Gulfport Energy Corporation

11/06/2024 | Press release | Distributed by Public on 11/06/2024 09:43

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

gpor-20240930
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-19514
Gulfport Energy Corporation
(Exact name of registrant as specified in its charter)
Delaware 86-3684669
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
713 Market Drive
Oklahoma City, Oklahoma 73114
(Address of principal executive offices) (Zip Code)
(405) 252-4600
(Registrant telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.0001 par value per share GPOR The New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨
Smaller reporting company ☐Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ý No ¨
As of October 28, 2024, 17,727,799 shares of the registrant's common stock were outstanding.
Table of Contents
GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements (Unaudited):
4
Consolidated Balance Sheets
4
Consolidated Statements of Operations
5
Consolidated Statements of Stockholders' Equity
7
Consolidated Statements of Cash Flows
9
Notes to Consolidated Financial Statements
10
1. Summary of Significant Accounting Policies
10
2. Property and Equipment
12
3. Long-Term Debt
13
4. Mezzanine Equity
15
5. Equity
16
6. Stock-Based Compensation
17
7. Restructuring Costs
20
8. Earnings (Loss) Per Share
20
9. Commitments and Contingencies
21
10. Derivative Instruments
24
11. Fair Value Measurements
28
12. Revenue from Contracts with Customers
30
13. Leases
30
14. Income Taxes
32
15. Related Party Transactions
32
16. Subsequent Events
33
Item 2.
Management's Discussion and Analysis of Financial Conditions and Results of Operations
34
2024 Operational and Financial Highlights
35
2024 Production and Drilling Activity
35
Comparison of Quarter-to-Date
37
Comparison of Year-to-Date
42
Liquidity and Capital Resources
47
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
51
Item 4.
Controls and Procedures
52
PART II OTHER INFORMATION
Item 1.
Legal Proceedings
53
Item 1A.
Risk Factors
53
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
53
Item 3.
Defaults Upon Senior Securities
53
Item 4.
Mine Safety Disclosures
53
Item 5.
Other Information
53
Item 6.
Exhibits
54
Signatures
56
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DEFINITIONS
Unless the context otherwise indicates, references to "us," "we," "our," "ours," "Gulfport," the "Company" and "Registrant" refer to Gulfport Energy Corporation and its consolidated subsidiaries. All monetary values, other than per unit and per share amounts, are stated in thousands of U.S. dollars unless otherwise specified. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:
1145 Indenture. Indenture dated May 17, 2021 between Gulfport Operating, UMB Bank, National Association, as trustee, and the guarantors party thereto, under section 1145 of the Bankruptcy Code for our 8.0% Senior Notes due 2026.
2026 Senior Notes. 8.0% Senior Notes due May 17, 2026.
2026 Senior Notes Indentures. Collectively, the 1145 Indenture and the 4(a)(2) Indenture governing the 2026 Senior Notes.
2029 Senior Notes. 6.750% Senior Notes due September 1, 2029.
2029 Senior Notes Indenture.Indenture dated September 13, 2024 between Gulfport Operating, UMB Bank, National Association, as trustee, and the guarantors party thereto.
4(a)(2) Indenture. Certain eligible holders made an election entitling such holders to receive senior notes issued pursuant to an indenture, dated as of May 17, 2021, by and among Gulfport Operating, UMB Bank, National Association, as trustee, and the guarantors party thereto, under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act") as opposed to its share of the up to $550 million aggregate principal amount of our Senior Notes due 2026. The 4(a)(2) Indenture's terms are substantially similar to the terms of the 1145 Indenture. The primary differences between the terms of the 4(a)(2) Indenture and the terms of the 1145 Indenture are that (i) affiliates of the Issuer holding 4(a)(2) Notes are permitted to vote in determining whether the holders of the required principal amount of indenture securities have concurred in any direction or consent under the 4(a)(2) Indenture, while affiliates of the Issuer holding 1145 Notes will not be permitted to vote on such matters under the 1145 Indenture, (ii) the covenants of the 1145 Indenture (other than the payment covenant) require that the Issuer comply with the covenants of the 4(a)(2) Indenture, as amended, and (iii) the 1145 Indenture requires that the 1145 Securities be redeemed pro rata with the 4(a)(2) Securities and that the 1145 Indenture be satisfied and discharged if the 4(a)(2) Indenture is satisfied and discharged.
ASC.Accounting Standards Codification.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil or other liquid hydrocarbons.
Board of Directors (Board).The board of directors of Gulfport Energy Corporation.
Bps.Basis points.
Btu. British thermal unit, which represents the amount of energy needed to heat one pound of water by one degree Fahrenheit and can be used to describe the energy content of fuels.
Completion. The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas, oil and NGL.
