<PAGE> 1
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 MARCH 31, 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 May 15, 1998 was 22,076,315.
<PAGE> 2
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
--------------------------
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheet at March 31, 1998 (unaudited)
and December 31, 1997........................................ 4
Consolidated Statement of Operations for the Three Months
Ended March 31, 1998 and 1997 (unaudited).................... 5
Consolidated Statement of Cash Flow for the Three Months
Ended March 31, 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............................................ 24
Item 6 Exhibits and Reports on Form 8-K............................. 25
Signatures................................................... 26
<PAGE> 3
GULFPORT ENERGY CORPORATION
PART I. Financial Information
Item 1. Consolidated Financial Statements
March 31, 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
<PAGE> 4
Gulfport Energy Corporation
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1998 1997
Current assets: (Unaudited)
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 1,902,000 $ 1,203,000
Cash, restricted 1,781,000 2,060,000
Accounts receivable, net of allowance for
doubtful accounts of $4,996,000 for March 31,
1998 and December 31, 1997, respectively 3,019,000 4,364,000
Prepaid expenses and other 121,000 192,000
------------ ------------
Total current assets 6,823,000 7,819,000
Property and equipment:
Oil and natural gas properties 84,670,000 84,466,000
Other property and equipment 1,589,000 1,577,000
Accumulated depletion, depreciation and
amortization (6,421,000) (4,542,000)
------------ ------------
Property and equipment, net 79,838,000 81,501,000
Other assets 3,457,000 3,026,000
------------ ------------
Total assets $ 90,118,000 $ 92,346,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 6,267,000 $ 6,346,000
Current maturities of long-term debt 2,192,000 2,192,000
------------ ------------
Total current liabilities 8,459,000 8,538,000
Long term debt 13,506,000 13,528,000
------------ ------------
Total liabilities 21,965,000 22,066,000
Shareholders' equity:
Common stock - $.01 par value, 50,000,000
authorized, 22,076,315 issued and outstanding
at March 31, 1998 and December 31, 1997,
respectively 221,000 221,000
Paid-in capital 71,772,000 71,772,000
Accumulated deficit (3,840,000) (1,713,000)
------------ ------------
Total shareholders' equity 68,153,000 70,280,000
------------ ------------
Commitments and contingencies
- -
------------ ------------
Total liabilities and shareholders' equity $ 90,118,000 $ 92,346,000
============ ============
</TABLE>
- See accompanying notes to consolidated financial statements -
<PAGE> 5
Gulfport Energy Corporation
Consolidated Statement Of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months Ended March 31,
1998 1997
(Reorganized (Predecessor
Company) Company)
------------ ------------
Revenues:
<S> <C> <C>
Gas sales $ 1,019,000 $ 2,508,000
Oil and condensate sales 2,303,000 2,873,000
Other income 200,000 50,000
------------ ------------
Total revenues 3,522,000 5,431,000
Expenses:
Lease operating 2,720,000 2,144,000
Depreciation, depletion and amortization 1,878,000 1,451,000
General and administrative expenses 662,000 919,000
Provision for doubtful accounts - 91,000
------------ ------------
5,260,000 4,605,000
------------ ------------
Income (loss) from operations (1,738,000) 826,000
------------ ------------
Interest expense 386,000 615,000
------------ ------------
Income (loss) before reorganization costs and
income taxes (2,124,000) 211,000
Reorganization costs - 1,026,000
------------ ------------
Loss before income taxes (2,124,000) (815,000)
Income tax expense - -
------------ ------------
Net loss (2,124,000) (815,000)
Undeclared dividends on preferred stock - 712,000
------------ ------------
Net loss available to common shareholders $ (2,124,000) $ (1,527,000)
============ ============
Per common share:
Income (loss) per common and common equivalent
share $ (0.10) *
============ ============
Average common and common equivalent
shares outstanding 22,076,000 *
============ ============
</TABLE>
* Amounts not meaningful as a result of the
reorganization
- See accompanying notes to consolidated financial statements -
<PAGE> 6
Gulfport Energy Corporation
Consolidated Statement Of Cash Flows
(Unaudited)
<TABLE>
Three months Ended March 31,
1998 1997
(Reorganized (Predecessor
Company) Company)
------------ ------------
Cash flow from operating activities:
<S> <C> <C>
Net (loss) $ (2,124,000) $ (815,000)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation, depletion, and amortization 1,878,000 1,451,000
Provision for doubtful accounts and notes
receivable - 91,000
Amortization of debt issuance costs 32,000 41,000
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,346,000 1,668,000
(Increase) decrease in prepaid expenses and
other 71,000 (526,000)
Increase (decrease) in accounts payable and
accrued liabilities (97,000) 725,000
Pre-petition liabilities subject to
compromise - (267,000)
------------ ------------
Net cash provided by operating
activities 1,106,000 2,368,000
Cash flow from investing activities:
Additions to cash held in escrow - (10,000)
Additions to property and equipment (679,000) (250,000)
------------ ------------
Net cash used in investing activities (679,000) (260,000)
Cash flow from financing activities:
Principal payments on borrowings (7,000) (11,000)
------------ ------------
Net cash used in financing activities (7,000) (11,000)
Net increase in cash and cash equivalents 420,000 2,097,000
Cash and cash equivalents - beginning of period 3,263,000 5,679,000
------------ ------------
Cash and cash equivalents - end of period $ 3,683,000 $ 7,776,000
============ ============
Supplemental Disclosures Of Cash Flow Information
Interest paid $ 339,000 $ 28,000
Income taxes paid - -
Supplemental Information Of Non-Cash Investing And
Financing Activities
Accrued dividends on preferred stock
(Undeclared on Predecessor Company) - (712,000)
</TABLE>
- See accompanying notes to consolidated financial statements -
<PAGE> 7
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 natural oil and gas
properties in the Louisiana Gulf Coast area. Currently, the Company is seeking
to diversify its asset base through merger, acquisitions, or trades. The
Company's business strategy is to increase its reserves, production and cash
flow through exploration and development activities as well as opportunistic
acquisitions. 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 or less to be cash equivalents for purposes of the
statement of cash flows.
