Gulfport Energy(GPOR) - 2021 Q2 - Quarterly Report

FORM 10-Q Cover Page Presents Gulfport Energy Corporation's Q2 2021 Form 10-Q cover page, detailing filing status and registrant information - Gulfport Energy Corporation filed a Quarterly Report on Form 10-Q for the period ended June 30, 2021[1] Registrant Information | Field | Value | | :--- | :--- | | Exact Name | Gulfport Energy Corporation | | State of Incorporation | Delaware | | IRS Employer ID | 86-3684669 | | Principal Executive Offices | 3001 Quail Springs Parkway, Oklahoma City, Oklahoma 73134 | | Telephone Number | (405) 252-4600 | | Trading Symbol | GPOR | | Exchange | The New York Stock Exchange | | Common Stock Outstanding (July 29, 2021) | 20,585,599 shares | Table of Contents Outlines the Form 10-Q's structure, including financial statements, MD&A, market risk, and controls and procedures - The report is divided into two main parts: Part I (Financial Information) and Part II (Other Information)[5] - Key financial statements and notes are located in Part I, Item 1, starting on page 4[5] - Management's Discussion and Analysis of Financial Conditions and Results of Operations is in Part I, Item 2, starting on page 46[5] DEFINITIONS Provides a glossary of abbreviations and terms used in the Form 10-Q, clarifying company, monetary, and industry-specific definitions - References to 'us,' 'we,' 'our,' 'ours,' 'Gulfport,' the 'Company' and 'Registrant' refer to Gulfport Energy Corporation and its consolidated subsidiaries[8] - All monetary values, other than per unit and per share amounts, are stated in thousands of U.S. dollars unless otherwise specified[8] - Key terms defined include those related to the company's bankruptcy proceedings (e.g., Bankruptcy Code, Emergence Date, Plan, Restructuring) and oil and gas industry metrics (e.g., Bbl, Mcf, MMBtu, NGL, SCOOP, Utica)[9][11][14][17][18][20][21][22][23] PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) Presents Gulfport's unaudited consolidated financial statements and notes, detailing Chapter 11 emergence and fresh start accounting Consolidated Balance Sheets Reflects significant asset and liability decreases for the Successor period, driven by Chapter 11 reorganization and fresh start accounting Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 (Successor) | December 31, 2020 (Predecessor) | | :--- | :--- | :--- | | Total Assets | $2,066,188 | $2,539,871 | | Total Liabilities | $1,557,238 | $2,840,371 | | Total Stockholders' Equity (Deficit) | $453,090 | $(300,500) | | Cash and Cash Equivalents | $9,389 | $89,861 | | Property and Equipment, net | $1,818,731 | $2,086,269 | | Liabilities Subject to Compromise | $0 | $2,293,480 | - The company emerged from Chapter 11, leading to a revaluation of assets and liabilities under fresh start accounting, and the cancellation of Predecessor common stock and issuance of New Common Stock and Preferred Stock[29][45][66][67] Consolidated Statements of Operations Reflects Chapter 11 impact, showing Successor net loss from derivatives and impairment, contrasting with Predecessor net income Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Successor (May 18 - Jun 30, 2021) | Predecessor (Apr 1 - May 17, 2021) | Predecessor (Jan 1 - May 17, 2021) | Predecessor (Apr 1 - Jun 30, 2020) | Predecessor (Jan 1 - Jun 30, 2020) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $5,724 | $25,679 | $273,037 | $186,301 | $485,639 | | Total Operating Expenses | $207,467 | $94,194 | $290,695 | $742,051 | $1,521,476 | | Net (Loss) Income | $(209,586) | $242,214 | $250,996 | $(561,068) | $(1,078,606) | | Net (Loss) Income Attributable to Common Stockholders | $(210,617) | $242,214 | $250,996 | $(561,068) | $(1,078,606) | | Basic EPS | $(10.36) | $1.51 | $1.56 | $(3.51) | $(6.75) | - Net loss in the Successor Period was significantly impacted by net losses on natural gas, oil, and NGL derivatives ($139.7 million) and impairment of oil and natural gas properties ($117.8 million)[31] - The Predecessor periods show substantial reorganization items, net, contributing to income in the Current Predecessor Quarter ($305.6 million) and YTD Period ($266.9 million)[31][34] Consolidated Statements of Comprehensive Income (Loss) Shows Successor comprehensive loss equal to net loss, with Predecessor periods also reporting losses and minor foreign currency impact Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Successor (May 18 - Jun 30, 2021) | Predecessor (Apr 1 - May 17, 2021) | Predecessor (Jan 1 - May 17, 2021) | Predecessor (Jun 30, 2020) | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(209,586) | $242,214 | $250,996 | $(561,068) | | Foreign currency translation adjustment | $0 | $0 | $0 | $6,872 | | Comprehensive income (loss) | $(209,586) | $242,214 | $250,996 | $(554,196) | Consolidated Statements of Stockholders' Equity (Deficit) Illustrates Chapter 11 impact, with Predecessor equity cancellation and new equity issuance, transforming deficit to positive equity Stockholders' Equity (Deficit) Evolution (in thousands) | Metric | Balance at Jan 1, 2021 (Predecessor) | Balance at May 17, 2021 (Predecessor) | Balance at May 18, 2021 (Successor) | Balance at Jun 30, 2021 (Successor) | | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity (Deficit) | $(300,500) | $639,667 | $639,667 | $453,090 | | Predecessor Common Stock | $1,607 | $2 | $2 | $2 | | New Common Stock | $0 | $2 | $2 | $2 | | Additional Paid-in Capital | $4,213,752 | $693,774 | $693,774 | $693,921 | | Accumulated Deficit | $(4,472,859) | $0 | $0 | $(210,617) | | New Preferred Stock | $0 | $55,000 | $55,000 | $55,860 | - The cancellation of Predecessor Equity and issuance of New Common Stock and Preferred Stock on May 17, 2021, significantly altered the equity structure, moving from a deficit to positive equity[40] Consolidated Statements of Cash Flows Operating activities generated positive cash flow, with significant investing cash use and financing impacted by Chapter 11 reorganization Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Successor (May 18 - Jun 30, 2021) | Predecessor (Jan 1 - May 17, 2021) | Predecessor (Jan 1 - Jun 30, 2020) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $38,365 | $172,155 | $247,222 | | Net cash used in investing activities | $(40,276) | $(97,831) | $(230,090) | | Net cash used in financing activities | $(18,982) | $(104,768) | $(20,375) | | Net decrease in cash, cash equivalents and restricted cash | $(20,893) | $(30,444) | $(3,243) | | Cash, cash equivalents and restricted cash at end of period | $38,524 | $59,417 | $2,817 | - Operating cash flow decreased from $247.2 million in H1 2020 to $210.5 million (combined Successor and Predecessor H1 2021), primarily due to reorganization items[42][292] - Financing activities in 2021 included significant borrowings ($113.2 million Successor, $302.8 million Predecessor) and principal payments on the Exit Credit Facility ($131.0 million Successor) and DIP Credit Facility ($157.5 million Predecessor)[42] Notes to Consolidated Financial Statements Provides detailed explanations for financial statements, covering basis, Chapter 11 impact, debt, equity, and critical accounting policies Note 1. BASIS OF PRESENTATION Details Gulfport's identity, Chapter 11 reorganization, and fresh start accounting, distinguishing 'Successor' and 'Predecessor' periods - Gulfport Energy Corporation is an independent natural gas-weighted exploration and production company with assets in the Appalachia and Anadarko basins[45] - The company filed for Chapter 11 bankruptcy on November 13, 2020, and emerged on May 17, 2021, leading to the adoption of fresh start accounting[45][49][50] - Financial statements distinguish between 'Successor' (post-May 17, 2021) and 'Predecessor' (on or prior to May 17, 2021) periods, with fresh start accounting making post-emergence statements not comparable to prior periods[45][47][67] - The company early adopted ASU No. 2020-06, simplifying accounting for convertible instruments, effective on the Emergence Date[58][59] Note 2. CHAPTER 11 EMERGENCE Outlines significant transactions upon Chapter 11 emergence, including old stock cancellation, new equity/debt, and new Board composition - On May 17, 2021, all Predecessor common stock was cancelled, and 19,845,780 shares of New Common Stock and 55,000 shares of New Preferred Stock were issued[62] - All outstanding obligations under the Predecessor Senior Notes were cancelled[62] - The company entered into a new Exit Credit Agreement, providing for a $1.5 billion Exit Facility and a $180 million First-Out Term Loan Facility, with an initial borrowing base of up to $580 million[62] - Issued up to $550 million aggregate principal amount of 8.000% senior notes due 2026 (Successor Senior Notes)[62] - The post-emergence Board of Directors is comprised of five directors, including