UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10753
GULPORT ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 73-1521290
(State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.)
6307 Waterford Blvd.
Building D, Suite 100
Oklahoma City, Oklahoma 73118
(405) 848-8807
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive office)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Issuer was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, $0.01 par value,
outstanding as of August 13, 2002 was 10,146,566.
1
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
FORM 10-Q QUARTERLY REPORT
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets at June 30, 2002 (unaudited) and December 31, 2001 4
Statements of Income for the Three and Six Month Periods Ended
June 30, 2002 and 2001 (unaudited) 5
Statements of Common Stockholders' Equity for the Six Months Ended
June 30, 2002 and 2001 (unaudited) 6
Statements of Cash Flows for the Six Months Ended
June 30, 2002 and 2001 (unaudited) 7
Notes to Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II OTHER INFORMATION
Item 1 Legal Proceedings 23
Item 2 Changes in Securities and Use of Proceeds 23
Item 3 Defaults upon Senior Securities 24
Item 4 Submission of Matters to a Vote of Security Holders 24
Item 5 Other Information 24
Item 6 Exhibits and Reports on Form 8-K 24
Signatures 25
2
GULFPORT ENERGY CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
June 30, 2002 and 2001
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,
2001.
3
GULFPORT ENERGY CORPORATION
BALANCE SHEETS
JUNE 30, DECEMBER 31,
2002 2001
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 4,648,000 $ 1,077,000
Accounts receivable, net of allowance for
doubtful accounts of $239,000 as of
June 30, 2002 and December 31, 2001 1,361,000 1,096,000
Accounts receivable - related party 254,000 160,000
Prepaid expenses and other current assets 181,000 253,000
------------- ------------
Total current assets 6,444,000 2,586,000
------------- ------------
Property and equipment:
Oil and natural gas properties 108,002,000 103,344,000
Other property and equipment 1,985,000 1,976,000
Accumulated depletion, depreciation,
amortization (71,172,000) (69,597,000)
------------- ------------
Property and equipment, net 38,815,000 35,723,000
------------- ------------
Other assets 2,701,000 2,583,000
------------- ------------
$ 47,960,000 $ 40,892,000
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 3,591,000 $ 2,637,000
Note payable - related party - 3,000,000
Current maturities of long-term debt 461,000 1,120,000
------------- ------------
Total current liabilities 4,052,000 6,757,000
------------- ------------
Long-term debt 129,000 143,000
------------- ------------
Total liabilities 4,181,000 6,900,000
------------- ------------
Commitments and contingencies - -
Series A preferred stock dividend to be
distributed 353,000 -
Redeemable 12% cumulative preferred stock,
Series A, $.01 par value, with a redemption
and liquidation value of $1,000 per share;
15,000 and 0 authorized, 9,292 and 0
issued and outstanding at June 30, 2002 and
December 31, 2001, respectively 9,292,000 -
Preferred stock, $.01 par value; 4,985,000 and
1,000,000 authorized at June 30, 2002 and
December 31, 2001, respectively, none issued - -
Common stockholders' equity:
Common stock - $.01 par value, 20,000,000 and
15,000,000 authorized, 10,146,566 issued and
outstanding at June 30, 2002 and
December 31, 2001, respectively 101,000 101,000
Paid-in capital 84,192,000 84,192,000
Accumulated deficit (50,159,000) (50,301,000)
------------- ------------
34,134,000 33,992,000
------------- ------------
Total liabilities and stockholders'
equity $ 47,960,000 $ 40,892,000
============= =============
See accompanying notes to financial statements.
4
GULFPORT ENERGY CORPORATION
STATEMENTS OF INCOME
(Unaudited)
For the three For the six
month ended June 30, months ended June 30,
2002 2001 2002 2001
--------- ---------- ---------- ----------
Revenues:
Gas sales $ 127,000 $ 32,000 $ 188,000 $ 166,000
Oil and condensate sales 3,126,000 4,909,000 5,597,000 8,176,000
Other income - 12,000 234,000 61,000
----------- ----------- ---------- -----------
3,253,000 4,953,000 6,019,000 8,403,000
----------- ----------- ---------- -----------
Costs and expenses:
Operating expenses 1,136,000 978,000 2,390,000 2,571,000
Production taxes 366,000 567,000 647,000 944,000
Depreciation, depletion,
and amortization 803,000 1,082,000 1,588,000 1,796,000
General and administrative 472,000 403,000 825,000 860,000
----------- ----------- ---------- -----------
2,777,000 3,030,000 5,450,000 6,171,000
----------- ----------- ---------- -----------
INCOME FROM OPERATIONS: 476,000 1,923,000 569,000 2,232,000
----------- ----------- ---------- -----------
OTHER (INCOME) EXPENSE:
Gain on settlement of
disputed items - (482,000) - (482,000)
Interest expense 13,000 72,000 106,000 169,000
Interest income (22,000) (34,000) (32,000) (87,000)
----------- ----------- ---------- -----------
(9,000) (444,000) 74,000 (400,000)
----------- ----------- ---------- -----------
INCOME BEFORE INCOME TAXES 485,000 2,367,000 495,000 2,632,000
----------- ---------- ---------- -----------
INCOME TAX EXPENSE (BENEFIT):
Current 193,000 947,000 198,000 1,053,000
Deferred (193,000) (947,000) (198,000) (1,053,000)
----------- ----------- ---------- -----------
- - - -
----------- ----------- ---------- -----------
NET INCOME $ 485,000 $ 2,367,000 $ 495,000 $ 2,632,000
Less: Preferred Stock
Dividends (353,000) - (353,000) -
----------- ----------- ---------- -----------
NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS $ 132,000 $ 2,367,000 $ 142,000 $ 2,632,000
=========== =========== ========== ===========
NET INCOME PER COMMON SHARE:
Basic $ 0.01 $ 0.23 $ 0.01 $ 0.26
=========== =========== ========== ===========
Diluted $ 0.01 $ 0.23 $ 0.01 $ 0.25
=========== =========== ========== ===========
See accompanying notes to financial statements.
