Gulfport Energy Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Property And Equipment

Property And Equipment

6 Months Ended

Jun. 30, 2015

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

The major categories of property and equipment and related accumulated depletion, depreciation, amortization and impairment as of June 30, 2015 and December 31, 2014 are as follows:



	June 30, 2015			December 31, 2014
	(In thousands)
Oil and natural gas properties	$	4,798,835		$	3,923,154
Office furniture and fixtures	11,430			10,752
Building	7,833			5,398
Land	3,667			2,194
Total property and equipment	4,821,765			3,941,498
Accumulated depletion, depreciation, amortization and impairment	(1,211,308		)	(1,050,879		)
Property and equipment, net	$	3,610,457		$	2,890,619

Included in oil and natural gas properties at June 30, 2015 is the cumulative capitalization of $86.2 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 $6.3 million and $13.5 million for the three and six months ended June 30, 2015, respectively, and $6.9 million and $13.2 million for the three and six months ended June 30, 2014, respectively.

The following table summarizes the Company’s non-producing properties excluded from amortization by area at June 30, 2015:



	June 30, 2015
	(In thousands)
Colorado	$	5,083
Bakken	96
Southern Louisiana	263
Ohio	1,791,538
Other	45
	$	1,797,025

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

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

The Company performs a ceiling test each quarter. If prices of oil, natural gas and natural gas liquids continue to decline and are not adequately offset by reserve additions from the Company's drilling activities, the Company may be required to write down the value of its oil and gas properties, which could negatively affect its results of operations. No ceiling test impairment was required for the quarter ended June 30, 2015.

A reconciliation of the Company's asset retirement obligation for the six months ended June 30, 2015 and 2014 is as follows:




	June 30, 2015			June 30, 2014
	(In thousands)
Asset retirement obligation, beginning of period	$	17,938		$	15,083
Liabilities incurred	4,077			3,613
Liabilities settled	(1,120		)	(3,097		)
Accretion expense	382			377
Asset retirement obligation as of end of period	21,277			15,976
Less current portion	75			795
Asset retirement obligation, long-term	$	21,202		$	15,181

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

Immediately upon completion of the Contribution, the Company owned a 35% equity interest in Diamondback, rather than leasehold interests in the Company’s Permian Basin acreage. Upon completion of the Diamondback IPO in October 2012, Gulfport owned approximately 21.4% of Diamondback's outstanding common stock. Following the Contribution, the Company has accounted for its interest in Diamondback as an equity investment. In November 2014, the Company sold all of the remaining shares of Diamondback common stock that it received in the Contribution and, as of June 30, 2015, Gulfport did not own any shares of Diamondback's common stock. See Note 3, "Equity Investments - Diamondback Energy, Inc."