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, 2000
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 9, 2000 was 10,145,400.
1
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GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report..........................................4
Balance Sheets at March 31, 2000 (unaudited) and December 31, 1999.......5
Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 (unaudited)....................................6
Statements of Stockholders' Equity for the Three Months Ended
March 31, 2000 and 1999 (unaudited)....................................7
Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 (unaudited)....................................8
Notes to Financial Statements............................................9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................17
Item 2. Changes in Securities and Use of Proceeds.........................17
Item 3. Defaults upon Senior Securities...................................17
Item 4. Submission of Matters to a Vote of Security Holders...............17
Item 5. Other Information.................................................17
Item 6. Exhibits and Reports on Form 8-K..................................17
Signatures..........................................................18
2
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GULFPORT ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
March 31, 2000 and 1999
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,
1999
3
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INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and
Shareholders of Gulfport Energy Corporation:
We have reviewed the accompanying condensed balance sheet of Gulfport Energy
Corporation as of March 31, 2000, and the related statements of operations,
shareholders' equity, and cash flows for the three-month periods ended March 31,
2000 and 1999, included in the accompanying Securities and Exchange Commission
Form 10-Q for the period ended March 31, 2000. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the Company's balance sheet as of December 31, 1999, and the
related statements of operations, shareholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated March 28,
2000, we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 1999 is fairly stated in all material respects in relation
to the balance sheet from which it was derived.
HOGAN & SLOVACEK
Oklahoma City, Oklahoma
May 12, 2000
4
<PAGE>
GULFPORT ENERGY CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,418,000 $ 5,664,000
Accounts receivable, net of
allowance for doubtful accounts
of $244,000 as of March 31, 2000
and December 31, 1999 2,248,000 2,055,000
Prepaid expenses and other 90,000 120,000
------------ -----------
7,756,000 7,839,000
------------ -----------
Property and equipment:
Properties subject to depletion 85,307,000 84,135,000
Other property, plant and equipment 1,873,000 1,866,000
------------ -----------
87,180,000 86,001,000
Accumulated depreciation, depletion
and amortization (63,306,000) (62,532,000)
------------ -----------
23,874,000 23,469,000
------------ -----------
Other assets 1,951,000 2,176,000
------------ -----------
$ 33,581,000 $ 33,484,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 5,545,000 $ 6,296,000
Current maturities of long-term debt 2,517,000 2,895,000
------------ ------------
8,062,000 9,191,000
------------ ------------
Long- term liabilities: 174,000 179,000
------------ ------------
Shareholders' equity:
Preferred stock - $.01 par value, 1,000,000
authorized, none issued - -
Common stock - $.01 par value, 15,000,000
authorized, 10,145,400 issued and
outstanding at March 31, 2000 and
December 31, 1999 101,000 101,000
Paid-in capital 84,190,000 84,190,000
Accumulated deficit (58,946,000) (60,177,000)
------------ -----------
Total shareholders' equity 25,345,000 24,114,000
------------ -----------
Commitments and contingencies - -
------------ -----------
$ 33,581,000 $33,484,000
============ ============
</TABLE>
- - See independent accountants' review report and notes to financial statements -
5
<PAGE>
GULFPORT ENERGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
2000 1999
--------------- ----------------
Revenues:
<S> <C> <C>
Gas sales $ 71,000 $ 77,000
Oil and condensate sales 3,669,000 1,632,000
Other income 192,000 7,000
--------------- ----------------
Total revenues 3,932,000 1,716,000
--------------- ----------------
Expenses:
Lease operating expenses including
production taxes 1,454,000 1,417,000
Depreciation, depletion and
amortization 775,000 871,000
General and administrative expenses 340,000 452,000
---------------- ----------------
2,569,000 2,740,000
---------------- ----------------
Income (loss) from operations 1,363,000 (1,024,000)
---------------- ----------------
Other (income) expense:
Interest expense 212,000 154,000
Interest income (80,000) (36,000)
---------------- ----------------
132,000 118,000
---------------- ----------------
Income (loss) before income tax 1,231,000 (1,142,000)
---------------- ----------------
Income tax expense (benefit):
Current 487,000 -
Deferred (487,000) -
--------------- ----------------
- -
--------------- ----------------