5
GULFPORT ENERGY CORPORATION
Statements of Common Stockholders' Equity
(Unaudited)
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ---------- --------- ----------- -------------
Balance at December 31, 2000 - $ - 10,145,400 $ 101,000 $84,190,000 $(55,718,000)
Common shares issued - - 1,166 - 2,000 -
Net income - - - - - 2,632,000
---- ------ ---------- --------- ----------- ------------
Balance at June 30, 2001 - $ - 10,146,566 $ 101,000 $84,192,000 $(53,086,000)
==== ====== ========== ========= =========== ============
Balance at December 31, 2001 - $ - 10,146,566 $ 101,000 $84,192,000 $(50,301,000)
Net income - - - - - 495,000
Preferred stock dividends - - - - - (353,000)
---- ------ ---------- --------- ----------- ------------
Balance at June 30, 2002 - $ - 10,146,566 $ 101,000 $84,192,000 $(50,159,000)
==== ====== ========== ========= =========== ============
See accompanying notes to financial statements.
6
GULFPORT ENERGY CORPORATION
Statements of Cash Flows
(Unaudited)
For the Six Months
Ended June 30,
2002 2001
----------- ------------
Cash flows from operating activities:
Net income $ 495,000 $ 2,632,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depletion, depreciation and amortization 1,575,000 1,796,000
Amortization of debt issuance costs 13,000 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (265,000) 1,851,000
(Increase) decrease in accounts receivable
- related (94,000) -
(Increase) decrease in prepaid expenses 59,000 (15,000)
(Decrease) increase in accounts payable
and accrued liabilities 1,217,000 (590,000)
(Decrease) increase in other liabilities - -
----------- ------------
Net cash provided by operating activities 3,000,000 5,674,000
----------- ------------
Cash flows from investing activities:
(Additions) to cash held in escrow (118,000) (128,000)
(Additions) to other assets - (32,000)
(Additions) to other property, plant and
equipment (9,000) (5,000)
(Additions) to oil and gas properties (4,658,000) (10,602,000)
----------- ------------
Net cash used in investing activities (4,785,000) (10,767,000)
----------- ------------
Cash flows from financing activities:
Borrowings on note payable - related party - 3,000,000
Borrowings on note payable - 960,000
Principal payments on borrowings (673,000) (327,000)
Proceeds from issuance of preferred
and common stock 6,029,000 2,000
----------- ------------
Net cash provided by financing activities 5,356,000 3,635,000
----------- ------------
Net increase (decrease) in cash and cash equivalents 3,571,000 (1,458,000)
Cash and cash equivalents at beginning of period 1,077,000 3,657,000
----------- ------------
Cash and cash equivalents at end of period $ 4,648,000 $ 2,199,000
=========== ============
Supplemental disclosure of cash flow information:
Interest payments $ 26,000 $ 29,000
=========== ============
Supplemental disclosure of non-cash transactions:
Repayment of note payable to related party through
issuance of Series A Preferred Stock $ 3,000,000 $ -
=========== ============
Repayment of accrued interest due on note payable
to related party through issuance of Series A
Preferred Stock $ 263,000 $ -
=========== ============
See accompanying notes to financial statements.
7
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. ACCOUNTS RECEIVABLE - RELATED PARTY
Included in the accompanying June 30, 2002 balance sheet are amounts
receivable from entities that have similar controlling interests as those
controlling the Company. These receivables represent amounts billed by the
Company for general and administrative functions performed by Gulfport's
personnel on behalf of the related party companies during 2001 and 2002.
Gulfport has reduced its corresponding expenses for the three and six month
periods ending June 30, 2002 by $98,000 and $213,000, respectively, billed to
the companies for performance of these services.
2. PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated
depreciation, depletion and amortization are as follows:
June 30, 2002 December 31, 2001
------------- -----------------
Oil and gas properties $ 108,002,000 $ 103,344,000
Office furniture and fixtures 1,508,000 1,499,000
Building 217,000 217,000
Land 260,000 260,000
------------- -------------
Total property and equipment 109,987,000 105,320,000
Accumulated depreciation, depletion,
amortization and impairment reserve (71,172,000) (69,597,000)
------------- -------------
Property and equipment, net $ 38,815,000 $ 35,723,000
============= =============
8
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
3. OTHER ASSETS
Other assets consist of the following:
June 30, 2002 December 31, 2001
------------- -----------------
Plugging and abandonment escrow account
on the WCBB properties $ 2,390,000 $ 2,272,000
CD's securing letter of credit 200,000 200,000
Deposits 111,000 111,000
----------- -----------
$ 2,701,000 $ 2,583,000
=========== ===========
4. LONG-TERM DEBT
The building loan of $150,000 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.
