Gulfport Energy(GPOR) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) Presents unaudited consolidated financial statements, highlighting increased assets and equity, decreased liabilities, and a net income turnaround Consolidated Balance Sheets Metric | Dec 31, 2022 (in thousands) | Jun 30, 2023 (in thousands) | Change (in thousands) | :------------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | | Total Assets | $2,534,479 | $2,555,724 | $21,245 | | Total Liabilities | $1,653,349 | $1,131,149 | $(522,200) | | Total Stockholders' Equity | $828,835 | $1,378,116 | $549,281 | | Cash and cash equivalents | $7,259 | $5,269 | $(1,990) | | Accounts receivable—oil, natural gas, and natural gas liquids sales | $278,404 | $92,104 | $(186,300) | | Short-term derivative instruments (asset) | $87,508 | $140,686 | $53,178 | | Short-term derivative instruments (liability) | $343,522 | $59,367 | $(284,155) | | Long-term debt | $694,155 | $648,267 | $(45,888) | | Retained Earnings | $381,872 | $996,028 | $614,156 | Consolidated Statements of Operations Three Months Ended June 30 | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--------------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Natural gas sales | $159,246 | $539,090 | $(379,844) | -70.46% | | Oil and condensate sales | $22,602 | $45,009 | $(22,407) | -49.78% | | Natural gas liquid sales | $26,070 | $54,106 | $(28,036) | -51.82% | | Net gain (loss) on natural gas, oil and NGL derivatives | $96,788 | $(172,871) | $269,659 | N/A | | Total revenues | $304,706 | $465,334 | $(160,628) | -34.52% | | Total operating expenses | $202,123 | $190,238 | $11,885 | 6.25% | | Income from operations | $102,583 | $275,096 | $(172,513) | -62.71% | | NET INCOME | $93,687 | $256,580 | $(162,893) | -63.49% | | NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | $78,365 | $215,610 | $(137,245) | -63.65% | | Basic EPS | $4.23 | $10.42 | $(6.19) | -59.40% | | Diluted EPS | $4.18 | $10.34 | $(6.16) | -59.57% | Six Months Ended June 30 | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--------------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Natural gas sales | $441,780 | $944,302 | $(502,522) | -53.22% | | Oil and condensate sales | $53,316 | $75,248 | $(21,932) | -29.15% | | Natural gas liquid sales | $65,982 | $99,390 | $(33,408) | -33.61% | | Net gain (loss) on natural gas, oil and NGL derivatives | $474,849 | $(961,422) | $1,436,271 | N/A | | Total revenues | $1,035,927 | $157,518 | $878,409 | 557.65% | | Total operating expenses | $410,757 | $375,223 | $35,534 | 9.47% | | INCOME (LOSS) FROM OPERATIONS | $625,170 | $(217,705) | $842,875 | N/A | | NET INCOME (LOSS) | $616,741 | $(235,395) | $852,136 | N/A | | NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | $521,545 | $(238,223) | $759,768 | N/A | | Basic EPS | $27.91 | $(11.36) | $39.27 | N/A | | Diluted EPS | $27.60 | $(11.36) | $38.96 | N/A | Consolidated Statements of Stockholders' Equity Metric | Jan 1, 2023 (in thousands) | Jun 30, 2023 (in thousands) | Change (in thousands) | :----------------------------------- | :------------------------- | :-------------------------- | :-------------------- | | Total Stockholders' Equity | $828,835 | $1,378,116 | $549,281 | | Retained Earnings | $381,872 | $996,028 | $614,156 | | Net income (Q1 2023) | N/A | $523,054 | N/A | | Net income (Q2 2023) | N/A | $93,687 | N/A | | Repurchase of common stock | N/A | $(74,231) | N/A | | Dividends on preferred stock | N/A | $(2,585) | N/A | Consolidated Statements of Cash Flows Metric | Six Months Ended Jun 30, 2023 (in thousands) | Six Months Ended Jun 30, 2022 (in thousands) | Change (in thousands) | :--------------------------------------- | :------------------------------------------- | :------------------------------------------- | :-------------------- | | Net cash provided by operating activities | $411,406 | $383,200 | $28,206 | | Net cash used in investing activities | $(281,593) | $(181,265) | $(100,328) | | Net cash used in financing activities | $(131,803) | $(198,614) | $66,811 | | Net (decrease) increase in cash and cash equivalents | $(1,990) | $3,321 | $(5,311) | | Cash and cash equivalents at end of period | $5,269 | $6,581 | $(1,312) | Notes to Consolidated Financial Statements 1. Basis of Presentation - Gulfport is an independent natural gas-weighted E&P company operating in the Utica, Marcellus, and SCOOP Woodford and Springer