Fair Value of Financial Instruments
At March 31, 1998 and December 31, 1997, the carrying amounts of all
financial instruments approximate their fair market values.
<PAGE> 8
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
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 principal shareholder, DLB Oil & Gas, Inc. ("DLB").
COMMENCING JULY 11, 1997
In connection with the implementation of fresh start reporting, as
described in Note 3, 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
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 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.
<PAGE> 9
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
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.
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.
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 principally 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. Unrelated to economic fluctuations, during 1996,
WRT incurred a bad debt in the amount of $4,278,000 related to marketing of its
oil and gas by Tri-Deck Oil & Gas Company ("Tri-Deck").
<PAGE> 10
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
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 $3,684,000 and $3,163,000 at March
31, 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.
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 cancelled. 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 March 31, 1998 and December 31, 1997, there were
221,000 warrants issued and outstanding.
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.
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 (1) the reallocation
of the voting rights of equity interest owners and (2) 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 the 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.
<PAGE> 11
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
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 5,616,300 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. 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.
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.
<PAGE> 12
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
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
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
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 depletion 5,000,000 5,000,000
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
============ ============ ============ ============
<PAGE> 13
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued 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, 1,412,144 of the above-described shares were held in escrow to
cover the settlement of disputed unsecured claims in the amount of $18,338,807.
Through March 31, 1998, $10,422,253 of these claims have been settled for
$7,102,032 resulting in the issuance from the escrow account, of 547,053 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.
<PAGE> 14
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
Issued 1,703,100 shares of the Reorganized Company's common stock in
payment of a $5,961,00 claim purchased by DLB from TEPI.
Issued 5,000,000 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 $1,671,801 in administrative and priority claims,
$1,144,687 in secured claims, and $143,336 convenience claims. At March 31,
1998, $1,492,096 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 and (b) the foreclosure action to recover title to
certain assets (See Note 17 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 March
31, 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 March
31, 1998, the Company owed DLB $1,557,251. As of December 31, 1997, the Company
owed DLB $1,728,000.
<PAGE> 15
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
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 March 31, 1998,
Gulfport owed DLB 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 months ended March 31, 1998, the Company sold $877,128 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 the
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.
<PAGE> 16
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
5. LONG-TERM LIABILITIES
As of March 31, 1998 and December 31, 1997, long term liabilities include
the following:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Long-term debt:
Credit facility $ 15,000,000 $ 15,000,000
Priority tax claims 527,000 527,000
Building loan 171,000 193,000
------------- -------------
15,698,000 15,720,000
Less current portion 2,192,000 2,192,000
============= =============
$ 13,506,000 $ 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, 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 March 31, 1998,
this rate was 8.625%.
At December 31, 1997, the Company held $2,060,000 in cash representing the
proceeds from the sale of its field equipment. As of March 31, 1998, the Company
held $1,781,000 in restricted cash. As of the date of this report, ING has not
released these funds for general use by the Company.
Priority Tax Claims
In accordance with the Plan of Reorganization, priority taxes totaling
$703,000 are to be paid in four annual installments without interest. The first
annual installment of $176,000 was made on the Effective Date.
<PAGE> 17
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
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.
8. CONTINGENCIES
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
the 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.
<PAGE> 18
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
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
March 31, 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 a third party 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. Under the assumption that WRT's title is flawed, it's working
interest in three units may be reduced to approximately 7% (5% Net Revenue
Interest, ("NRI")) 75% (63% NRI), and 95% (72% NRI). The financial statements as
of and for periods ending March 31, 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. The Company is currently negotiating a settlement with the Third
Party, pursuant to their claim.