A break down of long-term debt is as follows:
June 30, 2002 December 31, 2001
------------- -----------------
Note payable $ 440,000 $ 1,100,000
Building loan 150,000 163,000
----------- ------------
590,000 1,263,000
Less - current maturities of long term debt (461,000) (1,120,000)
----------- ------------
Debt reflected as long term $ 129,000 $ 143,000
=========== ============
5. NOTE PAYABLE - RELATED PARTY
On March 29, 2002, the outstanding balance of the Company's note payable
due to Gulfport Funding, LLC ("Gulfport Funding") along with all related
accumulated interest on the note, were retired through Gulfport Funding's
participation in the Company's Private Placement Offering as described in Note
10.
6. REVOLVING LINE OF CREDIT
On June 20, 2002, the Company entered into a line of credit with Bank of
Oklahoma. Under the terms of the new agreement, the Company was extended a
commitment to borrow up to $2,300,000. Amounts borrowed under the line bear
interest at Chase Manhattan Prime plus 1%, with payments of interest on
outstanding balances due monthly beginning August 1, 2002. Any principal
amounts borrowed under the line will be due on July 1, 2003.
9
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
7. CASTEX BACK-IN
Gulfport sold its interest in the Bayou Penchant, Bayou Pigeon, Deer Island
and Golden Meadow fields to Castex Energy 1996 Limited Partnership effective
April 1, 1998 subject to a 25% reversionary interest in the partnership after
Castex had received 100% of the initial investment. Castex informed Gulfport
that the investment had paid out effective September 1, 2001. In lieu of a 25%
interest in the partnership, Gulfport elected to take a proportionately reduced
25% working interest in the properties. During March, 2002 the Company received
approximately $220,000 from Castex which the Company believes consists of sales
income for the period after payout net of operating expenses, although the
Company has not received confirmation of such. As a result, this amount
received has been included in the accompanying statement of income for the six
months ended June 30, 2002 as "Other Income".
8. EARNINGS PER SHARE
A reconciliation of the components of basic and diluted net income per
common share is presented in the table below:
For the Three Months Ended June 30,
-------------------------------------------------------------------
2002 2001
-------------------------------- -------------------------------
Per Per
Income Shares Share Income Shares Share
---------- ---------- ------- --------- ---------- ------
Basic
Income attributable to
common stock $ 132,000 10,146,566 $ 0.01 $2,367,000 10,145,900 $ 0.23
======= =======
Effect of dilutive
securities:
Stock options 273,741 - 368,526
---------- ---------- ---------- ----------
Diluted:
Income attributable
to common stock,
after assumed
dilutions $ 132,000 10,420,307 $ 0.01 $2,367,000 10,514,426 $ 0.23
========== ========== ======= ========== ========== =======
For the Six Months Ended June 30,
-------------------------------------------------------------------
2002 2001
-------------------------------- -------------------------------
Per Per
Income Shares Share Income Shares Share
---------- ---------- ------- --------- ---------- ------
Basic
Income attributable to
common stock $ 142,000 10,146,566 $ 0.01 $2,632,000 10,145,651 $ 0.26
======= =======
Effect of dilutive
securities:
Stock options 291,793 - 350,026
---------- --------- ---------- ----------
Diluted:
Income attributable
to common stock,
after assumed
dilutions $ 142,000 10,438,359 $ 0.01 $2,632,000 10,495,677 $ 0.25
========= ========== ======= ========== ========== =======
Common stock equivalents not included in the calculation of diluted earnings per
share above consists of 1,163,195 warrants issued at the time of the Company's
reorganization. By their terms, these warrants expire in July 2002. Also not
included in the calculation of 2002 diluted earnings per share are 108,625
10
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
warrants issued in connection with the Company's revolving line of credit with
Gulfport Funding, which was retired during March 2002, and 2,322,893 warrants
issued in connection with the Company's Private Placement Offering as discussed
in Note 10. These potential common shares were not considered in the
calculation due to their anti-dilutive effect during the periods presented.
9. 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 until 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
June 30, 2002, the plugging and abandonment trust totaled $2,390,000, including
interest received during 2002 of approximately $15,000.
During March 2002, Gulfport began to fulfill its yearly plugging commitment of
20 wells at WCBB for the twelve-month period ending March 31, 2002. As of the
date of this filing, the plugging had been completed.
During July 2002, the Company commenced its plugging commitment program for the
twelve-month period ending March 31, 2003. As of the date of this filing, the
plugging had been substantially completed.
10. PRIVATE PLACEMENT OFFERING
In March 2002, the Company commenced a Private Placement Offering of $10
million dollars consisting of 10,000 Units. Each Unit consists of (i) one (1)
share of Cumulative Preferred Stock, Series A, of the Company (Preferred) and
(ii) a warrant to purchase up to 250 shares of common stock, par value $0.01 per
share. Dividends accrue on the Preferred prior to the Mandatory Redemption Date
at the rate of 12% per annum payable quarterly in cash or, at the option of the
Company for a period not to exceed two (2) years from the Closing Date, payable
in whole or in part in additional shares of the Preferred based on the
Liquidation Preference of the Preferred at the rate of 15% per annum. No other
dividends shall be declared or shall accrue on the Preferred. To the extent
funds are legally available, the Company is obligated to declare and pay the
dividends on the Preferred. The Warrants have a term of ten (10) years and an
exercise price of $4.00. The Company is required to redeem the Preferred on the
fifth anniversary of the first issuance and the Company may at its sole option,
choose to redeem the Preferred at any time before the expiration of the five
years. Accordingly, the Preferred issued in connection with this Offering is
treated as redeemable stock in the accompanying balance sheet.
