Gulfport Energy Corporation — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
Gulfport is a natural-gas-weighted exploration and production company operating primarily in the Utica formation in Eastern Ohio and the SCOOP play in central Oklahoma. This filing covers the three months ended March 31, 2021. The company was operating as a debtor-in-possession following its November 13, 2020 Chapter 11 filing.
On April 28, 2021, the Bankruptcy Court confirmed Gulfport’s reorganization plan. The company expected to emerge in May 2021, subject to satisfying plan conditions. Nasdaq delisted the company’s common stock effective February 12, 2021; the shares traded on the OTC Pink Marketplace under “GPORQ.”
Financial and Operating Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue, including derivatives | $247.4 million | $299.3 million | (17%) |
| Oil, gas and NGL sales, excluding derivatives | $277.3 million | $201.1 million | 38% |
| Operating income (loss) | $50.9 million | $(480.1) million | Improved |
| Net income (loss) | $8.8 million | $(517.5) million | Improved |
| Basic and diluted EPS | $0.05 | $(3.24) | Improved |
| Cash flow from operations | $123.2 million | $130.8 million | (6%) |
| Capital expenditures | $56.9 million | $113.7 million | (50%) |
| Net production | 982.7 MMcfe/day | 1,053.8 MMcfe/day | (7%) |
Revenue from natural gas, oil and NGL sales increased because of higher realized commodity prices, despite lower volumes. Derivative results shifted from a $98.3 million gain in Q1 2020 to a $30.0 million loss in Q1 2021, more than offsetting the increase in physical commodity sales.
- Natural gas sales increased 46% to $235.3 million, supported by a 54% increase in realized prices excluding derivatives; gas volumes declined 5%.
- Oil and condensate sales declined 21% to $18.2 million as volumes fell 35%, partially offset by a 22% increase in realized prices.
- NGL sales increased 41% to $23.8 million, as realized prices more than doubled while volumes decreased 31%.
- Operating expenses were $196.5 million versus $779.4 million, reflecting the absence of the $553.3 million oil and gas impairment recorded in Q1 2020. Q1 2021 included a $14.6 million impairment of the corporate headquarters.
- Operating expenses included $41.1 million of DD&A, $105.9 million of transportation, gathering, processing and compression costs, $12.7 million of G&A, and $12.7 million of lease operating expense.
- Reorganization items were $38.7 million, primarily $40.8 million of legal and professional fees, partly offset by a $4.2 million gain on settlement of pre-petition accounts payable.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $179.7 million at March 31, 2021, up from $89.9 million at December 31, 2020.
- Total debt principal was approximately $2.3 billion. Liabilities subject to compromise totaled $2.26 billion, including approximately $2.00 billion of debt subject to compromise.
- Stockholders’ deficit was $287.7 million, compared with $300.5 million at year-end 2020.
- The company had a $137.1 million net working capital deficit, including $279.8 million of current debt maturities.
- The $262.5 million DIP facility had $157.5 million outstanding and $76.5 million of remaining availability after $28.5 million of letters of credit.
- The pre-petition revolving facility had $316.8 million outstanding, $121.2 million of letters of credit, and no remaining borrowing availability.
- Operating cash flow exceeded capital expenditures by approximately $66.3 million before other financing and investing activities.
Management stated that cash on hand, operating cash flow and DIP availability were expected to provide liquidity through the Chapter 11 process. However, the filing states that substantial doubt about the company’s ability to continue as a going concern remained because pre-petition debt had been accelerated and the company could not repay it with available liquidity.
Material Changes Versus Q1 2020
- Net results improved from a $517.5 million loss to $8.8 million of net income, primarily because Q1 2020 included a $553.3 million oil and gas impairment.
- Physical commodity sales increased 38%, but total reported revenue declined 17% because derivative results deteriorated by approximately $128.2 million year over year.
- Production declined 7%, principally because of reduced SCOOP development activity in 2020. Utica combined production increased 2%, while SCOOP combined production decreased 34%.
- Capital expenditures declined 50% as the company reduced drilling and completion activity and focused on liquidity preservation.
- Interest expense fell to $3.3 million from $33.0 million because interest accruals on debt classified as subject to compromise ceased after the bankruptcy filing.
- Lease operating expense per Mcfe declined 7% and G&A expense per Mcfe declined 13%, reflecting cost-reduction initiatives.
Guidance, Outlook, Risks and Unusual Items
- The company expected to emerge from Chapter 11 in May 2021 under a plan that would convert the RBL and DIP facilities into a $580 million exit facility, provide for a rights offering of at least $50 million, and cancel existing parent common stock without a distribution.
- The company expected to qualify for fresh-start accounting and stated that the financial effects of emergence could not yet be estimated but would likely result in material balance-sheet adjustments.
- Bankruptcy claims totaled approximately 2,700 proofs of claim aggregating approximately $13 billion as of April 30, 2021. Claims remained subject to reconciliation and could materially differ from recorded liabilities.
- Future firm transportation and gathering commitments totaled approximately $3.0 billion, excluding contracts that might later be terminated or renegotiated. The company had reduced certain midstream obligations but had not completed all negotiations.
- Pending motions to reject certain firm transportation agreements could result in damages exceeding $57 million if rejection is not permitted.
- The company reported $110.9 million of surety bonds and total letters of credit of $149.7 million as off-balance-sheet financial assurance.
- Commodity prices remain a major risk. At March 31, 2021, the company had a net derivative liability of $50.9 million; a 10% increase in underlying commodity prices would have reduced derivative fair value by approximately $87.4 million.
- COVID-19, commodity-price volatility, production declines, midstream-provider disruptions, minimum-volume commitments, litigation, contract claims and the ability to satisfy DIP covenants remained material risks.
- The company’s existing common stock was expected to be cancelled under the confirmed plan, with no recovery, subject to the plan becoming effective.
Investor Verification Priorities
- Verify whether the confirmed Chapter 11 plan became effective and the precise treatment of existing common stock, debt, unsecured claims and rights-offering securities.
- Review post-emergence capitalization, exit-facility terms, fresh-start adjustments and the company’s updated liquidity position.
- Reconcile bankruptcy claims of approximately $13 billion with final allowed claims and liabilities subject to compromise.
- Assess the sustainability of operating cash flow given lower production, derivative losses and remaining firm transportation commitments.
- Review the final outcome of pending transportation-contract rejection motions and other material litigation and contract claims.
- Verify commodity-hedging volumes, prices, collateral requirements and the effect of future price changes on cash flow.