GPOR

Business Context and Reporting Period

Company: Gulfport Energy Corp (formerly WRT Energy Corporation)

Reporting Period: Year ended December 31, 2001

Business Overview: Gulfport is an independent oil and gas exploration and production company with properties located along the Louisiana Gulf Coast. The company emerged from bankruptcy in July 1997. As of December 31, 2001, Gulfport held 29 million barrels of oil equivalent (MMBOE) in proved reserves with a present value of $130 million. The company operates primarily in the East Hackberry, West Hackberry, and West Cote Blanche Bay fields.

Key Financial Metrics

Production Data (2001): 595,000 barrels of oil and 71 million cubic feet of gas (607 MBOE total). Average realized price was $25.48 per BOE.

Material Changes vs. Prior Period

• Revenue Decline: Oil and gas revenues decreased 4% to $15.5 million, primarily due to a 14% drop in average prices per BOE ($25.50 in 2001 vs. $29.76 in 2000). This was partially offset by a 12% increase in production volumes.
• Net Income Increase: Net income rose 21% to $5.4 million. This increase was driven largely by a non-recurring gain of $1.9 million from the settlement of disputed amounts (including a $754,000 settlement with Texaco and the write-off of expired liabilities).
• Expense Reductions: Operating expenses decreased by $215,000 due to reduced gas lift costs. Interest expense dropped 36% to $381,000 following the settlement of disputed interest accruals.
• Capital Spending Surge: Capital expenditures nearly doubled to $12.8 million, reflecting a significant drilling program (7 wells drilled in 2001) and workover activities.
• Liquidity Position: Working capital turned negative to $(4.2) million, compared to a positive $132,000 in 2000, largely due to the drawdown of a $3.0 million related-party line of credit.

Guidance, Outlook, and Risks

Outlook and Strategy: Management plans to continue exploiting reserves through a ten-well drilling program in 2002, utilizing reprocessed 3-D seismic data to identify new prospects. The company intends to fund these projects through operating cash flow, interim bank financing, or capital markets transactions.

Capital Markets Activity: In March 2002, the company commenced a $10 million private placement offering of Cumulative Preferred Stock and warrants. Additionally, a $3.0 million related-party loan was converted into preferred stock units.

Risks and Contingencies:

• Plugging Obligations: The company has a significant obligation to plug and abandon nearly 400 wellbores at the West Cote Blanche Bay field. A plugging escrow account held $2.3 million as of year-end.
• Price Volatility: Operations are highly sensitive to oil and gas price fluctuations, which are subject to market uncertainty and geopolitical factors.
• Customer Concentration: In 2001, 86% of oil sales were made to a single purchaser, Gulfmark Energy Inc.
• Debt Maturity: A $3.0 million related-party note was due in February 2002 (subsequently converted). A bank note of $1.1 million is due in October 2002.

Investor Verification Checklist

• Verify the sustainability of the $1.9 million non-recurring gain from disputed amount settlements and its impact on core operating earnings.
• Confirm the status of the $10 million private placement offering and the conversion of the $3.0 million related-party debt.
• Assess the adequacy of the $2.3 million plugging escrow fund against the obligation to plug nearly 400 wells at West Cote Blanche Bay.
• Monitor the company's ability to refinance or repay the $1.1 million bank note due in October 2002 given the negative working capital position.
• Evaluate the impact of the 86% revenue concentration with Gulfmark Energy Inc. on future pricing and sales stability.