Credit Facility. The Third Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A. as administrative agent and various lender parties, providing for a senior secured reserve-based revolving credit facility effective as of October 14, 2021, as amended by the Commitment Increase, Borrowing Base Reaffirmation Agreement, and Fourth Amendment to Credit Agreement dated as of September 12, 2024.
DD&A.Depreciation, depletion and amortization.
Disputed Claims Reserve. Reserve used to settle any pending claims of unsecured creditors that were in dispute as of the effective date of the Plan.
Emergence Date. Gulfport filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code on November 13, 2020, and subsequently operated as a debtor-in-possession, in accordance with applicable provisions of the Bankruptcy Code, until its emergence on May 17, 2021.
GAAP.Accounting principles generally accepted in the United States of America.
Gross Acres or Gross Wells. Refers to the total acres or wells in which a working interest is owned.
Guarantors.All existing consolidated subsidiaries that guarantee the Company's Credit Facility or certain other debt.
Gulfport Operating.Gulfport Energy Operating Corporation.
Incentive Plan. Gulfport Energy Corporation Stock Incentive Plan effective on the Emergence Date.
LOE.Lease operating expenses.
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Marcellus. Refers to the Marcellus Play that includes the hydrocarbon bearing rock formations commonly referred to as the Marcellus formation located in the Appalachian Basin of the United States and Canada. Our acreage is located primarily in Belmont County in eastern Ohio.
MBbl.One thousand barrels of crude oil, condensate or natural gas liquids.
Mcf. One thousand cubic feet of natural gas.
Mcfe.One thousand cubic feet of natural gas equivalent, with one barrel of NGL and crude oil being equivalent to 6,000 cubic feet of natural gas.
MMBtu.One million British thermal units.
MMcf.One million cubic feet of natural gas.
MMcfe.One million cubic feet of natural gas equivalent, with one barrel of NGL and crude oil being equivalent to 6,000 cubic feet of natural gas.
Natural Gas Liquids (NGL). Hydrocarbons in natural gas that are separated from the gas as liquids through the process of absorption, condensation, adsorption or other methods in gas processing or cycling plants. Natural gas liquids primarily include ethane, propane, butane, isobutene, pentane, hexane and natural gasoline.
Net Acres or Net Wells. Refers to the sum of fractional working interests owned in gross acres or gross wells.
NYMEX.New York Mercantile Exchange.
Parent.Gulfport Energy Corporation.
Plan. The Amended Joint Chapter 11 Plan of Reorganization of Gulfport Energy Corporation and Its Debtor Subsidiaries.
Repurchase Program. A stock repurchase program to acquire up to $650 million of Gulfport's outstanding common stock. It is authorized to extend through December 31, 2024, and may be suspended from time to time, modified, extended or discontinued by the Board of Directors at any time.
RTSR.Relative total shareholder return.
SCOOP. Refers to the South Central Oklahoma Oil Province, a term used to describe a defined area that encompasses many of the top hydrocarbon producing counties in Oklahoma within the Anadarko basin. The SCOOP Play mainly targets the Devonian to Mississippian aged Woodford, Sycamore and Springer formations. Our acreage is primarily in Garvin, Grady and Stephens Counties.
SEC. The United States Securities and Exchange Commission.
SOFR. Secured Overnight Financing Rate.
TSR.Total shareholder return.
Utica.Refers to the Utica Play that includes the hydrocarbon bearing rock formations commonly referred to as the Utica formation located in the Appalachian Basin of the United States and Canada. Our acreage is located primarily in Belmont, Harrison, Jefferson and Monroe Counties in eastern Ohio.
Working Interest (WI).The operating interest which gives the owner the right to drill, produce and conduct operating activities on the property and a share of production.
WTI. Refers to West Texas Intermediate.
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Cautionary Note Regarding Forward-Looking Statements
This Form 10-Q may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "intends," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect or anticipate will or may occur in the future, including the expected impact of the war in Ukraine and the conflict in the Middle East on our business, our industry and the global economy, estimated future production and net revenues from oil and gas reserves and the present value thereof, future capital expenditures (including the amount and nature thereof), share repurchases, business strategy and measures to implement strategy, competitive strength, goals, expansion and growth of our business and operations, plans, references to future success, reference to intentions as to future matters and other such matters are forward-looking statements.
These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control.
Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management's assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Form 10-Q are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in Item 1A. "Risk Factors" and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023 and elsewhere in this Form 10-Q. All forward-looking statements speak only as of the date of this Form 10-Q.
All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
We may use the Investors section of our website (www.gulfportenergy.com) to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. The information on our website is not part of this Quarterly Report on Form 10-Q.
