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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
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☒ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
OR
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| |
☐ | 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 | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, par value $0.01 per share | | GPOR | | Nasdaq Global Select Market |
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 every Interactive Data File required to be submitted 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 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 October 25, 2019, 159,709,221 shares of the registrant’s common stock were outstanding.
EXPLANATORY NOTE
This Amendment No. 1 to the Quarterly Report on Form 10-Q/A (the “Amendment”) is being filed by Gulfport Energy Corporation (the "Company") to amend the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which was originally filed with the Securities and Exchange Commission (the "SEC") on November 1, 2019 (the “Original Filing”). The Amendment sets forth the information in Original Filing in its entirety, as adjusted for the effects of the restatement described below.
On February 25, 2020, the Audit Committee of the Company's Board of Directors, in conjunction with senior management, concluded that the Company's unaudited consolidated financial statements as of and for the periods ended September 30, 2019 included in the Company's quarterly report on Form 10-Q for the quarterly period ended September 30, 2019 should be restated to correct the error discussed below and should no longer be relied upon.
In the course of preparing the consolidated financial statements for the year ended December 31, 2019, the Company identified a misstatement of its depreciation, depletion and amortization and impairment of oil and gas properties as of September 30, 2019 of approximately $554 million ($436 million net of the tax benefit) related to unrecorded transfers of its unevaluated oil and natural gas properties into the amortization base. This error impacted the related calculations of the Company's depreciation, depletion and amortization and impairment of oil and natural gas properties for the three and nine month periods ended September 2019. Net (loss) income and income tax benefit have also been impacted.
This Amendment is being filed solely to (i) restate the consolidated financial statements for the misstatement described above to the consolidated financial statements (and to make corresponding changes to the Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations sections in this Amendment) and (ii) amend Item 4 (Controls and Procedures).
The following sections in the Original Filing are revised in this Amendment to reflect the restatement:
•Part I - Item 1. Consolidated Financial Statements
•Part I - Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations
•Part I - Item 4. Controls and Procedures
•Part II - Item 1A. Risk Factors
•Part II - Item 6. Exhibits
Our consolidated financial statements as of September 30, 2019 and for the three and nine month periods then ended have been restated to correctly reflect the unproved oil and natural gas properties excluded from amortization and accumulated depletion, depreciation, amortization and impairment in the consolidated balance sheet and the depreciation, depletion and amortization, impairment of oil and natural gas properties, income tax benefit and net loss in the consolidated statements of operations and consolidated statements of cash flows and other related effects on the consolidated financial statements and related footnotes. See restated Note 1 for the adjustments to the consolidated financial statements related to this misstatement. The Company has also made corresponding amendments to Management's Discussion and Analysis of Financial Conditions and Results of Operations.
This Amendment resulted from a material weakness in internal control over financial reporting. As such, Item 4 of Part I has been amended for our assessment of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act. This Amendment includes new certifications from the Company’s Chief Executive Officer and President and Chief Financial Officer dated as of the date of filing of this Amendment, as required by Sections 302 and 906 of the Sarbanes-Oxley act of 2002. The certifications are included in this Amendment as Exhibits 31.1, 31.2, 32.1 and 32.2.
This Amendment does not reflect events occurring after the filing of the Original Filing, or modify or update those disclosures affected by subsequent events, except for the effects of the restatement. Disclosures not affected by the restatement are unchanged and reflect the disclosures made at the time of the Original Filing. Accordingly, this Amended Form 10-Q should be read in conjunction with our filings with the SEC subsequent to the date on which we filed the Original Filing with the SEC.
