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

Annual report pursuant to Section 13 and 15(d)

Equity Investments

Equity Investments

12 Months Ended

Dec. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

Equity Investments

EQUITY INVESTMENTS

Investments accounted for by the equity method consist of the following as of December 31, 2019 and 2018:



			Carrying Value				Loss (income) from equity method investments
	Approximate Ownership %		December 31,				For the Year Ended December 31,
	Approximate Ownership %		2019		2018		2019			2018			2017
			(In thousands)
Investment in Tatex Thailand II, LLC	23.5	%	$	—	$	—	$	(2,086	)	$	(241	)	$	(549	)
Investment in Tatex Thailand III, LLC⁽¹⁾	—	%	—		—		—			—			(183		)
Investment in Grizzly Oil Sands ULC	24.9999	%	21,000		44,259		32,710			510			2,189
Investment in Timber Wolf Terminals LLC⁽²⁾	—	%	—		—		—			536			8
Investment in Windsor Midstream LLC	22.5	%	39		39		—			(9		)	25,233
Investment in Stingray Cementing LLC⁽³⁾	—	%	—		—		—			—			205
Investment in Blackhawk Midstream LLC⁽⁴⁾	—	%	—		—		—			(38		)	—
Investment in Stingray Energy Services LLC⁽³⁾	—	%	—		—		—			—			282
Investment in Sturgeon Acquisitions LLC⁽³⁾	—	%	—		—		—						(71		)
Investment in Mammoth Energy Services, Inc.⁽³⁾	21.8	%	11,005		191,823		179,524			(49,969		)	(11,288		)
Investment in Strike Force Midstream LLC⁽⁵⁾	—	%	—		—		—			(693		)	1,954
			$	32,044	$	236,121	$	210,148		$	(49,904	)	$	17,780

_____________________


(1)	In December 2017, the Company received its final distribution from Tatex Thailand III, LLC ("Tatex III"), which was dissolved in 2017.


(2)	On June 5, 2018, the Company received its final distribution from Timber Wolf Terminals LLC ("Timber Wolf"), which was dissolved in 2018.


(3)	On June 5, 2017, Mammoth Energy acquired Stingray Cementing LLC, Stingray Energy Services LLC and Sturgeon Acquisitions LLC. See below under Mammoth Energy Services, Inc. for information regarding these transactions.


(4)	On December 31, 2018, the Company received its final distribution from Blackhawk Midstream LLC ("Blackhawk"), which was dissolved in 2018.


(5)	On May 1, 2018, the Company sold its 25% interest in Strike Force Midstream LLC ("Strike Force") to EQT Midstream Partners, LP for proceeds of $175.0 million in cash. As a result of the sale, the Company recognized a gain of $96.4 million net of transaction fees, which is included in gain on sale of equity method investments in the accompanying consolidated statement of operations.

The tables below summarize financial information for the Company's equity investments, as of December 31, 2019 and 2018.

Summarized balance sheet information:



	December 31,
	2019		2018
	(In thousands)
Current assets	$	421,326	$	471,733
Noncurrent assets	$	1,260,075	$	1,302,488
Current liabilities	$	132,569	$	239,975
Noncurrent liabilities	$	163,241	$	94,575

Summarized results of operations:



	December 31,
	2019			2018		2017
	(In thousands)
Gross revenue	$	625,012		$	1,729,778	$	755,374
Net (loss) income	$	(76,523	)	$	253,451	$	(37,102	)

Tatex Thailand II, LLC

The Company has an indirect ownership interest in Tatex Thailand II, LLC (“Tatex”) and received $2.1 million in distributions from Tatex during the year ended December 31, 2019, of which $1.9 million related to proceeds from the sale of its interest in APICO (“APICO”), an international oil and gas exploration company. The Company received $0.2 million in distributions from Tatex during the year ended December 31, 2018. Tatex previously held an 8.5% interest in APICO before selling its interest in June 2019. APICO has a reserve base located in Southeast Asia through its ownership of concessions covering approximately 108,000 acres which includes the Phu Horm Field.

Grizzly Oil Sands ULC

The Company, through its wholly owned subsidiary Grizzly Holdings Inc. ("Grizzly Holdings"), owns a 24.9999% interest in Grizzly, a Canadian unlimited liability company. The remaining interest in Grizzly is owned by Grizzly Oil Sands Inc. As of December 31, 2019, Grizzly had approximately 830,000 acres under lease in the Athabasca, Peace River and Cold Lake oil sands regions of Alberta, Canada.

The Company reviewed its investment in Grizzly at December 31, 2019 for impairment based on certain qualitative and quantitative factors. The Company 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 indicated. This resulted in recording an impairment loss of $32.4 million for the year ended December 31, 2019, which is included in loss from equity method investments, net in the accompanying consolidated statements of operations. The Company reviewed its investment in Grizzly for impairment at December 31, 2018 and 2017 and determined no impairment was required.

