutive securities:

 

 

 

 

 

Stock options and awards

 
1,517

 

 

 

 

Diluted:

 

 

 

 

 

Net income (loss)
$
105,936

 
182,841,730

 
$
0.58

 
$
(339,776
)
 
125,343,723

 
$
(2.71
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2017
 
2016
 
Income
 
Shares
 
Per
Share
 
(Loss)
 
Shares
 
Per
Share
 
(In thousands, except share data)
Basic:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
260,391

 
176,591,166

 
$
1.47

 
$
(582,043
)
 
118,426,654

 
$
(4.91
)
Effect of dilutive securities:

 

 

 

 

 

Stock options and awards

 
251,073

 

 

 

 

Diluted:

 

 

 

 

 

Net income (loss)
$
260,391

 
176,842,239

 
$
1.47

 
$
(582,043
)
 
118,426,654

 
$
(4.91
)
There were 573,187 and 558,894 shares of common stock that were considered anti-dilutive for the three months and six months ended June 30, 2016, respectively.


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9.
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 June 30, 2017, the plugging and abandonment trust totaled approximately $3.1 million. At June 30, 2017, the Company had plugged 513 wells at WCBB since it began its plugging program in 1997, which management believes fulfills its minimum plugging obligation.
Operating Leases
The Company leases office facilities under non-cancellable operating leases exceeding one year. Future minimum lease commitments under these leases at June 30, 2017 were as follows:
 
 
(In thousands)
Remaining 2017
 
$
70

2018
 
54

Total
 
$
124

Firm Transportation Commitments
The Company had approximately 2,930,000 MMBtu per day of firm sales contracted with third parties. The table below presents these commitments at June 30, 2017 as follows:
 
 
(MMBtu per day)
Remaining 2017
 
728,000

2018
 
498,000

2019
 
579,000

2020
 
506,000

2021
 
371,000

Thereafter
 
248,000

Total
 
2,930,000

The Company also had approximately $3.8 billion of firm transportation contracted with third parties. The table below presents these commitments at June 30, 2017 as follows:
 
 
(In thousands)
Remaining 2017
 
$
105,871

2018
 
246,749

2019
 
243,389

2020
 
240,746

2021
 
239,786

Thereafter
 
2,705,270

Total
 
$
3,781,811



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Other Commitments
Effective October 1, 2014, the Company entered into a Sand Supply Agreement with Muskie Proppant LLC (“Muskie”), a subsidiary of Mammoth Energy, that expires on September 30, 2018. Pursuant to this agreement, as amended, the Company has agreed to purchase annual and monthly amounts of proppant sand subject to exceptions specified in the agreement at agreed pricing 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 incurred $0.7 million and $2.0 million related to non-utilization fees during the three months and six months ended June 30, 2016, respectively. The Company did not incur any non-utilization fees during the six months ended June 30, 2017.
Effective October 1, 2014, the Company entered into an Amended and Restated Master Services Agreement for pressure pumping services with Stingray Pressure Pumping LLC (“Stingray Pressure”), a subsidiary of Mammoth Energy, that expires on September 30, 2018. Pursuant to this agreement, as amended, 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 June 30, 2017 are as follows:
 
