Gulfport Energy(US:GPOR)2022-03-01 19:45PART I Business Gulfport is a natural gas E&P company that emerged from bankruptcy in 2021 with a renewed focus on free cash flow generation - Gulfport is an independent natural gas-weighted exploration and production company with principal properties in the Utica and SCOOP formations56 - The company emerged from Chapter 11 bankruptcy on May 17, 2021, reducing its total indebtedness by $1.4 billion and focusing on sustainable free cash flow5961 Proved Reserves by Area (December 31, 2021) | Area | Oil (MMBbl) | Natural Gas (Bcf) | NGL (MMBbl) | Total (Bcfe) | | :--- | :--- | :--- | :--- | :--- | | Utica | 7 | 2,555 | 13 | 2,673 | | SCOOP | 10 | 921 | 40 | 1,223 | | Total Proved | 16 | 3,478 | 54 | 3,898 | Changes in Proved Reserves (2021, in Bcfe) | Category | Volume (Bcfe) | | :--- | :--- | | Proved Reserves, Dec 31, 2020 | 2,588 | | Extensions and discoveries | 695 | | Revisions of prior reserve estimates | 982 | | Current production | (366) | | Proved Reserves, Dec 31, 2021 | 3,898 | - Upward revisions of 982.2 Bcfe in 2021 were primarily driven by higher commodity prices, with the average natural gas price increasing to $3.60/MMBtu77 2021 Production and Pricing Summary (Combined Period) | Metric | Natural Gas | Oil & Condensate | NGL | | :--- | :--- | :--- | :--- | | Production Volume | 332,921 MMcf | 1,699 MBbl | 3,869 MBbl | | Avg. Daily Production | 912 MMcf/d | 5 MBbl/d | 11 MBbl/d | | Avg. Price (w/o derivatives) | $3.76 /Mcf | $65.01 /Bbl | $36.68 /Bbl | | Avg. Price (w/ derivatives) | $2.85 /Mcf | $59.29 /Bbl | $33.33 /Bbl | - For 2022, the company plans a capital expenditure program of $340 million to $380 million, expecting to generate 975 to 1,025 MMcfe per day of production6364 Risk Factors The company faces significant risks from commodity price volatility, reserve replacement challenges, and extensive environmental regulations - The company's financial performance is significantly dependent on volatile natural gas, oil, and NGL prices, which are beyond its control138140 - Future success is highly dependent on the ability to find, develop, or acquire additional economically recoverable reserves to replace production159 - Approximately 44% of total estimated proved reserves were proved undeveloped (PUDs) as of December 31, 2021, requiring significant future capital162 - The company is subject to extensive and changing governmental regulations regarding environmental matters, which could increase costs or restrict operations204209212 - The recent emergence from Chapter 11 bankruptcy may adversely affect business relationships and makes historical financial information not comparable225226 - The company has minimum volume commitments under midstream contracts, representing a long-term contractual obligation of approximately $1.8 billion193 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's new common stock began trading on the NYSE in May 2021, and a $100 million stock repurchase program was authorized - Upon emergence from bankruptcy on May 17, 2021, predecessor common stock was cancelled and new stock was issued on the NYSE under the symbol "GPOR"243244 - No dividends were paid on New Common Stock in 2021, but $1.5 million in cash and paid-in-kind shares were issued for New Preferred Stock246248 - On November 2, 2021, the Board authorized a stock repurchase program for up to $100 million of common stock, though no shares were repurchased in 2021249250 Management's Discussion and Analysis of Financial Condition and Results of Operations Post-bankruptcy operations saw higher revenues from commodity prices, improved liquidity, and a focus on funding development within cash flow - The company emerged from Chapter 11 in May 2021, reducing total indebtedness by $1.4 billion and focusing on sustainable free cash flow259260 - In October 2021, the company entered into a new credit facility with an initial borrowing base of $850 million, increasing liquidity by over $160 million264271 - The 2022 capital expenditure program is budgeted at $340 million to $380 million, with anticipated inflationary pressures on costs270 Results of Operations Higher commodity prices drove an 88% revenue increase in 2021, offset by derivative losses and lower production volumes Revenue and Production Comparison (Combined 2021 vs. 2020) | Metric | Combined 2021 | 2020 | | :--- | :--- | :--- | | Total Sales (unhedged) | $1,502.9 M | $801.3 M | | Total Production (MMcfe/d) | 1,003 | 1,037 | | Avg. Price (unhedged, $/Mcfe) | $4.10 | $2.11 | | Avg. Price (hedged, $/Mcfe) | $3.21 | $2.53 | - The 88% increase in unhedged revenue was primarily driven by higher commodity prices, with the average Henry Hub index rising to $3.89/MMBtu in 2021275 - The company experienced derivative settlement losses of $326.2 million for the combined 2021 period, compared to gains of $159.4 million in 2020277 - Transportation and gathering costs decreased on a per-unit basis from $1.20/Mcfe to $1.02/Mcfe due to midstream contract renegotiations280281 - A non-cash impairment charge of $117.8 million was recorded on oil and gas properties in the Successor period, compared to a $1.4 billion impairment in 2020283 Liquidity and Capital Resources The company significantly reduced debt post-bankruptcy and secured a new credit facility to support its 2022 capital program - As of December 31, 2021, the company had