The Company paid $0.4 million in cash calls during 2019 prior to its election to cease funding further capital calls. The Company paid $2.3 million in cash calls during the year ended December 31, 2018. Grizzly’s functional currency is the Canadian dollar. The Company's investment in Grizzly was increased by a $9.0 million foreign currency translation gain, decreased by a $15.2 million foreign currency translation loss and increased by a $12.3 million foreign currency translation gain for the years ended December 31, 2019, 2018 and 2017, respectively. The Company had $44.8 million and $53.8 million in accumulated other comprehensive loss in its accompanying consolidated balance sheets related to Grizzly at December 31, 2019 and December 31, 2018, respectively, that will be included in the calculations of future charge related to a sale or abandonment.

Windsor Midstream LLC

At December 31, 2019, the Company held a 22.5% interest in Windsor Midstream LLC (“Midstream”), an entity controlled and managed by an unrelated third party. The Company received no distributions from Midstream during the years ended December 31, 2019 and 2018.

The Company has determined that Midstream is a variable interest entity ("VIE") but that the Company is not the primary beneficiary because it does not have a controlling financial interest in Midstream. This entity is considered a VIE because the limited partners lack substantive kick-out or participating rights over the general partner. The general partner has power to direct the activities that most significantly impact Midstream's economic performance. The Company accounts for its investment in VIEs following the equity method of accounting. The carrying amounts of the Company’s equity investments are classified as other non-current assets on the accompanying consolidated balance sheets. The Company’s maximum exposure to loss as a result of its involvement with VIEs is based on the Company’s capital contributions and the economic performance of the VIEs, and is equal to the carrying value of the Company’s investments which is the maximum loss the Company could be required to record in the consolidated statements of operations.

Mammoth Energy Services, Inc.

On June 5, 2017, the Company contributed all of its membership interests in three entities to Mammoth Energy in exchange for approximately 2.0 million shares of Mammoth Energy common stock. The Company accounted for this contribution as a sale of financial assets and recognized a gain of $12.5 million, which is included in gain on sale of equity method investments in the accompanying consolidated statements of operations for the year ended December 31, 2017.

On June 29, 2018, the Company sold 1,235,600 shares of its Mammoth Energy common stock in an underwritten public offering for net proceeds of approximately $47.0 million. In connection with the Company's public offering of a portion of its shares of Mammoth Energy common stock, the Company granted the underwriters an option to purchase additional shares of its Mammoth Energy common stock. On July 26, 2018, the underwriters exercised this option, in part, and on July 30, 2018, the Company sold an additional 118,974 shares for net proceeds of approximately $4.5 million. Following the sales of these shares, the Company owned 9,829,548 shares, or 21.9% at December 31, 2018, of Mammoth Energy's outstanding common stock. As a result of the sales, the Company recorded a gain of $28.3 million, which is included in gain on sale of equity method investments in the accompanying consolidated statements of operations. The approximate fair value of the Company's investment in Mammoth Energy's common stock at December 31, 2018 was $176.7 million based on the quoted market price of Mammoth Energy's common stock.

At December 31, 2019, the Company owned 9,829,548 shares, or 21.8%, of the outstanding common stock of Mammoth Energy. The Company reviewed its investment in Mammoth Energy during 2019 for impairment based on certain qualitative and quantitative factors. As a result of the calculated fair values and other qualitative factors, the Company concluded that an other than temporary impairment was indicated. This resulted in recording an impairment loss of $160.8 million for the year ended December 31, 2019, which is included in loss (income) from equity method investments, net in the accompanying consolidated statements of operations. If Mammoth Energy's common stock continues to trade below the Company's carrying value for a prolonged period of time, further impairment of the Company's investment in Mammoth Energy may be necessary. The Company's investment in Mammoth Energy was increased by a $0.2 million foreign currency gain, decreased by a $0.4 million foreign currency loss and increased by a $0.2 million foreign currency gain resulting from Mammoth Energy's foreign subsidiary for the years ended December 31, 2019, 2018 and 2017, respectively. During the year ended December 31, 2019, Gulfport received distributions of $2.5 million from Mammoth Energy as a result of $0.125 per share dividends in February 2019 and May 2019. During the year ended December 31, 2018, Gulfport received distributions of $2.5 million from Mammoth Energy as a result of dividends in August 2018 and November 2018. The approximate fair value of the Company's investment in Mammoth Energy's common stock at December 31, 2019 was $21.6 million based on the quoted market price of Mammoth Energy's common stock. The loss (income) from equity method investments presented in the table above reflects any intercompany profit eliminations.