Two-thirds of the Preferred Stockholders can affect any Company action,
which would effect their preference position. The Preferred cannot be sold or
transferred by its holders and the Company must use its best efforts to register
with the Securities and Exchange Commission ("SEC") the common stock issued in
connection with the exercise of the Warrants or, if possible, piggyback the
issued common stock if the Company participates in a public offering with the
SEC.
11
GULFPORT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(Unaudited)
The Offering was made available to stockholders (some of whom were
affiliates) of the Company as of December 31, 2001 who were known to be
accredited investors by the Company. Purchasers were able to participate up to
their pro rata share of ownership in the Company as of December 31, 2001. The
Offering's initial closing began March 29, 2002 and continued until April 15,
2002, with a total subscription of $9,292,000 or 9,291.85 units. Mike Liddell,
the Company's Chief Executive Officer, shall have the option until September 30,
2002 to subscribe for his proportionate share of the Offering.
On March 29, 2002, Gulfport Funding, LLC, participated in the Offering
through a conversion of its $3.0 million dollar loan along with the accumulated
interest due from the Company for 3,262.98 Units. Additionally, on March 29,
2002 entities controlled by the majority shareholder initially funded a share of
the Preferred Offering in the amount of $2,738,000.
11. DIVIDENDS ON SERIES A PREFERRED STOCK
As discussed in Note 10, the Company may, at its option, accrue additional
shares of Preferred for the payment of dividends at a rate of 15% per annum
rather than accrue cash dividends payable at a rate of 12% per annum during the
initial two years following the closing date of its Offering. The Company has
chosen to do so for the six months ended June 30, 2002 and has therefore accrued
353.29 additional shares payable as of that date related to the Preferred Stock
Series A shares issued and outstanding during that time period. These dividends
payable were calculated based upon the $1,000 per share redemptive value and
are reflected as "Series A preferred stock dividends to be distributed" in the
accompanying balance sheet.
12. RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 financial statements
presentation in order to conform to the 2002 financial statements presentation.
13. SUBSEQUENT EVENTS
On August 8, 2002, the Company executed a 60-month lease on 12,035 square
feet of office space to commence on or around November 1, 2002. Payments due
under the lease during its term are as follows:
For the 12 months ended June 30:
--------------------------------
2003 $ 144,000
2004 217,000
2005 217,000
2006 217,000
2007 217,000
2008 71,000
----------
Total $1,083,000
==========
12
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 June 30, 2002 and its results of operations
for the three and six-month periods ended June 30, 2002 and 2001. 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 2001
annual report on Form 10-K.
Overview
Gulfport is an independent oil and gas exploration and production company with
properties located in the Louisiana Gulf Coast. Gulfport has a market
enterprise value (the Company's diluted shares multiplied by the trading price
plus long-term debt less cash and short-term investments on a given day) of
approximately $25.5 million dollars on August 12, 2002 and generated EBITDA
(earnings before interest, taxes and depletion, depreciation and amortization)
of $1.3 million and $3.0 million dollars for the six months ended June 30, 2002
and 2001, respectively.
As of January 1, 2002, the Company had in excess of 28.9 MMBOE proved reserves
with a present value (discounted at 10%) of estimated future net reserves of
$130 million dollars and a standardized measure of discounted future net cash
flows of $128.9 million dollars.
13
Gulfport is actively pursuing further development of its properties in order to
fully exploit its reserves. The Company has a portfolio of developmental
projects for the next several years. Gulfport's developmental program is
designed to penetrate several producing horizons increasing the probability of
success.
Additionally, Gulfport owns 3-D seismic data which will be used by the Company's
geophysicists and geologists to identify exploratory prospects and test
undrilled fault blocks in its existing fields.
The Company's operations are concentrated in two fields: West Cote Blanche
Bay and the Hackberry Fields. In addition, during the first quarter of 2002,
the Company backed in to a working interest in the Bayou Penchant, Bayou Pigeon,
Deer Island and Golden Meadow fields operated by Castex Energy.
West Cote Blanche Bay
Background
West Cote Blanche Bay ("WCBB") Field 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
throughout most of the field and nearly 200 major and minor discrete intervals
have been tested. Within almost 900 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.
As of June 30, 2002, there have been 877 wells drilled at WCBB, and of
these; 38 are currently producing, 299 are shut-in and 5 are utilized as salt
water disposal wells. The balance of the wells (or 535) have been plugged and
abandoned.
Activity for the Six Months Ended June 30, 2002
During the first quarter of 2002, Gulfport performed two re-completions and
one workover at the West Cote Blanche Bay Field. Some of this work commenced
during the fourth quarter of 2001.
In March 2002, Gulfport began work on the yearly 20 well plugging
commitment at West Cote Blanche Bay. As of the date of this filing, the plugging
had been completed.
During July 2002, the Company commenced its plugging commitment program for
the twelve-month period ending March 31, 2003. As of the date of this filing,
the plugging had been substantially completed.
