Business Context and Reporting Period
Company: Gulfport Energy Corp.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2002
Business Overview: Gulfport is an independent oil and gas exploration and production company with properties concentrated in the Louisiana Gulf Coast, primarily the West Cote Blanche Bay (WCBB) and Hackberry fields. The company utilizes the "full cost" method of accounting.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2002 | Nine Months Ended Sep 30, 2002 | Balance Sheet (Sep 30, 2002) |
|---|---|---|---|
| Total Revenues | $3,749,000 | $9,769,000 | - |
| Net Income | $809,000 | $1,303,000 | - |
| Net Income Available to Common | $453,000 | $594,000 | - |
| EBITDA | $1,683,000 | $3,871,000 | - |
| Cash Flow from Operations | - | $5,915,000 | - |
| Cash and Equivalents | - | - | $4,165,000 |
| Total Debt (Current + Long-term) | - | - | $141,000 |
| Preferred Stock (Redeemable) | - | - | $10,001,000 |
Note: Preferred stock dividends of $356,000 (Q3) and $709,000 (YTD) were accrued in additional shares rather than paid in cash.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues for the nine months ended September 30, 2002, decreased to $9.77 million from $12.59 million in the prior year. This was driven by a drop in oil production volumes (381 Mbbls vs. 445 Mbbls) and lower average oil prices ($24.28/bbl vs. $27.50/bbl).
- Profitability: Net income available to common stockholders fell to $594,000 for the nine-month period compared to $3.97 million in 2001. The decrease is attributed to lower production volumes and the introduction of preferred stock dividends.
- Debt Reduction: Long-term debt and related party notes were significantly reduced. A $3.0 million related party note was retired in March 2002 via conversion to Preferred Stock. The outstanding balance on the Bank of Oklahoma credit facility was reduced to $0.
- Capital Expenditures: Investing cash outflows decreased to $7.7 million (YTD 2002) from $12.4 million (YTD 2001), reflecting a less intensive drilling program in the first half of 2002 compared to 2001.
Outlook, Risks, and Unusual Items
- Subsequent Event - Hurricane Lili: On October 3, 2002, Hurricane Lili caused significant damage to the WCBB field (approx. 80% of production). Production was halted for 17 days. As of November 10, 2002, production was restored to 75% with full recovery expected by mid-November. Restoration costs and insurance recoveries were undetermined at the time of filing.
- Royalty Audit: A State of Louisiana audit covering 1999–2001 resulted in an estimated additional royalty liability of approximately $400,000, expected to be recorded in Q4 2002.
- Capital Strategy: The company raised approximately $9.3 million via a Private Placement Offering of Series A Preferred Stock and warrants in March/April 2002. Proceeds were used to retire debt and fund operations.
- Future Operations: Management plans to commence a 4-6 well drilling program at WCBB in December 2002 and has identified new drilling locations at the Hackberry field for potential development in 2003.
Investor Verification Checklist
- Production Recovery: Verify the timeline and cost of restoring WCBB production to 100% following Hurricane Lili and the extent of insurance reimbursement.
- Royalty Liability: Confirm the final amount of the $400,000 estimated royalty liability and its impact on Q4 2002 earnings.
- Preferred Stock Terms: Review the terms of the Series A Preferred Stock, specifically the 12% dividend rate (accrued in shares at 15% option) and the mandatory redemption date (5 years from issuance).
- Reserve Replacement: Assess the success of the new drilling programs (WCBB and Hackberry) in offsetting natural decline rates, given that 85% of reserves were categorized as proved undeveloped as of Jan 1, 2002.
- Liquidity Position: Monitor the utilization of the new $2.3 million line of credit with Bank of Oklahoma and the company's ability to fund capital expenditures without further dilution.