the Interim CEO, Timothy Cutt[64] Note 3. FRESH START ACCOUNTING Explains fresh start accounting post-Chapter 11, revaluing assets/liabilities to fair value, with reorganization value at $2.3 billion - Gulfport qualified for and applied fresh start accounting on May 17, 2021, because existing voting shareholders received less than 50% of new equity and reorganization value ($2.3 billion) was less than post-petition liabilities ($3.1 billion)[66] - The enterprise value of the Successor was estimated at $1.6 billion, leading to a reorganization value of Successor assets of $2.25 billion[68][69][71] - Significant fair value adjustments were made to oil and natural gas properties (reduced by $9.04 billion in total property and equipment, net), derivative instruments, and equity investments (Grizzly investment reduced by $27 million)[71][72][75][76][79] Reorganization Items, Net (in thousands) | Item | Predecessor (Apr 1 - May 17, 2021) | Predecessor (Jan 1 - May 17, 2021) | | :--- | :--- | :--- | | Legal and professional advisory fees | $(40,782) | $(81,565) | | Net gain on liabilities subject to compromise | $571,032 | $575,182 | | Fresh start adjustments, net | $(160,756) | $(160,756) | | Total reorganization items, net | $305,617 | $266,898 | Note 4. PROPERTY AND EQUIPMENT Details property and equipment, primarily oil/gas, highlighting a $117.8 million impairment charge and asset retirement obligations Property and Equipment, Net (in thousands) | Category | June 30, 2021 (Successor) | December 31, 2020 (Predecessor) | | :--- | :--- | :--- | | Proved oil and natural gas properties | $1,737,778 | $9,359,866 | | Unproved properties | $224,214 | $1,457,043 | | Total property and equipment, net | $1,818,731 | $2,086,269 | | Accumulated DD&A and impairment | $(150,175) | $(8,819,178) | - A $117.8 million impairment of oil and natural gas properties was recorded for the Successor Period (ended June 30, 2021) due to the ceiling test, following $532.9 million and $1.1 billion impairments in prior Predecessor periods[91] - Unevaluated properties at June 30, 2021, totaled $224.2 million, primarily in Utica ($186.0 million) and SCOOP ($38.2 million)[94] Asset Retirement Obligation (in thousands) | Item | Amount | | :--- | :--- | | Asset retirement obligation at Jan 1, 2021 (Predecessor) | $63,560 | | Fresh start adjustments | $(46,257) | | Asset retirement obligation at May 18, 2021 (Successor) | $19,084 | | Asset retirement obligation at Jun 30, 2021 | $19,347 | Note 5. LONG-TERM DEBT Details Gulfport's post-Chapter 11 long-term debt, including Exit Credit Facility and Successor Senior Notes, outlining terms and rates Long-Term Debt Structure (in thousands) | Debt Instrument | June 30, 2021 (Successor) | December 31, 2020 (Predecessor) | | :--- | :--- | :--- | | Exit Facility | $105,000 | $0 | | First-Out Term Loan | $180,000 | $0 | | 8.000% senior unsecured notes due 2026 | $550,000 | $0 | | DIP Credit Facility | $0 | $157,500 | | Pre-petition revolving credit facility | $0 | $292,910 | | Predecessor Senior Notes (various) | $0 | $1,786,688 | | Total Debt | $833,847 | $2,258,962 | - The Exit Credit Facility has an initial borrowing base of $580 million, matures on May 17, 2024, and includes a $150 million sublimit for letters of credit and a $40 million availability blocker[99][100][101] - The Exit Facility bore interest at a weighted average rate of 4.50% and the First-Out Term Loan at 5.50% as of June 30, 2021[102] - The company issued $550 million aggregate principal amount of 8.000% senior notes due 2026, payable semi-annually[109][111] - Predecessor Senior Notes and the Building Loan were cancelled upon emergence from bankruptcy[119][120] Note 6. EQUITY Details Gulfport's equity changes post-Chapter 11, including Predecessor stock cancellation, new common/preferred stock issuance, and preferred terms - On the Emergence Date, all Predecessor common stock was cancelled, and approximately 19.8 million shares of New Common Stock and 55,000 shares of New Preferred Stock were issued[124][125] - New Preferred Stock holders are entitled to cumulative quarterly dividends at 10% per annum (cash) or 15% per annum (PIK Dividends), with PIK dividends mandatory if the Total Net Funded Debt to EBITDAX ratio is 1.50 or greater[126] - Preferred Stock has conversion rights into common stock at the holder's option and redemption rights for Gulfport under certain conditions[127][128][129] - On