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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GULFPORT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) |
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (In thousands, except share data) |
| As Restated | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 10,124 |
| | $ | 52,297 |
|
Accounts receivable—oil and natural gas sales | 112,657 |
| | 210,200 |
|
Accounts receivable—joint interest and other | 41,327 |
| | 22,497 |
|
Prepaid expenses and other current assets | 5,658 |
| | 10,017 |
|
Short-term derivative instruments | 134,571 |
| | 21,352 |
|
Total current assets | 304,337 |
| | 316,363 |
|
Property and equipment: | | | |
Oil and natural gas properties, full-cost accounting, $2,260,759 and $2,873,037 excluded from amortization in 2019 and 2018, respectively | 10,551,713 |
| | 10,026,836 |
|
Other property and equipment | 96,233 |
| | 92,667 |
|
Accumulated depletion, depreciation, amortization and impairment | (5,616,988 | ) | | (4,640,098 | ) |
Property and equipment, net | 5,030,958 |
| | 5,479,405 |
|
Other assets: | | | |
Equity investments | 73,962 |
| | 236,121 |
|
Long-term derivative instruments | 23,419 |
| | — |
|
Deferred tax asset | 323,378 |
| | — |
|
Inventories | 7,022 |
| | 5,344 |
|
Operating lease assets | 13,920 |
| | — |
|
Operating lease assets - related parties | 48,449 |
| | — |
|
Other assets | 11,653 |
| | 13,803 |
|
Total other assets | 501,803 |
| | 255,268 |
|
Total assets | $ | 5,837,098 |
| | $ | 6,051,036 |
|
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities | $ | 439,019 |
| | $ | 518,380 |
|
Short-term derivative instruments | 429 |
| | 20,401 |
|
Current portion of operating lease liabilities | 12,848 |
| | — |
|
Current portion of operating lease liabilities - related parties | 21,017 |
| | — |
|
Current maturities of long-term debt | 622 |
| | 651 |
|
Total current liabilities | 473,935 |
| | 539,432 |
|
Long-term derivative instruments | 72,040 |
| | 13,992 |
|
Asset retirement obligation—long-term | 59,819 |
| | 79,952 |
|
Uncertain tax position liability | 3,127 |
| | 3,127 |
|
Non-current operating lease liabilities | 1,072 |
| | — |
|
Non-current operating lease liabilities - related parties | 27,432 |
| | — |
|
Long-term debt, net of current maturities | 2,076,569 |
| | 2,086,765 |
|
Total liabilities | 2,713,994 |
| | 2,723,268 |
|
Commitments and contingencies (Note 8) |
| |
|
Preferred stock, $0.01 par value; 5,000,000 shares authorized (30,000 authorized as redeemable 12% cumulative preferred stock, Series A), and none issued and outstanding | — |
| | — |
|
Stockholders’ equity: | | | |
Common stock - $0.01 par value, 200,000,000 shares authorized, 159,709,221 issued and outstanding at September 30, 2019 and 162,986,045 at December 31, 2018 | 1,597 |
| | 1,630 |
|
Paid-in capital | 4,205,158 |
| | 4,227,532 |
|
Accumulated other comprehensive loss | (50,679 | ) | | (56,026 | ) |
Accumulated deficit | (1,032,972 | ) | | (845,368 | ) |
Total stockholders’ equity | 3,123,104 |
| | 3,327,768 |
|
Total liabilities and stockholders’ equity | $ | 5,837,098 |
| | $ | 6,051,036 |
|
See accompanying notes to consolidated financial statements.
GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (In thousands, except share data) |
| As Restated | | | | As Restated | | |
Revenues: | | | | | | | |
Natural gas sales | $ | 213,227 |
| | $ | 271,167 |
| | $ | 714,500 |
| | $ | 753,261 |
|
Oil and condensate sales | 24,550 |
| | 45,682 |
| | 93,942 |
| | 140,687 |
|
Natural gas liquid sales | 20,324 |
| | 53,776 |
