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

Quarterly report pursuant to Section 13 or 15(d)

LEASES

LEASES

3 Months Ended

Mar. 31, 2023

Nature of Leases

The Company has operating leases on certain equipment with remaining lease durations in excess of one year. The Company recognizes a 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. At March 31, 2023, the Company had one active long-term drilling rig contract.

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 March 31, 2023 were as follows (in thousands):


Remaining 2023	$	10,309
2024	13,439
2025	836
2026	561
2027	10
Total lease payments	$	25,155
Less: imputed interest	(1,474)
Total	$	23,682

Lease costs incurred for the three months ended March 31, 2023 and 2022, consisted of the following (in thousands):


	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Operating lease cost	$	3,443	$	50
Variable lease cost	—		—
Short-term lease cost	9,248		8,622
Total lease cost(1)	$	12,691	$	8,672

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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 related to leases was as follows (in thousands):


	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,038	$	49

The weighted-average remaining lease term as of March 31, 2023 was 1.92 years. The weighted-average discount rate used to determine the operating lease liability as of March 31, 2023 was 6.71%.