Net income (loss) $ 1,231,000 $ (1,142,000)
=============== ================
Income (loss) per common share:
Basic and diluted $ 0.12 $ (0.33)
=============== ================
</TABLE>
- - See independent accountants' review report and notes to financial statements -
6
<PAGE>
GULFPORT ENERGY CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Additional
Preferred Stock Paid-In Accumulated Treasury
----------------------
Stock Shares Amount Capital Deficit Stock
--------- ---------- -------- ---------- ----------- --------
Balance,
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998 $ - 3,445,400 $ 34,000 $79,287,000 $ (60,818,000) $ -
Additional offering
costs-stock rights
offering - - - (43,000) - -
Net loss - - - - (1,142,000) -
----------------------------------------------------------------------------
Balance, March 31, 1999 $ - 3,445,400 $ 34,000 $79,244,000 $ (61,960,000) $ -
============================================================================
Balance,
December 31, 1999 $ - 10,145,400 $101,000 $84,190,000 $ (60,177,000) $ -
Net income - - - - 1,231,000 -
----------------------------------------------------------------------------
Balance, March 31, 2000 $ - 10,145,400 $ 101,000 $84,190,000 $ (58,946,000) $ -
============================================================================
</TABLE>
- - See independent accountants' review report and notes to financial statements -
7
<PAGE>
GULFPORT ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
2000 1999
------------ ------------
Cash flow from operating activities:
<S> <C> <C>
Net income (loss) $ 1,231,000 $ (1,142,000)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation, depletion, and
amortization 775,000 871,000
Amortization of debt issuance costs 59,000 48,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (193,000) (70,000)
Decrease in prepaid expenses and other 25,000 52,000
Increase (decrease) in accounts payable,
distribution payables and accrued
liabilities (726,000) 825,000
------------ -----------
Net cash provided by
operating activities 1,171,000 584,000
------------ -----------
Cash flow from investing activities:
(Additions) reductions to cash held in escrow 195,000 (46,000)
(Additions) to other assets (50,000) -
(Additions) to other property, plant, and
equipment (7,000) -
(Additions) to oil and gas properties (1,172,000) (1,648,000)
------------ -----------
Net cash provided by (used in)
investing activities (1,034,000) (1,694,000)
----------- -----------
Cash flow from financing activities:
Other - (43,000)
Borrowings on note payable - 36,000
Principal payments on borrowings (383,000) (4,000)
----------- -----------
Net cash provided by (used in)
financing activities (383,000) (11,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents (246,000) (1,121,000)
Cash and cash equivalents - beginning of period 5,664,000 3,714,000
----------- -----------
Cash and cash equivalents - end of period $ 5,418,000 $ 2,593,000
=========== ===========
Supplemental Disclosures Of Cash Flow Information:
Interest paid $ 78,000 $ 154,000
</TABLE>
- - See independent accountants' review report and notes to financial statements -
8
<PAGE>
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
These condensed financial statements have been prepared by Gulfport Energy
Corporation (the "Company") without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission, and reflect all adjustments which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and the summary of significant
accounting policies and notes thereto included in the Company's most recent
annual report on Form 10-K.
1. PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated
depreciation, depletion and amortization are as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
----------------- ------------------
<S> <C> <C>
Oil and gas properties $ 85,307,000 $ 84,135,000
Office furniture and fixtures 1,396,000 1,389,000
Building 217,000 217,000
Land 260,000 260,000
----------------- ------------------
Total property and equipment 87,180,000 86,001,000
Accumulated depreciation, depletion,
Amortization and impairment reserve (63,306,000) (62,532,000)
----------------- ------------------
Property and equipment, net $ 23,874,000 $ 23,469,000
================= ==================
</TABLE>
2. OTHER ASSETS
Other assets consist of the following:
Other assets
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------ -------------------
Plugging and abandonment escrow account
<S> <C> <C>
on the WCBB properties $ 1,615,000 $ 1,610,000
Prepaid loan fees, net of amortization 25,000 34,000
CD's securing letter of credit 200,000 400,000
Deposits 111,000 132,000
------------------ -------------------
$ 1,951,000 $ 2,176,000
================= ===================
</TABLE>
3. LONG-TERM DEBT
The building loan of $191,000 relates to a building in Lafayette, Louisiana,
purchased in 1996 to be used as the Company's Louisiana headquarters. The
building is 12,480 square feet with approximately 6,180 square feet of finished
office area and 6,300 square feet of warehouse space. This building allows the
Company to provide office space for Louisiana personnel, have access to meeting
space close to the fields and to maintain a corporate presence in Louisiana.
