Gulfport Energy Corporation 2021 Form 10-K Summary
Business context and reporting period
Gulfport Energy is a natural gas-weighted exploration and production company focused primarily on the Utica formation in Eastern Ohio and the SCOOP Woodford and Springer formations in Oklahoma. This Form 10-K covers the fiscal year ended December 31, 2021. Because Gulfport emerged from Chapter 11 on May 17, 2021 and applied fresh start accounting, results are presented as separate Predecessor and Successor periods and are not fully comparable with prior periods. Management also presents a non-GAAP Combined Period comprising January 1 through December 31, 2021.
- 2021 production averaged approximately 1,004 MMcfe per day, with Utica contributing approximately 77% and SCOOP approximately 23%.
- Year-end proved reserves were 3.9 Tcfe, including 1.7 Tcfe of proved undeveloped reserves.
- Gulfport completed its restructuring, began trading new common stock on the NYSE under “GPOR” on May 18, 2021, and substantially reduced its debt and fixed-cost structure.
Key financial and operating metrics
| Metric | 2021 Combined Period | 2020 Predecessor |
|---|---|---|
| Natural gas, oil and NGL sales | $1.503 billion | $801.3 million |
| Total revenues, including derivatives | $808.8 million | $866.5 million |
| Net income (loss) | $138.2 million combined; Successor loss of $112.8 million and Predecessor income of $251.0 million | $(1.625) billion |
| Cash flow from operating activities | $465.1 million combined | $95.3 million |
| Capital expenditures | $309.4 million cash expenditures | $367.3 million |
| Production | 1,004 MMcfe per day | 1,037 MMcfe per day |
| Average realized price including settled derivatives | $3.21 per Mcfe | $2.53 per Mcfe |
| Lease operating expenses | $0.14 per Mcfe | $0.14 per Mcfe |
| Total LOE, midstream costs and taxes | $1.28 per Mcfe | $1.42 per Mcfe |
The Combined Period is a management presentation and is not GAAP or pro forma reporting. The filing does not provide a standalone fourth-quarter income statement or cash-flow statement; therefore, the information above should not be interpreted as fourth-quarter results.
- Net natural gas, oil and NGL sales increased 88%, primarily due to higher commodity prices, while volumes declined 3% because of natural production declines.
- Derivative losses were $694.1 million in the Combined Period, compared with a $65.3 million gain in 2020. The 2021 loss included $326.2 million of cash settlements.
- Operating expenses declined materially from 2020, principally because of lower impairment charges, lower midstream costs following contract rejections and renegotiations, and reduced general and administrative costs.
- Gulfport recorded $117.8 million of oil and gas property impairment in the Successor Period versus $1.4 billion in 2020. It also recorded a $14.6 million impairment of its headquarters during the Predecessor Period.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $3.3 million at December 31, 2021, compared with $89.9 million at December 31, 2020.
- Total principal debt was approximately $714.0 million at year-end 2021, compared with approximately $2.3 billion at year-end 2020.
- Year-end debt consisted primarily of $164.0 million drawn under the New Credit Facility and $550.0 million of 8.0% senior notes due 2026.
- The New Credit Facility has an initial borrowing base of $850 million, elected commitments of $700 million, a $175 million letter-of-credit sublimit and a maturity date of October 14, 2025. Gulfport reported compliance with its covenants at year-end.
- Liquidity included a $361.4 million net working-capital deficit, $122.1 million of letters of credit and $32.7 million of surety bonds. As of February 25, 2022, the company reported $7.1 million of cash, no New Credit Facility borrowings, $109.8 million of letters of credit and $550 million of 2026 Notes outstanding.
- Operating cash flow for the Combined Period was $465.1 million, compared with $95.3 million in 2020. Cash flow was supported by higher commodity receipts but reduced by substantial derivative settlements and debt repayments.
- Contractual obligations included $1.778 billion of firm transportation and gathering commitments, excluding contracts recently rejected or in the process of being rejected.
Material changes versus prior comparable period
- Gulfport emerged from Chapter 11 in May 2021, canceled predecessor equity and debt, issued new common and preferred stock, and adopted fresh start accounting. Historical balance sheets, earnings and operating metrics are therefore not directly comparable.
- Debt was reduced by approximately $1.4 billion through the reorganization, while stockholders’ equity improved from a $300.5 million deficit at December 31, 2020 to $549.5 million of equity at December 31, 2021.
- Commodity prices improved substantially: the 12-month SEC average increased to $3.60 per MMBtu for natural gas, $66.55 per barrel for oil and $31.90 per barrel for NGLs, versus $1.99, $39.54 and $15.40, respectively, in 2020.
- Production declined approximately 3%, but sales before derivatives increased because of higher prices. Midstream costs fell to $1.02 per Mcfe from $1.20 per Mcfe, and net general and administrative expense fell to $53.6 million from $59.3 million.
- Proved reserves increased from 2.588 Tcfe to 3.898 Tcfe, primarily from extensions and upward revisions driven by higher prices and improved well performance. Approximately 44% of year-end proved reserves were PUDs.
- The board authorized a $100 million common-stock repurchase program through December 31, 2022, but no shares had been repurchased by year-end 2021.
Guidance, outlook, commentary and risks
- Management expects 2022 capital expenditures of $340 million to $380 million, comprising approximately $320 million to $360 million for drilling and completion and approximately $20 million for leasehold and land expenses.
- The 2022 program assumes approximately one operated rig in each core area and is expected to produce approximately 975 to 1,025 MMcfe per day.
- Management expects to fund capital spending with operating cash flow and borrowings under the revolving credit facility, while also pursuing shareholder returns through dividends on preferred stock and potential common-stock repurchases.
- Approximately 86% of expected 2022 production was hedged, limiting downside exposure but also limiting the benefit of higher commodity prices. The company continued to have substantial exposure to commodity prices in 2023 and beyond.
- Key risks include natural gas, oil and NGL price volatility; derivative counterparty and settlement exposure; variable-rate debt and LIBOR transition; substantial midstream minimum-volume commitments; pipeline and gathering constraints; drilling and completion execution; water availability and seismicity; environmental and climate regulation; cybersecurity; customer concentration; and reliance on operations in Ohio and Oklahoma.
- Potentially significant contingencies include the unresolved Rover firm transportation rejection matter, which Gulfport estimated could expose it to more than $55 million of demand charges, fees and interest if rejection is not permitted. Gulfport received an $11.5 million initial distribution in February 2022 related to its TC Energy settlement, but future distributions are uncertain.
- Gulfport expects no further reorganization costs in 2022. The company has approximately $1.4 billion of federal NOL carryforwards, but their utilization may be limited by future ownership changes and Section 382 rules.
Most important facts for investors to verify
- Reconcile the non-GAAP Combined Period with the separate GAAP Predecessor and Successor periods before comparing 2021 with 2020.
- Review the New Credit Facility borrowing-base redetermination, covenant headroom, debt maturity profile and available liquidity, particularly given the very low year-end cash balance.
- Assess the economic impact of the $1.778 billion of firm transportation and gathering commitments and the status of the Rover rejection proceedings.
- Evaluate the sensitivity of cash flow, reserves, borrowing capacity and full-cost ceiling tests to natural gas prices and derivative settlements.
- Review the sustainability and execution of the 2022 capital program, including whether projected production of 975 to 1,025 MMcfe per day can be achieved within the stated budget.
- Consider the development risk associated with the 1.733 Tcfe of PUD reserves and the company’s ability to convert them within the required five-year period.
- Verify subsequent preferred-stock dividends, potential conversion or redemption of the preferred stock, and the timing and amount of future bankruptcy-related distributions.