 
(In thousands)
Remaining 2017
 
$
26,220

2018
 
39,330

Total
 
$
65,550

Litigation
In two separate complaints, one filed by the State of Louisiana and the Parish of Cameron in the 38th Judicial District Court for the Parish of Cameron on February 9, 2016 and the other filed by the State of Louisiana and the District Attorney for the 15th Judicial District of the State of Louisiana in the 15th Judicial District Court for the Parish of Vermillion on July 29, 2016, the Company was named as a defendant, among 26 oil and gas companies, in the Cameron Parish complaint and among more than 40 oil and gas companies in the Vermillion Parish complaint, or the Complaints. The Complaints were filed under the State and Local Coastal Resources Management Act of 1978, as amended, and the rules, regulations, orders and ordinances adopted thereunder, which the Company referred to collectively as the CZM Laws, and allege that certain of the defendants’ oil and gas exploration, production and transportation operations associated with the development of the East Hackberry and West Hackberry oil and gas fields, in the case of the Cameron Parish complaint, and the Tigre Lagoon oil and gas field, in the case of the Vermillion Parish complaint, were conducted in violation of the CZM Laws. The Complaints allege that such activities caused substantial damage to land and waterbodies located in the coastal zone of the relevant Parish, including due to defendants’ design, construction and use of waste pits and the alleged failure to properly close the waste pits and to clear, re-vegetate, detoxify and return the property affected to its original condition, as well as the defendants’ alleged discharge of waste into the coastal zone. The Complaints also allege that the defendants’ oil and gas activities have resulted in the dredging of numerous canals, which had a direct and significant impact on the state coastal waters within the relevant Parish and that the defendants, among other things, failed to design, construct and maintain these canals using the best practical techniques to prevent bank slumping, erosion and saltwater intrusion and to minimize the potential for inland movement of storm-generated surges, which activities allegedly have resulted in the erosion of marshes and the degradation of terrestrial and aquatic life therein. The Complaints also allege that the defendants failed to re-vegetate, refill, clean, detoxify and otherwise restore these canals to their original condition. In these two petitions, the plaintiffs seek damages and other appropriate relief under the CZM Laws, including the payment of costs necessary to clear, re-vegetate, detoxify and otherwise restore the affected coastal zone of the relevant Parish to its original condition, actual restoration of such coastal zone to its original condition, and the payment of reasonable attorney fees and legal expenses and pre-judgment and post judgment interest.
The Company was served with the Cameron complaint in early May 2016 and with the Vermillion complaint in early September 2016.  The Louisiana Attorney General and the Louisiana Department of Natural Resources intervened in both the Cameron Parish suit and the Vermillion Parish suit.  Shortly after the Complaints were filed, certain defendants removed the cases to the lawsuit to the United States District Court for the Western District of Louisiana.  In both cases, the plaintiffs have filed a motion to remand, but both Courts have stayed further proceedings on the motions to remand pending a ruling from the United States Court of Appeals, Fifth Circuit on similar jurisdictional issues in another matter.  In March 2017, the United States Court of Appeals, Fifth Circuit issued its ruling. Subsequently, the Vermillion Parish case and Cameron Parish case have

20

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both had their respective stays lifted. On July 3, 2017, the Magistrate issued her Report and Recommendation on the Motion to Remand for the Vermillion Parish case, recommending that the plaintiffs' motion to remand be granted.  On July 21, 2017, a group of the defendants in the Vermillion Parish case filed objections to the Magistrate’s remand recommendation. No hearing on the remand motions has been set for the Cameron Parish case. The plaintiffs have granted all defendants an extension of time to file responsive pleadings to the Complaints until the District Courts rule on the motions to remand. The Company has not had the opportunity to evaluate the applicability of the allegations made in such complaints to their operations. Due to the early stages of these matters, management cannot determine the amount of loss, if any, that may result.
In addition, 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.
10.
DERIVATIVE INSTRUMENTS
Natural Gas, Oil and Natural Gas Liquids Derivative Instruments
The Company seeks to reduce its exposure to unfavorable changes in natural gas, oil and natural gas liquids prices, which are subject to significant and often volatile fluctuation, by entering into over-the-counter fixed price swaps, basis swaps and various types of option contracts. These contracts allow the Company to predict with greater certainty the effective natural gas, oil and natural gas liquids 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.
Fixed price swaps are settled monthly based on differences between the fixed price specified in the contract and the referenced settlement price. When the referenced settlement price is less than the price specified in the contract, the Company receives an amount from the counterparty based on the price difference multiplied by the volume. Similarly, when the referenced settlement price exceeds the price specified in the contract, the Company pays the counterparty an amount based on the price difference multiplied by the volume. The prices contained in these fixed price swaps are based on the NYMEX Henry Hub for natural gas, Argus Louisiana Light Sweet Crude for oil, the NYMEX West Texas Intermediate for oil, and Mont Belvieu for propane and pentane. Below is a summary of the Company’s open fixed price swap positions as of June 30, 2017. 
 
Location
Daily Volume (MMBtu/day)
 
Weighted
Average Price
Remaining 2017
NYMEX Henry Hub
681,000

 
$
3.20

2018
NYMEX Henry Hub
669,000

 
$
3.08

2019
NYMEX Henry Hub
57,000

 
$
3.10

 
Location
Daily Volume
(Bbls/day)
 
Weighted
Average Price
Remaining 2017
ARGUS LLS
2,000

 
$
53.12

Remaining 2017
NYMEX WTI
5,000

 
$
54.89

2018
NYMEX WTI
1,000

 
$
55.31

 
Location
Daily Volume
(Bbls/day)
 
Weighted
Average Price
Remaining 2017
Mont Belvieu C3
3,000

 
$
26.63

Remaining 2017
Mont Belvieu C5
250

 
$
49.14

The Company sold call options and used the associated premiums to enhance the fixed price for a portion of the fixed price natural gas swaps listed above. Each short call option has an established ceiling price. When the referenced settlement price is above the price ceiling established by these short call options, the Company pays its counterparty an amount equal to the difference between the referenced settlement price and the price ceiling multiplied by the hedged contract volumes.