9
<PAGE>
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
A break down of long-term debt is as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
----------------- ------------------
<S> <C> <C>
Credit facility $ 2,500,000 $ 2,879,000
Building loan 191,000 195,000
----------------- ------------------
2,691,000 3,074,000
Less current portion 2,517,000 2,895,000
----------------- ------------------
$ 174,000 $ 179,000
================= ==================
</TABLE>
4. COMMON STOCK OPTIONS
During the first quarter of 2000, the Company's Chief Executive Officer,
employees, and non-employee directors were granted a total of 313,635 stock
options with an exercise price of $2.00 per share. The options vest 35% in
January 2001, and 35% in January 2002, with the remaining options vesting in
January 2003. The option agreements provide for pro-rata adjustments to options
granted if the Company at any time increases the number of outstanding shares or
otherwise alters its capitalization. The Company did not recognize any
compensation expense related to these options, as fair value at the grant date
approximated the exercise price. Options outstanding as of March 31, 2000
totaled 599,087. Of this total 9,999 options were exercisable at March 31, 2000,
with the remaining 589,088 options vesting in future periods.
5. EARNINGS (LOSS) PER SHARE
A reconciliation of the components of basic and diluted net income (loss)
per common share is presented in the table below:
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000
-----------------------------------------
Income Shares Per Share
------------ ----------- ----------
Basic:
Income (loss) attributable to
<S> <C> <C> <C>
common stock $1,231,000 10,145,400 $.12
==========
Effect of Dilutive Securities:
Stock options plans - 97,760
------------ -----------
Diluted:
Income (loss) attributable to
common stock after assumed
dilutions $1,231,000 10,243,160 $.12
============ =========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1999
-----------------------------------------
Income Shares Per Share
------------ ----------- ----------
Basic:
Income (loss) attributable to
<S> <C> <C> <C>
common stock $(1,142,000) 3,445,206 $( .33)
==========
Effect of Dilutive Securities:
Stock options plans - -
------------ -----------
Diluted:
Income (loss) attributable to
common stock after assumed
dilutions $(1,142,000) 3,445,206 $( .33)
============ =========== ==========
</TABLE>
10
<PAGE>
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Common stock equivalents not included in the calculation of diluted earnings
per share above consists of 221,000 warrants issued at the time of the Company's
reorganization. This potential common stock was not considered in the
calculation due to its anti-dilutive effect during the periods presented.
6. COMMITMENTS
In connection with the acquisition of the remaining 50% interest in the West
Cote Blanche Bay properties ("WCBB"), the Company assumed the obligation to
contribute approximately $18,000 per month through March, 2004, to a plugging
and abandonment trust and the obligation to plug a minimum of 20 wells per year
for 20 years commencing March 11, 1997. Texaco Exploration and Production, Inc.
("Texaco") retained a security interest in production from these properties and
the plugging and abandonment trust until such time as the Company's plugging and
abandonment obligations to Texaco 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. As of March 31, 2000, the
plugging and abandonment trust totaled $1,615,000, including interest received
during 2000 of approximately $20,000. The Company was in arrears on its escrow
payments in the amount of $221,000 as of March 31, 2000. The Company is
currently seeking an amendment to the escrow agreement wherein it would increase
its plugging and abandonment obligation to 24 wells annually in lieu of making
monthly contributions to the plugging and abandonment trust.
7. CONTINGENCIES
On October 1, 1999, Plymouth Resources Group 1998 LLC filed a complaint in
the Western District of Louisiana alleging breach of contract regarding rework
operations at WCBB. Plymouth has challenged the Company's right to conduct
rework operations in late 1998 and 1999. Plymouth has requested damages in
excess of $100,000, specific performance and an accounting. The Company does not
believe that it breached any contract with Plymouth and is vigorously defending
this lawsuit. Management does not expect this litigation to have a material
impact on the financial statements.
