Gulfport Energy(GPOR) - 2023 Q3 - Quarterly Report

Definitions This section defines key terms and abbreviations used in the Quarterly Report, covering financial instruments, accounting standards, operational metrics, and geographical areas - Key terms and abbreviations defined include financial instruments (e.g., 1145 Indenture, 4(a)(2) Indenture, Credit Facility, 2026 Senior Notes), accounting standards (ASC, GAAP), operational metrics (Bbl, Btu, Mcf, MMBtu, NGL, WI), and geographical areas (Marcellus, SCOOP, Utica)[10][12][13] Cautionary Note Regarding Forward-Looking Statements This section cautions that forward-looking statements in the Form 10-Q are subject to risks and uncertainties, potentially causing actual results to differ materially - The Form 10-Q contains forward-looking statements subject to risks and uncertainties, which may cause actual results to differ materially from expectations[27][28][29] - Forward-looking statements include expectations regarding global conflicts (Ukraine, Israel-Hamas), estimated future net revenues from oil and gas reserves, future capital expenditures, share repurchases, business strategy, competitive strength, and growth plans[27][29] PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) This section presents Gulfport Energy's unaudited consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with explanatory notes Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands USD) | Metric | Sep 30, 2023 | Dec 31, 2022 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :----------- | :----------- | :----------- | :------------- | | Total current assets | $272,299 | $402,270 | $(129,971) | -32.3% | | Total property and equipment, net | $2,223,085 | $2,057,730 | $165,355 | 8.0% | | Total assets | $3,136,946 | $2,534,479 | $602,467 | 23.8% | | Total current liabilities | $374,463 | $793,320 | $(418,857) | -52.8% | | Total liabilities | $1,111,611 | $1,653,349 | $(541,738) | -32.8% | | Total stockholders' equity | $1,980,006 | $828,835 | $1,151,171 | 138.9% | - Total stockholders' equity significantly increased, primarily driven by a substantial increase in retained earnings from $381.9 million to $1,603.3 million from December 31, 2022, to September 30, 2023[34] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands USD, except per share) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :------------- | | Total revenues | $266,667 | $191,102 | $75,565 | 39.5% | | Income (loss) from operations | $67,184 | $(3,868) | $71,052 | -1836.8% | | Net income (loss) | $608,444 | $(18,472) | $626,916 | -3393.9% | | Net income (loss) attributable to common stockholders | $517,555 | $(19,781) | $537,336 | -2716.4% | | Basic EPS | $27.72 | $(1.01) | $28.73 | -2844.6% | | Diluted EPS | $27.37 | $(1.01) | $28.38 | -2809.9% | | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $1,302,594 | $348,620 | $953,974 | 273.7% | | Income (loss) from operations | $692,354 | $(221,573) | $913,927 | -412.5% | | Net income (loss) | $1,225,185 | $(253,867) | $1,479,052 | -582.6% | | Net income (loss) attributable to common stockholders | $1,041,073 | $(258,003) | $1,299,076 | -503.5% | | Basic EPS | $55.72 | $(12.58) | $68.30 | -543.0% | | Diluted EPS | $55.08 | $(12.58) | $67.66 | -537.8% | - Net income and EPS significantly increased for both periods, primarily due to a substantial income tax benefit of $554.7 million and a net gain on derivative instruments, contrasting with prior year losses[36][38] Consolidated Statements of Stockholders' Equity Stockholders' Equity Changes (in thousands USD) | Metric | Balance at Jan 1, 2023 | Net Income | Stock Compensation | Repurchase of Common Stock | Dividends on Preferred Stock | Balance at Sep 30, 2023 | | :--------------------------------------- | :--------------------- | :--------- | :----------------- | :------------------------- | :--------------------------- | :---------------------- | | Total Stockholders' Equity | $828,835 | $1,225,185 | $10,424 | $(82,912) | $(3,718) | $1,980,006 | - Retained Earnings significantly increased from $381.9 million to $1,603.3 million from January 1, 2023, to September 30, 2023, primarily due to net income[42] - The company repurchased 977 thousand common shares for $82.9 million under its Repurchase Program during the nine months ended September 30, 2023[42] Consolidated Statements of Cash Flows Consolidated Cash Flow Highlights (in thousands USD) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :-------------------------- | :-------------------------- | :----------- | :------------- | | Net cash provided by operating activities | $567,680 | $551,082 | $16,598 | 3.0% | | Net cash used in investing activities | $(419,981) | $(329,320) | $(90,661) | 27.5% | | Net cash used in financing activities | $(146,633) | $(216,735) | $70,102 | -32.3% | | Net increase in cash and cash equivalents | $1,066 | $5,027 | $(3,961) | -78.8% | | Cash and cash equivalents at end of period | $8,325 | $8,287 | $38 | 0.5% | - Operating cash flows increased slightly, while investing activities saw a significant increase in cash used, primarily due to higher additions to oil and natural gas properties[45] - Financing activities used less cash, mainly due to lower net principal payments on the Credit Facility and reduced common stock repurchases compared to the prior year[45] Notes to Consolidated Financial Statements 1. Basis of Presentation - Gulfport Energy Corporation is an independent natural gas-weighted exploration and production company focused on Utica, Marcellus, and SCOOP Woodford and Springer formations[48] - The financial statements are unaudited, prepared in accordance with GAAP and SEC rules, and reflect all normal recurring adjustments[49][50] Accounts Payable and Accrued Liabilities (in thousands USD) | Category | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------------- | :----------- | :----------- | | Revenue payable and suspense | $154,200 | $222,721 | | Accounts payable | $45,526 | $37,807 | | Accrued transportation, gathering, processing and compression | $34,368 | $56,138 | | Accrued capital expenditures | $25,501 | $36,464 | | Accrued contract rejection damages and shares held in reserve | $1,996 | $40,996 | | Other accrued liabilities | $48,993 | $43,258 | | Total | $310,584 | $437,384 | - Other, net income for the nine months ended September 30, 2023, included a $17.8 million TC claim distribution and a $5.0 million recoupment of collateral for firm transportation commitments[52] 2. Property and Equipment Property and Equipment (in thousands USD) | Category | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------------- | :----------- | :----------- | | Proved oil and natural gas properties | $2,802,653 | $2,418,666 | | Unproved properties | $196,947 | $178,472 | | Total property and equipment, net | $2,223,085 | $2,057,730 | - The company recorded no impairment of its oil and natural gas properties for the three or nine months ended September 30, 2023 or 2022[55] - Capitalized general and administrative costs for exploration and development activities were $16.2 million for the nine months ended September 30, 2023, up from $14.6 million in the prior year period[56] Asset Retirement Obligation (in thousands USD) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Beginning of period | $33,171 | $28,264 | | Liabilities incurred | $505 | $53 | | Liabilities settled | $(604) | — | | Liabilities removed due to divestitures | $(919) | $(7) | | Accretion expense | $2,117 | $2,057 | | End of period | $34,270 | $30,367 | 3. Debt Debt Composition (in thousands USD) | Debt Type | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------------- | :----------- | :----------- | | 8.0% senior unsecured notes due 2026 | $550,000 | $550,000 | | Credit Facility due 2027 | $95,000 | $145,000 | | Total long-term debt, net | $644,324 | $694,155 | - The Credit Facility's elected commitments increased from $700 million to $900 million, and the borrowing base increased from $1 billion to $1.1 billion on May 1, 2023, with maturity extended to May 1, 2027[65] - As of September 30, 2023, the company had $95.0 million outstanding borrowings under the Credit Facility and was in compliance with all covenants[70] - The weighted average interest rate on the Credit Facility increased from 5.41% (Q3 2022) to 8.28% (Q3 2023) and from 4.42% (YTD 2022) to 8.05% (YTD 2023) due to the inflationary environment[70] - The fair value of the 2026 Senior Notes