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.
<PAGE> 19
Gulfport Energy Corporation
Notes to Financial Statements (continued)
(Unaudited)
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.
<PAGE> 20
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 March 31, 1998, and its results of operations
for the three month periods ended March 31, 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.
<PAGE> 21
FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------------- -------------
<S> <C> <C>
Revenues:
Gas sales $ 1,019,000 $ 2,508,000
Oil and condensate sales 2,303,000 2,873,000
Other 200,000 50,000
------------- -------------
3,522,000 5,431,000
Expenses: ------------- -------------
Production costs (1) 2,720,000 2,144,000
General and administrative 662,000 919,000
Provision for doubtful accounts - 91,000
------------- -------------
3,382,000 3,154,000
------------- -------------
EBITDA (2) 140,000 2,277,000
Depreciation, depletion and amortization 1,878,000 1,451,000
------------- -------------
Earnings before interest and taxes (1,738,000) 826,000
Interest expense 386,000 615,000
Reorganization costs - 1,026,000
------------- -------------
Net loss (2,124,000) (815,000)
Dividends on preferred stock - 712,000
------------- -------------
Net loss available to common shareholders $ (2,124,000) $ (1,527,000)
============= -------------
PER SHARE DATA
Net loss $ (0.10) $ (3)
============= =============
Weighted average common and
common equivalent shares 22,076,000 (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.
<PAGE> 22
Results of Operations
Comparison of Three Months Ended March 31, 1998 and 1997
During the three months ended March 31, 1998, the Company reported a net loss of
$2.1 million, a 161% increase from net loss before undeclared dividends on
preferred stock of $0.8 million for the corresponding period in 1997. The
increase in net loss was due primarily to the following factors:
Oil and Gas Revenues. During the three months ended March 31, 1998, the Company
reported oil and gas revenues of $3.2 million, a 41% decrease from oil and gas
revenues of $5.4 million for the comparable period in 1997. This decrease in
revenues during 1998 was attributable primarily to ordinary production declines,
a shutdown at the Abbeville and Golden Meadow Fields, and a significant
reduction in oil prices. The following table summarizes the Company's oil and
gas production and related pricing for the three months ended March 31, 1998 and
1997:
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
------ ------
<S> <C> <C>
Oil production volumes (MBbls) 157 127
Gas production volumes (MMcf) 383 833
Average oil price (per Bbl) $14.63 $22.62
Average gas price (per Mcf) $2.66 $3.01
</TABLE>
PRODUCTION COSTS
- ----------------
Production costs, including lease operating costs and gross
production taxes, increased $0.6 million, or 26%, from $2.1 million for the
three months ended March 31, 1997 to $2.7 million for the comparable period in
1998. This increase was due primarily to the Company's acquisition on the
Effective Date of an additional 50% working interest in the WCBB Field in depths
above the Rob "C" marker, of which the Company is the operator.
DEPRECIATION, DEPLETION AND AMORTIZATION
- ----------------------------------------
Depreciation depletion and amortization increased $0.4 million, or 27%, from
$1.5 million for the three months ended March 31, 1997 to $1.9 million for the
comparable period in 1998. As a result of fresh start accounting prescribed for
companies exiting bankruptcy, a new cost basis in assets is recognized based
upon fair market value of the assets. However, 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 for reporting oil and gas
properties on the Effective Date, comparisons of the 1998 and 1997 periods are
not meaningful for comparison.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses decreased 28% from $919,000 for the three
months ended March 31, 1997 to $662,000 for the comparable period in 1998
primarily as a result of the Company's change in strategy resulting in a
reduction in personnel and general and administrative costs
OTHER INCOME
- ------------
Other income increased 300% from $50,000 for the three months ended March 31,
1997 to $200,000 for the comparable period in 1998. This increase resulted from
the Company's increased cash holdings in accounts bearing interest and due to an
increase in overhead income, during the first quarter of 1998.
<PAGE> 23
INTEREST EXPENSE
- ----------------
Interest expense decreased from $0.6 million for the three months ended March
31, 1997 to $0.4 million in 1998 due to the Company's discontinuing the
recording of interest expense during periods after February 14, 1996, on certain
notes payables as a result of the reorganization.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
- --------------------
Net cash flow provided by operating activities for the three months ended March
31, 1998 was $1.1 million, as compared to net cash flow provided by operating
activities of $2.4 million for the comparable period in 1997. This decrease is
due to changes in current assets and liabilities and the significant difference
in the net loss during the three months ended March 31, 1998 and to ordinary
production declines, a shut down at the Abbeville and Golden Meadow Fields, and
a significant reduction in oil prices.
