Quarterly report pursuant to Section 13 or 15(d)

Property And Equipment

Property And Equipment
6 Months Ended
Jun. 30, 2012
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, 2012 and December 31, 2011 are as follows:
June 30, 2012
December 31, 2011
Oil and natural gas properties


Office furniture and fixtures






Total property and equipment


Accumulated depletion, depreciation, amortization and impairment
Property and equipment, net


Included in oil and gas properties at June 30, 2012 is the cumulative capitalization of $27,630,000 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 $2,160,000 and $4,136,000 for the three months and six months ended June 30, 2012, respectively, and $1,411,000 and $2,788,000 for the three months and six months ended June 30, 2011, respectively.

The following table summarizes the Company’s non-producing properties excluded from amortization by area at June 30, 2012:
June 30, 2012
West Texas Permian



Southern Louisiana





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.

A reconciliation of the asset retirement obligation for the six months ended June 30, 2012 and 2011 is as follows:

June 30, 2012
June 30, 2011
Asset retirement obligation, beginning of period


Liabilities incurred


Liabilities settled

Accretion expense


Asset retirement obligation as of end of period


Less current portion


Asset retirement obligation, long-term


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 gas interests in the Permian Basin in exchange for (i) shares of common stock representing 35% of Diamondback’s outstanding common stock immediately prior to the closing of the Diamondback IPO and (ii) $63,590,050.00 in the form of a non-interest bearing promissory note, which will be repaid in full upon the closing of the Diamondback IPO with a portion of the net proceeds from that offering. The aggregate consideration payable to the Company is subject to a post-closing cash adjustment based on changes in the working capital, long-term debt and other items of Windsor Permian LLC (“Windsor Permian”) referred to in the contribution agreement as of the date of the contribution. Windsor Permian, an entity controlled by Wexford, is the operator of the Company’s acreage to be contributed and will be a wholly-owned subsidiary of Diamondback at the time of the contribution. The Company’s obligation to make this contribution is contingent upon, among other things, the contribution to Diamondback of all the outstanding equity interests in Windsor Permian, the Company’s satisfaction with the terms of the Diamondback IPO and customary closing conditions. 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.

In connection with the contribution, the Company and Diamondback will enter into an investor rights agreement in which the Company will have the right, for so long as it beneficially owns more than 10% of Diamondback’s outstanding common stock, to designate one individual as a nominee to serve on Diamondback’s board of directors. Such nominee, if elected to Diamondback’s board, will also serve on each committee of the board so long as he or she satisfies the independence and other requirements for service on the applicable committee of the board. So long as the Company has the right to designate a nominee to Diamondback’s board and there is no Gulfport nominee actually serving as a Diamondback director, the Company will have the right to appoint one individual as an advisor to the board who shall be entitled to attend board and committee meetings. The Company will also be entitled to certain information rights and Diamondback will grant the Company certain demand and “piggyback” registration rights obligating Diamondback to register with the SEC any shares of Diamondback common stock that the Company owns. If the contribution is completed, the Company will own a 35% equity interest in Diamondback immediately prior to the closing of the Diamondback IPO, rather than leasehold interests in the Company’s Permian Basin acreage. In the event the contribution is completed, the investment in Diamondback will be accounted for as an equity method investment going forward.