was $550.6 million at September 30, 2023, compared to a carrying value of $549.3 million[74] 4. Mezzanine Equity - The company has 110,000 authorized preferred shares with a $1,000 liquidation preference per share, classified as mezzanine equity due to redemption features[75][80] - Preferred stock holders are entitled to cumulative quarterly dividends at 10% per annum for cash dividends or 15% for PIK Dividends[76] - Preferred stock holders have a conversion right into common stock, with 45,329 shares outstanding at September 30, 2023, convertible into approximately 3.2 million common shares[77] Preferred Stock Activity (in thousands of shares) | Period | Preferred Stock | | :--------------------- | :-------------- | | Dec 31, 2022 | 52,295 | | Q2 2023 Conversion | (5,836) | | Q3 2023 Conversion | (1,130) | | Sep 30, 2023 | 45,329 | 5. Equity - The company has 42 million authorized common shares with a $0.0001 par value[83] - As of September 30, 2023, approximately 62,000 common shares remain held in the Disputed Claims Reserve[84] - The Board of Directors increased the common stock Repurchase Program authorization to $650 million, extending through December 31, 2024[87] Common Stock Repurchase Program Activity (9 Months Ended Sep 30, 2023) | Period | Shares Purchased (thousands) | Dollar Value (thousands) | Average Price Per Share | | :--------------------- | :--------------------------- | :----------------------- | :---------------------- | | First quarter 2023 | 459 | $32,873 | $71.61 | | Second quarter 2023 | 442 | $41,358 | $93.67 | | Third quarter 2023 | 76 | $8,681 | $113.97 | | Total | 977 | $82,912 | $84.88 | - Since inception, 3.9 million shares have been repurchased for $333.7 million at a weighted average price of $86.07 per share[88] 6. Stock-Based Compensation - The Incentive Plan has a share reserve of 2.8 million common shares, used for restricted stock units (RSUs) and performance vesting restricted stock units (PVRUs)[89] Stock-Based Compensation Expense (in thousands USD) | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total stock-based compensation expense | $3,500 | $2,400 | $9,200 | $6,300 | | Capitalized portion | $1,200 | $800 | $3,000 | $2,100 | - Unrecognized compensation expense for RSUs was $13.5 million as of September 30, 2023, expected to be recognized over 2.05 years[92] - PVRUs are based on TSR and RTSR performance over a three-year period, with unrecognized compensation expense of $6.3 million as of September 30, 2023, recognized over 1.81 years[93][94] 7. Restructuring Costs - Gulfport recognized $4.8 million in personnel-related restructuring expenses during the nine months ended September 30, 2023, due to organizational and leadership changes, including $1.3 million in non-cash share-based grant vesting[95] Personnel-Related Restructuring Expenses (in thousands USD) | Period | Expenses | | :--------------------- | :------- | | First quarter 2023 | $1,869 | | Second quarter 2023 | $2,893 | | Third quarter 2023 | — | | Total | $4,762 | 8. Earnings (Loss) Per Share - Basic EPS is calculated by subtracting preferred stock dividends and participating securities' attributable income/loss from net income/loss, then dividing by weighted average basic shares outstanding[97] - Diluted EPS considers the dilutive impact of convertible preferred stock (if-converted method) and unvested restricted stock (treasury stock method)[97] Net Income (Loss) Per Common Share (in thousands USD, except per share) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to common stockholders | $517,555 | $(19,781) | $1,041,073 | $(258,003) | | Basic EPS | $27.72 | $(1.01) | $55.72 | $(12.58) | | Diluted EPS | $27.37 | $(1.01) | $55.08 | $(12.58) | | Weighted average common shares outstanding—Basic | 18,670 | 19,635 | 18,686 | 20,514 | | Weighted average common shares outstanding—Diluted | 18,954 | 19,635 | 18,937 | 20,514 | - For the nine months ended September 30, 2023, there were 0.3 million dilutive restricted stock shares and 3.2 million potential common shares from convertible preferred stock[98] 9. Commitments and Contingencies Future Firm Transportation and Gathering Commitments (in thousands USD) | Period | Amount | | :--------------------- | :----------- | | Remaining 