21


 
Location
Daily Volume (MMBtu/day)
 
Weighted Average Price
Remaining 2017
NYMEX Henry Hub
65,000

 
$
3.11

2018
NYMEX Henry Hub
103,000

 
$
3.25

2019
NYMEX Henry Hub
35,000

 
$
3.11

For a portion of the combined natural gas derivative instruments containing fixed price swaps and sold call options, the counterparty has an option to extend the original terms an additional twelve months for the period January 2018 through December 2018. The option to extend the terms expires in December 2017. If executed, the Company would have additional fixed price swaps for 30,000 MMBtu per day with the option to double at a weighted average price of $3.36 per MMBtu and additional short call options for 30,000 MMBtu per day with the option to double at a weighted average ceiling price of $3.36 per MMBtu.
In addition, the Company has entered into natural gas basis swap positions, which settle on the pricing index to basis differential of NGPL Mid-Continent to NYMEX Henry Hub. As of June 30, 2017, the Company had the following natural gas basis swap positions for NGPL Mid-Continent.
 
Location
Daily Volume (MMBtu/day)
 
Hedged Differential
Remaining 2017
NGPL Mid-Continent
50,000

 
$
(0.26
)
2018
NGPL Mid-Continent
12,000

 
$
(0.26
)
Balance Sheet Presentation
The Company reports the fair value of derivative instruments on the consolidated balance sheets as derivative instruments under current assets, noncurrent assets, current liabilities and noncurrent liabilities on a gross basis. The Company determines the current and noncurrent classification based on the timing of expected future cash flows of individual trades. The following table presents the fair value of the Company’s derivative instruments on a gross basis at June 30, 2017 and December 31, 2016:
 
June 30, 2017
 
December 31, 2016
 
(In thousands)
Short-term derivative instruments - asset
$
46,416

 
$
3,488

Long-term derivative instruments - asset
$
19,761

 
$
5,696

Short-term derivative instruments - liability
$
28,106

 
$
119,219

Long-term derivative instruments - liability
$
8,198

 
$
26,759

Gains and Losses
The following table presents the gain and loss recognized in Net gain (loss) on natural gas, oil and NGL derivatives in the accompanying consolidated statements of operations for the three and six months ended June 30, 2017 and 2016.
 
Net gain (loss) on derivative instruments
 
Three months ended June 30,
 
Six months ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(In thousands)
Natural gas derivatives
$
56,668

 
$
(133,621
)
 
$
142,945

 
$
(76,621
)
Oil derivatives
8,143

 
(2,628
)
 
19,048

 
(1,346
)
Natural gas liquids derivatives
60

 
(1,143
)
 
2,455

 
(1,690
)
Total
$
64,871

 
$
(137,392
)
 
$
164,448

 
$
(79,657
)

22


Offsetting of derivative assets and liabilities
As noted above, the Company records the fair value of derivative instruments on a gross basis. The following table presents the gross amounts of recognized derivative assets and liabilities in the consolidated balance sheets and the amounts that are subject to offsetting under master netting arrangements with counterparties, all at fair value.
 
As of June 30, 2017
 
Gross Assets (Liabilities)
 
Gross Amounts
 
 
 
Presented in the
 
Subject to Master
 
Net
 
Consolidated Balance Sheets
 
Netting Agreements
 
Amount
 
(In thousands)
Derivative assets
$
66,177

 
$
(27,984
)
 
$
38,193

Derivative liabilities
$
(36,304
)
 
$
27,984

 
$
(8,320
)
 
As of December 31, 2016
 
Gross Assets (Liabilities)
 
Gross Amounts
 
 
 
Presented in the
 
Subject to Master
 
Net
 
Consolidated Balance Sheets
 
Netting Agreements
 
Amount
 
(In thousands)
Derivative assets
$
9,184

 
$
(9,184
)
 
$

Derivative liabilities
$
(145,978
)
 