formations[49] - Financial statements are unaudited, prepared under GAAP and SEC rules, and assume going concern[50][51] Accounts Payable and Accrued Liabilities (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :---------------- | | Revenue payable and suspense | $149,232 | $222,721 | | Accounts payable | $59,382 | $37,807 | | Accrued transportation, gathering, processing and compression | $34,135 | $56,138 | | Accrued capital expenditures | $30,640 | $36,464 | | Accrued contract rejection damages and shares held in reserve | $1,996 | $40,996 | | Other accrued liabilities | $32,335 | $43,258 | | Total accounts payable and accrued liabilities | $307,720 | $437,384 | - "Other, net" for H1 2023 included $17.8 million from an interim TC claim distribution and a $5.0 million recoupment of previously placed collateral[53] 2. Property and Equipment Property and Equipment (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :---------------- | | Proved oil and natural gas properties | $2,695,104 | $2,418,666 | | Unproved properties | $188,461 | $178,472 | | Total property and equipment, net | $2,185,831 | $2,057,730 | | Accumulated DD&A | $(705,153) | $(545,771) | - No impairment of oil and natural gas properties recorded for Q2 or H1 2023/2022[56] - Capitalized G&A costs were $10.5 million for H1 2023, up from $9.7 million for H1 2022[57] Asset Retirement Obligation (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Asset retirement obligation, beginning of period | $33,171 | $28,264 | | Liabilities incurred | $73 | $22 | | Liabilities settled | $(165) | $0 | | Liabilities removed due to divestitures | $(919) | $(7) | | Accretion expense | $1,478 | $1,384 | | Total asset retirement obligation, end of period | $33,638 | $29,663 | 3. Debt Debt (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | 8.0% senior unsecured notes due 2026 | $550,000 | $550,000 | | Credit Facility due 2027 | $99,000 | $145,000 | | Total long-term debt, net | $648,267 | $694,155 | - Credit Facility elected commitments increased from $700 million to $900 million, borrowing base increased from $1 billion to $1.1 billion, and maturity extended to May 2027[66][217] - As of June 30, 2023, $99.0 million was outstanding under the Credit Facility, with a weighted average interest rate of 8.13% for Q2 2023 and 7.85% for H1 2023[71] - Fair value of 2026 Senior Notes was $554.3 million at June 30, 2023, compared to a carrying value of $549.3 million[75] 4. Mezzanine Equity - Preferred stock decreased from 52,295 shares (Dec 31, 2022) to 46,459 shares (Jun 30, 2023) due to conversions[83] - Preferred stock holders receive 10% cash or 15% PIK cumulative quarterly dividends[77] - Preferred stock outstanding at June 30, 2023, could convert to approximately 3.3 million common shares[78] 5. Equity - Common stock outstanding was 18.7 million shares at June 30, 2023, compared to 19.1 million at December 31, 2022[33] - The Board approved an increase to the share repurchase program from $300 million to $400 million, expiring March 31, 2024[90][163] Share Repurchase Program Activity (in thousands, except per share) | Period | Shares Purchased | Dollar Value | Average Price Paid | | :----------------- | :--------------- | :----------- | :----------------- | | First quarter 2023 | 459 | $32,873 | $71.61 | | Second quarter 2023 | 442 | $41,358 | $93.67 | | Total H1 2023 | 901 | $74,231 | $82.42 | - As of June 30, 2023, approximately $75 million remained authorized under the $400 million repurchase program[257] 6. Stock-Based Compensation - H1 2023 stock-based compensation expense was $5.6 million ($1.9 million capitalized), up from $3.9 million ($1.3 million capitalized) in H1 2022[92] - Unrecognized compensation expense for restricted stock units was $15.7 million (2.23 years weighted average) and for performance vesting restricted shares was $7.4 million (1.99 years weighted average) as of June 30, 2023[94][96] 7. Restructuring Costs - H1 2023 restructuring costs totaled $4.8 million, including $1.3 million from accelerated vesting of share-based grants, due to CEO change and organizational restructuring[97][202] 8. Earnings (Loss) Per Share Net Income (Loss) Per Common Share (in thousands, except per share) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--------------------------------------- | :------ | :------ | :------ | :------- | | Net income (loss) attributable to common stockholders | $78,365 | $215,610 | $521,545 | $(238,223) | | Basic EPS | $4.23 | $10.42 | $27.91 | $(11.36) | | Diluted EPS | $4.18 | $10.34 | $27.60 | $(11.36) | | Weighted average common shares outstanding—Basic | 18,518 | 20,684 | 18,688 | 20,961 | | Weighted average common shares outstanding—Diluted | 18,805 | 20,877 | 18,930 | 20,961 | - 3.3 million potential common shares from convertible preferred stock were dilutive for Q2/H1 2023, and 3.8 million for Q2/H1 2022[99] 9. Commitments and Contingencies Future Firm Transportation and Gathering Commitments (in thousands) | Period | Amount | | :------------- | :----------- | | Remaining 2023 | $113,028 | | 2024 | $218,797 | | 2025 | $137,795 | | 2026 | $134,324 | | 2027 | $136,492 | | Thereafter | $737,104 | | Total | $1,477,540 | - Other operational commitments for inventory and materials are $39.6 million for 2023 and $31.2 million for 2024[105] - Received $17.8 million interim distribution for TC claim in Q1 2023; finalized settlement with Rover including a $1.0 million administrative claim payment[107][204] - Ongoing litigation includes disputes over restrictive covenants on mineral rights and alleged trespass for production beyond specified shale formations[109][110] 10. Derivative Instruments - Company uses derivatives (swaps, basis swaps, costless collars, options) to mitigate natural gas, oil, and NGL price risks, hedging 30-70% of current year production and for 12-36 months[114][115][238] Total Commodity Derivative Position (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Short-term derivative asset | $140,686 | $87,508 | | Long-term derivative asset | $54,308 | $26,525 | | Short-term derivative liability | $(59,367) | $(343,522) | | Long-term derivative liability | $(61,557) | $(118,404) | | Total commodity derivative position | $74,070 | $(347,893) | - Net gain on derivatives for H1 2023 was $474.8 million, a significant turnaround from a $961.4 million net loss in H1 2022, driven by decreased futures pricing[126][196] - Subsequent to June 30, 2023, the company entered into additional basis swaps, swaps, and costless collars for 2024 and 2025[152] 11. Fair Value Measurements - Fair value measurements are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[130][131] Financial Assets and Liabilities by Valuation Level (June 30, 2023, in thousands) | Category | Level 1 | Level 2 | Level 3 | | :------------------------------------------ | :------ | :-------- | :-------- | | Derivative instruments (assets) | $0 | $194,994 | $0 | | Contingent consideration arrangement (assets) | $0 | $0 | $3,100 | | Derivative instruments (liabilities) | $0 | $120,924 | $0 | - Contingent consideration arrangement fair value was $3.1 million at June 30, 2023 (Level 3), with a $1.2 million loss recognized for H1 2023[132] 12. Revenue from Contracts with Customers - Revenues from natural gas, oil, and NGL sales are recognized when control of the product is transferred to the customer[135] - Most contracts are short-term or have variable consideration, exempting disclosure of remaining performance obligations[137][138] - Receivables from contracts with customers decreased from $278.4 million (Dec 31, 2022) to $92.1 million (Jun 30, 2023)[139] 13. Leases - Operating leases for equipment, drilling rigs, and office space are recognized on the balance sheet for terms over one year[141][142][143] Total Lease Cost (in thousands) | Metric | H1 2023 | H1 2022 | | :---------------- | :-------- | :-------- | | Operating lease cost | $6,886 | $100 | | Short-term lease cost | $17,298 | $18,782 | | Total lease cost | $24,184 | $18,882 | - Weighted-average remaining lease term was 1.68 years, and the weighted-average discount rate was 6.71% as of June 30, 2023[146] 14. Income Taxes - Effective tax rate was 0% for H1 2023 due to a full valuation allowance on net deferred tax assets[148] - A full valuation allowance is maintained as it's more likely than not that some or all deferred tax asset benefits won't be realized, but future positive evidence could lead to adjustment[149][150] 15. Related Party Transactions - Gulfport repurchased 215,060 common shares from Silver Point Capital, L.P. for $20.4 million on June 26, 2023, as part of its share repurchase program[151] 16. Subsequent Events - As of July 27, 2023, new derivatives contracts include 2024 basis swaps (Rex Zone 3, NGPL TXOK), 2024 Mont Belvieu C3 swaps, and 2024/2025 NYMEX WTI/Henry Hub costless