2023 | $56,061 | | 2024 | $219,434 | | 2025 | $137,795 | | 2026 | $134,324 | | 2027 | $136,492 | | Thereafter | $737,104 | | Total | $1,421,210 | - Other operational commitments for inventory and materials total $19.8 million for the remainder of 2023 and $23.5 million for 2024[104] - In Q1 2023, Gulfport finalized a settlement with Rover Pipeline LLC, resulting in an $85.9 million unsecured claim for Rover and a $1.0 million administrative payment by Gulfport, also receiving an additional $17.8 million interim distribution for its TC claim[106] - The company is involved in various lawsuits, including allegations of trespass and illegal production, but management believes no pending matter is likely to have a material adverse effect[107][108][110] 10. Derivative Instruments - Gulfport uses fixed price swaps, basis swaps, costless collars, and option contracts to mitigate risks from volatile natural gas, oil, and NGL prices, typically hedging 30% to 70% of forecasted current year production for the next 12 to 36 months[111][112] Open Fixed Price Swap Positions as of Sep 30, 2023 | Commodity | Index | Daily Volume | Weighted Average Price | | :--------------------- | :---------------- | :----------- | :--------------------- | | Natural Gas (2024) | NYMEX Henry Hub | 324,973 MMBtu/d | $4.05/MMBtu | | Oil (2024) | NYMEX WTI | 500 Bbl/d | $77.50/Bbl | | NGL (2024) | Mont Belvieu C3 | 2,000 Bbl/d | $30.30/Bbl | Open Costless Collar Positions as of Sep 30, 2023 | Commodity | Index | Daily Volume | Weighted Average Floor Price | Weighted Average Ceiling Price | | :--------------------- | :---------------- | :----------- | :--------------------------- | :----------------------------- | | Natural Gas (2024) | NYMEX Henry Hub | 180,000 MMBtu/d | $3.43/MMBtu | $5.49/MMBtu | | Oil (2024) | NYMEX WTI | 1,000 Bbl/d | $62.00/Bbl | $80.00/Bbl | Total Commodity Derivative Position (in thousands USD) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------------- | :----------- | :----------- | | Total commodity derivative position | $64,426 | $(347,893) | - The company reported a net gain on natural gas, oil, and NGL derivatives of $39.4 million for the three months ended September 30, 2023 (compared to a net loss of $474.9 million in the prior year), and a net gain of $514.3 million for the nine months ended September 30, 2023 (compared to a net loss of $1,436.3 million in the prior year)[122][123] 11. Fair Value Measurements - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[127] Financial Assets and Liabilities by Valuation Level (in thousands USD) | Category | Sep 30, 2023 (Level 2) | Dec 31, 2022 (Level 2) | | :--------------------------------------- | :--------------------- | :--------------------- | | Derivative instruments (assets) | $169,393 | $114,033 | | Derivative instruments (liabilities) | $104,967 | $461,926 | - The fair value of derivative instruments is estimated using industry-standard models with observable market inputs, classifying them as Level 2[128] - The contingent consideration arrangement from the SCOOP water infrastructure sale is valued at $3.1 million (Level 3) as of September 30, 2023, based on unobservable inputs like future development and water production levels[129] 12. Revenue from Contracts with Customers - Revenues are primarily from natural gas, oil condensate, and NGL sales, recognized when control of the product is transferred to the customer, with variable consideration based on market indices[132] - Gathering, processing, compression, and transportation fees are presented as operating expenses[133] - Receivables from contracts with customers were $106.7 million at September 30, 2023, a decrease from $278.4 million at December 31, 2022[136] 13. Leases - The company has operating leases for equipment and drilling rigs, recognizing right-of-use assets and lease liabilities for terms greater than one year[138][139] Future Operating Lease Liabilities (in thousands USD) | Period | Amount | | :--------------------- | :----------- | | Remaining 2023 | $3,423 | | 2024 | $13,439 | | 2025 | $836 | | 2026 | $561 | | 2027 | $10 | | Total lease payments | $18,269 | Total Lease Cost (in thousands USD) | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total