UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10753
GULFPORT ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 73-1521290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6307 Waterford Blvd.
Building D, Suite 100
Oklahoma City, Oklahoma 73118
(405) 848-8807
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Issuer was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, $0.01 par value,
outstanding as of August 12, 1998 was 22,076,315.
1
<PAGE>
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheet at June 30, 1998 (unaudited)
and December 31, 1997............................................... 4
Consolidated Statement of Operations for the Three and Six Months
Ended June 30, 1998 and 1997 (unaudited)............................ 5
Consolidated Statement of Cash Flow for the Three and Six
Months Ended June 30, 1998 and 1997 (unaudited)..................... 6
Notes to Consolidated Financial Statements.......................... 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings................................................ 26
Item 6 Exhibits and Reports on Form 8-K................................. 29
Signatures....................................................... 30
2
<PAGE>
GULFPORT ENERGY CORPORATION
PART I. Financial Information
Item 1. Consolidated Financial Statements
June 30, 1998 and 1997
Forming a part of Form 10-Q Quarterly Report to the
Securities and Exchange Commission
This quarterly report on Form 10-Q should be read in conjunction with Gulfport
Energy Corporation's Annual Report on Form 10-K for the year ended
December 31, 1997
3
<PAGE>
Gulfport Energy Corporation
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS June 30, 1998 December 31, 1997
- ----------------------------------------------------------- -----------------
Current assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,264,000 $ 1,203,000
Cash, restricted 14,000 2,060,000
Accounts receivable, net of allowance for
doubtful accounts of $4,996,000 for
June 30, 1998 and December 31, 1997,
respectively 4,167,000 4,364,000
Prepaid expenses and other 137,000 192,000
------------- -------------
Total current assets 6,582,000 7,819,000
Property and equipment:
Oil and natural gas properties 85,119,000 84,466,000
Other property and equipment 1,800,000 1,577,000
Accumulated depletion, depreciation
and amortization (24,578,000) (4,542,000)
------------- -------------
Property and equipment, net 62,341,000 81,501,000
Other assets 3,268,000 3,026,000
------------- -------------
Total assets $ 72,191,000 $ 92,346,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 8,517,000 $ 6,346,000
Current maturities of long-term debt 3,014,000 2,192,000
------------- -------------
Total current liabilities 11,531,000 8,538,000
Other long-term liabilities 236,000 528,000
Long term debt 10,424,000 13,000,000
------------- -------------
Total liabilities 22,191,000 22,066,000
Shareholders' equity:
Common stock - $.01 par value, 50,000,000
authorized, 22,076,315 issued and
outstanding at June 30, 1998
and December 31, 1997, respectively 221,000 221,000
Paid-in-capital 71,772,000 71,772,000
Accumulated deficit (21,993,000) (1,713,000)
------------- -------------
Total shareholders' equity 50,000,000 70,280,000
------------- -------------
Commitments and contingencies - -
------------- -------------
Total liabilities and shareholders' equity $ 72,191,000 $ 92,346,000
============= =============
</TABLE>
- See accompanying notes to consolidated financial statements -
4
<PAGE>
Gulfport Energy Corporation
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
Ended June 30, Ended June 30,
1998 1997 1998 1997
(Reorganized (Predecessor (Reorganized (Predecessor
Company) Company) Company) Company)
- --------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Gas sales $ 1,828,000 $ 1,987,000 $ 2,847,000 $ 4,495,000
Oil and condensate sales 1,572,000 2,288,000 3,875,000 5,161,000
Other Income, net 146,000 70,000 346,000 120,000
------------- ------------ ------------ ------------
Total revenues 3,546,000 4,345,000 7,068,000 9,776,000
Expenses:
Production costs 2,450,000 3,095,000 5,170,000 5,239,000
Depreciation, depletion
and amortization 18,220,000 1,673,000 20,098,000 3,124,000
General and
administrative expenses 660,000 1,071,000 1,322,000 1,990,000
Provision for doubtful
accounts - (20,000) - 71,000
------------- ------------ ------------- ------------
21,330,000 5,819,000 26,590,000 10,424,000
Income (loss) from
operations (17,784,000) (1,474,000) (19,522,000) (648,000)
------------- ------------ ------------- ------------
Interest expense 372,000 417,000 758,000 1,032,000
------------- ------------ ------------- ------------
Income (loss) before
reorganization costs
and income taxes (18,156,000) (1,891,000) (20,280,000) (1,680,000)
------------- ------------ ------------- ------------
Reorganization costs - 2,701,000 - 3,727,000
------------- ------------ ------------- ------------
Loss before income
taxes (18,156,000) (4,592,000) (20,280,000) (5,407,000)
Income tax expense - - - -
------------- ------------ ------------- ------------
Net loss (18,156,000) (4,592,000) (20,280,000) (5,407,000)
Undeclared dividends on
preferred stock - (712,000) - (1,423,000)
------------- ------------ ------------- ------------
Net loss available to
common shareholders $(18,156,000) $(5,304,000) $(20,280,000) $(6,830,000)
============= ============ ============= ============
Per common share:
Income (loss) per
common and common
equivalent share $ (0.82) $ * $ (0.92) $ *
============ ============ ============= ============
Average common and
common equivalent
shares outstanding 22,076,000 * 22,076,000 *
============ ============ ============= ============
</TABLE>
* Amounts not meaningful as a result of the reorganization.
- See accompanying notes to consolidated financial statements -
5
<PAGE>
Gulfport Energy Corporation
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months Ended June 30,
1998 1997
(Reorganized (Predecessor
Company) Company)
- --------------------------------------------------------------------------------
Cash flow from operating activities:
<S> <C> <C>
Net (loss) $(20,280,000) $(5,407,000)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation, depletion, and amortization 20,098,000 3,124,000
Provision for doubtful accounts and notes
receivable - 71,000
Amortization of debt issuance costs 97,000 83,000
(Gain) on sale of asset (133,000) -
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 198,000 (287,000)
(Increase) decrease in prepaid expenses and other 54,000 (237,000)
Increase in accounts payable and accrued
liabilities 1,980,000 3,450,000
(Decrease) in other long-term liabilities (116,000) -
Pre-petition liabilities subject to compromise - (267,000)
Pre-petition liabilities not subject to compromise - (1,000)
------------- ------------
Net cash provided by operating activities 1,898,000 529,000
Cash flow from investing activities:
Additions to cash held in escrow - (20,000)
Additions to other assets (339,000) -
Additions to property and equipment (805,000) (2,561,000)
------------- -------------
Net cash used in investing activities (1,144,000) (2,581,000)
Cash flow from financing activities:
Principal payments on borrowings (1,739,000) (16,000)
------------- -------------
Net cash used in financing activities (1,739,000) (16,000)
Net increase (decrease) in cash and cash
equivalents (985,000) (2,068,000)
Cash and cash equivalents - beginning of period 3,263,000 5,679,000
------------- -------------
Cash and cash equivalents - end of period $ 2,278,000 $ 3,611,000
============= =============
Supplemental Disclosures of Cash Flow Information
Interest paid $ 358,000 $ 28,000
Income taxes paid - -
Supplemental Information of Non-Cash Investing And
Financing Activities
Accrued dividends on preferred stock (Undeclared
on Predecessor Company) - (1,423,000)
</TABLE>
- See accompanying notes to consolidated financial statements -
6
<PAGE>
Gulfport Energy Corporation
Notes to Consolidated Financial Statements
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Reorganization Proceedings
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this document. Unless otherwise stated, the term "Company" means
Gulfport Energy Corporation, formerly known as WRT Energy Corporation, and its
subsidiaries taken as a whole, either prior to or after the Effective Date (as
defined herein), as the context requires and the term "WRT" or "Debtor" means
WRT Energy Corporation and its subsidiaries taken as a whole prior to the
Effective Date.
Gulfport Energy Corporation owns and operates mature oil and gas
properties in the Louisiana Gulf Coast area. Currently, the Company is seeking
to achieve reserve growth and increase its cash flow by entering into strategic
alliances with companies possessing Gulf Coast exploration experience and by
undertaking lower risk development projects. In July 11, 1997, WRT's
subsidiaries were merged into the Company. On the effective date of the
reorganization, the state of incorporation of the reorganized Company was
changed from the State of Texas to the State of Delaware. Prior to July 11,
1997, the financial statements represented the consolidated financial statements
of WRT and its subsidiaries.
As discussed in Note 3, on February 14, 1996, (the "Petition Date"), WRT
filed a voluntary petition with the Bankruptcy court for the Western District of
Louisiana (the "Bankruptcy Court") for protection under Chapter 11 of the
Bankruptcy Code. On May 5, 1997, the Bankruptcy Court confirmed an Amended Plan
of Reorganization (the "Plan") for WRT and on the effective date an order of
substantial consummation regarding the Plan became final and nonappealable. On
the Effective Date, the Debtor was merged with and into a newly formed Delaware
corporation named "WRT Energy Corporation". Effective July 11, 1997 (the
"Election Date"), the Company implemented fresh start reporting, as defined by
the Accounting Standards Division of the American Institute of Certified Public
Accountants Statement of Position Number 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Effective March 30,
1998, WRT Energy Corporation underwent a name change to "Gulfport Energy
Corporation".
