Gulfport Energy(GPOR) - 2019 Q2 - Quarterly Report

Part I Financial Information Consolidated Financial Statements (Unaudited) Presents Gulfport Energy Corporation's unaudited consolidated financial statements, including balance sheets, income, and cash flows, highlighting asset growth and net income Consolidated Balance Sheets Total assets increased to $6.47 billion, driven by property and equipment, while liabilities and equity also rose Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $343,491 | $316,953 | | Property and equipment, net | $5,724,111 | $5,479,405 | | Total Assets | $6,465,470 | $6,051,036 | | Total Current Liabilities | $533,459 | $539,432 | | Long-term debt, net | $2,198,678 | $2,086,765 | | Total Liabilities | $2,858,062 | $2,723,268 | | Total Stockholders' Equity | $3,607,408 | $3,327,768 | Consolidated Statements of Operations Net income for the six months ended June 30, 2019, significantly increased to $297.2 million, driven by derivative gains and tax benefits Six Months Ended June 30, (in thousands, except per share data) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Total Revenues | $779,572 | $578,132 | | Net gain (loss) on derivatives | $151,095 | $(87,074) | | Income from Operations | $308,428 | $124,109 | | Net Income | $297,198 | $201,409 | | Diluted EPS | $1.84 | $1.13 | Three Months Ended June 30, (in thousands, except per share data) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Total Revenues | $458,994 | $252,740 | | Net gain (loss) on derivatives | $171,140 | $(70,545) | | Income from Operations | $216,918 | $13,791 | | Net Income | $234,956 | $111,319 | | Diluted EPS | $1.47 | $0.64 | Consolidated Statements of Cash Flows Net cash from operations decreased to $309.0 million, while investing activities used more cash and financing activities provided cash Cash Flow Summary for Six Months Ended June 30, (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $308,989 | $411,044 | | Net cash used in investing activities | $(419,445) | $(360,465) | | Net cash provided by (used in) financing activities | $78,936 | $(30,906) | | Net (decrease) increase in cash | $(31,520) | $19,673 | | Cash at end of period | $20,777 | $119,230 | Notes to Consolidated Financial Statements Detailed disclosures on accounting policies, including property, debt, derivatives, and income tax, along with subsequent events Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, production, and liquidity, highlighting increased net income, disciplined capital allocation, and a $565-$600 million capital expenditure plan - The company's strategy involves internal prospect identification, land acquisition, and evaluation, primarily in the Utica Shale (Ohio) and SCOOP plays (Oklahoma)[148] - Responding to declining natural gas prices, the company is shifting to disciplined capital allocation and operating within cash flow for 2019, reducing planned capital expenditures by approximately 29% compared to 2018[208] 2019 Capital Expenditure Budget (in millions) | Category | Estimated 2019 Capex | | :--- | :--- | | Drilling & Completion | $525.0 - $550.0 | | Non-Drilling & Completion | $40.0 - $50.0 | | Total | $565.0 - $600.0 | Results of Operations Q2 2019 net income increased to $235.0 million, driven by derivative gains and tax benefits, despite an impairment loss on Mammoth Energy investment - The $123.7 million increase in net income for Q2 2019 was primarily due to a $206.3 million increase in oil and natural gas revenues (driven by derivatives) and a $179.3 million income tax benefit[164] - The company recorded a $125.4 million impairment loss on its investment in Mammoth Energy for the six months ended June 30, 2019[164][175] Production and Pricing Comparison (Three Months Ended June 30) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Total Production (MMcfe) | 123,668 | 121,061 | | Avg. Natural Gas Price ($/Mcf) | $2.20 | $2.32 | | Avg. Oil Price ($/Bbl) | $57.42 | $55.29 | | Total Production Costs ($/Mcfe) | $0.83 | $0.84 | Liquidity and Capital Resources Primary funding sources include cash flow from operations, a $1.4 billion revolving credit facility, and $2.0 billion in senior notes, with a new $400 million stock repurchase program - Net cash provided by operating activities decreased by $102.0 million to $309.0 million for