Business Context and Reporting Period
Company: Gulfport Energy Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2007
Business Overview: Gulfport is an independent oil and natural gas exploration and production company with principal properties in the West Cote Blanche Bay (WCBB) and Hackberry fields in Louisiana. The company also holds significant interests in the Alberta oil sands (Grizzly Oil Sands ULC), Southeast Asia (Tatex Thailand II, LLC), and the Bakken play in North Dakota (Windsor Bakken, LLC).
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2006 |
|---|---|---|---|
| Total Revenues | $29,975,000 | $75,365,000 | $42,803,000 |
| Net Income | $12,701,000 | $29,558,000 | $22,404,000 |
| Diluted EPS | $0.33 | $0.80 | $0.66 |
| Operating Cash Flow | N/A | $47,236,000 | $27,934,000 |
| Investing Cash Flow | N/A | ($115,326,000) | ($53,155,000) |
| Financing Cash Flow | N/A | $63,235,000 | $29,199,000 |
| Cash and Equivalents (Sep 30, 2007) | $1,772,000 | ||
| Total Debt (Sep 30, 2007) | $37,232,000 | ||
| Current Ratio (Sep 30, 2007) | 0.46 (Waiver obtained) |
Material Changes vs. Prior Period
- Revenue Growth: Nine-month revenues increased 76% to $75.4 million, driven by a 74% increase in net production (1.20 million BOE vs. 0.69 million BOE) and higher realized prices. Production in 2006 was negatively impacted by Hurricane Rita damage.
- Profitability: Net income for the nine months ended September 30, 2007, rose 32% to $29.6 million compared to $22.4 million in the prior year period.
- Capital Expenditures: Investing cash outflows more than doubled to $115.3 million, primarily due to $102.8 million in additions to oil and gas properties (drilling programs and facility upgrades) and a $12.4 million investment in Grizzly Oil Sands ULC.
- Equity Issuance: The company raised approximately $62.8 million through three underwritten common stock offerings in February, May, and July 2007, proceeds which were used to pay down debt.
- Debt Structure: The revolving credit facility was increased to $150.0 million with a borrowing base of $60.0 million in July 2007. Total debt outstanding was $34.5 million as of September 30, 2007.
Guidance, Outlook, Risks, and Contingencies
- Capital Expenditure Guidance: Total capital expenditures for 2007 are estimated at $130.0 million to $140.0 million. This includes $60-$65 million for WCBB drilling and $60-$70 million for East Hackberry.
- Production Outlook: The company intends to drill 26 wells and recomplete 49 existing wells at WCBB in 2007. At East Hackberry, 11 wells were drilled through November 1, 2007, with plans to drill 1-2 additional wells.
- Commodity Hedging: The company has entered into forward sales contracts to sell approximately 66% of its estimated production for June through December 2007 at weighted average prices ranging from $70.15 to $79.59 per barrel.
- Legal Proceedings:
- October 2006 Accident: A new lawsuit was filed in October 2007 by an employee of a contractor involved in an accident that caused a pipeline rupture and six fatalities. The company is responding to the matter.
- Royalty Dispute: A settlement with the Louisiana State Mineral Board regarding royalty payments on fixed-price contracts is being finalized, requiring a $250,000 payment.
- Other Litigation: Several other suits (Hummel, Davis, Cudd Pressure Control, Robotti) are pending or stayed.
- Covenant Compliance: The company was not in compliance with the current ratio covenant (current assets to current liabilities) at September 30, 2007, but has obtained a waiver from the lender through October 1, 2008.
- Risk Factors: Significant risks include volatility in oil and gas prices, uncertainties in estimating bitumen reserves for the Grizzly project, and the potential for material adverse effects from pending litigation.
Investor Verification Checklist
- Covenant Waiver Status: Verify the terms and duration of the waiver obtained for the current ratio covenant breach.
- Capital Expenditure Execution: Monitor actual capital spending against the $130-$140 million guidance to ensure liquidity remains sufficient.
- Legal Exposure: Track the status of the October 2006 accident lawsuit and the finalization of the Louisiana royalty settlement.
- Production Volumes: Confirm that production growth at WCBB and East Hackberry meets the aggressive drilling targets set for 2007.
- Reserve Estimates: Review the impact of the Grizzly Oil Sands investment on future reserve estimates and the associated uncertainties regarding bitumen recovery.