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GULFPORT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, 2024 December 31, 2023
Assets
Current assets:
Cash and cash equivalents $ 3,220 $ 1,929
Accounts receivable-oil, natural gas, and natural gas liquids sales 88,931 122,479
Accounts receivable-joint interest and other 14,274 22,221
Prepaid expenses and other current assets 5,944 16,951
Short-term derivative instruments 111,076 233,226
Total current assets 223,445 396,806
Property and equipment:
Oil and natural gas properties, full-cost method
Proved oil and natural gas properties 3,276,165 2,904,519
Unproved properties 224,370 204,233
Other property and equipment 11,314 9,165
Total property and equipment 3,511,849 3,117,917
Less: accumulated depletion, depreciation, amortization and impairment (1,137,464) (865,618)
Total property and equipment, net 2,374,385 2,252,299
Other assets:
Long-term derivative instruments 23,073 47,566
Deferred tax asset 521,723 525,156
Operating lease assets 8,666 14,299
Other assets 26,864 31,487
Total other assets 580,326 618,508
Total assets $ 3,178,156 $ 3,267,613
Liabilities, Mezzanine Equity and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 282,413 $ 309,532
Short-term derivative instruments 36,758 21,963
Current portion of operating lease liabilities 7,906 12,959
Total current liabilities 327,077 344,454
Non-current liabilities:
Long-term derivative instruments 23,618 18,602
Asset retirement obligation 32,327 29,941
Non-current operating lease liabilities 760 1,340
Long-term debt 694,389 667,382
Total non-current liabilities 751,094 717,265
Total liabilities $ 1,078,171 $ 1,061,719
Commitments and contingencies (Note 9)
Mezzanine equity:
Preferred stock - $0.0001 par value, 110.0 thousand shares authorized, 43.7 thousand issued and outstanding at September 30, 2024, and 44.2 thousand issued and outstanding at December 31, 2023
43,745 44,214
Stockholders' equity:
Common stock - $0.0001 par value, 42.0 million shares authorized, 17.8 million issued and outstanding at September 30, 2024, and 18.3 million issued and outstanding at December 31, 2023
2 2
Additional paid-in capital 200,196 315,726
Common stock held in reserve, 0 shares at September 30, 2024 and 62.0 thousand shares at December 31, 2023
- (1,996)
Retained earnings 1,856,511 1,847,948
Treasury stock, at cost - 3.1 thousand shares at September 30, 2024 and 0 shares at December 31, 2023
(469) -
Total stockholders' equity $ 2,056,240 $ 2,161,680
Total liabilities, mezzanine equity and stockholders' equity $ 3,178,156 $ 3,267,613
See accompanying notes to consolidated financial statements.
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GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023
REVENUES:
Natural gas sales $ 159,862 $ 177,401
Oil and condensate sales 29,467 22,896
Natural gas liquid sales 26,617 26,953
Net gain on natural gas, oil and NGL derivatives 37,966 39,417
Total revenues 253,912 266,667
OPERATING EXPENSES:
Lease operating expenses 18,218 15,627
Taxes other than income 6,833 7,216
Transportation, gathering, processing and compression 89,900 86,602
Depreciation, depletion and amortization 82,825 79,505
Impairment of oil and natural gas properties 30,487 -
General and administrative expenses 10,479 9,894
Accretion expense 583 639
Total operating expenses 239,325 199,483
INCOME FROM OPERATIONS 14,587 67,184
OTHER EXPENSE (INCOME):
Interest expense 15,866 14,919
Loss on debt extinguishment 13,388 -
Other, net 3,133 (1,438)
Total other expense 32,387 13,481
(LOSS) INCOME BEFORE INCOME TAXES (17,800) 53,703
INCOME TAX BENEFIT:
Current - -
Deferred (3,833) (554,741)
Total income tax benefit (3,833) (554,741)
NET (LOSS) INCOME $ (13,967) $ 608,444
Dividends on preferred stock (1,093) (1,133)
Participating securities - preferred stock - (89,756)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (15,060) $ 517,555
NET (LOSS) INCOME PER COMMON SHARE:
Basic $ (0.83) $ 27.72
Diluted $ (0.83) $ 27.37
Weighted average common shares outstanding-Basic 18,062 18,670
Weighted average common shares outstanding-Diluted 18,062 18,954
See accompanying notes to consolidated financial statements.