The Company owns and operates a production facility at WCBB. Pursuant to
facility use agreements, the Company charges third parties including Texaco for
use of the facility. In addition, Texaco provides natural gas, boats and other
services to the Company at its WCBB facility. The Company and Texaco are
currently negotiating past due amounts related to the facility. The Company
believes that it has adequately recorded in its financial statements all
material obligations arising from the operations of WCBB as well as revenues
earned attributed to operating these facilities.
11
<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, 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 the Company'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 the Company 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 the Company'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 the
Company; competitive actions by other oil and gas companies; changes in laws or
regulations; and other factors, many of which are beyond the control of the
Company. 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 the Company will be
realized, or even if realized, that they will have the expected consequences to
or effects on the Company 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, 2000 and its results of operations
for the three month periods ended March 31, 2000 and 1999. The 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 1999
annual report on Form 10-K.
Overview
Gulfport Energy Corporation is a domestic independent energy company engaged
in the production of oil and gas. The Company's operations are concentrated in
two fields: West Cote Blanche Bay and the Hackberry fields.
West Cote Blanche Bay
West Cote Blanche Bay ("WCBB") lies approximately five miles off the coast of
Louisiana primarily in St. Mary's parish in a shallow bay, with water depths
averaging eight to ten feet. WCBB overlies one of the largest salt dome
structures in the Gulf Coast. There are over 100 distinct sandstone reservoirs
recognized throughout most of the field and nearly 200 major and minor discrete
intervals have been tested. Within over 800 wellbores that have been drilled to
date in the field, over 4,000 potential zones have been penetrated. The sands
are highly porous and permeable reservoirs primarily with a strong water drive.
Estimated cumulative field gross production is 190 MMBO and 226 BCF of gas.
There have been 860 wells drilled in WCBB, and of these 42 have daily current
production, 37 produce intermittently, 297 are shut-in and 4 have been converted
to salt water disposal wells.
Hackberry Fields
The Hackberry fields are located along the shore of Lake Calcasieu in Cameron
Parish, Louisiana. The Hackberry Field is a major salt intrusive feature,
elliptical in shape with East Hackberry on the east end of the ridge with West
Hackberry located on the western end of the ridge. There are over 30 pay zones
in this field. The salt intrusion at East Hackberry trapped Oligocene through
12
<PAGE>
Lower Miocene rocks in a series of complex, steeply dipping fault blocks. The
Camerina sand series at East Hackberry is a prolific producer with 1-2 MMBL per
well oil potential. West Hackberry consists of a series of fault bounded traps
in the Oligocene-age Vincent and Keough sands associated with the Hackberry Salt
Ridge.
First Quarter Overview
The Company has enjoyed a strong first quarter with revenues of $3.9 million
dollars and net income of $1.2 million dollars. The focus of the Company in the
first quarter was to identify prospects on the principal property, WCBB, using
the reprocessed seismic data in preparation for the spring drilling program. As
of the date of this filing, the Company has begun its spring drilling program at
WCBB. The Company also has conducted remedial operations in the Hackberry fields
to increase production. With the additional capital provided from current
pricing, the Company anticipates that it will continue its developmental program
to further exploit its reserves.
The following financial table recaps the Company's operating activity for the
first three months of 2000 as compared to the first three months of 1999.
<TABLE>
<CAPTION>
FINANCIAL DATA (Unaudited) Three Months Ended
March 31,
2000 1999
---- ----
Revenues:
<S> <C> <C>
Gas sales $ 71,000 $ 77,000
Oil and condensate sales 3,669,000 1,632,000
Other income, net 272,000 43,000
-------------- ------------
4,012,000 1,752,000
-------------- ------------
Expenses:
Operating expenses including
production taxes 1,454,000 1,417,000
General & administrative 340,000 452,000
------------- ------------
1,794,000 1,869,000
------------- ------------
EBITDA (1) 2,218,000 (117,000)
Depreciation, depletion & amortization 775,000 871,000
------------- ------------
Income (loss) before interest, and taxes 1,443,000 (988,000)
Interest expense 212,000 154,000
------------- ------------
Income (loss) before income taxes 1,231,000 (1,142,000)
------------- ------------
Income tax expense (benefit):
Current 487,000 -
Deferred (487,000) -
------------- ------------
- -
------------- ------------
Net income (loss) $ 1,231,000 $(1,142,000)
============= ============
Earnings per share:
Basic and diluted $ 0.12 $ (.33)
======== ========
</TABLE>
(1)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.