| | 78,136 |
| | 141,883 |
|
Net gain (loss) on natural gas, oil and NGLs derivatives | 27,074 |
| | (9,663 | ) | | 178,169 |
| | (96,737 | ) |
| 285,175 |
| | 360,962 |
| | 1,064,747 |
| | 939,094 |
|
Costs and expenses: |
| | | | | | |
Lease operating expenses | 22,473 |
| | 22,325 |
| | 64,668 |
| | 64,143 |
|
Production taxes | 6,565 |
| | 9,348 |
| | 22,584 |
| | 23,861 |
|
Midstream gathering and processing expenses | 78,435 |
| | 78,913 |
| | 220,732 |
| | 214,546 |
|
Depreciation, depletion and amortization | 163,270 |
| | 119,915 |
| | 406,654 |
| | 352,848 |
|
Impairment of oil and natural gas properties | 571,442 |
| | — |
| | 571,442 |
| | — |
|
General and administrative expenses | 14,659 |
| | 15,848 |
| | 39,482 |
| | 42,955 |
|
Accretion expense | 747 |
| | 1,037 |
| | 3,173 |
| | 3,056 |
|
| 857,591 |
| | 247,386 |
| | 1,328,735 |
| | 701,409 |
|
(LOSS) INCOME FROM OPERATIONS | (572,416 | ) | | 113,576 |
| | (263,988 | ) | | 237,685 |
|
OTHER EXPENSE (INCOME): |
| | | | | | |
Interest expense | 34,095 |
| | 33,253 |
| | 103,095 |
| | 100,922 |
|
Interest income | (338 | ) | | (92 | ) | | (649 | ) | | (162 | ) |
Gain on debt extinguishment | (23,600 | ) | | — |
| | (23,600 | ) | | — |
|
Gain on sale of equity method investments | — |
| | (2,733 | ) | | — |
| | (124,768 | ) |
Loss (income) from equity method investments, net | 43,082 |
| | (12,858 | ) | | 164,391 |
| | (35,282 | ) |
Other expense | 3,194 |
| | 856 |
| | 3,757 |
| | 485 |
|
| 56,433 |
| | 18,426 |
| | 246,994 |
| | (58,805 | ) |
(LOSS) INCOME BEFORE INCOME TAXES | (628,849 | ) | | 95,150 |
| | (510,982 | ) | | 296,490 |
|
INCOME TAX BENEFIT | (144,047 | ) | | — |
| | (323,378 | ) | | (69 | ) |
NET (LOSS) INCOME | $ | (484,802 | ) | | $ | 95,150 |
| | $ | (187,604 | ) | | $ | 296,559 |
|
NET (LOSS) INCOME PER COMMON SHARE: | | | | | | | |
Basic | $ | (3.04 | ) | | $ | 0.55 |
| | $ | (1.17 | ) | | $ | 1.69 |
|
Diluted | $ | (3.04 | ) | | $ | 0.55 |
| | $ | (1.17 | ) | | $ | 1.68 |
|
Weighted average common shares outstanding—Basic | 159,548,477 |
| | 173,057,538 |
| | 160,553,796 |
| | 175,776,312 |
|
Weighted average common shares outstanding—Diluted | 159,548,477 |
| | 173,304,914 |
| | 160,553,796 |
| | 176,440,461 |
|
See accompanying notes to consolidated financial statements.
GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited) |
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| (In thousands) |
| As Restated | | | | As Restated | | |
Net (loss) income | $ | (484,802 | ) | | $ | 95,150 |
| | $ | (187,604 | ) | | $ | 296,559 |
|
Foreign currency translation adjustment | (2,064 | ) | | 3,052 |
| | 5,347 |
| | (5,815 | ) |
Other comprehensive (loss) income | (2,064 | ) | | 3,052 |
| | 5,347 |
| | (5,815 | ) |
Comprehensive (loss) income | $ | (486,866 | ) | | $ | 98,202 |
| | $ | (182,257 | ) | | $ | 290,744 |
|
See accompanying notes to consolidated financial statements.
GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | |
Paid-in Capital | | Accumulated Other Comprehensive (Loss) Income | | Accumulated Deficit | | Total Stockholders’ Equity |
| Common Stock | | | | |
| Shares | | Amount | | | | |
| (In thousands, except share data) |
Balance at January 1, 2019 | 162,986,045 |
| | $ | 1,630 |
| | $ | 4,227,532 |
| | $ | (56,026 | ) | | $ | (845,368 | ) | | $ | 3,327,768 |
|
Net Income | — |
| | — |
| | — |
| | — |
| | 62,242 |
| | 62,242 |
|
Other Comprehensive Income | — |
| | — |
| | — |
| | 3,801 |
| | — |
| | 3,801 |
|
Stock Compensation | — |
| | — |
| | 2,785 |
| | — |
| | — |
| | 2,785 |
|
Shares Repurchased | (3,618,634 | ) | | (37 | ) | | (28,293 | ) | | — |