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GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
REVENUES:
Natural gas sales $ 492,606 $ 619,181
Oil and condensate sales 70,295 76,212
Natural gas liquid sales 80,870 92,935
Net gain on natural gas, oil and NGL derivatives 74,487 514,266
Total revenues 718,258 1,302,594
OPERATING EXPENSES:
Lease operating expenses 50,843 51,644
Taxes other than income 22,111 25,849
Transportation, gathering, processing and compression 263,048 259,883
Depreciation, depletion and amortization 241,401 238,747
Impairment of oil and natural gas properties 30,487 -
General and administrative expenses 30,429 27,238
Restructuring costs - 4,762
Accretion expense 1,705 2,117
Total operating expenses 640,024 610,240
INCOME FROM OPERATIONS 78,234 692,354
OTHER EXPENSE (INCOME):
Interest expense 46,027 42,402
Loss on debt extinguishment 13,388 -
Other, net 3,530 (20,492)
Total other expense 62,945 21,910
INCOME BEFORE INCOME TAXES 15,289 670,444
INCOME TAX EXPENSE (BENEFIT):
Current - -
Deferred 3,433 (554,741)
Total income tax expense (benefit) 3,433 (554,741)
NET INCOME $ 11,856 $ 1,225,185
Dividends on preferred stock (3,293) (3,718)
Participating securities - preferred stock (1,259) (180,394)
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 7,304 $ 1,041,073
NET INCOME PER COMMON SHARE:
Basic $ 0.40 $ 55.72
Diluted $ 0.40 $ 55.08
Weighted average common shares outstanding-Basic 18,133 18,686
Weighted average common shares outstanding-Diluted 18,463 18,937
See accompanying notes to consolidated financial statements.
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GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Common Stock Common Stock Held in Reserve Treasury Stock Paid-in Capital Retained Earnings Total Stockholders'
Equity
Shares Amount Shares Amount
Balance at January 1, 2023 19,097 $ 2 (62) $ (1,996) $ (286) $ 449,243 $ 381,872 $ 828,835
Net income - - - - - - 523,054 523,054
Stock compensation - - - - - 3,069 - 3,069
Repurchase of common stock under Repurchase Program (457) - - - (201) (33,001) - (33,202)
Issuance of common stock upon vesting of share-based awards 5 - - - - - - -
Common stock withheld for income taxes on share-based awards (2) - - - - (287) - (287)
Dividends on preferred stock - - - - - - (1,307) (1,307)
Balance at March 31, 2023 18,643 $ 2 (62) $ (1,996) $ (487) $ 419,024 $ 903,619 $ 1,320,162
Net income - - - - - - 93,687 93,687
Conversion of preferred stock 431 - - - - 5,836 - 5,836
Stock compensation - - - - - 3,834 - 3,834
Repurchase of common stock under Repurchase Program (448) - - - 487 (43,117) - (42,630)
Issuance of common stock upon vesting of share-based awards 50 - - - - - - -
Common stock withheld for income taxes on share-based awards (18) - - - - (1,493) - (1,493)
Dividends on preferred stock - - - - - (2) (1,278) (1,280)
Balance at June 30, 2023 18,658 $ 2 (62) $ (1,996) $ - $ 384,082 $ 996,028 $ 1,378,116
Net income - - - - - - 608,444 608,444
Conversion of preferred stock 81 - - - - 1,130 - 1,130
Stock compensation - - - - - 3,521 - 3,521
Repurchase of common stock under Repurchase Program (72) - - - (441) (8,220) - (8,661)
Issuance of common stock upon vesting of share-based awards 47 - - - - - - -
Common stock withheld for income taxes on share-based awards (14) - - - - (1,411) - (1,411)
Dividends on preferred stock - - - - - - (1,133) (1,133)
Balance at September 30, 2023 18,700 $ 2 (62) $ (1,996) $ (441) $ 379,102 $ 1,603,339 $ 1,980,006
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GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONTINUED
(In thousands)
(Unaudited)
Common Stock Common Stock Held in Reserve Treasury Stock Paid-in Capital Retained Earnings Total Stockholders'
Equity
Shares Amount Shares Amount
Balance at January 1, 2024 18,288 $ 2 (62) $ (1,996) $ - $ 315,726 $ 1,847,948 $ 2,161,680
Net income - - - - - - 52,035 52,035
Conversion of preferred stock 1 - - - - 11 - 11
Stock compensation - - - - - 3,587 - 3,587
Repurchase of common stock under Repurchase Program (210) - - - - (29,788) - (29,788)
Issuance of common stock held in reserve - - 62 1,996 - - - 1,996
Issuance of common stock upon vesting of share-based awards 18 - - - - - - -
Common stock withheld for income taxes on share-based awards (8) - - - - (1,086) - (1,086)
Dividends on preferred stock - - - - - - (1,105) (1,105)
Balance at March 31, 2024 18,089 $ 2 - $ - $ - $ 288,450 $ 1,898,878 $ 2,187,330
Net loss - - - - - - (26,212) (26,212)
Conversion of preferred stock 30 - - - - 415 - 415
Stock compensation - - - - - 4,990 - 4,990
Repurchase of common stock under Repurchase Program (156) - - - (698) (24,319) - (25,017)
Issuance of common stock upon vesting of share-based awards 303 - - - - - - -
Common stock withheld for income taxes on share-based awards (129) - - - - (20,498) - (20,498)
Dividends on preferred stock - - - - - - (1,095) (1,095)
Balance at June 30, 2024 18,137 $ 2 - $ - $ (698) $ 249,038 $ 1,871,571 $ 2,119,913
Net loss - - - - - - (13,967) (13,967)
Conversion of preferred stock 3 - - - - 43 - 43
Stock compensation - - - - - 3,975 - 3,975
Repurchase of common stock under Repurchase Program (343) - - - 229 (50,838) - (50,609)
Issuance of common stock upon vesting of share-based awards 41 - - - - - - -
Common stock withheld for income taxes on share-based awards (13) - - - - (2,022) - (2,022)
Dividends on preferred stock - - - - - - (1,093) (1,093)
Balance at September 30, 2024 17,825 $ 2 - $ - $ (469) $ 200,196 $ 1,856,511 $ 2,056,240
See accompanying notes to consolidated financial statements.