13
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2000 and 1999
During the three months ended March 31, 2000, the Company reported a net
income of $1.2 million, a $2.3 million increase from a net loss of $1.1 million
for the corresponding period in 1999. This increase is primarily due to the
following factors:
Oil and Gas Revenues. During the three months ended March 31, 2000, the
Company reported oil and gas revenues of $3.7 million, a 118% increase from $1.7
million for the comparable period in 1999. This increase was due principally to
an increase of 143% in the price of oil from $11.89 for the three months ended
March 31, 1999 to $28.89 for the comparable period in 2000. The increase in oil
revenues was offset in part by a 10 mbbls decrease in oil production. The
following table summarizes the Company's oil and gas production and related
pricing for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
<S> <C> <C>
Oil production volumes (Mbbls) 127 137
Gas production volumes (Mmcf) 28 38
Average oil price (per Bbl) $28.89 $11.89
Average gas price (per Mcf) $2.51 $1.98
</TABLE>
Production Costs. Production costs, including lease operating costs and gross
production taxes, increased $.04 million, or 3%, from $1.41 million for the
three months ended March 31, 1999 to $1.45 million for the comparable period in
2000.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization decreased $.1 million, or 11% from $.9 million for the three months
ended March 31, 1999 to $.8 million for the comparable period in 2000. This
decrease was attributable primarily to a 10 mbbls decrease in oil production.
General and Administrative Expenses. General and administrative expenses
decreased $0.11 million, or 25%, from $0.45 million for the three months ended
March 31, 1999 to $0.34 million for the comparable period in 2000. This decrease
was due primarily to the Company's efforts to reduce personnel and overall
general and administrative costs.
Other Income. Other income increased by $.3 million due to receipt of holdover
funds held by escrow agent in connection with the bankruptcy reorganization in
1997 of WRT Energy Corporation (now Gulfport Energy Corporation) during the
three months ended March 31, 2000.
Interest Expense. Interest expense increased $.06 million, or 38%, from $0.15
million for the three months ended March 31, 1999 to $0.21 million for the
comparable period in 2000. This increase was principally due to accrual of $.08
million in interest on amounts owed to Texaco during the three months ended
March 31, 2000.
Income Taxes. As of December 31, 1999, the Company had a net operating loss
carryforward of approximately $70 million, in addition to numerous timing
differences which gave rise to a deferred tax asset of approximately $43
million, which was fully reserved by a valuation allowance at that date.
Utilization of net operating loss carryforwards and other timing differences
will be recognized as a reduction in income tax expense in the year utilized. A
current tax provision of $.5 million was provided for the three month period
ending March 31, 2000 due to the above, which was fully offset by an equal
income tax benefit due to operating loss carryforwards.
14
<PAGE>
Liquidity and Capital Resources
Operating Activities
Net cash flow provided by operating activities for the three months ended
March 31, 2000 was $1.2 million, as compared to net cash flow provided by
operating activities of $0.6 million for the comparable period in 1999. This
increase is due primarily to increased oil prices and continued decreases in
general and administrative expenses and production costs, offset in part by the
decrease in oil and gas production volumes.
The Company's strategy is to continue to increase cash flows generated by
these properties by undertaking new drilling, workover, sidetrack and
recompletion projects in the fields to exploit its extensive reserves. The
Company has upgraded its infrastructure by enhancing its existing facilities to
increase operating efficiencies, increase volume capacities and lower lease
operating expenses. Additionally, the Company has undertaken the reprocessing of
its 3D seismic data in its principal property, West Cote Blanche Bay. The
reprocessed data will enable the Company's geophysicists to generate new
prospects and enhance existing prospects in the intermediate zones in the field
thus creating a portfolio of new drilling opportunities in the most prolific
depths of the field.
The Company has used the 3-D seismic data that it has recently reprocessed to
delineate the locations of four new wells at the West Cote Blanche Bay Field in
St. Mary Parish, Louisiana and has commenced drilling operations on the initial
well in May, 2000. Two of the wells will be drilled to depths of about 2,500'
and the remaining two wells will be drilled to depths of approximately 9,000'.