| | — |
| | (28,330 | ) |
Issuance of Restricted Stock | 54,554 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
|
Balance at March 31, 2019 | 159,421,965 |
| | $ | 1,594 |
| | $ | 4,202,023 |
| | $ | (52,225 | ) | | $ | (783,126 | ) | | $ | 3,368,266 |
|
Net Income | — |
| | — |
| | — |
| | — |
| | 234,956 |
| | 234,956 |
|
Other Comprehensive Income | — |
| | — |
| | — |
| | 3,610 |
| | — |
| | 3,610 |
|
Stock Compensation | — |
| | — |
| | 2,846 |
| | — |
| | — |
| | 2,846 |
|
Shares Repurchased | (296,587 | ) | | (3 | ) | | (2,267 | ) | | — |
| | — |
| | (2,270 | ) |
Issuance of Restricted Stock | 270,639 |
| | 3 |
| | (3 | ) | | — |
| | — |
| | — |
|
Balance at June 30, 2019 | 159,396,017 |
| | $ | 1,594 |
| | $ | 4,202,599 |
| | $ | (48,615 | ) | | $ | (548,170 | ) | | $ | 3,607,408 |
|
Net Loss (As Restated) | — |
| | — |
| | — |
| | — |
| | (484,802 | ) | | (484,802 | ) |
Other Comprehensive Loss | — |
| | — |
| | — |
| | (2,064 | ) | | — |
| | (2,064 | ) |
Stock Compensation | — |
| | — |
| | 2,651 |
| | — |
| | — |
| | 2,651 |
|
Shares Repurchased | (35,977 | ) | | — |
| | (89 | ) | | — |
| | — |
| | (89 | ) |
Issuance of Restricted Stock | 349,181 |
| | 3 |
| | (3 | ) | | — |
| | — |
| | — |
|
Balance at September 30, 2019 (As Restated) | 159,709,221 |
| | $ | 1,597 |
| | $ | 4,205,158 |
| | $ | (50,679 | ) | | $ | (1,032,972 | ) | | $ | 3,123,104 |
|
(Continued on next page)
GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | |
Paid-in Capital | | Accumulated Other Comprehensive (Loss) Income | | Accumulated Deficit | | Total Stockholders’ Equity |
| Common Stock | | | | |
| Shares | | Amount | | | | |
| (In thousands, except share data) |
Balance at January 1, 2018 | 183,105,910 |
| | $ | 1,831 |
| | $ | 4,416,250 |
| | $ | (40,539 | ) | | $ | (1,275,928 | ) | | $ | 3,101,614 |
|
Net Income | — |
| | — |
| | — |
| | — |
| | 90,090 |
| | 90,090 |
|
Other Comprehensive Loss | — |
| | — |
| | — |
| | (5,503 | ) | | — |
| | (5,503 | ) |
Stock Compensation | — |
| | — |
| | 2,685 |
| | — |
| | — |
| | 2,685 |
|
Shares Repurchased | (9,692,356 | ) | | (97 | ) | | (99,900 | ) | | — |
| | — |
| | (99,997 | ) |
Issuance of Restricted Stock | 109,933 |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
|
Balance at March 31, 2018 | 173,523,487 |
| | $ | 1,735 |
| | $ | 4,319,034 |
| | $ | (46,042 | ) | | $ | (1,185,838 | ) | | $ | 3,088,889 |
|
Net Income | — |
| | — |
| | — |
| | — |
| | 111,319 |
| | 111,319 |
|
Other Comprehensive Loss | — |
| | — |
| | — |
| | (3,364 | ) | | — |
| | (3,364 | ) |
Stock Compensation | — |
| | — |
| | 3,355 |
| | — |
| | — |
| | 3,355 |
|
Shares Repurchased | (412,516 | ) | | (4 | ) | | (4,996 | ) | | — |
| | — |
| | (5,000 | ) |
Issuance of Restricted Stock | 191,084 |
| | 2 |
| | (2 | ) | | — |
| | — |
| | — |
|
Balance at June 30, 2018 | 173,302,055 |
| | $ | 1,733 |
| | $ | 4,317,391 |
| | $ | (49,406 | ) | | $ | (1,074,519 | ) | | $ | 3,195,199 |
|
Net Income | — |
| | — |
| | — |
| | — |
| | 95,150 |
| | 95,150 |
|
Other Comprehensive Income | — |
| | — |
| | — |
| | 3,052 |
| | — |
| | 3,052 |
|
Stock Compensation | — |
| | — |
| | 3,614 |
| | — |
| | — |
| | 3,614 |
|
Shares Repurchased | (400,597 | ) | | (4 | ) | | (4,996 | ) | | — |
| | — |
| | (5,000 | ) |
Issuance of Restricted Stock | 317,185 |
| | 3 |
| | (3 | ) | | — |
| | — |
| | — |
|
Balance at September 30, 2018 | 173,218,643 |
| | $ | 1,732 |
| | $ | 4,316,006 |
| | $ | (46,354 | ) | | $ | (979,369 | ) | | $ | 3,292,015 |
|
See accompanying notes to consolidated financial statements.
GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) |
| | | | | | | |
| Nine months ended September 30, |
| 2019 | | 2018 |
| (In thousands) |
| As Restated | | |
Cash flows from operating activities: | | | |
Net (loss) income | $ | (187,604 | ) | | $ | 296,559 |
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | |
Accretion expense | 3,173 |
| | 3,056 |
|
Depletion, depreciation and amortization | 406,654 |
| | 352,848 |
|
Impairment of oil and natural gas properties | 571,442 |
| | — |
|
Stock-based compensation expense | 4,969 |
| | 5,792 |
|
Loss (income) from equity investments | 164,532 |
| | (35,040 | ) |
Gain on debt extinguishment | (23,600 | ) | | — |
|
Change in fair value of derivative instruments | (97,425 | ) | | 106,373 |
|
Deferred income tax benefit | (323,378 | ) | | (69 | ) |
Amortization of loan costs | 4,821 |
| | 4,554 |
|
Gain on sale of equity investments and other assets | (178 | ) | | (124,768 | ) |
Distributions from equity method investments | 2,457 |
| | 1,978 |
|
Changes in operating assets and liabilities: | | | |
Decrease (increase) in accounts receivable—oil and natural gas sales | 97,543 |
| | (10,618 | ) |
Increase in accounts receivable—joint interest and other | (18,830 | ) | | (2,277 | ) |
Increase in accounts receivable—related parties | — |
| | (79 | ) |
Decrease (increase) in prepaid expenses and other current assets | 4,359 |
| | (4,830 | ) |
(Increase) decrease in other assets | (30 | ) | | 1,228 |
|
Increase in accounts payable, accrued liabilities and other | 8,567 |
| | 36,809 |
|
Settlement of asset retirement obligation | (117 | ) | | (719 | ) |
Net cash provided by operating activities | 617,355 |
| | 630,797 |
|
Cash flows from investing activities: | | | |
Additions to other property and equipment | (4,694 | ) | | (7,134 | ) |
Additions to oil and natural gas properties | (646,535 | ) | | (777,104 | ) |
Proceeds from sale of oil and natural gas properties | 10,864 |
| | 4,820 |
|
Proceeds from sale of other property and equipment | 204 |
| | 217 |
|
Proceeds from sale of equity method investments | — |
| | 226,487 |
|
Contributions to equity method investments | (432 | ) | | (2,318 | ) |
Distributions from equity method investments | 1,945 |
| | 446 |
|
Net cash used in investing activities | (638,648 | ) | | (554,586 | ) |
Cash flows from financing activities: | | | |
Principal payments on borrowings | (550,500 | ) | | (165,428 | ) |
Borrowings on line of credit | 640,000 |
| | 225,000 |
|
Repurchase of senior notes | (79,480 | ) | | — |
|
Debt issuance costs and loan commitment fees | (211 | ) | | (772 | ) |
Payments for repurchase of stock | (30,689 | ) | | (109,997 | ) |
Net cash used in financing activities | (20,880 | ) | | (51,197 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash | (42,173 | ) | | 25,014 |
|
Cash, cash equivalents and restricted cash at beginning of period | 52,297 |
| | 99,557 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 10,124 |
| | $ | 124,571 |
|
Supplemental disclosure of cash flow information: | | | |
Interest payments | $ | 85,272 |
| | $ | 75,045 |
|
Income tax receipts | $ | (1,794 | ) | | $ | — |
|
Supplemental disclosure of non-cash transactions: | | | |
Capitalized stock-based compensation | $ | 3,313 |
| | $ | 3,862 |
|
Asset retirement obligation capitalized | $ | 6,846 |
| | $ | 1,094 |
|
Asset retirement obligation removed due to divestiture | $ | (30,035 | ) | | $ | — |
|
Interest capitalized | $ | 2,782 |
| | $ | 3,956 |
|
Fair value of contingent consideration asset on date of divestiture | $ | (1,137 | ) | | $ | — |
|
Foreign currency translation gain (loss) on equity method investments | $ | 5,347 |
| | $ | (5,815 | ) |
See accompanying notes to consolidated financial statements.
GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
1. | BASIS OF PRESENTATION, RESTATEMENT AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
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 that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods reported in all material respects, 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 ("GAAP") 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 included in the Company’s most recent annual report on Form 10-K. Results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results expected for the full year.