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GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Cash flows from operating activities:
Net income $ 11,856 $ 1,225,185
Adjustments to reconcile net income to net cash provided by operating activities:
Depletion, depreciation and amortization 241,401 238,747
Impairment of oil and natural gas properties 30,487 -
Loss on debt extinguishment 13,388 -
Net gain on derivative instruments (74,487) (514,266)
Net cash receipts on settled derivative instruments 240,941 101,947
Deferred income tax expense (benefit) 3,433 (554,741)
Stock-based compensation expense 8,410 7,403
Other, net 4,509 5,867
Changes in operating assets and liabilities, net 21,247 57,538
Net cash provided by operating activities 501,185 567,680
Cash flows from investing activities:
Additions to oil and natural gas properties (376,910) (421,132)
Proceeds from sale of oil and natural gas properties - 2,647
Other, net (2,141) (1,496)
Net cash used in investing activities (379,051) (419,981)
Cash flows from financing activities:
Principal payments on Credit Facility (825,000) (748,000)
Borrowings on Credit Facility 737,000 698,000
Issuance of 2029 Senior Notes 650,000 -
Early retirement of 2026 Senior Notes (524,298) -
Premium paid on 2026 Senior Notes (12,941) -
Debt issuance costs and loan commitment fees (14,820) (6,965)
Dividends on preferred stock (3,293) (3,718)
Repurchase of common stock under Repurchase Program (64,021) (62,326)
Repurchase of common stock under Repurchase Program - related party (39,864) (20,431)
Shares exchanged for tax withholdings (23,606) (3,191)
Other - (2)
Net cash used in financing activities (120,843) (146,633)
Net change in cash and cash equivalents 1,291 1,066
Cash and cash equivalents at beginning of period 1,929 7,259
Cash and cash equivalents at end of period $ 3,220 $ 8,325
See accompanying notes to consolidated financial statements.
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GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Company
Gulfport Energy Corporation (the "Company" or "Gulfport") is an independent natural gas-weighted exploration and production company focused on the production of natural gas, crude oil and NGL in the United States. The Company's principal properties are located in eastern Ohio targeting the Utica and Marcellus and in central Oklahoma targeting the SCOOP Woodford and Springer formations.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Gulfport were prepared in accordance with GAAP and the rules and regulations of the SEC.
This Quarterly Report on Form 10-Q (this "Form 10-Q") relates to the financial position as of September 30, 2024, the results of operations for the three and nine months ended September 30, 2024 and 2023 and cash flows for the nine months ended September 30, 2024 and 2023. The Company's annual report on Form 10-K for the year ended December 31, 2023, should be read in conjunction with this Form 10-Q. The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of our condensed consolidated financial statements and accompanying notes and include the accounts of our wholly-owned subsidiaries. Intercompany accounts and balances have been eliminated. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.
Recently Issued Accounting Pronouncements and Disclosure Rules
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (Topic 280). The amendments require disclosure for each reportable segment, the significant expense categories and amounts that are regularly provided to the chief operating decision-maker (CODM) and included in each reported measure of a segment's profit or loss. Additionally, this ASU enhances interim disclosure requirements and provides new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective retrospectively for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the effect the adoption of ASU 2023-07 will have on its disclosures and does not expect it to have a material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures (Topic 740). The amendment requires annual disclosure of additional categories of information about federal, state, and foreign income taxes in the rate reconciliation table and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold. Additionally, the amendment requires disclosure of annual income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and to disaggregate the information by jurisdiction based on a quantitative threshold. ASU 2023-09 is effective for the Company's annual reporting periods beginning after December 15, 2024, with early adoption permitted, and should be applied on a prospective basis, with a retrospective option. The Company is currently evaluating the effect the adoption of ASU 2023-09 will have on its disclosures and does not expect it to have a material impact on its consolidated financial statements.