The Company feels these wells will access significant oil and gas deposits and
cover a variety of targets ranging from relatively low risk proven undeveloped
locations to higher potential exploratory targets.
Gulfport has filed a permit with the State of Louisiana to convert an existing
shut-in wellbore to a saltwater disposal well. In the near future, the Company
believes that its current disposal system will be at capacity and an additional
well will be needed to handle any additional water generated by its drilling
program. The Company hopes to begin the conversion process in the second quarter
of 2000.
The Company is in the process of increasing production at both the East and
West Hackberry fields by performing low risk downhole remedial work on a series
of wells. The Company is also continuing its efforts to decrease its reliance on
gas lift in the Hackberry fields, and thereby lower lifting cost expenses by
converting the lifting method of selected wells to downhole submersible pumps or
pumping units.
Capital Requirements and Resources
The primary capital commitments faced by the Company are the capital
expenditures required to continue developing the Company's proved reserves and
the required principal payments on its ING Credit Facility.
In the Company's January 1, 2000 reserve report, 95% of the Company's reserves
were categorized as non-developed non-producing. 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 developed reserves, or both. To realize
reserves and increase production, the Company must commence exploratory
drilling, undertake other replacement activities or utilize third parties to
accomplish those activities. It is anticipated that these reserve development
projects will be funded either through the use of cash flow from operations when
available or by accessing the capital markets.
The Company's Credit Facility at ING of $2,500,000 at March 31, 2000 matures
in June, 2000. If the Credit Facility is not paid in full by June 30, 2000, the
Company will have to pay an additional fee of $250,000. The Company is currently
negotiating with other financial institutions and anticipates having the Credit
Facility replaced by June 30, 2000.
15
<PAGE>
Net cash flow provided by operating activities for the three months ended
March 31, 2000 was $1.2 million as compared to net cash flow provided by
operating activities of $0.6 million for three months ended March 31, 1999.
Management anticipates that future operations will continue to contribute
sufficient cash flows to develop its remaining reserves and service the
Company's existing debt.
During the first three months of 2000, the Company invested $1.2 million in
property and equipment and other long-term assets as compared to $1.6 million
during the comparable period in 1999.
Net cash used in financing activities was $.4 million for the three months
ended March 31, 2000 compared to $.011 million used in financing activities for
the same period in 1999. This increase is principally due to principal reduction
of $.38 million on the ING Credit Facility during the three months ended March
31, 2000.
COMMITMENTS
Plugging and Abandonment Funds
In connection with the acquisition of the remaining 50% interest in the
WCBB properties, the Company assumed the obligation to contribute approximately
$18,000 per month through March 2004 to a plugging and abandonment trust and the
obligation to plug a minimum of 20 wells per year for 20 years commencing March
11, 1997. Texaco retained a security interest in production from these
properties and the plugging and abandonment trust until such time the Company's
obligations plugging and abandonment obligations to Texaco 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. The
Company ceased making the required monthly contributions to the plugging and
abandonment escrow account in June 1999 and is currently negotiating a
settlement of this issue with Texaco. As of March 31, 2000, the plugging and
abandonment trust totaled $1,615,000. These funds are invested in a U.S.
Treasury Money Market.
In addition, the Company has letters of credit totaling $200,000 secured by
certificates of deposit being held for plugging costs in the East Hackberry
field. Once specific wells are plugged and abandoned the $200,000 will be
returned to the Company. These funds were reduced from $400,000 to $200,000
during the quarter due to receipt of $200,000 of the funds related to fields the
Company no longer owns.
16
<PAGE>
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 1, 1999, Plymouth Resources Group 1998 LLC filed a complaint in the
Western District of Louisiana alleging breach of contract regarding rework
operations at West Cote Blanch Bay. Plymouth has challenged the Company's right
to conduct rework operations in late 1998 and 1999. Plymouth has requested
damages in excess of $100,000, specific performance and an accounting. The
Company does not believe that it breached any contract with Plymouth and is
vigorously defending this lawsuit. Management does not expect this litigation to
have a material impact on the financial statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports filed on Form 8-K during the quarter.
17
<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: May 15, 2000
/s/Mike Liddell
----------------------------------------
Mike Liddell
Chief Executive Officer
18
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