Restatement of Previously Issued Unaudited Consolidated Financial Statements
The Company has restated its unaudited consolidated financial statements to correct an error in the balance of unproved oil and natural gas properties, which impacted related depletion, depreciation and amortization and impairment of oil and natural gas properties. This error as of September 30, 2019 was identified in the course of preparing the Company's consolidated financial statements for the year ended December 31, 2019.
The following tables present the effect of the error correction discussed above on all affected line items of our previously issued consolidated balance sheets as of September 30, 2019, consolidated statements of operations for the three and nine months ended September 30, 2019, consolidated statements of comprehensive income for the three and nine months ended September 30, 2019, consolidated statements of stockholders' equity for the three months ended September 30, 2019 and the consolidated statements of cash flows for the nine months ended September 30, 2019.
Consolidated Balance Sheets
|
| | | | | | | | | | |
| September 30, 2019 |
| As Reported | | Adjustments | | As Restated |
| (In thousands) |
Accumulated depletion, depreciation, amortization and impairment | (5,063,413 | ) | | (553,575 | ) | | (5,616,988 | ) |
Property and equipment, net(1) | 5,584,533 |
| | (553,575 | ) | | 5,030,958 |
|
| | | | | |
Deferred tax asset | 205,853 |
| | 117,525 |
| | 323,378 |
|
Total other assets | 384,278 |
| | 117,525 |
| | 501,803 |
|
Total assets | $ | 6,273,148 |
| | (436,050 | ) | | $ | 5,837,098 |
|
| | |
| | |
Accumulated deficit | (596,922 | ) | | (436,050 | ) | | (1,032,972 | ) |
Total stockholders’ equity | 3,559,154 |
| | (436,050 | ) | | 3,123,104 |
|
Total liabilities and stockholders’ equity | $ | 6,273,148 |
| | (436,050 | ) | | $ | 5,837,098 |
|
| | | | | |
(1) Amount excluded from amortization in 2019 | $ | 2,814,334 |
| | (553,575 | ) | | $ | 2,260,759 |
|
Consolidated Statements of Operations
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| As Reported | | Adjustments | | As Restated |
| (In thousands) |
Depreciation, depletion and amortization | $ | 145,490 |
| | 17,780 |
| | $ | 163,270 |
|
Impairment of oil and natural gas properties | 35,647 |
| | 535,795 |
| | 571,442 |
|
Total Costs and Expenses | 304,016 |
| | 553,575 |
| | 857,591 |
|
(LOSS) INCOME FROM OPERATIONS | (18,841 | ) | | (553,575 | ) | | (572,416 | ) |
(LOSS) INCOME BEFORE INCOME TAXES | (75,274 | ) | | (553,575 | ) | | (628,849 | ) |
INCOME TAX BENEFIT | (26,522 | ) | | (117,525 | ) | | (144,047 | ) |
NET (LOSS) INCOME | $ | (48,752 | ) | | (436,050 | ) | | $ | (484,802 | ) |
NET (LOSS) INCOME PER COMMON SHARE: | | | | | |
Basic | $ | (0.31 | ) | | $ | (2.73 | ) | | $ | (3.04 | ) |
Diluted | $ | (0.31 | ) | | $ | (2.73 | ) | | $ | (3.04 | ) |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| As Reported | | Adjustments | | As Restated |
| (In thousands, except share data) |
Depreciation, depletion and amortization | $ | 388,874 |
| | 17,780 |
| | $ | 406,654 |
|
Impairment of oil and natural gas properties | 35,647 |
| | 535,795 |
| | 571,442 |
|
Total Costs and Expenses | 775,160 |
| | 553,575 |
| | 1,328,735 |
|
(LOSS) INCOME FROM OPERATIONS | 289,587 |
| | (553,575 | ) | | (263,988 | ) |
(LOSS) INCOME BEFORE INCOME TAXES | 42,593 |
| | (553,575 | ) | | (510,982 | ) |
INCOME TAX BENEFIT | (205,853 | ) | | (117,525 | ) | | (323,378 | ) |
NET (LOSS) INCOME | $ | 248,446 |
| | (436,050 | ) | | $ | (187,604 | ) |
NET (LOSS) INCOME PER COMMON SHARE: | | | | | |
Basic | $ | 1.55 |
| | $ | (2.72 | ) | | $ | (1.17 | ) |
Diluted | $ | 1.51 |
| | $ | (2.68 | ) | | $ | (1.17 | ) |
Weighted average common shares outstanding—Diluted | 164,820,002 |
| | (4,266,206 | ) | | 160,553,796 |
|
Consolidated Statements of Comprehensive Income
|
| | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| As Reported | | Adjustments | | As Restated |
| (In thousands) |
Net (loss) income | $ | (48,752 | ) | | (436,050 | ) | | $ | (484,802 | ) |
Comprehensive (loss) income | $ | (50,816 | ) | | (436,050 | ) | | $ | (486,866 | ) |
|
| | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| As Reported | | Adjustments | | As Restated |
| (In thousands) |
Net (loss) income | $ | 248,446 |
| | (436,050 | ) | | $ | (187,604 | ) |
