Gulfport Energy Corporation — 2020 Form 10-K Summary
Business context and reporting period
Gulfport is a natural-gas-weighted U.S. exploration and production company focused primarily on the Utica formation in Eastern Ohio and the SCOOP Woodford and Springer formations in Oklahoma. The filing covers the fiscal year ended December 31, 2020, with comparative 2019 and 2018 results. The company filed for voluntary Chapter 11 bankruptcy protection on November 13, 2020 and operated as a debtor-in-possession at year-end.
Gulfport produced 1,037 MMcfe per day in 2020, with approximately 79% from the Utica and 21% from the SCOOP based on full-year production. Year-end proved reserves were 2.588 Tcfe, including 1.061 Tcfe of proved undeveloped reserves.
Financial and operating metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $866.5 million | $1.563 billion | Down 45% |
| Net loss | $1.625 billion | $2.002 billion | Loss narrowed |
| Net loss per diluted share | $10.14 | $12.49 | Improved |
| Loss from operations | $1.363 billion | $1.704 billion | Improved |
| Net cash from operating activities | $95.3 million | $724.0 million | Down 87% |
| Capital expenditures for oil and gas properties | $367.3 million | $720.1 million | Down 49% |
| Cash and cash equivalents at year-end | $89.9 million | $6.1 million | Increased |
| Total principal debt | $2.3 billion | $2.0 billion | Increased |
| Liabilities subject to compromise | $2.293 billion | None | New in 2020 |
| Stockholders’ equity | $(300.5) million | $1.315 billion | Declined materially |
Revenue from natural gas, oil, condensate and NGL sales before derivative gains declined 41% to $801.3 million. Production volumes declined 25% to 379.6 Bcfe, while the average realized price including settled derivatives declined 14% to $2.53 per Mcfe. Total derivative gains were $65.3 million, including $159.4 million of cash settlement gains.
Operating expenses included $1.357 billion of oil and gas property impairment charges, $239.7 million of depreciation, depletion and amortization, $456.3 million of midstream gathering and processing expense, and $59.3 million of net general and administrative expense. Total production costs, including lease operating, taxes and midstream costs, increased to $1.39 per Mcfe from $1.22 per Mcfe, primarily because production fell below certain firm transportation commitments.
Fourth-quarter 2020 revenue was $244.7 million, operating income was $19.6 million and net loss was $165.6 million. The filing does not present a standalone fourth-quarter cash flow statement.
Material changes versus the prior comparable period
- Production declined 25%, and unhedged natural gas, oil and NGL revenue declined 41%, reflecting reduced development activity, shut-ins and lower commodity prices.
- Capital spending was reduced by more than 50% versus 2019, and the company drilled 26 operated development wells compared with 25 in 2019.
- Proved reserves declined from 4.528 Tcfe to 2.588 Tcfe. The reduction included 1.725 Tcfe of downward revisions, principally from lower commodity prices and the deferral of PUD locations beyond the SEC five-year development period.
- The company recorded a $1.357 billion ceiling-test impairment, compared with $2.040 billion in 2019.
- Cash flow from operations fell by $628.7 million to $95.3 million, while oil and gas property expenditures fell by $352.8 million.
- Gulfport sold its SCOOP water infrastructure assets for $50.0 million in cash and divested other non-core assets for total 2020 proceeds of approximately $51.0 million.
- The company repurchased $73.3 million of senior notes for $22.8 million, recognizing a $49.6 million gain on debt extinguishment.
- Midstream costs per Mcfe increased 19% because production was below minimum volume commitments under certain firm transportation agreements.
Guidance, outlook, commentary and risks
- Management’s strategy was to prioritize capital discipline, operational efficiency and sustainable free cash flow. No clear full-year 2021 production or earnings guidance is provided.
- Management stated that cash on hand, operating cash flow and available DIP financing were expected to provide liquidity during the Chapter 11 process, but continuing operations remained dependent on compliance with DIP covenants, timely plan confirmation and exit financing.
- The DIP credit facility had an aggregate commitment of $262.5 million, including $105.0 million of new money. Borrowings were $157.5 million at year-end, leaving $105.0 million of incremental capacity before other restrictions.
- The company had $292.9 million outstanding under the pre-petition revolving facility, $147.5 million of letters of credit and $111.4 million of surety bonds. Total contractual cash obligations were reported at $6.553 billion, including $3.775 billion of firm transportation and gathering commitments, before contemplated bankruptcy-related contract rejections.
- The audited financial statements express substantial doubt about Gulfport’s ability to continue as a going concern. The RSA contemplated equitizing a significant portion of pre-petition debt, and the plan contemplated cancellation of existing common equity with no recovery for current shareholders.
- As of February 25, 2021, creditors had filed approximately 2,200 proofs of claim totaling approximately $12.5 billion; the company stated that claims remained subject to reconciliation and could materially affect future financial statements.
- Commodity prices, reserve revisions, firm transportation deficiencies, liquidity constraints, midstream obligations, COVID-19 effects, environmental and regulatory matters, litigation, and the outcome of the Chapter 11 cases were identified as significant risks.
- Common stock trading was suspended on Nasdaq in November 2020 and moved to the OTC Pink Marketplace under “GPORQ.” Nasdaq delisting became effective February 12, 2021.
- The SEC investigation concerning former management and related internal controls was resolved in February 2021 through a cease-and-desist order without a monetary penalty, according to the filing.
Most important facts for investors to verify
- Current status and final outcome of the Chapter 11 plan, including treatment of existing common stock and the amount and form of post-emergence debt and equity.
- Final allowed creditor claims versus the approximately $12.5 billion of proofs of claim filed as of February 25, 2021.
- Liquidity under the DIP facility, compliance with its budget and covenants, and the availability and terms of exit financing.
- Whether firm transportation and gathering contracts are rejected or renegotiated and the resulting reduction in future demand charges and minimum-volume obligations.
- Commodity price assumptions supporting reserves, the recoverability of 1.061 Tcfe of PUD reserves, and the risk of further ceiling-test impairments.
- Actual 2021 production, capital spending, hedging results and cash flow relative to the company’s liquidity requirements.
- Outstanding litigation, royalty claims, environmental obligations and potential liabilities associated with divested Louisiana assets.