Principles of Consolidation
In November 1995, WRT formed a wholly owned subsidiary, WRT
Technologies, Inc., which was established to own and operate WRT's proprietary,
radioactive, cased-hole logging technology. Prior to July 11, 1997, the
financial statements were consolidated and include the accounts of WRT and its
wholly owned subsidiary, WRT Technologies, Inc., which was merged into WRT on
that date. All significant intercompany transactions were eliminated during the
consolidation periods.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months of less to be cash equivalents for purposes of the
statement of cash flows.
Fair Value of Financial Instruments
At June 30, 1998 and December 31, 1997, the carrying amounts of all
financial instruments approximate their fair market values.
7
<PAGE>
Oil and Natural Gas Properties
Before July 11, 1997, WRT used the successful efforts method for
reporting oil and gas operations. Commencing with the reorganization, the
Company converted to the full cost pool method of accounting to be in conformity
with the method used by its then principal shareholder, DLB Oil & Gas, Inc.
("DLB").
In connection with the implementation of fresh start reporting
commencing on July 11, 1997 (as described in Note 2), the Company implemented
the full cost pool method of accounting for oil and gas operations. Accordingly,
all costs including nonproductive costs and certain general and administrative
costs associated with acquisition, exploration and development of oil and
natural gas properties are capitalized. Net capitalized costs are limited to the
estimated future net revenues, after income taxes, discounted at 10% per year,
from proved oil and natural gas reserves and the cost of the properties not
subject to amortization. Such capitalized costs, including the estimated future
development costs and site remediation costs, if any, are depleted by an
equivalent units-of-production method, converting natural gas to barrels at the
ratio of six Mcf of natural gas to one barrel of oil. No gain or loss is
recognized upon the disposal of oil and gas properties, unless such dispositions
significantly alter the relationship between capitalized costs and proved oil
and natural gas reserves.
Oil and natural gas properties not subject to amortization consist of
the cost of undeveloped leaseholds. These costs are reviewed periodically by
management for impairment, with the impairment provision included in the cost of
oil and natural gas properties subject to amortization. Factors considered by
management in its impairment assessment include drilling results by the Company
and other operators, the terms of oil and gas leases not held by production, and
available funds for exploration and development.
Prior to July 11, 1997, WRT followed the successful efforts method of
accounting for its oil and gas operations. Under the successful efforts method,
costs of productive wells, development dry holes and productive leases are
capitalized and amortized on a unit-of-production basis over the life of the
remaining proved reserves as estimated by the WRT's independent engineers. WRT's
estimate of future dismantlement and abandonment costs was considered in
computing the aforementioned amortization.
Cost centers for amortization purposes were determined based on a
reasonable aggregation of properties with common geological structures or
stratigraphic conditions, such as a reservoir or field. WRT performed a review
for impairment of proved oil and gas properties on a depletable unit basis when
circumstances suggest the need for such a review. For each depletable unit
determined to be impaired, an impairment loss equal to the difference between
the carrying value and the fair value of the depletable unit was recognized.
Fair value, on a depletable unit basis, was estimated to be the present value of
expected future net cash flows computed by applying estimated future oil and gas
prices, as determined by management, to estimated future production of oil and
gas reserves over the economic lives of the reserves.
Exploration expenses, including geological, geophysical and costs of
carrying and retaining undeveloped properties were charged to expense as
incurred.
Unproved properties were assessed periodically and a loss was recognized
to the extent, if any, that the cost of the property had been impaired. If
proved reserves were not discovered within one year after drilling was
completed, costs were charged to expense.
Other Property and Equipment
Depreciation of other property and equipment is provided on a
straight-line basis over estimated useful lives of the related assets, which
range from 7 to 30 years.
8
<PAGE>
Implementation of Statement of Accounting Standards No. 121
Effective December 31, 1995, WRT adopted the provisions of Financial
Accounting Standards No 121 ("SFAS No. 121") which requires that an impairment
loss be recognized whenever the carrying amount of a long-lived asset exceeds
the sum of the estimated future cash flows (undiscounted) of the assets. Due to
the Company's use of the full cost method, on the Effective Date, of accounting
for its oil and gas properties, SFAS No. 121 does not apply to the Company's oil
and gas property assets. Accordingly, the adoption of SFAS No. 121 did not have
an impact on the Company's financial position or results of operations during
1998.
Earnings (Loss) per Share
Earnings (loss) per share computations are calculated on the
weighted-average of common shares and common share equivalents outstanding
during the year. Common stock options and warrants are considered to be common
share equivalents and are used to calculate earnings per common and common share
equivalents except when they are anti-dilutive.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities and operating loss and tax credit carryforwards. Deferred
income tax assets and liabilities are based on enacted tax rates applicable to
the future period when those temporary differences are expected to be recovered
or settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income during the period the rate change is
enacted. Deferred tax assets are recognized as income in the year in which
realization becomes determinable.
Revenue Recognition
Natural gas revenues are recorded in the month produced using the
entitlement method, whereby any production volumes received in excess of the
Company's ownership percentage in the property are recorded as a liability. If
less than the Company's entitlement is received, the underproduction is recorded
as a receivable. Oil revenues are recognized in the month produced.
Concentration of Credit Risk
The Company operates in the oil and natural gas industry in the state of
Louisiana with sales to refineries, re-sellers such as pipeline companies, and
local distribution companies. While certain of these customers are affected by
periodic downturns in the economy in general or in their specific segment of the
natural gas industry, the Company believes that its level of credit-related
losses due to such economic fluctuations has been immaterial and will continue
to be immaterial to the Company's results of operations in the long term.
The Company maintains cash balances at several banks. Accounts at each
bank are insured by the Federal Deposit Insurance Corporation up to $100,000.
Cash balances in excess of insured limits total $3, 987,000 and $3,163,000 at
June 30, 1998 and December 31, 1997, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates, judgements
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and revenues and expenses during the
reporting period. The financial statements are highly dependent on oil and gas
reserve estimates, which are inherently imprecise.
Actual results could differ materially from those estimates.
9
<PAGE>
Stock Options and Warrant Agreements
Effective at the date of reorganization, all previously issued stock
option plans of WRT were terminated and all outstanding options were canceled.
At that date a Warrant Agreement went into effect. These warrants are
exercisable at $10 per share and will expire on July 11, 2002. The Plan
authorized the issuance of up to 1,104,000 warrants. As of June 30, 1998 and
December 31, 1997, there were 221,000 warrants issued and outstanding. See Note
6 for further details.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments,
litigation or other sources are recorded when it is probable that a liability
has been incurred and the amount can be reasonably estimated. See Note 8 for
further details.
2. REORGANIZATION PROCEEDING
On February 14, 1996, WRT filed a voluntary petition in the United
States Bankruptcy Court for the Western District of Louisiana (the "Bankruptcy
Court") for reorganization pursuant to Chapter 11 of the Federal Bankruptcy Code
(the "Reorganization Proceeding"). During the balance of 1996 and a portion of
1997, WRT operated as a debtor-in-possession, continuing in possession of its
estate and the operation of its business and management of its property. On May
5, 1997, the Bankruptcy Court confirmed an Amended Plan of Reorganization (the
"Plan") for WRT. On July 11, 1997, the Bankruptcy Court determined that the Plan
had been substantially consummated, and the Bankruptcy Court's order of
substantial consummation became final and nonappealable on July 11, 1997 (the
"Effective Date").
As a result of the consummation of the Plan and due to; (i) the
reallocation of the voting rights of equity interest owners and (ii) the
reorganization value of WRT's assets being less than the total of all
post-petition liabilities and allowed claims, the effects of the Reorganization
Proceeding were accounted for in accordance with fresh start reporting standards
promulgated under SOP 90-7.
In conjunction with implementing fresh start reporting, management
determined a reorganized value of WRT's assets and liabilities in the following
manner:
The reorganized value of proved oil and natural gas properties was
determined based on future net revenues discounted to present value utilizing a
rate of approximately twenty five percent (25%). For the purpose of calculating
future revenues of oil and natural gas properties, oil and gas prices in effect
at December 31, 1996, were used. The reorganized value of oil and gas properties
also included $5,000,000 allocated to nonproducing properties.
DLB Oil & Gas, Inc. ("DLB") contributed certain interests previously
owned by Texaco Exploration and Production. Inc. ("TEPI") in the West Cote
Blanche Bay Field ("WCBB Assets") along with a $1,000,000 deposit to a plugging
and abandonment trust in exchange for 5,616,000 shares of the reorganized
Company's common stock. This transaction was recorded at DLB's net basis in the
WCBB Assets of $15,144,000. In connection with this acquisition, the Reorganized
Company assumed the obligation to contribute approximately $18,000 per month
through March 2004 to this plugging and abandonment trust and the obligation to
plug a minimum of 20 wells per year for 20 years commencing March 11, 1997. TEPI
retained a security interest in production from these properties and the
plugging and abandonment trust until such time the Company's obligations for
plugging and abandonment to TEPI have been fulfilled. Once the plugging and
abandonment trust is fully funded, the Company can access it for use in plugging
and abandonment charges associated with the property.
In accordance with the Plan, $3,000,000 was set aside by WRT to form a
Litigation Entity (defined herein). The Company owns a 12% interest in this
Litigation Entity. The entire $3,000,000 was included in reorganization expense
on the financial statements for the six months and ten day period ended July 10,
1997. No value was assigned to the Company's interest in the Litigation Entity
on the reorganized balance sheet as management was not able to determine with
any certainty the amount, if any, that the Company might recover from this
investment.