In March 2024, the Securities and Exchange Commission ("SEC") issued final climate-related disclosure rules that will require disclosure of material climate-related risks and material direct greenhouse gas emissions from operations owned or controlled (Scope 1) and/or material indirect greenhouse gas emissions from purchased energy consumed in owned or controlled operations (Scope 2). Additionally, the rules require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds. In April 2024, the SEC issued an order to stay the rules pending the completion of judicial review of multiple petitions challenging the rules. The SEC has indicated that it will publish a new effective date for the rules, if ultimately implemented, at the conclusion of the stay. We are in the process of analyzing the impact of the rules on our related disclosures.
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Reclassification
Certain reclassifications have been made to prior period financial statements and related disclosures to conform to current period presentation. These reclassifications have no impact on previous reported total assets, total liabilities, net income or total operating cash flows.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following (in thousands):
September 30, 2024 December 31, 2023
Revenue payable and suspense $ 120,053 $ 148,598
Accounts payable 55,705 43,517
Accrued capital expenditures 17,861 38,322
Accrued transportation, gathering, processing and compression 40,049 32,849
Accrued contract rejection damages and shares held in reserve - 1,996
Other accrued liabilities 48,745 44,250
Total accounts payable and accrued liabilities $ 282,413 $ 309,532
Other, net
Other, net for the three and nine months ended 2024, includes approximately $3.0 million related to changes in the Company's legal reserves for certain litigation and regulatory proceedings.
As part of its Chapter 11 Cases and restructuring efforts, the Company filed motions to reject certain firm transportation agreements between the Company and affiliates of TC Energy Corporation ("TC") and Rover Pipeline LLC ("Rover"). During the first quarter of 2023, Gulfport finalized a settlement agreement with Rover that was approved by the Bankruptcy Court on February 21, 2023. Pursuant to the settlement agreement, Gulfport and Rover agreed that the firm transportation contracts between them would be rejected. As part of the settlement, Gulfport paid a $1.0 million administrative claim, which is included in Other, net. Additionally, on February 24, 2023, Gulfport received an additional $17.8 million interim distribution for its TC claim, which is also included in Other, net. Other, net in the second quarter of 2023 included a $5.0 million recoupment of previously placed collateral for certain firm transportation commitments during the Company's Chapter 11 Cases.
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Supplemental Cash Flow and Non-Cash Information (in thousands)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Supplemental disclosure of cash flow information:
Interest payments, net of amounts capitalized $ 43,980 $ 29,073
Changes in operating assets and liabilities, net:
Accounts receivable - oil, natural gas, and natural gas liquid sales $ 33,548 $ 171,673
Accounts receivable - joint interest and other 7,947 9,114
Accounts payable and accrued liabilities (21,117) (123,657)
Prepaid expenses 850 356
Other assets 19 52
Total changes in operating assets and liabilities, net $ 21,247 $ 57,538
Supplemental disclosure of non-cash transactions:
Capitalized stock-based compensation $ 4,142 $ 3,023
Asset retirement obligation capitalized 681 505
Asset retirement obligation removed due to divestiture and settlements - (1,267)
Release of common stock held in reserve 1,996 -
Unamortized 2026 Senior Notes debt issuance costs 447 -
2.PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated DD&A are as follows (in thousands):
September 30, 2024 December 31, 2023
Proved oil and natural gas properties $ 3,276,165 $ 2,904,519
Unproved properties 224,370 204,233
Other depreciable property and equipment 10,928 8,779
Land 386 386
Total property and equipment 3,511,849 3,117,917
Accumulated DD&A and impairment (1,137,464) (865,618)
Property and equipment, net $ 2,374,385 $ 2,252,299
Under the full cost method of accounting, the Company is required to perform a ceiling test each quarter. The test determines a limit, or ceiling, on the book value of the Company's oil and natural gas properties. At September 30, 2024, the net book value of the Company's oil and gas properties exceeded the calculated ceiling. As a result, the Company recorded a non-cash ceiling test impairment of its oil and natural gas properties of $30.5 million for the three months ended September 30, 2024. The impairment resulted from declines in the full cost ceiling, which primarily resulted from the significant decrease in the 12-month average trailing price for natural gas. The Company did not record an impairment in the first or second quarters of 2024 or during 2023.
Lower natural gas, oil and NGL prices can reduce the value of the Company's assets. In addition to commodity prices, the Company's production rates, levels of proved reserves, future development costs, transfers of unevaluated properties and other factors will determine its actual ceiling test calculation and impairment analysis in future periods. Given the decline of commodity prices through September 2024 and the current pricing outlook for the remainder of 2024, the Company may have additional ceiling test impairments of its oil and natural gas properties in subsequent quarters. Any such ceiling test impairment could be material to our net earnings; however, given the inter-relationship of the various judgements made to estimate proved reserves, it is impractical to estimate the potential changes in these estimates and their impact on the impairment.