$
9,184

 
$
(136,794
)
Concentration of Credit Risk
By using derivative instruments that are not traded on an exchange, the Company is exposed to the credit risk of its counterparties. Credit risk is the risk of loss from counterparties not performing under the terms of the derivative instrument. When the fair value of a derivative instrument is positive, the counterparty is expected to owe the Company, which creates credit risk. To minimize the credit risk in derivative instruments, it is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers. The Company’s derivative contracts are with multiple counterparties to lessen its exposure to any individual counterparty. Additionally, the Company uses master netting agreements to minimize credit risk exposure. The creditworthiness of the Company’s counterparties is subject to periodic review. None of the Company’s derivative instrument contracts contain credit-risk related contingent features. Other than as provided by the Company’s revolving credit facility, the Company is not required to provide credit support or collateral to any of its counterparties under its derivative instruments, nor are the counterparties required to provide credit support to the Company.
11.
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, “Fair Value Measurement and Disclosures” (“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.
Valuation techniques that maximize the use of observable inputs are favored. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The assessment of the

23

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significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy. Reclassifications of fair value between Level 1, Level 2 and Level 3 of the fair value hierarchy, if applicable, are made at the end of each quarter.
The following tables summarize the Company’s financial and non-financial assets and liabilities by FASB ASC 820 valuation level as of June 30, 2017 and December 31, 2016:
 
June 30, 2017
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets:
 
 
 
 
 
Derivative Instruments
$

 
$
66,177

 
$

Liabilities:
 
 
 
 
 
Derivative Instruments
$

 
$
36,304

 
$


 
December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets:
 
 
 
 
 
Derivative Instruments
$

 
$
9,184

 
$

Liabilities:
 
 
 
 
 
Derivative Instruments
$

 
$
145,978

 
$


The Company estimates the fair value of all derivative instruments industry-standard models that considered various assumptions including current market and contractual prices for the underlying instruments, implied volatility, time value, nonperformance risk, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be supported by observable data.
The estimated fair values of proved oil and natural 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 natural 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. The asset retirement obligations assumed as part of the business combination were estimated using the same assumptions and methodology as described below. See Note 1 for further discussion of the Vitruvian Acquisition.
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 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 six months ended June 30, 2017 were approximately $9.5 million.
The fair value of the common stock received from Mammoth Energy in connection with the Company’s contribution of all of its membership interests in Sturgeon, Stingray Energy and Stingray Cementing was estimated using Level 1 inputs, as the price per share was a quoted price in an active market for identical Mammoth Energy common shares.
Due to the unobservable nature of the inputs, the fair value of the Company’s investment in Grizzly was estimated using assumptions that represent Level 3 inputs. The Company estimated the fair value of the investment as of March 31, 2016 to be approximately $39.1 million. See Note 3 for further discussion of the Company’s investment in Grizzly.

24

Table of Contents


Due to the unobservable nature of the inputs, the fair value of the Company’s initial investment in Strike Force was estimated using assumptions that represent Level 3 inputs. The Company’s estimated fair value of the investment as of the February 1, 2016 contribution date was $22.5 million. See Note 3 for further discussion of the Company’s contribution to Strike Force.
12.
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 Construction 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 June 30, 2017, the carrying value of the outstanding debt represented by the Notes was approximately $1.6 billion, including the unamortized debt issuance cost of approximately $5.6 million related to the 2023 Notes, approximately $10.5 million related to the 2024 Notes and approximately $14.6 million related to the 2025 Notes. Based on the quoted market price, the fair value of the Notes was determined to be approximately $1.6 billion at June 30, 2017.
13.
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On October 17, 2012, December 21, 2012 and August 18, 2014, the Company issued the 2020 Notes in an aggregate of $600.0 million principal amount. The 2020 Notes were subsequently exchanged for substantially identical notes in the same aggregate principal amount that were registered under the Securities Act. In October 2016, the Company repurchased (in a cash tender offer) or redeemed all of the 2020 Notes, of which $600.0 million in aggregate principal amount was then outstanding, with the net proceeds from the issuance of the 2024 Notes discussed below and cash on hand.
On April 21, 2015, the Company issued $350.0 million in aggregate principal amount of the 2023 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. In connection with the 2023 Notes Offering, the Company and its subsidiary guarantors entered into a registration rights agreement, dated as of April 21, 2015, pursuant to which the Company agreed to file a registration statement with respect to an offer to exchange the 2023 Notes for a new issue of substantially identical debt securities registered under the Securities Act. The exchange offer for the 2023 Notes was completed on October 13, 2015.
On October 14, 2016, the Company issued $650.0 million in aggregate principal amount of the 2024 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 net proceeds from the issuance of the 2024 Notes, together with cash on hand, were used to repurchase or redeem all of the then-outstanding 2020 Notes in October 2016.
On December 21, 2016, the Company issued $600.0 million in aggregate principal amount of the 2025 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 Company used the net proceeds from the issuance of the 2025 Notes, together with the net proceeds from the December 2016 underwritten offering of the Company’s common stock and cash on hand, to fund the cash portion of the purchase price for the Vitruvian Acquisition.
The 2020 Notes were, and the 2023 Notes, the 2024 Notes and the 2025 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 2020 Notes were not, and the 2023 Notes, the 2024 Notes and the 2025 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 (loss) income 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.