10
<PAGE>
Current assets and liabilities were recorded at book value which
approximates their fair market value. Long-term liabilities were recorded at
present values of amounts to be paid and the pre-consummation stockholders'
deficit was adjusted to reflect the par value of pre-consummation equity
interests and the recognition of $88,723,000 in debt forgiveness income. On the
Effective Date, the shareholders' deficit was closed into paid in capital and
the Company started with no deficit or retained earnings.
It should be noted that the reorganized value was determined by
management on the basis of its best judgement of what it considers to be current
fair market value of the Company's assets and liabilities after reviewing
relevant facts concerning the price at which similar assets are being sold
between willing buyers and sellers. However, there can be no assurances that the
reorganized value and the fair market value are comparable and the difference
between the Company's calculated reorganized value and the fair market value
may, in fact, be material.
As of July 11, 1997, the effect on the Company's balance sheet of
consummating the Plan and implementing the fresh start reporting was:
<TABLE>
<CAPTION>
July 11,1997 Substantial Fresh Start Reorganized
Prior to Consummation Reporting Balance
Consummation Adjustments Adjustments Sheet
------------- ------------- ------------- -------------
ASSETS
Current assets:
Cash and cash
<S> <C> <C> <C> <C>
equivalents $ 3,714,000 $ 1,598,000 $ - $ 5,312,000
Accounts receivable,
net 3,287,000 - - 3,287,000
Prepaid expenses
and other 870,000 - - 870,000
------------- ------------- ------------- -------------
Total current
assets 7,871,000 1,598,000 - 9,469,000
------------- ------------- ------------- -------------
Property and equipment:
Properties subject
to depletion 80,120,000 15,144,000 (20,187,000) 75,077,000
Properties not
subject to - - 5,000,000 5,000,000
depletion
Other property, plant,
and equipment 5,300,000 - (2,362,000) 2,938,000
------------- ------------- ------------- -------------
85,420,000 15,144,000 (17,549,000) 83,015,000
Less accumulated
depreciation,
depletion and
amortization (29,274,000) - 29,274,000 -
------------- ------------- ------------- -------------
56,146,000 15,144,000 11,725,000 83,015,000
------------- ------------- ------------- -------------
Other assets 1,231,000 94,000 (285,000) 1,040,000
------------- ------------- ------------- -------------
$ 65,248,000 $ 16,836,000 $ 11,440,000 $ 93,524,000
============= ============= ============= =============
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
July 11,1997 Substantial Fresh Start Reorganized
Prior to Consummation Reporting Balance
Consummation Adjustments Adjustments Sheet
------------- ------------- ------------- -------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
and accrued
<S> <C> <C> <C> <C>
liabilities $ 9,545,000 $ (3,771,000) $ - $ 5,774,000
Pre-petition
secured debt 16,915,000 (16,915,000) - -
------------- ------------- ------------- -------------
Total current
liabilities 26,460,000 (20,686,000) - 5,774,000
------------- ------------- ------------- -------------
Pre-petition current
liabilities
Subject to
compromise:
Unsecured debt 136,818,000 (7,012,000) (129,806,000) -
------------- ------------- ------------- -------------
Long-term liabilities:
Other non-current
liabilities - 757,000 - 757,000
Notes payable - 15,000,000 - 15,000,000
------------- ------------- ------------- -------------
- 15,757,000 - 15,757,000
------------- ------------- ------------- -------------
Stockholders' equity
(deficit):
Common stock 95,000 104,000 22,000 221,000
Preferred stock 27,677,000 - (27,677,000) -
Additional paid in
capital 39,570,000 31,673,000 529,000 71,772,000
Treasury stock (333,000) - 333,000 -
Retained earnings (165,039,000) (3,000,000) 168,039,000 -
------------- ------------- ------------- -------------
(98,030,000) 28,777,000 141,246,000 71,993,000
------------- ------------- ------------- -------------
$ 65,248,000 $ 16,836,000 $ 11,440,000 $ 93,524,000
============= ============= ============= =============
</TABLE>
Substantial consummation adjustments are those involving cash
transactions occurring on the Effective Date. Fresh start reporting adjustments
are those involving non-cash transactions occurring on the Effective Date.
In accordance with the provisions of the Plan, the Company:
Issued to its unsecured creditors, on account of their allowed claims,
an aggregate of 10 million shares of the Reorganized Company's common stock. At
the effective date, 1,412,000 of the above-described shares were held in escrow
to cover the settlement of disputed unsecured claims in the amount of
$18,339,000. Through June 30, 1998, $10,422,000 of these claims have been
settled for $7,102,000 resulting in the issuance from the escrow account, of
850,000 shares of the Reorganized Company's common stock.
Issued 3,800,000 shares of the Reorganized Company's common stock for
$13,300,000 in cash in connection with a stock rights offering to it's unsecured
creditors.
Issued 952,000 shares of the Reorganized Company's common stock in
payment of $3,332,000 in secured claims.
Issued 1,703,000 shares of the Reorganized Company's common stock in
payment of a $5,961,000 claim purchased by DLB from TEPI.
12
<PAGE>
Issued 5,616,000 shares of the Reorganized Company's common stock in
exchange for the WCBB Assets acquired by DLB from TEPI along with the associated
P&A trust fund and associated funding and plugging obligations. In connection
with this transaction, WRT transferred to TEPI certain assets and non-producing
acreage.
The Company paid $1,672,000 in administrative and priority claims,
$1,145,000 in secured claims and $143,000 in convenience claims. At June 30,
1998, $995,000 was being held in escrow to cover settlement of disputed
priority, administrative and secured claims.
The Company transferred $3,000,000 to a Litigation Trust along with the
Company's rights to any and all causes of action, claims, rights of actions,
suits or proceedings which have been or could be asserted by it except for (a)
the action to recover unpaid production proceeds payable to the Company by
Tri-Deck Oil & Gas Company ("Tri-Deck") and (b) the foreclosure action to
recover title to certain assets (See Note 9 regarding the subsequent transfer of
these claims to the Litigation Entity). This transfer was treated as a
pre-reorganization expense on the financial statements for the six months and
ten day period ended July 10, 1997. The Reorganized Company owns a 12% economic
interest in the Litigation Entity and the remainder of the economic interests in
the Litigation Entity was allocated to former unsecured creditors based on their
ownership percentage of the 13.8 million shares as described above.
On January 20, 1998, the Company and the Litigation Trust entered into a
Clarification Agreement whereby the rights to pursue various claims reserved by
the Company in the Plan of Reorganization were assigned to the Litigation Trust.
In connection with this agreement, the Litigation Trust agreed to reimburse the
Company $100,000 for legal fees the Company had incurred in connection with
these claims. As additional consideration for the contribution of this claim to
the Litigation Trust, the Company is entitled to 20% to 80% of the net proceeds
from these claims.
3. RELATED PARTY TRANSACTIONS
Subsequent to the Effective Date of the Plan of Reorganization,
substantially all of the Company's former unsecured creditors became
shareholders. The Company still conducts business on an arms length basis with a
substantial number of these shareholders.
DLB Oil & Gas, Inc. ("DLB") and Wexford Management LLC ("Wexford") were,
along with the Company, co-proponents in the Plan of Reorganization. As of June
30, 1998 and December 31, 1997, DLB and Wexford owned approximately 49% and 8%,
respectively, of the Company's outstanding common stock.
DLB paid $1,515,000 in reorganization costs incurred on WRT's behalf,
which amount was repaid to DLB on the Effective Date. These costs were included
in reorganization cost incurred during the six months and 10 days ended July 10,
1997. In addition, DLB charged WRT $465,000 for management services provided to
it during the period July 11, 1997 through December 31, 1997. During the period
May 1, 1997 through July 10, 1997, DLB was the operator of the WCBB properties
in which WRT had a 50% working interest at that time. Subsequent to July 10,
1997, the WCBB properties were contributed to the Company for common stock, as
described above, and WRT became the operator of these properties. As of June 30,
1998, the Company owed $1,728,000 to a related party. As of December 31, 1997,
the Company owed $1,728,000 to DLB.
13
<PAGE>
Pursuant to the terms and conditions of an Administrative Services
Agreement dated as of July 10, 1997, by and between the Company and DLB (the
"Services Agreement"), DLB agreed to make available to the Company such
personnel, services, facilities, supplies, and equipment as the Company may need
including executive and managerial, accounting, auditing and tax, engineering,
geological and geophysical, legal, land, and administrative and clerical
services. The initial term (the "Initial Term") is one year beginning on the
date of the Services Agreement. The Services Agreement will continue for
subsequent one-year periods unless terminated by either party by written notice
no less than 60 days prior to the anniversary date of the Services Agreement. In
return for the services rendered, the Company agreed to pay DLB a monthly
service charge based on the pro rata proportion of the Company's use of DLB
services, personnel, facilities, supplies, and equipment as determined by DLB in
a good-faith, reasonable manner. The service charge is calculated as the sum of
(1) DLB's fully allocated internal costs of providing personnel and/or
performing services, (2) the actual costs to DLB of any third-party services
required, (3) the equipment, occupancy, rental, usage, or depreciation and
interest charges, and (4) the actual cost to DLB for supplies. During the year
ended December 31, 1997, the services of Gary C. Hanna and Ronald D. Youtsey,
the Company's President and Secretary respectively, were provided under this
agreement. On April 28, 1998, the rights and obligations of DLB under the
Service Agreement were assigned to DLB Equities, L.L.C. As of June 30, 1998,
Gulfport owed approximately $1,557,000 for services rendered in connection
with this Service Agreement (and for invoices paid by DLB on Gulfport's behalf).