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Certain general and administrative costs are capitalized to the full cost pool and represent management's estimate of costs incurred directly related to exploration and development activities. All general and administrative costs not capitalized are charged to expense as they are incurred. Capitalized general and administrative costs were approximately $6.5 million and $18.5 million, for the three and nine months ended September 30, 2024, respectively, and $5.7 million and $16.2 million for the three and nine months ended September 30, 2023, respectively.
The Company evaluates the costs excluded from its amortization calculation at least annually. Individually insignificant unevaluated properties are grouped for evaluation and periodically transferred to evaluated properties over a timeframe consistent with their expected development schedule.
The following table summarizes the Company's non-producing properties excluded from amortization by area (in thousands):
September 30, 2024 December 31, 2023
Utica & Marcellus $ 199,743 $ 177,888
SCOOP 24,627 26,345
Total unproved properties $ 224,370 $ 204,233
Asset Retirement Obligation
The following table provides a reconciliation of the Company's asset retirement obligation for the nine months ended September 30, 2024 and 2023 (in thousands):
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Asset retirement obligation, beginning of period $ 29,941 $ 33,171
Liabilities incurred 681 505
Liabilities settled - (604)
Liabilities removed due to divestitures - (919)
Accretion expense 1,705 2,117
Total asset retirement obligation, end of period $ 32,327 $ 34,270
3.LONG-TERM DEBT
Long-term debt consisted of the following items as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024 December 31, 2023
6.750% senior unsecured notes due 2029
$ 650,000 $ -
8.0% senior unsecured notes due 2026
25,702 550,000
Credit Facility due 2028 30,000 118,000
Net unamortized debt issuance costs (11,313) (618)
Total debt, net 694,389 667,382
Less: current maturities of long-term debt - -
Total long-term debt, net $ 694,389 $ 667,382
2029 Senior Notes
In September 2024, Gulfport Operating completed a private offering of $650.0 million aggregate principal amount of 6.750% senior notes due September 1, 2029. The 2029 Senior Notes are guaranteed on a senior unsecured basis by the Company and each of the Company's subsidiaries that guarantee the Credit Facility. Interest on the 2029 Senior Notes is payable semi-annually, on March 1 and September 1 of each year.
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The net proceeds from the offering, together with cash on hand were used to purchase $524.3 million of the 2026 Senior Notes in a tender offer and repay a portion of its outstanding borrowings under the Credit Facility. The 2029 Senior Notes were issued under the 2029 Senior Notes Indenture, dated as of September 13, 2024, by and among Gulfport Operating, UMB Bank, National Association, as trustee, and the Guarantors. The 2029 Senior Notes will mature on September 1, 2029.
The 2029 Senior Notes Indenture contains covenants limiting Gulfport Operating's and its restricted subsidiaries' ability to (i) incur additional debt, (ii) make certain restricted payments, (iii) make certain investments (iv) create restrictions on distributions from restricted subsidiaries, (v) engage in specified sales of assets, (vi) enter into certain transactions among affiliates, (vii) engage in consolidations, mergers and acquisitions, (viii) create unrestricted subsidiaries (ix) incur or create liens. These covenants contain important exceptions, limitations and qualifications. At any time that the 2029 Senior Notes are rated investment grade, certain covenants will be terminated and cease to apply.
2026 Senior Notes
In May 2021, Gulfport Operating issued $550 million aggregate principal amount of its 8.0% senior notes due 2026. The notes are guaranteed on a senior unsecured basis by the Company and each of the Company's subsidiaries that guarantee the Credit Facility. Interest on the 2026 Senior Notes is payable semi-annually, on June 1 and December 1 of each year. The 2026 Senior Notes were issued under the 2026 Senior Notes Indentures, dated as of May 17, 2021, by and among the Issuer, UMB Bank, National Association, as trustee, and the Guarantors and mature on May 17, 2026.
The covenants of the 1145 Indenture (other than the payment covenant) require that the Company comply with the covenants of the 4(a)(2) Indenture, as amended. The 4(a)(2) Indenture contains covenants limiting the Issuer's and its restricted subsidiaries' ability to (i) incur additional debt, (ii) make certain restricted payments, (iii) make certain investments, (iv) create restrictions on distributions from restricted subsidiaries, (v) engage in specified sales of assets, (vi) enter into certain transactions among affiliates, (vii) engage in certain lines of business, (viii) engage in consolidations, mergers and acquisitions, (ix) create unrestricted subsidiaries and (x) incur or create liens. These covenants contain important exceptions, limitations and qualifications. At any time that the 2026 Senior Notes are rated investment grade, certain covenants will be terminated and cease to apply.
As noted above, in September 2024, Gulfport Operating purchased and retired $524.3 million of its 2026 Senior Notes in a tender offer using net proceeds from the 2029 Senior Notes offering. The 2026 Senior Notes were tendered at an average price equal to 102.3% of the principal amount. The retirement of the 2026 Senior Notes resulted in a loss on debt extinguishment of $13.4 million, which included cash costs of $12.9 million.