Gulfport began a seven well drilling program in April and finished it in
July of 2002. The Company completed and is currently producing five wells
drilled during the program. Four of the five wells that are currently producing
are directional wells that were steered by downhole motors so as to encounter
multiple hydrocarbon targets at the best structural position possible. The four
directional wells drilled during this program encountered a total of 328 feet of
net pay with a combined initial production rate of 460 barrels of oil, 548 mcf
of gas and 233 barrels of water per day. The other well in this program was a
horizontal well designed to test the theory that a lateral well in the West Cote
14
Blanche Bay Field could be drilled and completed in loosely consolidated sands
at shallow depths (2,500'). Most vertical wells drilled in the field to
similar depths experience early water encroachment that causes diminished oil
production rates and recoveries. The Company utilized advanced drilling and
completion equipment and techniques to bring this well on line. The horizontal
well was drilled approximately 375 feet horizontally in the top of the target
zone to allow the well to produce oil at a higher rate while minimizing water
production. This well had initial production of 124 barrels of oil per day, 19
mcf of gas and no water production. The Company feels there are other portions
of the field that are suitable for horizontal well development. Gulfport drilled
two non-productive wells in the most recent drilling program. One of these wells
was a shallow exploratory well drilled near the lease boundary, while the other
well encountered the target zones but the zones were deemed to be too thin to
justify completion.
During June 2002, Gulfport's net current daily production in this field
averaged 1,056 barrels of oil equivalent.
Hackberry Fields
Background
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 formed a series of structurally
complex and steeply dipping fault blocks in the Lower Miocene and Oligocene age
rocks. These fault blocks serve as traps for hydrocarbon accumulation. The
Camerina Sand series, of Oligocene age has had historical cumulative production
of up to 1-2 MMBOE per well. West Hackberry consists of a series of
fault-bounded traps in the Oligocene-age Vincent and Keough sands associated
with the Hackberry Salt Ridge.
The East Hackberry field was discovered in 1926 by Gulf Oil Company (now
Chevron Corporation) by a gravitational anomaly survey. The massive shallow salt
stock presented an easily recognizable gravity anomaly indicating a productive
field. Initial production began in 1927 and has continued to the present. The
estimated cumulative oil and condensate production through 1999 was 111 million
barrels of oil with casinghead gas production being 60 billion cubic feet of
gas. There have been a total of 170 wells drilled on Gulfport's portion of the
field with 17 having current daily production; 3 produce intermittently; 69
wells are shut-in and 4 wells have been converted to salt water disposal wells.
The remaining 77 wells have been plugged and abandoned.
At West Hackberry, the first discovery well was drilled in 1938 and was
developed by Superior Oil Company (now Exxon-Mobil Corporation) between 1938 and
1988. The estimated cumulative oil and condensate production through 2000 was
170 million barrels of oil with casinghead gas production of 120 billion cubic
feet of gas. There have been 36 wells drilled to date on Gulfport's portion of
West Hackberry and currently 3 are producing, 24 are shut-in and 1 well has been
converted to a saltwater disposal well. The remaining 8 wells have been plugged
and abandoned.
Gulfport's continued plan of development includes the testing of additional
wells that are currently inactive, mostly in the southern portion of State Lease
15
50, which will also entail dredging. These additional tests should allow the
Company to restore more wells to productive status in the near future.
Activity for the Six Months Ended June 30, 2002
During the first quarter of 2002, Gulfport worked over one salt-water
disposal well at the East Hackberry Field. The Company also commenced a four
well plugging program on the State Lease 50 portion of East Hackberry and
completed the work in the second quarter.
During the fourth quarter of 2002, Gulfport plans to drill a new saltwater
disposal well at State Lease 50. The Company also plans to workover four wells
on the M. P. Erwin portion of East Hackberry and recomplete one well at State
Lease 50.
During June 2002, total net production per day for both Hackberry fields
averaged 269 barrels of oil equivalent.
Castex Back-In
Gulfport sold its interest in the Bayou Penchant, Bayou Pigeon, Deer Island
and Golden Meadow fields to Castex Energy 1996 Limited Partnership effective
April 1, 1998 subject to a 25% reversionary interest in the partnership after
Castex had received 100% of the initial investment. Castex informed Gulfport
that the investment had paid out effective September 1, 2001. In lieu of a 25%
interest in the partnership, Gulfport elected to take a proportionately reduced
25% working interest in the properties. During March, 2002 the Company received
approximately $220,000 from Castex which the Company believes consists of sales
income for the period after payout net of operating expenses, although the
Company has not received confirmation of such. As a result, this amount
received has been included in the accompanying statement of income for the six
months ended June 30, 2002 as "Other Income".
16
The following financial table recaps the Company's operating activity for the
three and six-month periods ended June 30, 2002 as compared to the same periods
in 2001.
FINANCIAL DATA (unaudited):
Three Month Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues:
Gas sales $ 127,000 $ 32,000 $ 188,000 $ 166,000
Oil and condensate sales 3,126,000 4,909,000 5,597,000 8,176,000
Other income, net 22,000 46,000 266,000 148,000
----------- ----------- ---------- -----------
3,275,000 4,987,000 6,051,000 8,490,000
----------- ----------- ---------- -----------
Expenses:
Lease operating expenses 1,136,000 978,000 2,390,000 2,571,000
Production taxes 366,000 567,000 647,000 944,000
General and administrative 472,000 403,000 825,000 860,000
----------- ----------- ---------- -----------
1,974,000 1,948,000 3,862,000 4,375,000
EBITDA (1) 1,301,000 3,039,000 2,189,000 4,115,000
Depreciation, depletion
and amortization 803,000 1,082,000 1,588,000 1,796,000
----------- ----------- ---------- -----------
Income before interest
and taxes 498,000 1,957,000 601,000 2,319,000
Gain on settlement of
disputed items - 482,000 - 482,000
Interest expense (13,000) (72,000) (106,000) (169,000)
----------- ----------- ---------- -----------
Income before taxes 485,000 2,367,000 495,000 2,632,000
Income tax expense (benefit):
Current 193,000 947,000 198,000 1,053,000
Deferred (193,000) (947,000) (198,000) (1,053,000)
----------- ----------- ---------- -----------
Net income $ 485,000 $ 2,367,000 $ 495,000 $ 2,632,000
Less: Preferred stock
dividends (353,000) - (353,000) -
----------- ----------- ---------- -----------
Net income available to
common shareholders $ 132,000 $ 2,367,000 $ 142,000 $ 2,632,000
=========== =========== ========== ===========
Per common share data:
Net income $ 0.01 $ 0.23 $ 0.01 $ 0.26
=========== =========== ========== ===========
Weighted average common
shares 10,146,566 10,145,900 10,146,566 10,145,651
=========== =========== ========== ===========
(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.