During the three and six months ended June 30, 1998, the Company sold
$877,000 in oil to a DLB subsidiary. During the period July 11, 1997 through
December 31, 1997, the Company sold $4,335,000 in oil to a DLB subsidiary. These
sales occurred at prices which the Company could be expected to obtain from an
unrelated third party.
4. RESTRUCTURING CHARGES AND REORGANIZATION COSTS
WRT incurred certain restructuring costs in connection with its change
in strategy and corporate structure. These costs consisted primarily of the
write-off of approximately $1,000,000 in leasehold improvements related to the
relocation of WRT's operations from The Woodlands, Texas, approximately $300,000
in severance costs related to staff reductions and changes in senior management
and $100,000 in legal fees and other costs directly related to the WRT's
Reorganization Case.
During 1996, WRT incurred $7,345,000 in reorganization costs, primarily
consisting of professional fees totaling $2,594,000 and the write-off of
previously capitalized debt issuance costs on the Senior Notes (herein defined)
in the amount of $3,834,000.
During 1997, WRT incurred $7,771,000 in reorganization costs, consisting
of $3,000,000 contributed to the Litigation Trust (See Note 9 for further
details), $1,515,000 in reimbursements to DLB for restructuring costs it
incurred on WRT's behalf, professional fees totaling $2,213,000, and an
accrual of $1,044,000 for estimated future costs to be incurred in connection
with the reorganization. As of June 30, 1998, the balance of an accrual for
estimated future costs to be incurred in connection with the reorganization was
$545,000.
14
<PAGE>
5. LONG-TERM LIABILITIES
As of June 30, 1998 and December 31, 1997, long term liabilities include
the following:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
Debt:
<S> <C> <C>
Credit facility $ 13,229,000 $ 15,000,000
Priority tax claims 527,000 527,000
Building loan 209,000 193,000
------------- -------------
13,931,000 15,720,000
Less current portion 3,306,000 2,192,000
============= =============
$ 10,659,000 $ 13,528,000
============= =============
</TABLE>
Credit Facility
In December 1994, WRT entered into a $40,000,000 credit facility with
International Nederlanden (U.S.) Capital Corporation ("INCC") ("Credit
Facility") that was secured by substantially all of WRT's assets. At December
31, 1996, WRT had borrowings outstanding of $15,000,000, the maximum amount of
borrowings available under the Credit Facility. At December 31, 1995, the
revolving loan borrowings were converted to a term loan whereby quarterly
principal payments of one-sixteenth of the outstanding indebtedness were due and
payable. Amounts outstanding under the Credit Facility bore interest at an
annual rate selected by WRT of either (i) the London Inter-Bank offered rate
("LIBOR") plus 3%, or (ii) the Lender's prime lending rate plus 1.25%.
At December 31, 1996, WRT was in default under certain financial
covenants of the Credit Facility. Accordingly, WRT classified the debt as
current at December 31, 1996. While in bankruptcy, INCC was stayed from
enforcing certain remedies provided for in the credit agreement and the
indenture. On the Effective Date, this loan was repaid in full along with
$3,154,000 in accrued interest and legal fees.
On the Effective Date, the Company entered into a new $15,000,000 Credit
Agreement (the "Credit Agreement") with ING (U.S.) Capital Corporation
(successor to INCC) ("ING") that was secured by substantially all of the
Company's assets. Initial loan fees of $188,000 were paid on or prior to the
Effective Date, an additional loan fee of $100,000 was made on December 31, 1997
and a final loan fee of $100,000 is due on or before December 31, 1998. The loan
matures on July 11, 1999, with interest to be paid quarterly and with three
interim principal payments of $1,000,000 each to be made in September 1998,
December 1998, and March 1999. This loan bears interest at the option of the
Company at either (1) LIBOR plus 3% or (2) ING's fluctuating "reference rate"
plus 1.25%. This loan is collateralized by substantially all of the Company's
assets. At June 30, 1998, this rate was 8.6875%.
The Credit Agreement contains restrictive covenants which impose
limitations on the Company with respect to, among other things: (i) the
maintenance of current assets equal to at least 110% of current liabilities
(excluding any current portion of the Credit Agreement); (ii) the incurrence of
debt outside the ordinary course of business; (iii) dividends and similar
payments; (iv) the creation of additional liens on, or the sale of, the
Company's oil and gas properties and other assets; (v) the Company's ability to
enter into forward, future, swap or hedging contracts; (vi) mergers or
consolidations; (vii) the issuance of securities other that Common Stock and
options or warrants granting the right to purchase Common Stock; (viii) the
sale, transfer, lease, exchange, alienation or disposal of Company properties or
assets; (ix) investments outside the ordinary course of business; (x)
transactions with affiliates; (xi) general and administrative expenditures in
excess of $1 million during any fiscal quarter or in excess of $3 million during
each fiscal year; and (xii) the maintenance of an aggregate net present value
attributable to all collateral as determined from engineering reports equal to
120% of the principal amount of the Credit Agreement on such date.
15
<PAGE>
The Company intends to amend the Credit Agreement (the "Amended Credit
Agreement" to, among other things: (i) delete the coverage ration set forth in
the Credit Agreement, (ii) require interest payments to be made by the Company
on a monthly basis. The principal amount and the interest rate set forth in the
Credit Agreement remain unchanged. In connection with the execution and delivery
of the Amended Credit Agreement, ING waived certain provisions of the Credit
Agreement to permit certain actions by the Company. In consideration for
entering into the Amended Credit Agreement and granting certain waivers, the
Company and ING further agreed that (a) the Company will pay a $250,000
amendment fee to ING on July 11, 1999, provided that such amendment fee will be
waived if the amounts owed to ING under the Amended Credit Agreement have been
paid in full by July 10, 1999; and (b) the Company shall issue warrants to ING,
in that such warrants will permit ING to purchase 2% of the outstanding shares
of Common Stock on a fully diluted basis after giving effect to future Rights
Offerings.
At December 31, 1997, the Company held $2,060,000 in a restricted cash
account. These funds represent the proceeds from the sale of its field
equipment. As of June 30, 1998, the Company had applied $1,778,000 of these
funds to the outstanding principal balance of the Credit Agreement.
Priority Tax Claims
In accordance with the Plan of Reorganization, priority taxes totaling
$1,168,000 are to be paid in four annual installments without interest. The
first annual installment of $292,000 was made on July 11, 1997 and the second
annual installment of $291,000 was made on July 11, 1998.
Building Loan
During early 1996, WRT entered into a loan agreement with M C Bank and
Trust Company to finance the acquisition of land and a building located in
Lafayette, Louisiana. The original loan balance was $215,000 and called for
monthly principal and interest payments totaling $3,000 per month through 2005
with the unpaid balance due at that time. The loan bears interest at 9.5% per
annum and is collateralized by the land and building.
6. COMMON STOCK OPTIONS AND WARRANTS
All outstanding stock options and warrants issued prior to July 11,
1997, were cancelled in connection with the Plan of Reorganization.
On July 10, 1997, WRT entered into an employment agreement with Mr. Ray
Landry, WRT's former president, to perform certain services for the Company. In
connection with this employment agreement, Mr. Landry was granted Incentive
Stock Options to acquire 60,000 shares of the Company's common stock for $3.50
per share. The employment agreement does not specify the life of these options.
In connection with the Plan of Reorganization, new warrants for 221,000
shares of the Reorganized Company common stock were issued to the former
preferred shareholders. In addition, to the extent that any securities
litigation claims based on preferred or common stock ownership are allowed as a
"Class Proof of Claim", the Company has the obligation to issue this class an
additional 221,000 in warrants to purchase common stock in the Reorganized
Company. These warrants are each exercisable for one share of common stock at an
exercise price of $10 per share. The warrants will expire on July 11, 2007. In
accordance with the Plan of Reorganization, the Company has the right to issue
up to 1,104,000 warrants.
7. EARNINGS (LOSS) PER SHARE
Earnings per share for all periods were computed based on common stock
equivalents outstanding on that date during the applicable periods.
16
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
Lac Blanc Escrow Account
In connection with its purchase of a 91% working interest in the Lac Blanc
Field, the Company deposited $170,000 in a segregated trust account and agreed
to make additional deposits of $20,000 per month until the accumulated balance
of the trust account reached $1,700,000. These funds are held in a segregated
account for the benefit of the State of Louisiana to insure that the wells in
the Lac Blanc Field are properly plugged upon cessation of production. In return
for this financial commitment, the State of Louisiana has granted the sellers an
unconditional release from their contingent liability to the State to plug and
abandon the wells. When all existing wells in the Lac Blanc Field have been
properly plugged and abandoned, the funds in the trust account, should any
remain, will revert to the Company. Due to the filing of the Reorganization Case
in February 1996, the Company ceased making contributions to the segregated
account. Under the Plan, the Company is obligated to fund the unfunded portion
of this obligation and maintain future funding requirements. At June 30, 1998,
the balance in this trust account was $871,000. In addition, the Company has
accrued $200,000 at June 30, 1998; such accrual representing the unfunded
portion of this obligation since the Effective Date.