lease cost | $8,555 | $8,222 | $32,739 | $27,104 | - The weighted-average remaining lease term was 1.45 years, and the weighted-average discount rate was 6.71% as of September 30, 2023[143] 14. Income Taxes - For the nine months ended September 30, 2023, the company recorded an income tax benefit of $554.7 million, resulting in an effective tax rate of (83)%, primarily due to the partial release of the valuation allowance on deferred tax assets[145][146] - The company estimates a $701.5 million reduction in federal and $17.4 million reduction in state valuation allowance for deferred tax assets[146] - No income tax expense was recorded for the three or nine months ended September 30, 2022, due to a full valuation allowance against net deferred tax assets[146][186][202] 15. Related Party Transactions - Concurrent with a public offering on June 26, 2023, Gulfport purchased 215,060 common shares from Silver Point Capital, L.P. for approximately $20.4 million as part of its Repurchase Program[148] 16. Subsequent Events - On October 27, 2023, the company's semi-annual borrowing base redetermination reaffirmed the Credit Facility at $1.1 billion with elected commitments remaining at $900 million[149] Derivative Contracts Entered Subsequent to Sep 30, 2023 (as of Oct 26, 2023) | Period | Type | Index | Daily Volume | Weighted Average Price | | :--------------------- | :---------------- | :---------------- | :----------- | :--------------------- | | Natural Gas (2024) | Costless Collars | NYMEX Henry Hub | 45,000 MMBtu/d | $3.10 / $3.77 | | Natural Gas (2025) | Swaps | NYMEX Henry Hub | 40,000 MMBtu/d | $4.04 | | NGL (2025) | Swaps | Mont Belvieu C3 | 1,000 Bbl/d | $30.03 | Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations This section provides management's analysis of Gulfport's financial condition, operational results, liquidity, and performance factors, including strategy, developments, and financial comparisons Introduction - The MD&A section updates the financial condition discussion from the 2022 Form 10-K and analyzes changes in results of operations for the three and nine months ended September 30, 2023, compared to the same periods in 2022[151][152] Overview - Gulfport is a natural gas-weighted E&P company with assets in the Appalachia and Anadarko basins, primarily targeting Utica, Marcellus, SCOOP Woodford, and Springer formations[153] - The company's strategy focuses on safe, environmentally responsible asset development, generating sustainable cash flow, improving margins and operating efficiencies, and returning capital to shareholders[153] Recent Developments - John Reinhart was named CEO and Director in January 2023, and Michael Hodges became Executive Vice President and Chief Financial Officer in April 2023[154][155] - The Credit Facility was amended on May 1, 2023, increasing elected commitments to $900 million, borrowing base to $1.1 billion, and extending maturity to May 1, 2027[157] - The common stock Repurchase Program authorization was increased to $650 million and extended through December 31, 2024, on September 20, 2023[161] - Interest rates on the Credit Facility increased from 5.41% (Q3 2022) to 8.28% (Q3 2023) due to inflation, impacting the company's business strategy[162] 2023 Operational and Financial Highlights - Total net production: 1,056.9 MMcfe per day (Q3 2023)[165] - Drilled and completed a Marcellus two-well pad in Belmont County, Ohio[165] - Turned to sales: 5 gross (4.87 net) operated wells[165] - Generated $156.3 million of operating cash flows[165] - Repurchase Program authorization expanded to $650 million[165] - Repurchased 76,170 shares for $8.7 million at $113.97 per share[165] - Reaffirmed $1.1 billion borrowing base and $900 million elected commitment under Credit Facility[165] 2023 Production and Drilling Activity Production Volumes (MMcfe/day) | Area | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (YoY) | % Change (YoY) | | :--------------------- | :-------------------------- | :-------------------------- | :----------- | :------------- | | Utica | 811,985 | 615,649 | 196,336 | 31.9% | | SCOOP | 244,902 | 299,239 | (54,337) | -18.2% | | Total | 1,056,887 | 914,888 | 141,999 | 15.5% | | Area | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (YoY) | % Change (YoY) | | :--------------------- | :-------------------------- | :-------------------------- | :----------- | :------------- | | Utica | 773,512 | 682,611 | 90,901 | 13.3% | | SCOOP | 277,676 | 277,730 | (54) | 0.0% | | Total | 1,051,188 | 960,341 | 90,847 | 9.5% | - Total net production increased by 16% for the three months and 9% for the nine months ended September 30, 2023, primarily due to 2022 and 2023 development programs, with significant growth in Utica production[167][170] - In Q3 2023, five gross (4.99 net) wells were spud and five gross (4.87 net) operated wells commenced sales in the Utica, with no operated wells spud or commenced sales in the SCOOP during this period[170][171] Comparison of the Three Month Periods Ended September 30, 2023 and 2022 Production and Pricing (3 Months Ended Sep 30, 2023 vs 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :----------- | :----------- | :----------- | :------------- | | Natural gas sales (without derivatives) | $177,401 | $585,596 | $(408,195) | -69.7% | | Average natural gas price (without derivatives) | $1.99/Mcf | $7.80/Mcf | $(5.81) | -74.5% | | Oil and condensate sales (without derivatives) | $22,896 | $36,050 | $(13,154) | -36.5% | | Average oil price (without derivatives) | $77.90/Bbl | $89.75/Bbl | $(11.85) | -13.2% | | NGL sales (without derivatives) | $26,953 | $44,351 | $(17,398) | -39.2% | | Average NGL price (without derivatives) | $26.49/Bbl | $39.61/Bbl | $(13.12) | -33.1% | | Total sales (without derivatives) | $227,250 | $665,997 | $(438,747) | -65.9% | | Net gain (loss) on derivatives | $39,417 | $(474,895) | $514,312 | -108.3% | | Lease operating expenses ($/Mcfe) | $0.16 | $0.18 | $(0.02) | -11.1% | | Taxes other than income ($/Mcfe) | $0.07 | $0.20 | $(0.13) | -65.0% | | Transportation, gathering, processing and compression ($/Mcfe) | $0.89 | $1.06 | $(0.17) | -16.0% | | Depreciation, depletion and amortization ($/Mcfe) | $0.82 | $0.77 | $0.05 | 6.5% | | General and administrative expenses, net | $9,894 | $8,752 | $1,142 | 13.0% | | Interest expense | $14,919 | $15,461 | $(542) | -3.5% | - Natural gas sales decreased significantly due to a 75% decrease in realized prices, partially offset by a 19% increase in sales volumes; oil and NGL sales also decreased due to lower prices and volumes[176][177][178] - A substantial shift from a net loss to a net gain on derivatives was observed, primarily due to a decrease in futures pricing for oil, natural gas, and NGLs[179] - Per-unit lease operating expenses, taxes other than income, and transportation costs decreased, while depreciation, depletion, and amortization per Mcfe increased due to drilling and development activities[180][181][182][183] - General and administrative expenses increased due to higher employee headcount and compensation; interest expense decreased slightly, despite increased Credit Facility interest rates, due to capitalized interest[184][185] Comparison of the Nine Month Periods Ended September 30, 2023 and 2022 Production and Pricing (9 Months Ended Sep 30, 2023 vs 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :----------- | :----------- | :----------- | :------------- | | Natural gas sales (without derivatives) | $619,181 | $1,529,898 | $(910,717) | -59.5% | | Average natural gas price (without derivatives) | $2.38/Mcf | $6.47/Mcf | $(4.09) | -63.2% | | Oil and condensate sales (without derivatives) | $76,212 | $111,298 | $(35,086) | -31.5% | | Average oil price (without derivatives) | $73.21/Bbl | $96.42/Bbl | $(23.21) | -24.1% | | NGL sales (without derivatives) | $92,935 | $143,741 | $(50,806) | -35.3% | | Average NGL price (without derivatives) | $27.48/Bbl | $45.68/Bbl | $(18.20) | -39.8% | | Total sales (without derivatives) | $788,328 | $1,784,937 | $(996,609) | -55.8% | | Net gain (loss) on derivatives | $514,266 | $(1,436,317) | $1,950,583 | -135.8% | | Lease operating expenses ($/Mcfe) | $0.18 | $0.18 | $0.00 | 0.0% | | Taxes other than income ($/Mcfe) | $0.09 | $0.17 | $(0.08) | -47.1% | | Transportation, gathering, processing and compression ($/Mcfe) | $0.91 | $1.00 | $(0.09) | -9.0% | | Depreciation, depletion and amortization ($/Mcfe) | $0.83 | $0.72 | $0.11 | 15.3% | | General and administrative expenses, net | $27,238 | $24,128 | $3,110 | 12.9% | | Restructuring costs | $4,762 | — | $4,762 | N/A | | Interest expense | $42,402 | $43,679 | $(1,277) | -2.9% | | Other, net | $(20,492) | $(11,385) | $(9,107) | 80.0% | - Total sales without derivatives decreased by 56% due to significant declines in realized prices across all commodities, despite a 10% increase in natural gas sales volumes and a 7% increase in NGL sales volumes[189][190][191] - A substantial positive swing in net gain on derivative instruments (from a $1.4 billion loss to a $514.3 million gain) was the primary driver of the overall revenue increase, reflecting decreased futures pricing[192] - Per-unit lease operating expenses remained flat, while taxes other than income and transportation costs decreased; depreciation, depletion, and amortization per Mcfe increased by 15% due to drilling and development activities[193][194][195][196] - General and administrative expenses increased by 13% due to higher headcount, compensation, and legal expenses; restructuring costs of $4.8 million were recognized in 2023[197][198] - Other, net income increased significantly, primarily due to a $17.8 million TC claim distribution and a $5.0 million recoupment of collateral[200] Liquidity and Capital Resources - Gulfport aims to maintain sufficient liquidity through operating cash flows, cash on hand, and Credit Facility borrowings to fund development projects, operations, capital expenditures, and share repurchases[204][206] Liquidity Position (in millions USD) | Metric | Sep 30, 2023 | Oct 26, 2023 | | :--------------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $8.3 | $8.8 | | Borrowings under Credit Facility | $95.0 | $59.0 | | Letters of credit outstanding | $66.9 | $60.9 | | Outstanding 2026 Senior Notes | $550.0 | $550.0 | | Total principal amount of funded debt | $645.0 | $609.0 | - The Credit Facility's borrowing base was reaffirmed at $1.1 billion with $900 million in elected commitments on October 27, 2023[213] - Capital expenditures for the nine months ended September 30, 2023, totaled $385.5 million, including $319.2 million for drilling and completion, $41.4 million for maintenance leasehold, and $24.9 million for discretionary acreage acquisitions[221] - Projected 2023 capital expenditures are $385-$395 million for drilling and completion, $50-$60 million for maintenance leasehold, and $40 million for discretionary acreage acquisitions, aiming for 1,045-1,055 MMcfe/day production[222][223] Sources and Uses of Cash (in thousands USD) | Category | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $567,680 | $551,082 | | Additions to oil and natural gas properties | $(421,132) | $(331,994) | | Debt activity, net | $(50,000) | $15,000 | | Repurchases of common stock | $(82,757) | $(225,791) | | Preferred stock dividends | $(3,718) | $(4,136) | | Net change in cash and cash equivalents | $1,066 | $5,027 | - Off-balance sheet arrangements include $66.9 million in letters of credit and $37.5 million in surety bonds, primarily for firm transportation agreements, and commitments to purchase $19.8 million in materials for 2023 and $23.5 million for 2024[231] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Gulfport's market risk exposure, mainly commodity price and interest rate volatility, and its mitigation strategies using derivative instruments Natural Gas, Oil and Natural Gas Liquids Derivative Instruments - Gulfport uses derivative instruments (swaps, options, costless collars, basis swaps) to mitigate exposure to volatile natural gas, oil, and NGL prices, aiming to protect short-term cash flow and achieve risk management objectives[234][236][240] - The company does not enter into derivative contracts for speculative purposes and continuously reviews and adjusts positions based on market conditions[112][238] - As of September 30, 2023, the company had a net asset derivative position of $64.4 million, a significant shift from a net liability position of $347.9 million at December 31, 2022[241] - A hypothetical 10% increase in underlying commodity prices would increase derivative liabilities by approximately $112.8 million, while