Quarterly report pursuant to Section 13 or 15(d)

Equity Investments

v3.5.0.2
Equity Investments
9 Months Ended
Sep. 30, 2016
Equity Method Investments and Joint Ventures [Abstract]  
Equity Investments
EQUITY INVESTMENTS
Investments accounted for by the equity method consist of the following as of September 30, 2016 and December 31, 2015:
 
 
 
Carrying value
 
(Income) loss from equity method investments

 
Approximate ownership %
 
September 30, 2016
 
December 31, 2015
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
 
 
2016
 
2015
 
2016
 
2015
 
 
 
(In thousands)
Investment in Tatex Thailand II, LLC
23.5
%
 
$

 
$

 
$
(253
)
 
$

 
$
(412
)
 
$
189

Investment in Tatex Thailand III, LLC
17.9
%
 

 

 

 

 

 

Investment in Grizzly Oil Sands ULC
24.9999
%
 
48,595

 
50,645

 
363

 
58,653

 
24,811

 
71,289

Investment in Timber Wolf Terminals LLC
50.0
%
 
993

 
999

 
3

 

 
7

 
13

Investment in Windsor Midstream LLC
22.5
%
 
25,797

 
27,955

 
(9,014
)
 
(323
)
 
(12,062
)
 
(18,229
)
Investment in Stingray Cementing LLC
50.0
%
 
2,084

 
2,487

 
79

 
(12
)
 
187

 
160

Investment in Blackhawk Midstream LLC
48.5
%
 

 

 

 

 

 
(7,217
)
Investment in Stingray Energy Services LLC
50.0
%
 
4,382

 
5,908

 
294

 
218

 
935

 
539

Investment in Sturgeon Acquisitions LLC
25.0
%
 
22,146

 
22,769

 
112

 
(257
)
 
623

 
(1,316
)
Investment in Mammoth Energy Partners LP
30.5
%
 
120,773

 
131,630

 
2,518

 
3,612

 
11,527

 
11,608

Investment in Strike Force Midstream LLC
25.0
%
 
26,539

 

 
(99
)
 

 
(40
)
 

 
 
 
$
251,309


$
242,393


$
(5,997
)
 
$
61,891

 
$
25,576

 
$
57,036



The tables below summarizes financial information for the Company's equity investments as of September 30, 2016 and December 31, 2015.
Summarized balance sheet information:
 
September 30, 2016
 
December 31, 2015
 
 
 
(In thousands)
Current assets
$
129,401

 
$
105,537

Noncurrent assets
$
1,389,258

 
$
1,293,925

Current liabilities
$
62,882

 
$
56,559

Noncurrent liabilities
$
91,928

 
$
155,995


Summarized results of operations:    
 
Three months ended September 30,
 
Nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Gross revenue
$
76,627

 
$
100,979

 
$
206,666

 
$
364,669

Net (income) loss
$
(35,212
)
 
$
10,063

 
$
(9,344
)
 
$
(35,359
)

Tatex Thailand II, LLC
The Company has an indirect ownership interest in Tatex Thailand II, LLC (“Tatex II”). Tatex II holds 85,122 of the 1,000,000 outstanding shares of APICO, LLC (“APICO”), an international oil and gas exploration company. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering approximately 243,000 acres which includes the Phu Horm Field. During the nine months ended September 30, 2016, the Company received $0.4 million in distributions from Tatex II.
Tatex Thailand III, LLC
The Company has an ownership interest in Tatex Thailand III, LLC ("Tatex III"). Tatex III previously owned a concession covering approximately 245,000 acres in Southeast Asia. As of December 31, 2014, the Company reviewed its investment in Tatex III and made the decision to allow the concession to expire in 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 September 30, 2016, 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 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 (income) loss from equity method investments in the consolidated statements of operations. As of and during the period ended September 30, 2016, 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 nine months ended September 30, 2016, Gulfport paid $14.5 million in cash calls. Grizzly’s functional currency is the Canadian dollar. The Company's investment in Grizzly was decreased by $1.4 million as a result of a foreign currency translation loss and increased by $8.3 million as a result of a foreign currency translation gain for the three and nine months ended September 30, 2016, respectively. The Company's investment in Grizzly was decreased by $11.6 million and $23.3 million as a result of a foreign currency translation loss for the three and nine months ended September 30, 2015, respectively.
Effective October 5, 2012, Grizzly entered into a $125.0 million revolving credit facility, of which Grizzly paid the outstanding balance in full in July 2016. Gulfport paid its share of this amount on June 30, 2016.
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
During 2012, the Company purchased an ownership interest in Windsor Midstream LLC (“Midstream”). Midstream owned a 28.4% interest in Coronado Midstream LLC ("Coronado"), a gas processing plant in West Texas. In March 2015, Coronado was sold to Enlink Midstream Partners, LP ("EnLink") for proceeds of approximately $600.0 million, consisting of cash and units representing a limited partnership interest in Enlink. Midstream recorded an $81.6 million gain on the sale of its investment in Coronado. The Company received $14.2 million in distributions from Midstream during the nine months ended September 30, 2016.
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.
Blackhawk Midstream LLC
During 2012, the Company invested in Blackhawk Midstream LLC ("Blackhawk"). Blackhawk was formed to coordinate gathering, compression, processing and marketing activities for the Company in connection with the development of its Utica Shale acreage. On January 28, 2014, Blackhawk completed the sale of its equity interests in Ohio Gathering Company, LLC and Ohio Condensate Company, LLC for a purchase price of $190.0 million, of which $14.3 million was placed in escrow. During the first quarter of 2015, the Company received net proceeds of approximately $7.2 million from the release of escrow from the Blackhawk sale, which is included in (income) loss from equity method investments in the consolidated statements of operations.
Stingray Energy Services LLC
During 2013, the Company invested in Stingray Energy Services LLC ("Stingray Energy"). Stingray Energy provides rental tools for land-based oil and natural gas drilling, completion and workover activities as well as the transfer of fresh water to wellsites. The (income) loss from equity method investments presented in the table above reflects any intercompany profit eliminations.
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.
Mammoth Energy Partners LP
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 became a wholly-owned subsidiary of Mammoth Energy Services, Inc. ("Mammoth Energy"), and Mammoth Energy closed its initial public offering (the "IPO"). Upon completion of the IPO, the Company owned 24.2% of the outstanding common stock of Mammoth Energy. See Note 16 for further discussion of the initial public offering. The Company reviewed its investment in Mammoth at September 30, 2016 and determined no impairment was needed. If commodity prices decline in the future, an impairment of the investment in Mammoth may result. The Company's investment in Mammoth was increased by a $0.2 million foreign currency gain and decreased by a $1.1 million foreign currency loss resulting from Mammoth's foreign subsidiary for the three and nine months ended September 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 nine months ended September 30, 2016, Gulfport paid $4.0 million in cash calls to Strike Force.
The Company accounted for its 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 12 - 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.