Plugging and Abandonment Funds
The Company is contractually committed in its purchase contracts for the
Initial LLOG Property (defined herein) and Remaining LLOG Properties (defined
herein) to establish plugging and abandonment funds as allowed by Louisiana's
Orphaned Well Act. The State of Louisiana, upon completion of an independent
study to be commissioned by the Company, will establish the amount of and terms
of payment into each fund. As of June 30, 1998, the independent study had not
been completed. Accordingly, the Company is unable to determine the amount and
payment towards the future obligation related to these commitments.
In connection with the acquisition of the remaining 50% interest in certain
WCBB properties, the Company assumed the obligation to contribute approximately
$18,000 per month through March 2004, to a plugging and abandonment trust fund
and the obligation to plug a minimum of 20 wells per year for 20 years
commencing March 11, 1997. TEPI retained a security interest in production from
these properties and the plugging and abandonment trust account until such time
the Company's plugging and abandonment obligations to TEPI have been fulfilled.
Once the plugging and abandonment trust is fully funded, the Company can access
the fund for use in plugging and abandonment costs associated with the WCBB
property. The Company satisfied its plugging and abandonment obligations through
the year ended March 10, 1998.
Tri-Deck/Perry Gas Litigation
During 1995, WRT entered into a marketing agreement with Tri-Deck Oil
and Gas Company ("Tri-Deck") pursuant to which Tri-Deck would market all of
WRT's oil and gas production. Subsequent to the agreement, Tri-Deck's principal
and WRT's Director of Marketing, James Florence, assigned to Plains Marketing
its right to market WRT's oil production and assigned to Perry Oil & Gas its
right to market WRT's gas production. During early 1996, Tri-Deck failed to make
payments to WRT attributable to several months of its gas production.
Consequently, WRT responded in two ways. First, on May 20, 1996, WRT filed a
Motion to Reject the Tri-Deck Marketing Agreement. Second, on May 29, 1996, WRT
initiated an adversary proceeding against Tri-Deck and Perry Oil and Gas ("Perry
Gas"). Perry Gas was the party, which ultimately purchased WRT's gas production
for the months in question.
With respect to the Motion to Reject, the Bankruptcy Court authorized
the rejection and directed Tri-Deck and WRT to determine the amount of
production proceeds attributable to WRT's June gas production which were payable
to WRT. Consequently, Perry Gas thereafter made payment to WRT of the June gas
proceeds less $75,000 for a set-off claim by Perry Gas, which is subject to
further consideration by the Bankruptcy Court.
17
<PAGE>
Next, with respect to the adversary proceeding, WRT sought turnover by
Tri-Deck and/or Perry Gas of all unpaid production proceeds payable to WRT under
the marketing agreement and the issuance of a temporary restraining order and
preliminary injunction against both parties to prevent further disposition of
such proceeds pending outcome of the proceedings. On May 31, 1996, the
Bankruptcy Court entered a consensual temporary restraining order against both
Tri-Deck and Perry Gas. On June 18, 1996, a Preliminary Injunction was entered
by the Court which required Perry Gas to segregate into a separate depository
account the funds due for the purchase of WRT's April and May 1996 gas
production from Tri-Deck. Subsequently, upon motion by WRT the Court ordered
such funds to be placed into the Bankruptcy Court's registry, as Perry Gas had
made certain withdrawals from the separate depository account without
authorization by the Court. Currently, funds in the amount of approximately
$1,700,000 remain in the registry of the Court. Additionally, a dispute exists
between WRT and Perry Gas as to additional funds owed by Perry Gas for the
purchase of WRT's April and May 1996 gas production. Currently, the adversary
proceeding remains pending as to the ultimate issue of ownership of proceeds.
Tri-Deck has also filed an answer and counterclaim in which Tri-Deck is
asserting, among other items, damages for tortoise interference of its
contractual relationships with others. Recovery of the $1,700,000 receivable is
dependent on the court rendering a favorable ruling on the issue. As of the date
of the report, the court has not ruled on this issue. Although management
believes that Tri-Deck's claim to the funds in the registry of the court is
invalid, and the aforementioned counterclaim is without merit, for financial
reporting purposes the receivable from Tri-Deck was fully reserved for as of
June 30, 1998.
On January 20, 1998, the Company and the Litigation Trust entered into a
Clarification Agreement whereby the rights to pursue the Tri- Deck claim were
assigned to the Litigation Trust. In connection with this agreement, the
Litigation Trust agreed to reimburse the Company $100,000 for legal fees the
Company had incurred in connection with this and other related claims. As
additional consideration for the contribution of this claim to the Litigation
Trust, the Company is entitled to 85% of the net proceeds from this claim.
Title to Oil and Gas Properties
During 1996, WRT received notice from Wildwing Investments, Inc.
("Wildwing") claiming that WRT's title had failed as to approximately 43 acres
in the Bayou Pigeon Field. Some or all of the acreage in dispute is considered
to be productive in three separate production units. The Company's working
interest in three units was reduced to approximately 7% (5% Net Revenue
Interest, ("NRI")) 75% (63% NRI), and 95% (72% NRI). The financial statements as
of and for the periods ending June 30, 1998 and December 31, 1997, reflect
operating results and proved reserves discounted for of this possible title
failure. As the title failure predates its ownership of the field, the Company
is currently evaluating its recourse against the predecessors-in-title relative
to this issue. On May 21, 1998, the Company entered into a settlement agreement
with Wildwing, which provides that the Stakeholders, who are currently holding
funds in suspense attributable to mineral mineral production from leases made
the subject of the lawsuit, will be instructed by the Company and Wildwing to
distribute $270,000 to Wildwing in full and final compromise of such litigation.
Additional sums held by the Stakeholders are to be distributed to the lessors of
the leases made the subject of the litigation an amount for payment of royalties
due and owing up to the date of this filing. The balance held by the
Stakeholders will thereafter be distributed to the Company.
One June 29, 1998, a Stakeholder remitted to the Company, the balance of
funds they held in suspense attributable to this lease. As of this filing date,
final distribution to the lessors was not complete. On July 31, 1998, a
Stakeholder distributed funds they held in suspense to the lessors and remitted
the balance to the Company.
On June 30, 1998, Production Management Corporation ("PMC") initiated
litigation against the Company in the United States District Court of the
Western District of Louisiana, Lafayette-Opelousas Division, alleging breach of
contract and the failure of the Company to pay certain invoices related to
services allegedly provided to the Company. The complaint seeks monetary damages
in the amount of $388,000 plus interest, certain legal costs and 10% in attorney
fees. The litigation is in its earliest stages and discovery has not yet begun.
The Company is currently reviewing the claims set forth in the lawsuit to
determine the appropriate response thereto.
18
<PAGE>
On July 20, 1998, Sanchez Oil & Gas Corporation ("Sanchez") initiated
litigation against the Company in the Fifteenth Judicial District Court, Parich
of Lafayette, State of Louisiana. In it petition, Sanchez alleges, among other
things, that the Company was obligated, by virtue of the terms of a letter dated
June 26, 1997, between Sanchez and the Company (the "Sanchez Letter"), to grant
a sublease to Sanchez for an undivided 50% interest in two of the Company's oil,
gas and mineral leases covering land located in the North Bayou Penchant area of
Terebonne Parish, Louisiana. Pursuant to this lawsuit, Sanchez is seeking: (i)
specific performance by the Company of the contractual obligation that Sanchez
alleges to be present in the Sanchez Letter, and (ii) monetary damages. The
litigation is in its earliest stages and discovery has not yet begun. In
addition, the Company is currently reviewing the claims set forth in the lawsuit
to determine the appropriate response thereto.
Year 2000 Compliance
The Company has and will continue to make certain investments in
software systems and applications to ensure it is year 2000 compliant. The
financial impact to the Company to ensure year 2000 compliance has not been and
is not anticipated to be material to its financial position or results of
operations.
Other litigation
The Company has been named as a defendant on various other litigation
matters. The ultimate resolution of these matters is not expected to have a
material adverse effect on the Company's financial condition or results of
operations for the periods presented in the financial statements.
9. LITIGATION TRUST ENTITY
On August 13, 1996, the Bankruptcy Court executed and entered its "Order
Appointing Examiner", directing the United States Trustee to appoint a
disinterested person as examiner in the WRT's bankruptcy case.
The Court ordered the appointed examiner ("Examiner") to file a report
of the investigation conducted, including any fact ascertained by the examiner
pertaining to fraud, dishonesty, incompetence, misconduct, mismanagement or
irregularity in the management of the affairs of WRT.
The Examiner's final report dated April 2, 1997, recommended numerous
actions for recovery of property or damages for WRT's estate which appear to
exist and should be pursued. Management does not believe the resolution of the
matters referred to in the Examiner's report will have a material impact on
WRT's consolidated financial statements or results of operations.
Pursuant to the Plan of Reorganization, all of WRT's possible causes of
action against third parties (with the exception of certain litigation related
to recovery of marine and rig equipment assets and claims against Tri-Deck),
existing as of the effective date of the Plan, were transferred into a
"Litigation Trust" controlled by an independent party for the benefit of most of
WRT's existing unsecured creditors. The litigation related to recovery of marine
and rig equipment and the Tri-Deck claims were subsequently transferred to the
litigation trust as described below.