a cash balance of $3.3 million and total principal debt of $714.0 million, a significant reduction from $2.3 billion at year-end 2020299 - In October 2021, the company entered into a new credit facility with an initial borrowing base of $850.0 million and an initial elected commitment of $700.0 million302 - The 2022 drilling and completion capital expenditure program is budgeted to be between $320 million and $360 million315 Contractual Obligations as of December 31, 2021 (in thousands) | Contractual Obligations | Total | 2022 | 2023-2024 | 2025-2026 | 2027 and Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt (Principal & Interest) | $906,500 | $44,000 | $88,000 | $774,500 | $0 | | Firm transportation and gathering contracts | $1,778,093 | $225,200 | $438,514 | $268,131 | $846,248 | | Operating lease liabilities | $322 | $182 | $140 | $0 | $0 | Critical Accounting Policies and Estimates Key accounting policies include fresh start accounting, the full cost method for oil and gas properties, and reserve estimation - The company applied fresh start accounting upon emergence from Chapter 11, making financial statements after May 17, 2021, not comparable to prior periods324325 - Gulfport uses the full cost method of accounting, requiring a quarterly ceiling test that is highly sensitive to commodity prices and reserve estimates326329 - Estimates of oil and natural gas reserves are critical for calculating DD&A and are a primary factor in the impairment ceiling test330 - A full valuation allowance of $907.4 million was established against the company's net deferred tax asset as of December 31, 2021332 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are commodity price volatility, managed through derivatives, and interest rate fluctuations - The company's main market risk is commodity price volatility, which it manages using derivative instruments to achieve more predictable cash flows336337 - As of December 31, 2021, the company had a net liability derivative position of $402.0 million due to rising commodity prices342 - A 10% change in commodity prices would alter the company's derivative liability by approximately $171 million to $183 million342 - The company is exposed to interest rate risk from its floating-rate credit facility, where a 1% rate increase would raise annual interest expense by approximately $2 million344 Financial Statements and Supplementary Data This section contains the audited consolidated financial statements, which reflect the application of fresh start accounting in 2021 Supplemental Information On Oil And Gas Exploration And Production Activities Supplemental data shows a significant increase in proved reserves and their discounted future net cash flows due to higher prices Proved Reserve Changes (in Bcfe) | Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Beginning Balance | 2,588 | 4,528 | 4,743 | | Extensions and discoveries | 695 | 240 | 1,097 | | Revisions of prior estimates | 982 | (1,725) | (734) | | Production | (366) | (380) | (502) | | Sales of reserves | 0 | (75) | (77) | | Ending Balance | 3,898 | 2,588 | 4,528 | - Proved undeveloped reserves (PUDs) constituted 44% of total proved reserves at year-end 2021, totaling 1,733 Bcfe591 Standardized Measure of Discounted Future Net Cash Flows (in millions) | Year | Standardized Measure | | :--- | :--- | | 2021 (Successor) | $4,138 | | 2020 (Predecessor) | $540 | | 2019 (Predecessor) | $1,703 | - The significant increase in the standardized measure in 2021 was primarily driven by net positive changes in prices and costs, which contributed $2.6 billion601 Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal controls were effective as of year-end 2021 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021608 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, supported by an unqualified audit opinion612613617 - Changes to internal controls during 2021 included the addition of key controls related to the company's reorganization after emerging from bankruptcy610 PART III Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information for this item, including details on directors and corporate governance, is incorporated by reference from the 2022 Proxy Statement629 Executive Compensation Information regarding executive compensation is incorporated by reference from the 2022 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2022 Proxy Statement630 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2022 Proxy Statement - Information regarding security ownership is incorporated by reference from the 2022 Proxy Statement631 Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Information regarding related party transactions and director independence is incorporated by reference from the 2022 Proxy Statement632 Principal Accounting Fees and Services Information regarding accounting fees and services is incorporated by reference from the 2022 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the 2022 Proxy Statement633 PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including the reserve report - This section provides an index of all exhibits filed with the Form 10-K, including the plan of reorganization, new debt indentures, and credit agreements635637 - The independent petroleum engineering firm Netherland, Sewell & Associates, Inc. provided a summary reserve report, which is included as Exhibit 99.190638