17
RESULTS OF OPERATIONS
Comparison of the Three Months Ended June 30, 2002 and 2001
During the three months ended June 30, 2002, the Company reported net
income of $.5 million, a decrease from net income of $2.4 million for the
corresponding period in 2001. This decrease is primarily due to the following
factors:
Oil and Gas Revenues. For the three months ended June 30, 2002, the
Company reported oil and gas revenues of $3.3 million, a decrease from $4.9
million for the comparable period in 2001. This decrease was due principally to
a decrease in oil production from 177 mbbls to 122 mbbls for the three months
ended June 30, 2001 and 2002, respectively. This decrease in production was
primarily a result of expected decline rates from the initial targeted zones of
wells drilled last year and from decline rates of the older existing producing
wells. In addition, there was a decrease in total revenues due to lower oil
prices for the three months ended June 30, 2002 as compared to the same period
in 2001.
The following table summarizes the Company's oil and gas production and related
pricing for the three months ended June 30, 2002 and 2001:
Three Months Ended June 30,
-------------------------------
2002 2001
---- ----
Oil production volumes (Mbbls) 122 177
Gas production volumes (Mmcf) 28 12
Average oil price (per Bbl) $25.67 $27.68
Average gas price (per Mcf) $ 4.48 $ 2.72
Operating Expenses. Lease operating expenses increased $.2 million from
$1.0 million for the three months ended June 30, 2001 to $1.1 million for the
comparable period in 2002. This increase was due primarily to slight increases
in field supervision and other miscellaneous expenses as a result of the new
wells drilled and completed during 2001. These increases were partially offset
by decreases in gas lift costs for the three months ended June 30, 2002 as
compared to the same period in 2001. This decrease in gas lift costs was a
result of lower volumes used and lower prices paid for gas used for gas lift
during 2002 as compared to the same period in 2001.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization decreased $.3 million from $1.1 million for the three months ended
June 30, 2001 to $.8 million for the comparable period in 2002. This decrease
was attributable primarily to an decrease in production to 127 MBOEs for the
three months ended June 30, 2002 as compared to 179 MBOEs for the same period in
2001.
General and Administrative Expenses. General and administrative expenses
increased slightly from $.4 million for the three months ended June 30, 2001 to
$.47 million for the comparable period in 2002. This increase is due mainly to
legal expenses incurred for the preferred rights offering completed during April
2002. Overall increases in the Company's salaries and benefits were offset by
general and administrative expense reimbursement of $.1 million by entities that
have similar controlling interests as those controlling the Company.
18
Interest Expense. Interest expense decreased from $.07 million for the
three months ended June 30, 2001 to $.01 million for the comparable period in
2002. This decrease was primarily the result of the payoff of the loan from a
related party. See Note 5 to Financial Statements. In addition, at June 30,
2002, the Company had reduced the outstanding balance on its existing credit
facility with Bank of Oklahoma from $1.65 million at June 30, 2001, to $.44
million on June 30, 2002.
Income Taxes. As of December 31, 2001, the Company had a net operating
loss carryforward of approximately $83 million, in addition to numerous timing
differences which gave rise to a deferred tax asset of approximately $47
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 $193,000 was provided for the three-month period ended
June 30, 2002, which was fully offset by an equal income tax benefit due to
operating loss carryforwards.
Comparison of the Six Months Ended June 30, 2002 and 2001
During the six months ended June 30, 2002, the Company reported net income
of $.5 million, a decrease from net income of $2.6 million for the corresponding
period in 2001. This decrease is primarily due to the following factors:
Oil and Gas Revenues. For the six months ended June 30, 2002, the Company
reported oil and gas revenues of $5.8 million, a decrease from $8.3 million for
the comparable period in 2001. This decrease was due to a decrease in oil
production from 291 mbbls to 244 mbbls for the six months ended June 30, 2001
and 2002, respectively. This decrease in production was primarily a result of
expected decline rates from the initial targeted zones of wells drilled last
year and from decline rates of the older existing producing wells. In addition,
there was a decrease in total revenues due to lower product prices from $28.27
per MBOE to $22.86 per MBOE for the six months ended June 30, 2001 and 2002
respectively
The following table summarizes the Company's oil and gas production and related
pricing for the six months ended June 30, 2002 and 2001:
Six Months Ended June 30,
-------------------------------
2002 2001
---- ----
Oil production volumes (Mbbls) 244 291
Gas production volumes (Mmcf) 57 25
Average oil price (per bl) $22.90 $28.13
Average gas price (per Mcf) $ 3.30 $ 6.77
Operating Expenses. Lease operating expenses decreased $.2 million from
$2.6 million for the six months ended June 30, 2001 to $2.4 million for the
comparable period in 2002. These decreases were primarily attributable to
decreases in gas lift costs for the six months ended June 30, 2002 as compared
to the same period in 2001. This decrease in gas lift costs was a result of
lower volumes used and lower prices paid for gas used for gas lift during 2002
as compared to the same period in 2001. These decreases were partially offset by
slight increases in field supervision and other miscellaneous expenses as a
result of the new wells drilled and completed during 2001.
