Gulfport Energy Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

LEASES

LEASES

12 Months Ended

Dec. 31, 2022

Nature of Leases

The Company has operating leases on certain equipment with remaining lease durations in excess of one year. The Company recognizes right-of-use asset and lease liability on the balance sheet for all leases with lease terms of greater than one year. Short-term leases that have an initial term of one year or less are not capitalized.

The Company has entered into contracts for drilling rigs with varying terms with third parties to ensure operational continuity, cost control and rig availability in its operations. The Company has concluded its drilling rig contracts are operating leases as the assets are identifiable and the Company has the right to control the identified assets. The Company's drilling rig commitments are typically structured with an initial term of less than one year, although at December 31, 2022, the Company had one active long-term drilling rig contract. These agreements typically include renewal options at the end of the initial term. Due to the nature of the Company's drilling schedules and potential volatility in commodity prices, the Company is unable to determine at contract commencement with reasonable certainty if the renewal options will be exercised; therefore, renewal options are not considered in the lease term for drilling contracts. The operating lease liabilities associated with these rig commitments, when applicable, are based on the minimum contractual obligations, primarily standby rates, and do not include variable amounts based on actual activity in a given period. Pursuant to the full cost method of accounting, these costs are

capitalized as part of oil and natural gas properties on the accompanying consolidated balance sheets. A portion of drilling costs are borne by other interest owners in our wells.

The Company rents office space for its corporate headquarters, field locations and certain other equipment from third parties, which expire at various dates through 2026. These agreements are typically structured with non-cancelable terms of one to five years. The Company has determined these agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. The Company has included any renewal options that it has determined are reasonably certain of exercise in the determination of the lease terms. In July 2022, the Company moved its headquarters to a new location. The impact of the Company's new headquarters lease is reflected in the tables below.

Discount Rate

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company's incremental borrowing rate reflects the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Future amounts due under operating lease liabilities as of December 31, 2022, were as follows (in thousands):


2023	$	13,752
2024	13,439
2025	836
2026	561
2027	10
Total lease payments	$	28,598
Less: imputed interest	(1,885)
Total	$	26,713

Lease costs incurred for the year ended December 31, 2022, Prior Successor Period and Prior Predecessor Period consisted of the following (in thousands):


	Successor				Predecessor
	Year Ended December 31, 2022		Period from May 18, 2021 through December 31, 2021		Period from January 1, 2021 through May 17, 2021
Operating lease cost	$	535	$	48	$	41
Variable lease cost	—		3		—
Short-term lease cost	31,987		11,507		4,496
Total lease cost(1)	$	32,522	$	11,558	$	4,537

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(1) The majority of the Company's total lease cost was capitalized to the full cost pool, and the remainder was included in either lease operating expenses or general and administrative expenses in the accompanying consolidated statements of operations.

Supplemental cash flow information for the year ended December 31, 2022, Prior Successor Period and Prior Predecessor Period related to leases was as follows (in thousands):


	Successor				Predecessor
	Year Ended December 31, 2022		Period from May 18, 2021 through December 31, 2021		Period from January 1, 2021 through May 17, 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	601	$	78	$	48

The weighted-average remaining lease term as of December 31, 2022, was 2.16 years. The weighted-average discount rate used to determine the operating lease liability as of December 31, 2022, was 6.71%.