The Litigation Trust was funded by a $3,000,000 cash payment from the
Company, which was made on the Effective Date. The Company owns a 12% interest
in the Litigation Trust with the other 88% being owned by the former general
unsecured creditors of WRT. For financial statement reporting purposes, the
Company has not recognized the potential value of recoveries which may
ultimately be obtained, if any, as a result of the actions of the Litigation
Trust, treating the entire $3,000,000 payment as a reorganization cost incurred
during the period commencing January 1, 1997 and ending on July 10, 1997.
On January 20, 1998, the Company and the Litigation Trust entered into a
Clarification Agreement whereby the rights to pursue various claims reserved by
the Company in the Plan of Reorganization were assigned to the Litigation Trust.
In connection with this agreement, the Litigation Trust agreed to reimburse the
Company $100,000 for legal fees the Company had incurred in connection with
these claims. As additional consideration for the contribution of this claim to
the Litigation Trust, the Company is entitled to 20% to 80% of the net proceeds
from these claims.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL POSITION AND RESULTS OF OPERATIONS
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning
of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). All
statements, other than statements of historical facts, included in this Form
10-Q that address activities, events or developments that Gulfport Energy
Corporation ("Gulfport" or the "Company"), a Delaware corporation formerly named
WRT Energy Corporation, expects or anticipates will or may occur in the future,
including such things as estimated future net revenues from oil and gas reserves
and the present value thereof, future capital expenditures (including the amount
and nature thereof), business strategy and measures to implement strategy,
competitive strengths, goals, expansion and growth of Gulfport's business and
operations, plans, references to future success, references to intentions as to
future matters and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by Gulfport in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. However, whether actual results and
developments will conform with Gulfport's expectations and predictions is
subject to a number of risks and uncertainties; general economic, market or
business conditions; the opportunities (or lack thereof) that may be presented
to and pursued by Gulfport; competitive actions by other oil and gas companies;
changes in laws or regulations; and other factors, many of which are beyond the
control of Gulfport. Consequently, all of the forward-looking statements made in
this Form 10-Q are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by Gulfport will
be realized, or even if realized, that they will have the expected consequences
to or effects on Gulfport or its business or operations.
The following discussion is intended to assist in an understanding of
the Company's financial position as of December 31, 1997 and its results of
operations for the three month and the six month periods ended June 30, 1998 and
1997. The Consolidated Financial Statements and Notes included in this report
contain additional information and should be referred to in conjunction with
this discussion. It is presumed that the readers have read or have access to
Gulfport Energy Corporation's 1997 annual report on Form 10-K.
20
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL DATA
(Unaudited) Three Months Ended Six Months Ended
June 30,Six June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues:
<S> <C> <C> <C> <C>
Gas sales $ 1,828,000 $ 1,987,000 $ 2,847,000 $ 4,495,000
Oil and condensate sales 1,572,000 2,288,000 3,875,000 5,161,000
Other income, net 146,000 70,000 346,000 120,000
----------- ----------- ----------- -----------
3,546,000 4,345,000 7,068,000 9,776,000
Expenses:
Production costs (1) 2,450,000 3,095,000 5,170,000 5,239,000
General & administrative 660,000 1,071,000 1,322,000 1,990,000
Provision for doubtful
accounts - (20,000) - 71,000
----------- ----------- ----------- -----------
3,110,000 4,146,000 6,492,000 7,300,000
EBITDA (2) (436,000) 199,000 576,000 2,476,000
Depreciation, depletion &
amortization 18,220,000 1,673,000 20,098,000 3,124,000
Loss before interest,
reorganization costs
and taxes (17,784,000) (1,474,000) (19,522,000) (648,000)
Interest expense 372,000 417,000 758,000 1,032,000
Reorganization costs - 2,701,000 - 3,727,000
----------- ----------- ----------- -----------
Loss before income taxes (18,156,000) (4,592,000) (20,280,000) (5,407,000)
Income taxes - - - -
----------- ----------- ----------- -----------
Net loss (18,156,000) (4,592,000) (20,280,000) (5,407,000)
Dividends on preferred stock
(undeclared) - 712,000 - 1,423,000
----------- ----------- ----------- -----------
Net loss available to common
shareholders (18,156,000) (5,304,000) (20,280,000) (6,830,000)
Per share data:
Net loss $ (0.82) $ (3) $ (0.92) $ (3)
============ =========== =========== ===========
Weighted average common and
common equivalent shares 22,076,000 (3) (3)
============ =========== =========== ===========
</TABLE>
(1) The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but
generally include maintenance, repairs, labor and utilities.
(2) EBITDA is defined as earnings before interest, taxes, depreciation,
depletion and amortization. EBITDA is an analytical measure frequently
used by securities analysts and is presented to provide additional
information about the Company's ability to meet its future debt service,
capital expenditure and working capital requirements. EBITDA should not be
considered as a better measure of liquidity than cash flow from
operations.
(3) Amounts not meaningful as a result of the reorganization.
21
<PAGE>
Results of Operations
Comparison of the Three Months Ended June 30, 1998 and 1997
During the three months ended June 30, 1998, the Company reported a net loss of
$18.2 million, a 296% increase from a net loss before undeclared dividends on
preferred stock of $4.6 million for the corresponding period in 1997. This
increase is primarily due to the following factors:
Oil and Gas Revenues. During the three months ended June 30, 1998, the
Company reported oil and gas revenues of $3.4 million, a 26% decrease from $4.3
million for the comparable period in 1997. This decrease was primarily
attributable to a significant reduction in the average oil price received during
1998. The effect of lower oil prices received during 1998 was partially offset
by an adjustment of $626,000 in oil and gas revenues attributable to the first
quarter of 1998 that was recorded during the second quarter of 1998 due to the
uncertanty of collectibility in the first quarter. The following table
summarizes the Company's oil and gas production and related pricing for the
three months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Oil production volumes (Mbbls) (1) 127 119
Gas production volumes (Mmcf) (2) 860 879
Average oil price (per Bbl) $12.38 $19.23
Average gas price (per Mcf) $2.13 $2.26
</TABLE>
(1) Includes an increase of 8 Mbbls of sales production attributable to the
first quarter of 1998 that was recorded during the second quarter of 1998
due to the uncertainty of collectibility.
(2) Includes an increase of 208 Mmcf of sales production attributable to the
first quarter of 1998 that was recorded during the second quarter of 1998
due to the uncertainty of collectibility.
Production Costs. Production costs, including lease operating costs and
gross production taxes, decreased $0.6 million, or 24%, from $3.1 million for
the three months ended June 30, 1997 to $2.5 million for the comparable period
in 1998. This decrease was due primarily to the reduction in field related
services performed by third party contractors. This reduction was partially
offset by an increase to operating costs in the WCBB field as a result of the
Company's acquisition, on the Effective Date, of an additional 50% working
interest in depths above the Rob "C" marker.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $16.5 million, or 970% from $1.7 million for the three
months ended June 30, 1997 to $18.2 million for the comparable period in 1998.
As a result of fresh start accounting prescribed for companies emerging from
bankruptcy, a new cost basis in assets was recognized based upon the fair market
value of the assets. In addition, the Company converted from the successful
efforts method to the full cost pool method for reporting oil and gas properties
on the Effective Date. As prescribed by the full cost pool method of reporting
oil and gas properties, ceiling tests are performed to determine if the carrying
value of oil and gas assets exceeds the sum of the discounted estimated future
cash flows. As a result of a ceiling test performed at June 30, 1998, the
Company was required to write-down the value of its oil and gas properties by
$16.0 million. Due to the restating of property values to comply with fresh
start accounting and the conversion from the successful efforts method to the
full cost pool method of reporting oil and gas properties, comparisons of the
1998 and 1997 periods are not meaningful.
General and Administrative Expenses. General and administrative expenses
decreased $0.4 million, or 57%, from $1.1 million for the three months ended
June 30, 1997 to $0.7 million for the comparable period in 1998. This decrease
was due primarily to the Company's change in business strategy to reduce
personnel and overall general and administrative costs.
Provision for Doubtful Accounts. Provision for doubtful accounts remained
consistent when comparing the three months ended June 30, 1997 with the
comparable period in 1998.
22
<PAGE>
Other Income. Other income remained relatively consistent during the three
months ended June 30, 1997 and 1998.
Interest Expense. Interest expense remained relatively consistent during
the three months ended June 30, 1997 and 1998.
Reorganization Costs. Reorganization costs decreased $2.7 million, or 100%
from $2.7 million for the three months ended June 30, 1997 to $0.0 million for
the comparable period in 1998. On the Effective Date, the Company recorded a
$1.0 million accrual for estimated future costs to be incurred in connection
with the reorganization. As a result, any reorganization costs incurred since
that time will have no effect on the income statement of the Company.