19
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization decreased $.2 million from $1.8 million for the six months ended
June 30, 2001 to $1.6 million for the comparable period in 2002. This decrease
was attributable primarily to a decrease in production to 254 MBOEs for the six
months ended June 30, 2002 as compared to 295 MBOEs for the same period in 2001.
General and Administrative Expenses. General and administrative expenses
decreased slightly from $.86 million for the six months ended June 30, 2001 to
$.83 million for the comparable period in 2002. Overall increases in the
Company's salaries and benefits were almost entirely offset by general and
administrative expense reimbursement of $.2 million by entities that have
similar controlling interests as those controlling the Company.
Interest Expense. Interest expense decreased from $.17 million for the six
months ended June 30, 2001 to $.1 million for the comparable period in 2002.
This decrease was primarily the result of the payoff of the loan from a related
party. See Note 5 to Financial Statements. In addition, at June 30, 2002, the
Company had reduced its outstanding balance on its existing line of credit.
Income Taxes. As of December 31, 2001, the Company had a net operating
loss carryforward of approximately $83 million, in addition to numerous timing
differences which gave rise to a deferred tax asset of approximately $47
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 $198,000 was provided for the six-month period ended
June 30, 2002, which was fully offset by an equal income tax benefit due to
operating loss carryforwards.
Capital Expenditures, Capital Resources and Liquidity
Net cash flow provided by operating activities for the six-month period
ended June 30, 2002 was $3.0 million, as compared to net cash flow provided of
$5.7 million for the comparable period in 2001. This decrease was primarily due
to a decrease in the Company's net income related to a decline in oil and gas
volumes produced and sold as well as a decline in oil prices.
Net cash used in investing activities during the six months ended June 30,
2002 was $4.8 million as compared to $10.8 million used during the same period
of 2001. This decrease was a result of the Company's drilling program it
initiated and completed in 2001. The 2002 drilling program was not completed at
June 30, 2002, and the Company has not incurred all costs related to that
program.
Net cash provided in financing activities for the six months ended June
30, 2002 was $5.4 million as compared to net cash provided of $3.6 million
during the same period of 2001. The increase is primarily a result of the
initial proceeds received as a result of the Private Placement Offering
initiated in March 2002. See Note 10 to the Financial Statements.
20
Capital Expenditures. During the six months ended June 30, 2002, Gulfport
invested $4.7 million in oil and gas properties and other property and equipment
as compared to $10.6 million invested during the comparable period in 2001. Of
the $4.7 million spent on capital expenditures during the six months ended June
30, 2002, $2.2 was spent on drilling activity and $1.9 was spent on capitalized
recompletions, workovers and plugging and abandonment costs.
During the six month period ended June 30, 2002, Gulfport financed its
capital expenditure payment requirements with cash flows provided by operations,
borrowings under the Company's credit facilities and proceeds from the Private
Placement Offering completed in April 2002.
Gulfport's strategy is to continue to increase cash flows generated by its
properties by undertaking new drilling, workover, sidetrack and recompletion
projects in the fields to exploit its 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, Gulfport completed the reprocessing of its 3-D 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.
Capital Resources. On July 11, 1997 Gulfport entered into a $15,000,000
credit facility with ING (U.S.) Capital Corporation ("ING"). During 1998 and
1999, there were two amendments to the facility and the maturity date was reset
to September 30, 2000. On September 28, 2000, the Company repaid in full its
credit facility at ING and established a new credit facility at Bank of Oklahoma
("BOK"). Gulfport was advanced $1.6 million on this new facility, which called
for interest payments to be made monthly in addition to twelve monthly principal
payments of $100,000, with the remaining unpaid balance due on August 31, 2001.
On March 22, 2001, Gulfport executed a new note with BOK increasing the
availability to $1,760,000, increasing the monthly payments slightly to $110,000
beginning July 1, 2001 and extending the maturity date to October 1, 2002. This
new note replaces the original BOK note dated September 28, 2000. In April 2001,
the Company borrowed the amount remaining and available on its BOK credit
facility. The outstanding balance under this credit facility was $.44 million at
June 30, 2002.
On May 22, 2001, the Company entered in to a revolving line of credit
agreement with Gulfport Funding, LLC, ("Gulfport Funding") which has ownership
in common with the Company. Under the terms of the agreement, the Company may
borrow up to $3,000,000, with borrowed amounts bearing interest at Bank of
America Prime Rate plus four percent. All outstanding principal amounts along
with accrued interest were due on February 22, 2002. At March 29, 2002, the
Company had borrowed the $3,000,000 available under this line. As a result of
the Private Placement Offering initiated in March 2002, this debt along with its
accumulated interest was retired in exchange for shares of preferred stock and
related detachable warrants.
On June 20, 2002, the Company entered into a new line of credit with BOK.
Under the terms of the new agreement, the Company was extended a commitment to
borrow up to $2,300,000. Amounts borrowed under the line bear interest at Chase
Manhattan Prime plus one percent, with payments of interest on outstanding
balances due monthly beginning August 1, 2002. Any principal amounts borrowed
under the line will be due on July 1, 2003.