June 30, 2021, dividends on New Preferred Stock included 1,006 shares paid in kind and $25 thousand cash-in-lieu of fractional shares[131] Note 7. STOCK-BASED COMPENSATION Explains Chapter 11 impact on stock-based compensation, with Predecessor awards cancelled and a new Incentive Plan adopted - All Predecessor stock-based compensation awards were cancelled upon emergence, resulting in the recognition of $4.4 million in previously unamortized expense[132] - The company adopted the Gulfport Energy Corporation 2021 Stock Incentive Plan, reserving 2,828,123 shares of New Common Stock for future awards, with no grants made as of June 30, 2021[133] Predecessor Stock-Based Compensation Costs (in thousands) | Period | Stock-Based Compensation Cost | Capitalized Amount | | :--- | :--- | :--- | | Current Predecessor Quarter | $1,500 | $300 | | Current Predecessor YTD Period | $4,400 | $900 | | Prior Predecessor Quarter | $2,200 | $1,000 | | Prior Predecessor YTD Period | $4,300 | $1,900 | Note 8. EARNINGS (LOSS) PER SHARE Details EPS calculation, highlighting New Preferred Stock as participating securities and anti-dilutive effect during net loss periods - Basic EPS for the Successor Period was $(10.36), while for the Current Predecessor Quarter and YTD Period, it was $1.51 and $1.56, respectively[31][34][141] - New Preferred Stock is considered a participating security but does not participate in undistributed net losses[141] - Potential common shares from convertible New Preferred Stock (4.0 million shares) and unvested restricted stock (1.3-1.6 million shares) were anti-dilutive during periods of net loss[140] Note 9. COMMITMENTS AND CONTINGENCIES Outlines Gulfport's significant commitments, including firm transportation and sales contracts, and various contingencies like litigation Future Firm Transportation and Gathering Commitments (in thousands) | Period | Amount | | :--- | :--- | | Remaining 2021 | $112,881 | | 2022 | $226,544 | | 2023 | $224,737 | | 2024 | $217,873 | | 2025 | $139,124 | | Thereafter | $1,013,822 | | Total | $1,934,981 | Future Firm Sales Commitments (MMBtu per day) | Period | Volume | | :--- | :--- | | Remaining 2021 | 16,000 | | 2022 | 4,000 | | 2023-Thereafter | 0 | - The company is litigating motions to reject certain firm transportation agreements, with potential liability exceeding $80 million if not granted[148] - Ongoing litigation includes environmental claims in Louisiana, a derivative action related to Mammoth Energy, a federal securities class action, and breach of contract claims with Stingray Pressure Pumping LLC and Muskie[149][150][151][152][153] Note 10. DERIVATIVE INSTRUMENTS Details Gulfport's use of derivative instruments to mitigate commodity price volatility, presenting fair values and a significant net liability - Gulfport uses fixed price swaps, sold call options, costless collars, and basis swaps to manage commodity price volatility for natural gas, oil, and NGL[160][161][162][164][166] Summary of Open Fixed Price Swap Positions (as of June 30, 2021) | Commodity | Location | Daily Volume | Weighted Average Price | | :--- | :--- | :--- | :--- | | Natural Gas (MMBtu/day) | NYMEX Henry Hub | 221,500 (2021), 80,411 (2022) | $2.79 (2021), $2.80 (2022) | | Oil (Bbl/day) | NYMEX WTI | 3,250 (2021), 1,000 (2022) | $57.35 (2021), $67.00 (2022) | | NGL (Bbl/day) | Mont Belvieu C3 | 3,100 (2021), 496 (2022) | $27.80 (2021), $27.30 (2022) | Fair Value of Derivative Instruments (in thousands) | Category | June 30, 2021 (Successor) | December 31, 2020 (Predecessor) | | :--- | :--- | :--- | | Short-term derivative asset | $2,223 | $27,146 | | Long-term derivative asset | $3,014 | $322 | | Short-term derivative liability | $(192,730) | $(11,641) | | Long-term derivative liability | $(113,470) | $(36,604) | | Total commodity derivative position | $(300,963) | $(20,777) | - The company had a net liability derivative position of $301.0 million at June 30, 2021, compared to a net asset position of $3.3 million at June 30, 2020[170][174][318] Note 11. FAIR VALUE MEASUREMENTS Describes Gulfport's fair value measurements, categorizing assets/liabilities into Level 1, 2, or 3 inputs, with derivatives primarily Level 2 - Fair value measurements are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[177] Fair Value of Financial Instruments (in thousands) | Category | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | | Assets (June 