Comprehensive (loss) income | $ | 253,793 |
| | (436,050 | ) | | $ | (182,257 | ) |
Consolidated Statements of Stockholders' Equity
|
| | | | | | | | | | |
| Accumulated Deficit |
| As Reported | | Adjustments | | As Restated |
| (In thousands) |
Net loss | $ | (48,752 | ) | | (436,050 | ) | | $ | (484,802 | ) |
Balance at September 30, 2019 | $ | (596,922 | ) | | (436,050 | ) | | $ | (1,032,972 | ) |
|
| | | | | | | | | | |
| Total Stockholders' Equity |
| As Reported | | Adjustments | | As Restated |
| (In thousands) |
Net loss | $ | (48,752 | ) | | (436,050 | ) | | $ | (484,802 | ) |
Balance at September 30, 2019 | $ | 3,559,154 |
| | (436,050 | ) | | $ | 3,123,104 |
|
Consolidated Statements of Cash Flows
|
| | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| As Reported | | Adjustments | | As Restated |
| (In thousands) |
Cash flows from operating activities: | | | | | |
Net (loss) income | $ | 248,446 |
| | (436,050 | ) | | $ | (187,604 | ) |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | |
Depletion, depreciation and amortization | 388,874 |
| | 17,780 |
| | 406,654 |
|
Impairment of oil and natural gas properties | 35,647 |
| | 535,795 |
| | 571,442 |
|
Deferred income tax benefit | (205,853 | ) | | (117,525 | ) | | (323,378 | ) |
Statements of Cash Flows
During the third quarter of 2019, the Company identified that certain activities were misclassified between cash flows from operating activities and cash flows from investing activities. These activities had been included in accounts payable, accrued liabilities and other and presented as cash flows from operating activities while they should have been presented as additions to oil and natural gas properties in cash flows from investing activities. The Company corrected the previously presented statements of cash flows for these additions and in doing so, for the nine months ended September 30, 2018, the consolidated statements of cash flows and the condensed consolidating statements of cash flows were adjusted to increase net cash flows provided by operating activities by $21.8 million with a corresponding increase in net cash flows used in investing activities. The Company has evaluated the effect of the incorrect presentation, both qualitatively and quantitatively, and concluded that it did not have a material impact on any previously filed annual or quarterly consolidated financial statements.
Recently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842). The standard supersedes the previous lease guidance by requiring lessees to recognize a right-to-use asset and lease liability on the balance sheet for all leases with lease terms of greater than one year while maintaining substantially similar classifications for financing and operating leases. Subsequent to ASU 2016-02, the FASB issued several related ASU’s to clarify the application of the lease standard. The Company adopted the new standard as of January 1, 2019 on a prospective basis using the simplified transition method permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements. The comparative information has not been restated and continues to be reported under the historic accounting standards in effect for those periods. See Note 13 for further discussion of the lease standard.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this ASU eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposure, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. Additionally, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. The amendments in this update allow preparers to irrevocably elect the fair value option, on an instrument-by-instrument basis, for eligible financial assets measured at amortized cost basis upon adoption of 2016-13. The guidance is effective for periods after December 15, 2019, with early adoption permitted. The Company is in the process of designing processes and controls needed to comply with the requirements of the new standard. Although the standard will have an impact, the Company does not currently anticipate the ASU to have a material effect on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements on fair value measurements. The amendment will be effective for reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company does not anticipate the new standard to have a material effect on its consolidated financial statements and related disclosures.