a 10% decrease would decrease liabilities by $109.5 million, with realized derivative gains/losses largely offset by changes in actual sales value[241] Interest Rate Risk - The Credit Facility has floating interest rates, making interest expense sensitive to fluctuations in prime rates or term benchmark rates[242] - As of September 30, 2023, $95.0 million was outstanding under the Credit Facility, bearing a weighted average interest rate of 8.05% for the nine months ended September 30, 2023[242] - The company did not have any interest rate swaps to hedge interest rate risks as of September 30, 2023[242] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of September 30, 2023, with no material changes in internal control over financial reporting Evaluation of Disclosure Control and Procedures - As of September 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective in ensuring timely and accurate reporting of information required by the Exchange Act[243][244] - Management acknowledges that control systems provide only reasonable, not absolute, assurance due to inherent limitations and judgments in design[245] Changes in Internal Control over Financial Reporting - There have been no material changes in internal control over financial reporting during the last fiscal quarter[246] PART II OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 9 of the consolidated financial statements for details on legal proceedings and business-related disputes - Information regarding legal proceedings is detailed in Note 9 of the consolidated financial statements[249] Item 1A. Risk Factors This section directs readers to the Annual Report on Form 10-K for a comprehensive discussion of risk factors that could materially affect the company's business and financial performance - Risk factors that could materially adversely affect the business are described in Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022, and elsewhere in this Form 10-Q[250] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the company's common stock repurchase activity for the three months ended September 30, 2023, under its authorized program Unregistered Sales of Equity Securities - There were no unregistered sales of equity securities during the period[251] Issuer Repurchases of Equity Securities Common Stock Repurchase Activity (3 Months Ended Sep 30, 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Maximum Dollar Value Remaining | | :--------------------- | :------------------------------- | :--------------------------- | :----------------------------------------- | | July 1 - July 31 | 8,709 | $106.40 | $75,000,000 | | August 1 - August 31 | 44,323 | $111.94 | $70,463,000 | | September 1 - September 30 | 36,078 | $116.53 | $316,319,000 | | Total | 89,110 | $113.26 | | - The Board of Directors increased the authorized stock repurchase program to $650 million in September 2023, extending through December 31, 2024, with approximately $316.3 million remaining available for repurchase as of September 30, 2023[253] - Repurchases included shares to satisfy tax withholding requirements upon vesting of restricted stock unit awards[252] Item 3. Defaults Upon Senior Securities This section confirms no defaults occurred on senior securities during the reporting period - No defaults upon senior securities were reported[254] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to Gulfport Energy Corporation[255] Item 5. Other Information This section provides additional information, specifically concerning trading arrangements by officers and directors Trading Arrangements - None of the company's officers or directors adopted or terminated any Rule 10b5-1(c) trading arrangements during the three months ended September 30, 2023[256] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2), XBRL instance and taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE), and the cover page interactive data file (104)[260] Signatures This section contains the required signatures for the Form 10-Q, confirming its submission on behalf of Gulfport Energy Corporation - The report was signed by Michael Hodges, Chief Financial Officer, on November 1, 2023, in accordance with Section 13 or 15(d) of the Exchange Act[262][263]