30, 2021): | | | | | Derivative Instruments | $0 | $5,237 | $0 | | Contingent consideration arrangement | $0 | $0 | $6,500 | | Liabilities (June 30, 2021): | | | | | Derivative Instruments | $0 | $306,200 | $0 | - The fair value of the contingent consideration arrangement ($6.5 million at June 30, 2021) is calculated using discounted cash flow techniques with Level 3 inputs[179] - Fresh start accounting adjustments for oil and natural gas properties and asset retirement obligations involved significant Level 3 unobservable inputs, such as future production estimates, commodity prices, and discount rates[183] Note 12. REVENUE FROM CONTRACTS WITH CUSTOMERS Outlines Gulfport's revenue recognition policies for natural gas, oil, and NGL sales, recognized upon transfer of control - Revenue from natural gas, oil, and NGL sales is recognized when control of the product is transferred to the customer, typically based on market indices and volumes delivered[184][185] - Gathering, processing, and compression fees are presented as operating expenses, not deductions from revenue[186] - Receivables from contracts with customers were $140.7 million at June 30, 2021, and $119.9 million at December 31, 2020[189] Note 13. EQUITY INVESTMENTS Details Gulfport's equity investments, including a 24.5% interest in Grizzly Oil Sands ULC, reduced to zero post-emergence - Gulfport owns an approximate 24.5% interest in Grizzly Oil Sands ULC, which was reduced to zero upon the Emergence Date due to suspended operations and no anticipated future funding[195][197] - The investment in Mammoth Energy Services, Inc. was reduced to zero in Q1 2020 and its shares were used to settle Class 4A claims upon emergence[198] Summarized Financial Information for Equity Investments (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Current assets | $462,478 | $483,300 | | Noncurrent assets | $1,079,557 | $1,092,490 | | Current liabilities | $125,359 | $132,970 | | Noncurrent liabilities | $124,628 | $148,240 | | Gross revenue (Q2 2021) | $66,805 | $60,109 (Q2 2020) | | Net loss (Q2 2021) | $(13,606) | $(14,922) (Q2 2020) | Note 14. LEASES Describes Gulfport's operating leases for equipment and offices, recognizing right-of-use assets and lease liabilities - Gulfport has operating leases for equipment and field offices, recognizing right-of-use assets and lease liabilities for leases over one year[199][201] Maturities of Operating Lease Liabilities (in thousands, as of June 30, 2021) | Period | Amount | | :--- | :--- | | Remaining 2021 | $20 | | 2022 | $25 | | Total lease payments | $45 | | Less: Imputed interest | $(1) | | Total | $44 | - The weighted-average remaining lease term was 1.14 years, and the weighted-average discount rate was 3.98% as of June 30, 2021[204] - Total lease cost for the Successor Period was $2.168 million, with the majority capitalized to the full cost pool[204] Note 15. INCOME TAXES Explains Chapter 11 impact on income taxes, including $708.8 million CODI reducing NOLs, and a full valuation allowance on deferred tax assets - The Chapter 11 emergence resulted in approximately $708.8 million in Cancellation of Indebtedness Income (CODI), which will reduce the company's net operating losses[205] - As of June 30, 2021, Gulfport had an estimated federal net operating loss carryforward of approximately $1.1 billion after CODI reduction[205] - A full valuation allowance was deemed necessary against net deferred tax assets as of May 17, 2021, and June 30, 2021, leading to a 0% effective tax rate and no income tax expense for the Successor Period[207][209] - The company expects to apply IRC Section 382(l)(5) rules to mitigate limitations on its remaining tax attributes, but future ownership changes could further limit their realization[206] Note 16. SUBSEQUENT EVENTS Discloses natural gas and oil derivative contracts entered into by Gulfport subsequent to June 30, 2021 Natural Gas and Oil Derivative Contracts Entered After June 30, 2021 (as of July 31, 2021) | Commodity | Type of Derivative Instrument | Index | Daily Volume | Weighted Average Price | | :--- | :--- | :--- | :--- | :--- | | Natural Gas (MMBtu/day) | Fixed price swap | NYMEX Henry Hub | 80,073 (Apr-Dec 2022), 20,000 (Jan-Mar 2023) | $2.99 (2022), $3.13 (2023) | | Oil (Bbl/day) | Fixed price swap | NYMEX WTI | 1,104 (Jan-Dec 2022) | $65.54 (2022) | Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations Management's