25

Table of Contents


CONDENSED CONSOLIDATING BALANCE SHEETS
(Amounts in thousands)
 
June 30, 2017
 
Parent
 
Guarantors
 
Non-Guarantor
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
72,062

 
$
45,493

 
$

 
$

 
$
117,555

Accounts receivable - oil and natural gas
121,565

 
42,589

 

 

 
164,154

Accounts receivable - related parties
185

 

 

 

 
185

Accounts receivable - intercompany
459,503

 
45,749

 

 
(505,252
)
 

Prepaid expenses and other current assets
4,113

 
166

 

 

 
4,279

Short-term derivative instruments
46,416

 

 

 

 
46,416

Total current assets
703,844

 
133,997

 

 
(505,252
)
 
332,589

Property and equipment:
 
 
 
 
 
 
 
 
 
Oil and natural gas properties, full-cost accounting
6,142,757

 
2,358,762

 

 
(729
)
 
8,500,790

Other property and equipment
79,478

 
43

 

 

 
79,521

Accumulated depletion, depreciation, amortization and impairment
(3,937,621
)
 
(35
)
 

 

 
(3,937,656
)
Property and equipment, net
2,284,614

 
2,358,770

 

 
(729
)
 
4,642,655

Other assets:
 
 
 
 
 
 
 
 
 
Equity investments and investments in subsidiaries
2,179,931

 
52,946

 
51,605

 
(2,028,217
)
 
256,265

Long-term derivative instruments
19,761

 

 

 

 
19,761

Deferred tax asset
4,692

 

 

 

 
4,692

Inventories
13,591

 
5,712

 

 

 
19,303

Other assets
10,834

 
8,056

 

 

 
18,890

Total other assets
2,228,809

 
66,714

 
51,605

 
(2,028,217
)
 
318,911

  Total assets
$
5,217,267

 
$
2,559,481

 
$
51,605

 
$
(2,534,198
)
 
$
5,294,155

 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
385,908

 
$
109,826

 
$

 
$

 
$
495,734

Accounts payable - intercompany
39,564

 
465,561

 
127

 
(505,252
)
 

Asset retirement obligation - current
195

 

 

 

 
195

Derivative instruments
28,106

 

 

 

 
28,106

Current maturities of long-term debt
595

 

 

 

 
595

Total current liabilities
454,368

 
575,387

 
127

 
(505,252
)
 
524,630

Long-term derivative instrument
8,198

 

 

 

 
8,198

Asset retirement obligation - long-term
37,308

 
6,626

 

 

 
43,934

Long-term debt, net of current maturities
1,802,554

 

 

 

 
1,802,554

Total liabilities
2,302,428

 
582,013

 
127

 
(505,252
)
 
2,379,316

 
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Common stock
1,828

 

 

 

 
1,828

Paid-in capital
4,410,871

 
1,885,598

 
258,178

 
(2,143,776
)
 
4,410,871

Accumulated other comprehensive (loss) income
(47,171
)
 

 
(45,117
)
 
45,117

 
(47,171
)
Retained (deficit) earnings
(1,450,689
)
 
91,870

 
(161,583
)
 
69,713

 
(1,450,689
)
Total stockholders’ equity
2,914,839

 
1,977,468

 
51,478

 
(2,028,946
)
 
2,914,839

  Total liabilities and stockholders equity
$
5,217,267

 
$
2,559,481

 
$
51,605

 
$
(2,534,198
)
 
$
5,294,155



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CONDENSED CONSOLIDATING BALANCE SHEETS
(Amounts in thousands)
 
December 31, 2016
 
Parent
 
Guarantors
 
Non-Guarantor
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,273,882

 
$
1,993

 
$

 
$

 
$
1,275,875

Restricted Cash
185,000

 

 

 

 
185,000

Accounts receivable - oil and natural gas
137,087

 
37,496

 

 
(37,822
)
 
136,761

Accounts receivable - related parties
16