Comparison of the Six Months Ended June 30, 1998 and 1997
During the six months ended June 30, 1998, the Company reported a net loss of
$20.3 million, a 276% increase from a net loss before undeclared dividends on
preferred stock of $5.4 million for the corresponding period in 1997. This
decrease was primarily due to the following factors:
Oil and Gas Revenues. During the six months ended June 30, 1998, the
Company reported oil and gas revenues of $6.7 million, a 45% decrease from $9.7
million for the comparable period in 1997. This decrease was primarily
attributable to a significant reduction in gas production and the average price
received for oil during 1998. The effect of lower oil prices received during
1998 was partially offset by an adjustment of $626,000 in oil and gas revenues
attributable to the first quarter of 1998 not recorded until the second quarter
of 1998 due to uncertanties. The following table summarizes the Company's oil
and gas production and related pricing for the six months ended June 30, 1998
and 1997:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Oil production volumes (Mbbls) (1) 284 246
Gas production volumes (Mmcf) (2) 1,243 1,712
Average oil price (per Bbl) $13.64 $20.98
Average gas price (per Mcf) $2.29 $2.63
</TABLE>
(1) Includes an increase of 8 Mbbls of sales production attributable to the
first quarter of 1998 that was recorded during the second quarter of 1998
due to uncertainties of collectibility.
(2) Includes an increase of 208 Mmcf of sales production attributable to the
first quarter of 1998 that was recorded during until the second quarter of
1998 due to uncertainties of collectibility.
Production Costs. Production costs, including lease operating costs and
gross production taxes, remained relatively consistent during the six months
ended June 30, 1998 when compared to the comparable period during 1997. Although
there is consistency for comparison purposes, there is a decrease in operating
costs primarily as the result of a reduction of field related services performed
by third party contractors. This reduction is offset somewhat by an increase to
operating costs in the WCBB field as a result of the Company's acquisition, on
the Effective Date, of an additional 50% working interest in depths above the
Rob "C" marker.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization increased $17.0 million, or 548% from $3.1 million for the six
months ended June 30, 1997 to $20.1 million for the comparable period in 1998.
As a result of fresh start accounting prescribed for companies emerging from
bankruptcy, a new cost basis in assets is recognized based upon the fair market
value of the assets. In addition, the Company converted from the successful
efforts method to the full cost pool method for reporting oil and gas properties
on the Effective Date. As prescribed by the full cost pool method of reporting
oil and gas properties, ceiling tests are performed to determine if the carrying
value of oil and gas assets exceeds the sum of the discounted estimated future
cash flows. As a result of a ceiling test performed at June 30, 1998, the
Company was required to write-down the value of its oil and gas properties by
$16.0 million. Due to the restating of property values to comply with fresh
start accounting and the conversion from the successful efforts method to the
full cost pool method of reporting oil and gas properties, comparisons of the
1998 and 1997 periods are not meaningful.
23
<PAGE>
General and Administrative Expenses. General and administrative expenses
decreased $0.7 million, or 54% from $2.0 million for the six months ended June
30, 1997 to $1.3 million for the comparable period in 1998. This decrease was
due primarily to the Company's change in business strategy to reduce personnel
and overall general and administrative costs.
Provision for Doubtful Accounts. Provision for doubtful accounts remained
consistent when comparing the six months ended June 30, 1998 with the comparable
period in 1997.
Other Income. Other income increased $0.2 million, or 200% from $0.1
million for the six months ended June 30, 1997 to $0.3 million for the
comparable period in 1998. This increase was due primarily to interest and
overhead income.
Interest Expense. Interest expense decreased $0.2 million, or 25%, from
$1.0 million for the six months ended June 30, 1997 to $0.8 million for the
comparable period in 1998. This decrease was due to: (a) a reduction in
outstanding debt and (b) a .8125% reduction in the Credit Agreement interest
rate.
Reorganization Costs. Reorganization costs decreased $2.7 million, 100%,
from $2.7 million for the six months ended June 30, 1997 to $0.0 million for the
comparable period in 1998. On the Effective Date, the Company recorded a $1.0
million accrual for estimated future costs to be incurred in connection with the
reorganization. As a result, any reorganization costs incurred since that time
will have no effect on the income statement of the Company.
Liquidity and Capital Resources
Operating Activities
Net cash flow provided by operating activities for the six months ended June 30,
1998 was $1.9 million, as compared to net cash flow provided by operating
activities of $.5 million for the comparable period in 1997. This increase is
due primarily to a $1.5 million reduction in accounts payable and accrued
liabilities during the six months ended June 30, 1998 as compared to the same
period in 1997.
During the first six months of 1998, the Company invested $1.1 million in
property and equipment and other long-term assets as compared to $2.6 million
during the comparable period in 1997.
Net cash used in financing activities was $1.7 million for the six months ended
June 30, 1998 as compared to net cash used of $0.02 million during the same
period in 1997. This increase is the result of the Company entering into a new
$15 million loan agreement, as described below in financing activities, on the
Effective Date, and a $1.7 million principal payment pursuant to the terms of
that agreement.
Financing Activities
On the Effective Date, ING (U.S.) Capital Corporation (successor to INCC)
("ING") entered into a new $15,000,000 loan agreement with the Company. Initial
loan fees of $188,000 were paid on or prior to the Effective Date, an additional
loan fee of $100,000 was made on December 31, 1997 and a final loan fee of
$100,000 is due on or before December 31, 1998. The loan matures on July 11,
1999, with interest to be paid quarterly and with three interim principal
payments of $1,000,000 each to be made in September 1998, December 1998, and
March 1999. This loan bears interest at the option of the Company at either (1)
LIBOR plus 3% or (2) ING's fluctuating "reference rate" plus 1.25%. This loan is
collateralized by substantially all of the Company's assets. At June 30, 1998,
this rate was 8.6875%.
24
<PAGE>
The Credit Agreement contains restrictive covenants which impose limitations on
the Company with respect to, among other things: (i) the maintenance of current
assets equal to at least 110% of current liabilities (excluding any current
portion of the Credit Agreement); (ii) the incurrence of debt outside the
ordinary course of business; (iii) dividends and similar payments; (iv) the
creation of additional liens on, or the sale of, the Company's oil and gas
properties and other assets; (v) the Company's ability to enter into forward,
future, swap or hedging contracts; (vi) mergers or consolidations; (vii) the
issuance of securities other that Common Stock and options or warrants granting
the right to purchase Common Stock; (viii) the sale, transfer, lease, exchange,
alienation or disposal of Company properties or assets; (ix) investments outside
the ordinary course of business; (x) transactions with affiliates; (xi) general
and administrative expenditures in excess of $1 million during any fiscal
quarter or in excess of $3 million during each fiscal year; and (xii) the
maintenance of an aggregate net present value attributable to all collateral as
determined from engineering reports equal to 120% of the principal amount of the
Credit Agreement on such date.
The Company intends to amend the Credit Agreement (the "Amended Credit
Agreement") to, among other things: (i) delete the coverage ration set forth in
the Credit Agreement, (ii) require interest payments to be made by the Company
on a monthly basis. The principal amount and the interest rate set forth in the
Credit Agreement remain unchanged. In connection with the execution and delivery
of the Amended Credit Agreement, ING waived certain provisions of the Credit
Agreement to permit certain actions by the Company. In consideration for
entering into the Amended Credit Agreement and granting certain waivers, the
Company and ING further agreed that (a) the Company will pay a $250,000
amendment fee to ING on July 11, 1999, provided that such amendment fee will be
waived if the amounts owed to ING under the Amended Credit Agreement have been
paid in full by July 10, 1999; and (b) the Company shall issue warrants to ING,
in that such warrants will permit ING to purchase 2% of the outstanding shares
of Common Stock on a fully diluted basis after giving effect to future Rights
Offerings.
Capital Requirements and Resources
The Company's program to increase production rates, lengthen the productive life
of wells and increase total proved reserves consists primarily of sidetracks and
recompletions in shut-in.
The company is actively pursuing strategic alliances with companies possessing
South Louisiana expertise and who utilize advanced technology, to fully develop
the existing properties through exploration and exploitation. In selecting such
allies, the Company seeks partners who have demonstrated their ability to
resolve the geological complexities found in South Louisiana, who possess
adequate capital to conduct aggressive exploration programs on the properties,
and who maintain a reputation in the oil and gas sector as successful
performers.
The Company has entered into a definitive Farmout Agreement with Tri-C Resources
("Tri-C") of Houston, Texas. Tri-C specializes in utilizing advanced technology
to optimize, explore and develop new oil and gas reserves. The Farmout Agreement
covers the WCBB field and is divided into three phases over a twenty-four month
period. In Phase I, Tri-C commits to drill three exploratory wells and three PUD
wells. If Tri-C elects to proceed to Phase II, Tri-C will drill additional three
exploratory wells and three PUD wells. In Phase III, Tri-C shall drill either
five exploratory wells and five PUD wells or conduct a geological and
geophysical program on the property. If Tri-C elects to complete all three
phases, it will earn a 50% interest in the WCBB field. The Company will earn a
carried interest throughout the program.
The Company has entered into a Purchase and Sale Agreement with Plymouth
Resource Group 1998, L.L.C. ("Plymouth") for the sale of the Napoleonville
field. In exchange for the interest conveyed, the Company will receive $1.1
million and a 2.5% overriding royalty interest. In connection with the sale,
Plymouth will establish a plugging and abandonment escrow account in accordance
with and pursuant to the provisions of LSA-R.S. 30:88, et. seq. The
establishment of this escrow account is intended to protect the Company from
future liability associated with the plugging and abandoning of the field and
associated environmental liabilities.