perspective on Gulfport's financial condition, operations, and liquidity, emphasizing Chapter 11 emergence and fresh start accounting Introduction Overview of Gulfport's business, strategy for sustainable cash flow, and reporting approach for combined Predecessor and Successor periods - Gulfport is an independent natural gas-weighted exploration and production company with assets primarily in the Appalachia (Utica formation) and Anadarko (SCOOP Woodford and Springer formations) basins[213] - The company's strategy focuses on developing assets to generate sustainable cash flow, improve margins and operating efficiencies, and enhance ESG and safety performance[213] - Management combines Successor and Predecessor period results for the three and six months ended June 30, 2021, to provide a more meaningful comparison and understand operational trends, despite GAAP requiring separate reporting[214] Recent Developments Highlights Gulfport's Chapter 11 emergence, $1.4 billion debt reduction, executive changes, and ongoing COVID-19 uncertainties - Gulfport emerged from Chapter 11 bankruptcy on May 17, 2021, reducing total indebtedness by $1.4 billion through equity issuance to unsecured noteholders and claimants[215][217][218] - Timothy Cutt was appointed Interim Chief Executive Officer and Chair of the Board, and William Buese was appointed Chief Financial Officer on May 17, 2021[219][220][221] - The COVID-19 pandemic continues to pose uncertainties regarding its impact on business operations, cash flows, liquidity, and commodity markets, despite no significant disruptions in H1 2021[221][222] 2021 Operational and Financial Highlights Gulfport achieved operational efficiencies and cost reductions, including 3% Utica spud-to-rig time improvement and 13% lease operating expense decrease - Emergence from Chapter 11 proceedings was a key achievement[223] - Operational efficiencies improved, with average spud-to-rig release time in Utica at 18.1 days, a 3% improvement from full year 2020[223] - Lease operating expenses per Mcfe decreased by 13% for the Current Combined Quarter compared to the Prior Predecessor Quarter due to cost reduction initiatives[223] 2021 Production and Drilling Activity Total net production decreased by 4-5% due to reduced development, aligning with sustainable free cash flow; drilling activity detailed Total Net Production Volumes (MMcfe/day) | Period | Current Combined Quarter (2021) | Prior Predecessor Quarter (2020) | Current Combined YTD Period (2021) | Prior Predecessor YTD Period (2020) | | :--- | :--- | :--- | :--- | :--- | | Total | 989,053 | 1,027,060 | 985,909 | 1,040,430 | | Change YoY | -4% | - | -5% | - | - The decrease in production is attributed to reduced development activities in 2020 and H1 2021, aligning with the strategy to generate sustainable free cash flow[224][226] - In the Utica, 10 gross and net wells were spud and 9 completed during the Current Combined YTD Period; in the SCOOP, 2 gross (1.97 net) wells were spud and 11 gross (9.3 net) completed[227][228] - As of July 31, 2021, Gulfport had no operated drilling rigs in Utica but expected to add one in Q3 2021; one rig was running in SCOOP, expected to continue through 2021[227][228] RESULTS OF OPERATIONS Analyzes Gulfport's financial performance, comparing Successor and Predecessor periods, focusing on production, pricing, and operating expenses Successor Period and Current Predecessor Quarter Compared to Prior Predecessor Quarter Compares Q2 2021 to Q2 2020, showing significant increases in realized commodity prices, offset by production decreases and derivative losses Average Commodity Prices (without derivatives) | Commodity | Combined Current Quarter (Q2 2021) | Prior Predecessor Quarter (Q2 2020) | Change | | :--- | :--- | :--- | :--- | | Natural Gas ($/Mcf) | $2.71 | $1.66 | +63.25% | | Oil and Condensate ($/Bbl) | $62.95 | $20.14 | +212.56% | | NGL ($/Bbl) | $29.89 | $10.29 | +190.48% | Net (Loss) Gains on Derivatives (in thousands) | Derivative Type | Combined Current Quarter (Q2 2021) | Prior Predecessor Quarter (Q2 2020) | | :--- | :--- | :--- | | Natural gas derivatives | $(227,982) | $35,689 | | Oil and condensate derivatives | $(9,752) | $(7,937) | | NGL derivatives | $(9,185) | $(781) | | Total | $(246,919) | $26,971 | Key Operating Expenses per Mcfe | Expense Category | Combined Current Quarter (Q2 2021) | Prior Predecessor Quarter (Q2 2020) | Change | | :--- | :--- | :--- | :--- | | Lease operating expenses | $0.12 | $0.14 | -14.29% | | Taxes other than income | $0.10 | $0.07 | +42.86% | | Transportation, gathering, processing and compression | $1.07 | $1.22 | -12.29% | - General and administrative expenses increased in Q2 2021 due to legal and professional fees associated with restructuring, now presented in G&A post-emergence[246] - Interest expense decreased in the Current Predecessor Quarter due to the cessation of interest accrual on borrowings subject to compromise[247] Successor Period and Current Predecessor YTD Period Compared to Prior Predecessor YTD Period Compares H1 2021 to H1 2020, showing substantial increases in realized commodity prices despite production decreases, and derivative losses Average Commodity Prices (without derivatives) | Commodity | Current Combined YTD Period (H1 2021) | Prior Predecessor YTD Period (H1 2020) | Change | | :--- | :--- | :--- | :--- | | Natural Gas ($/Mcf) | $2.79 | $1.76 | +58.52% | | Oil and Condensate ($/Bbl) | $58.66 | $33.26 | +76.37% | | NGL ($/Bbl) | $30.54 | $12.92 | +136.38% | Net (Loss) Gains on Derivatives (in thousands) | Derivative Type | Current Combined YTD Period (H1 2021) | Prior Predecessor YTD Period (H1 2020) | | :--- | :--- | :--- | | Natural gas derivatives | $(253,395) | $81,542 | | Oil and condensate derivatives | $(11,483) | $44,937 | | NGL derivatives | $(12,019) | $139 | | Total | $(276,897) | $125,237 | Key Operating Expenses per Mcfe | Expense Category | Current Combined YTD Period (H1 2021) | Prior Predecessor YTD Period (H1 2020) | Change | | :--- | :--- | :--- | :--- | | Lease operating expenses | $0.13 | $0.15 | -13.33% | | Taxes other than income | $0.10 | $0.07 | +42.86% | | Transportation, gathering, processing and compression | $1.13 | $1.18 | -4.24% | - Impairment of oil and gas properties was $117.8 million in the Successor Period (H1 2021) compared to $1.1 billion in Prior Predecessor YTD Period (H1 2020)[264] - General and administrative expenses decreased in H1 2021 due to cost reduction focus and lower non-recurring legal/consulting expenses[266] Liquidity and Capital Resources Details Gulfport's post-emergence liquidity and capital resources, including new debt structure, capital expenditure plans, and cash flow - As of August 2, 2021, Gulfport had available liquidity of $161.9 million[276] - Total principal amount of funded debt as of June 30, 2021, was $835.0 million, comprising $105.0 million from Exit Facility, $180.0 million from First-Out Term Loan, and $550 million from Successor Senior Notes[276] - Capital expenditures for 2021 are estimated at $270 million to $290 million for drilling and completion, plus $20 million for non-D&C expenses[290] - Net cash flow from operating activities was $38.4 million for the Successor Period and $172.2 million for the Current Predecessor YTD Period, a decrease from $247.2 million in the Prior Predecessor YTD Period, primarily due to reorganization items[292] - Off-balance sheet arrangements include $114.8 million in letters of credit and $90.7 million in surety bonds outstanding as of June 30, 2021[298] Critical Accounting Policies and Estimates No significant changes in Gulfport's critical accounting policies and estimates as of June 30, 2021, compared to its 2020 Annual Report on Form 10-K - No significant changes in critical accounting policies and estimates as of June 30, 2021, compared to the 2020 Annual Report on Form 10-K[300] Cautionary Note Regarding Forward-Looking Statements Cautionary note on forward-looking statements in Form 10-Q, emphasizing risks and uncertainties that could cause actual results to differ - The Form 10-Q contains forward-looking statements subject to known and unknown risks and uncertainties[302] - Actual results may differ materially from anticipated outcomes due to factors listed in 'Risk Factors' and MD&A[304] - The company disclaims any duty to update forward-looking statements, which are qualified in their entirety by this cautionary statement[305][306] Item 3. Quantitative and Qualitative Disclosures About Market Risk Details Gulfport's exposure to market risks, primarily commodity price and interest rate volatility, and use of derivatives for mitigation - Gulfport uses derivative instruments (fixed price swaps, basis swaps, call options, costless collars) to mitigate exposure to volatile natural gas, oil, and NGL prices[308][310][314] - As