In August 2018, the FASB also issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the accounting for costs associated with implementing a cloud computing arrangement in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software. The amendment will be effective for reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company does not anticipate the new standard to have a material effect on its consolidated financial statements and related disclosures.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which provides guidance on how to assess whether certain transactions between participants in a collaborative arrangement should be accounted for within the ASU No. 2014-09 revenue recognition standard discussed above. The amendment will be effective for reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company does not anticipate the new standard to have a material effect on its consolidated financial statements and related disclosures.
In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. This ASU amends various SEC sections within the FASB Codification to align with the updated requirements of certain SEC final rules and includes miscellaneous updates to agree the language in the Codification to the electronic Code of Federal Regulations. ASU No. 2019-07 is effective upon issuance, and the Company has adopted the changes with no material impacts.
The major categories of property and equipment and related accumulated depletion, depreciation, amortization and impairment as of September 30, 2019 and December 31, 2018 are as follows:
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| (In thousands) |
| As Restated | | |
Oil and natural gas properties | $ | 10,551,713 |
| | $ | 10,026,836 |
|
Other depreciable property and equipment | 90,712 |
| | 87,146 |
|
Land | 5,521 |
| | 5,521 |
|
Total property and equipment | 10,647,946 |
| | 10,119,503 |
|
Accumulated depletion, depreciation, amortization and impairment | (5,616,988 | ) | | (4,640,098 | ) |
Property and equipment, net | $ | 5,030,958 |
| | $ | 5,479,405 |
|
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 Company's oil and natural gas properties. At September 30, 2019, the net book value of the Company's oil and gas properties, less related deferred income taxes, was above the calculated ceiling as a result of reduced commodity prices for the period leading up to September 30, 2019. As a result, the Company was required to record an impairment of its oil and natural gas properties under the full cost method of accounting in the amount of $571.4 million (as restated) for the three and nine months ended September 30, 2019. No impairment was required for oil and natural gas properties for the three and nine months ended September 30, 2018. Additional impairments of oil and natural gas properties are expected to occur in upcoming quarters should commodity prices continue below the average of the previous 12 months. However, the amount of any future impairments is difficult to predict as it depends on changes in commodity prices, production rates, proved reserves, evaluation of costs excluded from amortization, future development costs and production costs.
Included in oil and natural gas properties at September 30, 2019 is the cumulative capitalization of $229.6 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 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 $9.8 million and $26.3 million for the three and nine months ended September 30, 2019, respectively, and $10.6 million and $28.8 million for the three and nine months ended September 30, 2018, respectively.
The average depletion rate per Mcfe, which is a function of capitalized costs, future development costs and the related underlying reserves in the periods presented, was $1.05 (as restated) and $0.94 per Mcfe for the nine months ended September 30, 2019 and 2018, respectively.
The following table summarizes the Company’s unproved properties excluded from amortization by area at September 30, 2019: |
| | | |
| September 30, 2019 |
| (In thousands) |
| As Restated |
Utica | $ | 1,112,148 |
|
MidContinent | 1,148,271 |
|
Other | 340 |
|
| $ | 2,260,759 |
|
At December 31, 2018, approximately $2.9 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 in the Utica Shale have five-year extension terms which could extend this time frame beyond five years.
Divestitures
In December of 2018, the Company entered into an agreement to sell its non-core assets located in the West Cote Blanche Bay ("WCBB") and Hackberry fields of Louisiana to an undisclosed third party for a purchase price of approximately $19.7 million. The sale closed on July 3, 2019, subject to customary post-closing terms and conditions, with an effective date of August 15, 2018. The Company received approximately $9.2 million in cash and retained contingent overriding royalty interests. In addition, the Company could also receive contingent payments based on commodity prices exceeding specified thresholds over the two years following the closing date. See Note 9 for further discussion of the contingent consideration arrangement, which was determined to be an embedded derivative. The buyer assumed all plugging and abandonment liabilities associated with these assets which totaled approximately $30.0 million at the divestiture date.
Asset Retirement Obligation
A reconciliation of the Company’s asset retirement obligation for the nine months ended September 30, 2019 and 2018 is as follows: |
| | | | | | | |
| September 30, 2019 | | September 30, 2018 |
| (In thousands) |
Asset retirement obligation, beginning of period | $ | 79,952 |
| | $ | 75,100 |
|
Liabilities incurred | 5,769 |
| | 1,468 |
|
Liabilities settled | (117 | ) | < |