collars[152] Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Management discusses financial condition, operations, and liquidity, covering recent developments, production, and financial results influenced by commodity prices 2023 Operational and Financial Highlights - Q2 2023 highlights include 1,039.3 MMcfe/day net production, 13 gross (11.9 net) wells turned to sales, $107.4 million operating cash flow, and repurchase of 441,512 shares for $41.4 million[167] - Credit Facility borrowing base increased to $1.1 billion, elected commitment to $900 million, and maturity extended to May 2027[167] 2023 Production and Drilling Activity Production Volumes (Q2 2023 vs Q2 2022) | Metric | Q2 2023 | Q2 2022 | % Change | | :-------------------------- | :-------- | :-------- | :------- | | Natural gas (Mcf/day) | 945,910 | 858,481 | 10.18% | | Oil and condensate (Bbl/day) | 3,533 | 4,678 | -24.48% | | NGL (Bbl/day) | 12,036 | 12,093 | -0.47% | | Combined (Mcfe/day) | 1,039,323 | 959,106 | 8.36% | Production Volumes (H1 2023 vs H1 2022) | Metric | H1 2023 | H1 2022 | % Change | | :-------------------------- | :-------- | :-------- | :------- | | Natural gas (Mcf/day) | 945,163 | 891,306 | 6.04% | | Oil and condensate (Bbl/day) | 4,128 | 4,158 | -0.72% | | NGL (Bbl/day) | 13,060 | 11,198 | 16.63% | | Combined (Mcfe/day) | 1,048,292 | 983,444 | 6.59% | - In Q2 2023, 2 gross (1.67 net) Utica wells were spud, and 11 gross (10.15 net) Utica wells and 2 gross (1.74 net) SCOOP wells commenced sales[171][172] Comparison of Quarter-to-Date Q2 Sales and Pricing (YoY Change) | Metric | Q2 2023 (Avg Price w/o derivatives) | Q2 2022 (Avg Price w/o derivatives) | % Change (Price) | % Change (Volume) | | :----------------------------------- | :---------------------------------- | :---------------------------------- | :--------------- | :---------------- | | Natural gas ($/Mcf) | $1.85 | $6.90 | -73.19% | 10.18% | | Oil and condensate ($/Bbl) | $70.30 | $105.72 | -33.50% | -24.48% | | NGL ($/Bbl) | $23.80 | $49.17 | -51.59% | -0.47% | | Total sales (in thousands) | $207,918 | $638,205 | -67.42% | N/A | Q2 Operating Expenses (YoY Change) | Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | % Change | | :----------------------------------- | :--------------------- | :--------------------- | :------- | | Lease operating expenses | $16,155 | $14,239 | 13.46% | | Taxes other than income | $7,938 | $16,682 | -52.42% | | Transportation, gathering, processing and compression | $85,664 | $87,752 | -2.38% | | Depreciation, depletion and amortization | $80,148 | $62,602 | 28.00% | | General and administrative expenses, net | $8,611 | $8,271 | 4.11% | | Restructuring costs | $2,893 | $0 | N/A | | Interest expense | $13,727 | $14,234 | -3.56% | - Net gain on derivatives was $96.8 million in Q2 2023, compared to a net loss of $172.9 million in Q2 2022, primarily due to decreased futures pricing[179] Comparison of Year-to-Date H1 Sales and Pricing (YoY Change) | Metric | H1 2023 (Avg Price w/o derivatives) | H1 2022 (Avg Price w/o derivatives) | % Change (Price) | % Change (Volume) | | :----------------------------------- | :---------------------------------- | :---------------------------------- | :--------------- | :---------------- | | Natural gas ($/Mcf) | $2.58 | $5.85 | -55.90% | 6.04% | | Oil and condensate ($/Bbl) | $71.36 | $99.99 | -28.59% | -0.72% | | NGL ($/Bbl) | $27.91 | $49.03 | -43.08% | 16.63% | | Total sales (in thousands) | $561,078 | $1,118,940 | -49.86% | N/A | H1 Operating Expenses (YoY Change) | Metric | H1 2023 (in thousands) | H1 2022 (in thousands) | % Change | | :----------------------------------- | :--------------------- | :--------------------- | :------- | | Lease operating expenses | $36,017 | $31,883 | 13.09% | | Taxes other than income | $18,633 | $29,150 | -36.08% | | Transportation, gathering, processing and compression | $173,281 | $172,544 | 0.43% | | Depreciation, depletion and amortization | $159,242 | $124,886 | 27.51% | | General and administrative expenses, net | $17,344 | $15,376 | 12.79% | | Restructuring costs | $4,762 | $0 | N/A | | Interest expense | $27,483 | $28,218 | -2.59% | - Net gain on derivatives was $474.8 million in H1 2023, compared to a net loss of $961.4 million in H1 2022, primarily due to a significant decrease in futures pricing[196] Liquidity and Capital Resources - Gulfport maintains liquidity through operating cash flows, cash on hand, and