of June 30, 2021, the company had a net liability derivative position of $301.0 million[318] - A 10% increase in underlying commodity prices would reduce derivative fair value by approximately $160.3 million, while a 10% decrease would increase it by $145.1 million[318] - The company is exposed to interest rate risk on its floating-rate Exit Facility and First-Out Term Loan, which bore weighted average interest rates of 4.50% and 5.50% respectively, as of June 30, 2021[319] Item 4. Controls and Procedures Confirms Gulfport's disclosure controls and procedures were effective as of June 30, 2021, with no material changes in internal control - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2021, ensuring information required for SEC reports is recorded, processed, summarized, and reported timely[320][321] - Management acknowledges that control systems provide reasonable, not absolute, assurance[322] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[323] PART II OTHER INFORMATION Item 1. Legal Proceedings Refers to Note 9 for information on Gulfport's legal proceedings, including litigation related to firm transportation agreements - Information on legal proceedings is detailed in Note 9 of the consolidated financial statements[326] Item 1A. Risk Factors Outlines risks related to Chapter 11 emergence, including adverse effects on business relationships, stock volatility, and potential dilution - Emergence from bankruptcy may adversely affect business relationships with customers, vendors, contractors, and employees, potentially leading to contract terminations or difficulties in attracting talent[328][330] - Actual financial results post-bankruptcy may not be comparable to historical information due to the Plan's implementation and fresh start accounting, and projections should not be relied upon[329] - The market price of New Common Stock is subject to volatility due to the new capital structure, limited trading history, and general market conditions[330][331] - Changes in the board of directors post-emergence may lead to different strategic initiatives and plans[332] - Future sales of substantial amounts of common stock, or the perception thereof, could adversely affect the trading price and ability to raise capital[333][334] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities and details common stock repurchase activity for tax withholding during Predecessor Period - No unregistered sales of equity securities occurred[337] Common Stock Repurchase Activity (Predecessor Period) | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April | 10,470 | $0.05 | - Shares were repurchased and canceled to satisfy tax withholding requirements upon vesting of restricted stock unit awards[339] Item 3. Defaults Upon Senior Securities States bankruptcy filing constituted an event of default for Pre-Petition Revolving Credit Facility and Predecessor Senior Notes - The bankruptcy filing triggered an event of default for Pre-Petition Revolving Credit Facility and Predecessor Senior Notes, accelerating obligations[340] - Section 362 of the Bankruptcy Code stayed creditors from taking action due to the default[340] - Additional details are provided in Note 3 and Note 5 of the financial statements[340] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to Gulfport Energy Corporation - Mine Safety Disclosures are not applicable[341] Item 5. Other Information Reports a change in Mr. Craine's title to Chief Legal and Administrative Officer and a $450,000 annual base salary increase - Mr. Craine's title changed to Chief Legal and Administrative Officer[343] - His base salary increased to $450,000 annually due to additional responsibilities[343] Item 6. Exhibits Provides an index of exhibits filed with the Form 10-Q, including key legal and corporate documents related to the company's reorganization - The exhibits include the Amended Joint Chapter 11 Plan of Reorganization, Amended and Restated Certificate of Incorporation and Bylaws, and new indentures for senior notes[346] - Key agreements such as the Second Amended and Restated Credit Agreement, Registration Rights Agreement, and executive employment agreements are also listed[346] Signatures Contains official signatures for the Form 10-Q, certifying its submission by CFO William Buese on August 9, 2021 - The report was signed by William Buese, Chief Financial Officer of Gulfport Energy Corporation, on August 9, 2021[352]