25
<PAGE>
The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of the Company will generally decline as reserves are depleted,
except to the extent that the Company conducts successful exploration or
development activities or acquires properties containing proved reserves, or
both. To increase reserves and production, the Company must commence exploratory
drilling, undertake other replacement activities or utilize third parties to
accomplish these activities. Consequently, the Company anticipates filing on
Form S-1 with the Securities and Exchange Commission with respect to the
registration of additional securities for an offering ("Rights Offering"), an
aggregate of approximately 25.0 million shares of Common Stock.Proceeds to the
Company from the Rights Offering will range from approximately $7.5 million,
assuming that the minimum number of 18.8 million shares is purchased, to
approximately $10.0 million, assuming that all the shares are purchased, in each
case prior to deducting expenses of the Rights Offering. Members of a Backstop
Group, including Liddell Investments, Liddell Holdings and Wexford and CD
Holdings will receive rights to purchase an aggregate of approximately 12
million shares and have agreed to purchase all such shares. In addition, to the
extent that all eligible shareholders, including the Backstop Group, do not
purchase in the aggregate at least 18.8 million shares, the Backstop Group has
agreed to purchase excess shares so that at least 18.8 million shares are sold
in the Rights Offering resulting in gross proceeds to the Company of a least
$7.5 million. The members of the Backstop Group will provide the Company with a
$3.0 million revolving credit facility (the "Backstop Credit Facility").
Borrowings under the Backstop Credit Facility will be used to repay $2.0 million
of outstanding indebtedness under the Amended Credit Agreement. The Backstop
Group also holds a receivable in the amount of $1.7 million arising from
services provided under the Amended Administrative Services Agreement See Note
3, Related Party Transactions. Cash proceeds from the Rights Offering will be
used by the Company for capital expenditures, general corporate purposes and to
repay the amounts owed the Backstop Group.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Tri-Deck/Perry Gas Litigation
During 1995, WRT entered into a marketing agreement with Tri-Deck Oil
and Gas Company ("Tri-Deck") pursuant to which Tri-Deck would market all of
WRT's oil and gas production. Subsequent to the agreement, Tri-Deck's principal
and WRT's Director of Marketing, James Florence, assigned to Plains Marketing
its right to market WRT's oil production and assigned to Perry Oil & Gas its
right to market WRT's gas production. During early 1996, Tri-Deck failed to make
payments to WRT attributable to several months of its gas production.
Consequently, WRT responded in two ways. First, on May 20, 1996, WRT filed a
Motion to Reject the Tri-Deck Marketing Agreement. Second, on May 29, 1996, WRT
initiated an adversary proceeding against Tri-Deck and Perry Oil and Gas ("Perry
Gas"). Perry Gas was the party, which ultimately purchased WRT's gas production
for the months in question.
With respect to the Motion to Reject, the Bankruptcy Court authorized
the rejection and directed Tri-Deck and WRT to determine the amount of
production proceeds attributable to WRT's June gas production which were payable
to WRT. Consequently, Perry Gas thereafter made payment to WRT of the June gas
proceeds less $75,000 for a set-off claim by Perry Gas, which is subject to
further consideration by the Bankruptcy Court.
26
<PAGE>
Next, with respect to the adversary proceeding, WRT sought turnover by
Tri-Deck and/or Perry Gas of all unpaid production proceeds payable to WRT under
the marketing agreement and the issuance of a temporary restraining order and
preliminary injunction against both parties to prevent further disposition of
such proceeds pending outcome of the proceedings. On May 31, 1996, the
Bankruptcy Court entered a consensual temporary restraining order against both
Tri-Deck and Perry Gas. On June 18, 1996, a Preliminary Injunction was entered
by the Court which required Perry Gas to segregate into a separate depository
account the funds due for the purchase of WRT's April and May 1996 gas
production from Tri-Deck. Subsequently, upon motion by WRT the Court ordered
such funds to be placed into the Bankruptcy Court's registry, as Perry Gas had
made certain withdrawals from the separate depository account without
authorization by the Court. Currently, funds in the amount of approximately
$1,700,000 remain in the registry of the Court. Additionally, a dispute exists
between WRT and Perry Gas as to additional funds owed by Perry Gas for the
purchase of WRT's April and May 1996 gas production. Currently, the adversary
proceeding remains pending as to the ultimate issue of ownership of proceeds.
Tri-Deck has also filed an answer and counterclaim in which Tri-Deck is
asserting, among other items, damages for tortoise interference of its
contractual relationships with others. Recovery of the $1,700,000 receivable is
dependent on the court rendering a favorable ruling on the issue. As of the date
of the report, the court has not ruled on this issue. Although management
believes that Tri-Deck's claim to the funds in the registry of the court is
invalid, and the aforementioned counterclaim is without merit, for financial
reporting purposes the receivable from Tri-Deck was fully reserved for as of
June 30, 1998.
On January 20, 1998, the Company and the Litigation Trust entered into a
Clarification Agreement whereby the rights to pursue the Tri- Deck claim were
assigned to the Litigation Trust. In connection with this agreement, the
Litigation Trust agreed to reimburse the Company $100,000 for legal fees the
Company had incurred in connection with this and other related claims. As
additional consideration for the contribution of this claim to the Litigation
Trust, the Company is entitled to 85% of the net proceeds from this claim.
Title to Oil and Gas Properties
During 1996, WRT received notice from Wildwing Investments, Inc. ("Wildwing")
claiming that WRT's title had failed as to approximately 43 acres in the Bayou
Pigeon Field. Some or all of the acreage in dispute is considered to be
productive in three separate production units. The Company's working interest in
three units was reduced to approximately 7% (5% Net Revenue Interest, ("NRI"))
75% (63% NRI), and 95% (72% NRI). The financial statements as of and for the
periods ending June 30, 1998 and December 31, 1997, reflect operating results
and proved reserves discounted for of this possible title failure. As the title
failure predates its ownership of the field, the Company is currently evaluating
its recourse against the predecessors-in-title relative to this issue. On May
21, 1998, the Company entered into a settlement agreement with Wildwing, which
provides that the Stakeholders, who are currently holding funds in suspense
attributable to mineral mineral production from leases made the subject of the
lawsuit, will be instructed by the Company and Wildwing to distribute $270,000
to Wildwing in full and final compromise of such litigation. Additional sums
held by the Stakeholders are to be distributed to the lessors of the leases made
the subject of the litigation an amount for payment of royalties due and owing
up to the date of this filing. The balance held by the Stakeholders will
thereafter be distributed to the Company.
One June 29, 1998, a Stakeholder remitted to the Company, the balance of
funds they held in suspense attributable to this lease. As of this filing date,
final distribution to the lessors was not complete. On July 31, 1998, a
Stakeholder distributed funds they held in suspense to the lessors and remitted
the balance to the Company.
27
<PAGE>
On June 30, 1998, Production Management Corporation ("PMC") initiated
litigation against the Company in the United States District Court of the
Western District of Louisiana, Lafayette-Opelousas Division, alleging breach of
contract and the failure of the Company to pay certain invoices related to
services allegedly provided to the Company. The complaint seeks monetary damages
in the amount of $388,000 plus interest, certain legal costs and 10% in attorney
fees. The litigation is in its earliest stages and discovery has not yet begun.
The Company is currently reviewing the claims set forth in the lawsuit to
determine the appropriate response thereto.
On July 20, 1998, Sanchez Oil & Gas Corporation ("Sanchez") initiated
litigation against the Company in the Fifteenth Judicial District Court, Parish
of Lafayette, State of Louisiana. In it petition, Sanchez alleges, among other
things, that the Company was obligated, by virtue of the terms of a letter dated
June 26, 1997, between Sanchez and the Company (the "Sanchez Letter"), to grant
a sublease to Sanchez for an undivided 50% interest in two of the Company's oil,
gas and mineral leases covering land located in the North Bayou Penchant area of
Terebonne Parish, Louisiana. Pursuant to this lawsuit, Sanchez is seeking: (i)
specific performance by the Company of the contractual obligation that Sanchez
alleges to be present in the Sanchez Letter, and (ii) monetary damages. The
litigation is in its earliest stages and discovery has not yet begun. In
addition, the Company is currently reviewing the claims set forth in the lawsuit
to determine the appropriate response thereto.
28
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports filed on Form 8-K during the quarter.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULFPORT ENERGY CORPORATION
Date: August 14, 1998
/s/Mark Liddell
-------------------------
Mark Liddell
President
/s/Ronald D. Youtsey
-------------------------
Ronald D. Youtsey
Secretary and Treasurer
30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,278,073
<SECURITIES> 0
<RECEIVABLES> 9,132,592
<ALLOWANCES> (4,966,000)
<INVENTORY> 0
<CURRENT-ASSETS> 6,582,149
<PP&E> 86,918,532
<DEPRECIATION> (24,577,158)
<TOTAL-ASSETS> 62,341,375
<CURRENT-LIABILITIES> 11,533,405
<BONDS> 0
0
0
<COMMON> 220,714
<OTHER-SE> 49,778,134
<TOTAL-LIABILITY-AND-EQUITY> 72,191,437
<SALES> 6,722,000
<TOTAL-REVENUES> 346,000
<CGS> 5,170,000
<TOTAL-COSTS> 5,170,000
<OTHER-EXPENSES> 21,420,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 758,000
<INCOME-PRETAX> (20,280,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,280,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,280,000)
<EPS-PRIMARY> (0.920)
<EPS-DILUTED> (0.920)
</TABLE>