Credit Facility, using derivatives to manage commodity price volatility[208][209] - As of June 30, 2023, cash and cash equivalents were $5.3 million, Credit Facility borrowings were $99.0 million, and 2026 Senior Notes outstanding were $550 million[212] Sources and Uses of Cash (H1 2023 vs H1 2022, in thousands) | Metric | H1 2023 | H1 2022 | Change | | :--------------------------------------- | :-------- | :-------- | :------- | | Net cash provided by operating activities | $411,406 | $383,200 | $28,206 | | Additions to oil and natural gas properties | $(283,406) | $(181,787) | $(101,619) | | Repurchases of common stock | $(74,516) | $(155,212) | $80,696 | | Preferred stock dividends | $(2,587) | $(2,828) | $241 | - 2023 capital expenditures are estimated at $375-$400 million for drilling/completion, $50-$75 million for maintenance leasehold/land, and $40 million for discretionary acreage acquisitions[226][227] - Off-balance sheet arrangements include $74.4 million in letters of credit and $37.8 million in surety bonds, plus $39.6 million (2023) and $31.2 million (2024) in operational commitments for inventory/materials[235] Item 3. Quantitative and Qualitative Disclosures About Market Risk Manages commodity price risk via derivatives, shifting to a net asset position, and addresses interest rate risk on its floating-rate Credit Facility - Gulfport uses derivative instruments (swaps, options, costless collars) to mitigate exposure to volatile natural gas, oil, and NGL prices[238][240][244] - Net derivative position changed from a $347.9 million liability (Dec 31, 2022) to a $74.1 million asset (Jun 30, 2023)[245] - A 10% increase in commodity prices would increase derivative liability by approximately $119.5 million, while a 10% decrease would decrease it by approximately $115.6 million[245] - Credit Facility has floating interest rates; weighted average rate was 7.85% for H1 2023. No interest rate swaps were in place as of June 30, 2023[246] Item 4. Controls and Procedures Management confirmed effective disclosure controls and no material changes in internal control over financial reporting as of June 30, 2023 - CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2023[248] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[250] PART II OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings are detailed in Note 9 of the consolidated financial statements, covering commitments and contingencies - Legal proceedings information is provided in Note 9 of the consolidated financial statements[253] Item 1A. Risk Factors Business risks are detailed in this section and the 2022 Annual Report on Form 10-K - Business risks are detailed in this section and the 2022 Annual Report on Form 10-K[254] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales; Q2 2023 saw 457,919 common shares repurchased, with $75 million remaining in the program - No unregistered sales of equity securities[255] Common Stock Repurchase Activity (Q2 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------- | :----------------------------- | :--------------------------- | | April 1 - April 30 | 62,209 | $81.26 | | May 1 - May 31 | 89,709 | $95.01 | | June 1 - June 30 | 306,001 | $95.66 | | Total | 457,919 | $93.58 | - Approximately $75 million remained authorized under the $400 million repurchase program as of June 30, 2023[257] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities[258] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[259] Item 5. Other Information Board changes include a director resignation, a new appointment to the Board and committees, and a promotion to Chief Accounting Officer - Guillermo (Bill) Martinez resigned from the Board of Directors effective July 31, 2023[261] - Jeannie Powers was appointed to the Board, Audit Committee, and Nominating, Environmental, Social & Governance Committee, effective July 31, 2023[262] - Matthew B. Willrath was promoted to Vice President and Chief Accounting Officer effective August 2, 2023[266] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including organizational documents, credit agreement amendments, and certifications - Exhibits include organizational documents, credit agreement amendments, officer certifications, and XBRL data files[269] Signatures Report signed by Michael Hodges, Chief Financial Officer, on August 2, 2023 - Report signed by Michael Hodges, Chief Financial Officer, on August 2, 2023[274]