21
In March 2002, the Company commenced a Private Placement Offering of $10
million dollars consisting of 10,000 Units. Each Unit consists of (i) one (1)
share of Cumulative Preferred Stock, Series A, of the Company (Preferred) and
(ii) a warrant to purchase up to 250 shares of common stock, par value $0.01 per
share. Dividends accrue on the Preferred prior to the Mandatory Redemption Date
at the rate of 12% per annum payable quarterly in cash or, at the option of the
Company for a period not to exceed two (2) years from the Closing Date, payable
in whole or in part in additional shares of the Preferred based on the
Liquidation Preference of the Preferred at the rate of 15% per annum. No other
dividends shall be declared or shall accrue on the Preferred. To the extent
funds are legally available, the Company is obligated to declare and pay the
dividends on the Preferred. The Warrants have a term of ten (10) years and an
exercise price of $4.00. The Company is required to redeem the Preferred on the
fifth anniversary of the first issuance and the Company may at its sole option,
choose to redeem the Preferred at any time before the expiration of the five
years. Accordingly, the Preferred issued in connection with this Offering is
treated as redeemable stock in the accompanying balance sheet.
Two-thirds of the Preferred Stockholders can affect any Company action,
which would effect their preference position. The Preferred cannot be sold or
transferred by its holders and the Company must use its best efforts to register
with the Securities and Exchange Commission ("SEC") the common stock issued in
connection with the exercise of the Warrants or, if possible, piggyback the
issued common stock if the Company participates in a public offering with the
SEC.
The Offering was made available to stockholders (some of whom were
affiliates) of the Company as of December 31, 2001 and who were known to be
accredited investors by the Company. Purchasers were able to participate up to
their pro rata share of ownership in the Company as of December 31, 2001. The
Offering's initial closing began March 29, 2002 and continued until April 15,
2002, with a total subscription of $9,292,000 or 9,291.85 units. Mike Liddell,
the Company's Chief Executive Officer, shall have until September 30, 2002 to
subscribe for his proportionate share of the Offering.
On March 29, 2002, Gulfport Funding, LLC, participated in the Offering
through a conversion of its $3.0 million dollar loan along with the accumulated
interest due from the Company for 3,262.98 Units. Additionally, on March 29,
2002 entities controlled by the majority shareholder initially funded a share of
the Preferred Offering in the amount of $2,738,000.
Liquidity. The primary capital commitments faced by the Company are the capital
requirements needed to continue developing the Company's proved reserves and to
continue meeting the required principal payments on its Credit Facilities.
In Gulfport's January 1, 2002 reserve report, 85% of Gulfport's net
reserves were categorized as proved undeveloped. The proved reserves of
Gulfport will generally decline as reserves are depleted, except to the extent
that Gulfport conducts successful exploration or development activities or
acquires properties containing proved developed reserves, or both.
To realize reserves and increase production, the Company must continue its
exploratory drilling, undertake other replacement activities or utilize third
parties to accomplish those activities. In the year 2002, Gulfport expects to
undertake an intermediate drilling program. It is anticipated that these
22
reserve development projects will be funded either through the use of cash flow
from operations when available, funds received through its Preferred Stock
Offering, interim bank financing or related third party financing, a long-term
credit facility or by accessing the capital markets. The cash flow generated
from these new projects will be used to make the Company's required principal
payments on its debt with the remainder reinvested in the field to complete more
capital projects.
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 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 June 30, 2002, the
plugging and abandonment trust totaled $2,390,000. These funds are invested in
a U.S. Treasury Money Market.
During March 2002, Gulfport began to fulfill its yearly plugging commitment
of 20 wells at WCBB for the twelve-month period ending March 31, 2002. As of
this date of this filing, the plugging had been completed.
During July 2002, the Company commenced its plugging commitment program for
the twelve-month period ending March 31, 2003. As of the date of this filing,
the plugging had been substantially completed.
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.
SUBSEQUENT EVENTS
On August 8, 2002, the Company executed a 60-month lease on 12,035 square
feet of office space to commence on or around November 1, 2002. Monthly
payments under the lease are approximately $18,000.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Gulfport has been named as a defendant in various lawsuits. 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
23
ITEM 3. DEFAULTS UPON SENIOR SECURITES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 5, 2002, the holders of a majority of the outstanding shares of
the Company's common stock executed a written consent electing five directors
for the next year.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2.1 Form 8-K filed on March 8, 2002 between Registrant and Gulfport
Funding, LLC.
10.1 Credit Agreement dated June 28, 2000 between Registrant and Bank
of Oklahoma filed March 30, 2001 (1)
10.2 Stock Option Plan filed March 30, 2001 (1)
10.3 Credit Agreement dated February 1, 2001 between Registrant and
Bank of Oklahoma (1)
10.4 Credit Agreement dated May 22, 2001 between Registrant and
Gulfport Funding, LLC (1)
10.5 Warrant Agreement dated May 22, 2001 between Registrant and
Gulfport Funding, LLC (1)
10.6 Promissory Note dated May 22, 2001 between Registrant and
Gulfport Funding, LLC (1)
10.7 Confidential Disclosure Statement Relating to Offer and Sale of
Up to 10,000 Units dated March 29, 2002
--------------------------------------------------------------------------------
(1) Previously filed as an exhibit to Form 10-K for the year ended
December 31, 2001, and incorporated herein by reference.
24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULFPORT ENERGY CORPORATION
Date: August 14, 2002
/s/Mike Liddell
-----------------------------------------
Mike Liddell
Chief Executive Officer
/s/Mike Moore
-----------------------------------------
Mike Moore
Chief Financial Officer
25