the first six months of 2019, primarily due to lower cash receipts from oil and gas sales[188] - As of June 30, 2019, the company had $155.0 million outstanding on its revolving credit facility and $593.5 million available for borrowing[192] - In January 2019, the board approved a new stock repurchase program to acquire up to $400 million of common stock over 24 months, with approximately $30.0 million repurchased as of July 26, 2019[151][210] - Subsequent to quarter end, in July 2019, the company repurchased $104.4 million in aggregate principal of its outstanding senior notes for $80.3 million[142][151] Quantitative and Qualitative Disclosures About Market Risk The company manages commodity price volatility through derivatives, with a 10% price change impacting fair value by $99.7-$99.8 million, and faces interest rate risk on its revolving credit facility - The company's main market risk is the volatility of oil and natural gas prices, mitigated through derivative contracts[224] Open Natural Gas Fixed Price Swaps as of June 30, 2019 | Period | Location | Daily Volume (MMBtu/day) | Weighted Average Price | | :--- | :--- | :--- | :--- | | Remaining 2019 | NYMEX Henry Hub | 1,380,000 | $2.81 | | 2020 | NYMEX Henry Hub | 204,000 | $2.77 | Open Oil Fixed Price Swaps as of June 30, 2019 | Period | Location | Daily Volume (Bbls/day) | Weighted Average Price | | :--- | :--- | :--- | :--- | | Remaining 2019 | NYMEX WTI | 6,000 | $60.81 | | 2020 | NYMEX WTI | 6,000 | $59.82 | - The company is exposed to interest rate risk on its revolving credit facility, with $155.0 million outstanding at a weighted average rate of 3.93% as of June 30, 2019[229] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[231] - No material changes to internal control over financial reporting occurred during the quarter[232] Part II Other Information Legal Proceedings Gulfport is involved in legal and regulatory proceedings, including coastal management violations, an SEC investigation into former management, and EPA Clean Air Act allegations - The company is a defendant in two complaints filed by the State of Louisiana alleging violations of the State and Local Coastal Resources Management Act[235] - The SEC has an ongoing investigation into actions by former management, including alleged improper personal use of company assets and potential Sarbanes-Oxley Act violations[237] - The company received several Findings of Violation from the USEPA alleging Clean Air Act violations in Ohio, potentially resulting in monetary sanctions over $100,000[240][241] Risk Factors No new material risk factors are reported for the quarter, referring to disclosures in the 2018 Form 10-K - No new risk factors are reported; the company refers to those disclosed in its 2018 Form 10-K[243] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred; 296,587 shares were repurchased at $7.65 per share under a new $400 million program Issuer Repurchases of Equity Securities (Q2 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2019 | 296,587 | $7.65 | | May 2019 | — | $— | | June 2019 | — | $— | | Total | 296,587 | $7.65 | - In January 2019, the board approved a new stock repurchase program to acquire up to $400 million of common stock within a 24-month period[245] Other Information Key corporate governance updates include stockholder approval of a new stock incentive plan, new indemnification agreements, and new employment agreements for executives - Stockholders approved the 2019 Amended and Restated Stock Incentive Plan, increasing the share reserve by 5,000,000 shares and extending the plan's expiration to 2029[251] - On August 1, 2019, the company entered into new indemnification agreements with its directors and key executives[252] - Effective August 1, 2019, new employment agreements were established for the CEO, COO, and General Counsel with initial terms extending through December 31, 2023[253][254] Exhibits Lists exhibits filed with the Form 10-Q, including corporate governance documents, senior note indentures, incentive plans, and executive employment agreements - Filed exhibits include the 2019 Amended and Restated Stock Incentive Plan, a form of Indemnification Agreement, and new Employment Agreements for David M. Wood (CEO), Donnie Moore (COO), and Patrick K. Craine (General Counsel)[259][260]