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 March 31, 1998,
this rate was 8.625%.
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 wells and installation of hydrocyclones on wells
producing large volumes of formation water. In addition, certain sidetrack and
development drilling locations have been identified to improve reservoir
drainage and increase the ultimate recovery of reserves.
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 an 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 fields. The Company will earn a
carried interest throughout the program.
<PAGE> 24
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 is $1.7 million. These funds will
be 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 has granted
the sellers an unconditional release from their contingent liability 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 will revert to
the Company. At March 31, 1998, the Company had deposited $881,643 in this
account.
Plugging and Abandonment Funds. The Company is contractually committed in its
purchase contracts for the Initial LLOG Property and Remaining LLOG Properties
to establish plugging and abandonment funds as allowed by Louisiana's Orphaned
Well Act. The amount of and terms of payment into each fund will be established
by the State of Louisiana upon completion of an independent study commissioned
by the state. The necessary state sponsored studies are not yet completed.
Accordingly, the Company is unable to determine the amount and payment towards
the future obligation related to these commitments. For financial accounting
purposes, the estimated aggregate future plugging and abandonment cost for the
Initial LLOG Property and the Remaining LLOG Properties will be included in the
Company's amortization rates for the properties.
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material changes in the various legal proceedings to which
the Registrant is a party since the filing of its Annual Report on Form 10-K.
Accordingly, the information set forth in the Registrants Annual Report on Form
10-K under the caption "Legal Proceedings" is incorporated herein by this
reference. A copy of the Registrant's Annual Report on Form 10-K will be
provided without charge to any person upon written request directed to the
Secretary at the Company's principal executive offices.
<PAGE> 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits required by Item 601 of Regulation S-K are as follows:
3.1 Certificate of Incorporation filed with Form 8-K dated March
13, 1997.
3.2 Certificate of Amendment to Certificated of Incorporation (5)
3.3 Bylaws filed with Form 8-K dated March 3, 1997.
10.1 Final Order Authorizing Use of Proceeds from Oil and Gas
Operations.(1)
10.2 Letter agreement by and among WRT Energy Corporation, DLB Oil &
Gas, Inc. and Wexford Management, LLC dated October 22, 1996.(2)
10.3 Debtor's and DLBW's First Amended Joint Plan of Reorganization
Under Chapter 11 of the United States Bankruptcy Code dated
January 20, 1997.(3)
10.4 First Amended Disclosure Statement Under 11 U.S.C. 1125 In
Support of Debtor's and DLBW's First Amended Joint Plan of
Reorganization Under Chapter 11 of the United States
Bankruptcy Code dated January 20, 1997. (3)
10.5 Agreement and Plan Merger (4)
27 Financial Data Schedule
(1)Filed with Form 10K dated March 14, 1997
(2)Filed with Form 10K dated November 6, 1996
(3)Filed with Form 10K dated March 3, 1997
(4)Filed with Form 10K dated July 22, 1997
(5)Filed herewith
b) The Registrant filed the following reports on Form 8-K
Form 8-K filed on December 23, 1997 reporting changes in
registrants certified accountants.
Form 8-KA filed on February 17, 1998 reporting letter to
the SEC from KPMG Peat Marwick, LLP regarding termination
of their client - auditor relationship.
<PAGE> 26
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: May 15, 1998
/s/ Mark Liddell
----------------------------
Mark Liddell
President
/s/ Ronald D. Youtsey
----------------------------
Ronald D. Youtsey
Secretary and Treasurer
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
WRT ENERGY CORPORATION
Wrt Energy Corporation, a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), does hereby certify as follows:
FIRST: The name of the Corporation is WRT Energy Corporation, and the date
of filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was June 20, 1997, amended by its Restated
Certificate of Incorporation filed with the Secretary of the State of the State
of Delaware on July 11, 1997.
SECOND: Article I of the Restated Certificate of Incorporation of the
Corporation is amended in its entirety to read as follows:
"The name of the corporation is Gulfport Energy Corporation (the
"Corporation")."
THIRD: The foregoing amendments were declared advisable and proposed to the
Corporation's stockholders by resolutions adopted by unanimous written consent
of the Board of Directors dated February 13, 1998.
FOURTH: That in lieu of a meeting and vote of stockholders, the holders of
a majority of the issued and outstanding voting capital stock of the Corporation
have been given their respective written consent to the foregoing amendments in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
FIFTH: That the foregoing amendments were duly adopted in accordance with
the applicable provisions of Section 242(b) of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, WRT Energy Corporation has caused this Certificate of
Amendment to be signed, on its behalf, by Gary C. Hanna, its President, this
30th day of March, 1998.
WRT ENERGY CORPORATION
By: /s/Gary C. Hanna
------------------------
Gary C. Hanna
President
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