Credit Facility
On May 1, 2023, the Company entered into that certain Joinder, Commitment Increase and Borrowing Base Redetermination Agreement, and Third Amendment to Credit Agreement (the "Third Amendment") which amended the Company's Credit Facility. The Third Amendment, among other things, (a) increased the aggregate elected commitment amounts under the Credit Facility to $900 million, (b) increased the borrowing base under the Credit Facility to $1.1 billion, (c) increased the excess cash threshold under the Credit Facility to $75 million, and (d) extended the maturity date under the Credit Facility to the earlier of (i) four years from the closing date of the Third Amendment and (ii) the 91st day prior to the maturity date of the 2026 Senior Notes or any other permitted senior notes or any permitted refinancing debt under the Credit Facility having an aggregate outstanding principal amount equal to or exceeding $100 million; provided that such notes have not been refinanced, redeemed or repaid in full on or prior to such 91st day. On April 18, 2024, Gulfport completed its semi-annual borrowing base redetermination under its Credit Facility during which the borrowing base was reaffirmed at $1.1 billion with elected commitments remaining at $900 million.
Prior to the Fourth Amendment (as defined below), the Credit Facility bore interest at a rate equal to, at the Company's election, either (a) SOFR benchmark plus an applicable margin that varies from 2.75% to 3.75% per annum or (b) a base rate plus an applicable margin that varies from 1.75% to 2.75% per annum, based on borrowing base utilization. Prior to the Fourth Amendment, the Company was required to pay a commitment fee of 0.50% per annum on the average daily unused portion of the current aggregate commitments under the Credit Facility. The Company was also required to pay customary letter of credit and fronting fees.
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Prior to the Fourth Amendment, the Credit Facility required the Company to maintain as of the last day of each fiscal quarter (i) a net funded leverage ratio of less than or equal to 3.25 to 1.00, and (ii) a current ratio of greater than or equal to 1.00 to 1.00.
On September 12, 2024, the Company entered into the Commitment Increase, Borrowing Base Reaffirmation Agreement, and Fourth Amendment to Credit Agreement (the "Fourth Amendment"), which amended the Company's Third Amended and Restated Credit Agreement. The Fourth Amendment, among other things, (a) increased the aggregate elected commitment amounts under the Credit Facility to $1.0 billion, (b) reaffirmed the borrowing base under the Credit Facility at $1.1 billion and (c) extended the maturity date under the Credit Facility to September 12, 2028.
The Credit Facility bears interest at a rate equal to, at the Company's election, either (a) SOFR benchmark plus an applicable margin that varies from 2.25% to 3.25% per annum or (b) a base rate plus an applicable margin that varies from 1.25% to 2.25% per annum, based on borrowing base utilization. The Company is required to pay a commitment fee that varies from 0.375% to 0.50% per annum on the average daily unused portion of the current aggregate commitments under the Credit Facility. The Company is also required to pay customary letter of credit and fronting fees.
The Credit Facility requires the Company to maintain as of the last day of each fiscal quarter (i) a net funded leverage ratio of less than or equal to 3.50 to 1.00, and (ii) a current ratio of greater than or equal to 1.00 to 1.00.
The obligations under the Credit Facility, certain swap obligations and certain cash management obligations, are guaranteed by the Company and the wholly-owned domestic material subsidiaries of the Borrower (collectively, the "Guarantors" and, together with the Borrower, the "Loan Parties") and secured by substantially all of the Loan Parties' assets (subject to customary exceptions).
The Credit Facility also contains customary affirmative and negative covenants, including, among other things, as to compliance with laws (including environmental laws and anti-corruption laws), delivery of quarterly and annual financial statements and borrowing base certificates, conduct of business, maintenance of property, maintenance of insurance, entry into certain derivatives contracts, restrictions on the incurrence of liens, indebtedness, asset dispositions, restricted payments, and other customary covenants. These covenants are subject to a number of limitations and exceptions.
As of September 30, 2024, the Company had $30.0 million outstanding borrowings under the Credit Facility, $63.8 million in letters of credit outstanding and was in compliance with all covenants under the credit agreement.
For the three and nine months ended September 30, 2024, the Credit Facility bore interest at a weighted average rate of 8.43% and 8.37%, respectively.
The borrowing base is redetermined semiannually on or around May 1 and November 1 of each year beginning in 2025.
Capitalization of Interest
The Company capitalized $1.2 million and $3.6 million in interest expense for the three and nine months ended September 30, 2024, respectively and $1.1 million and $3.0 million for the three and nine months ended September 30, 2023, respectively.
Fair Value of Debt
At September 30, 2024, the carrying value of the outstanding debt represented by the 2026 Senior Notes and 2029 Senior Notes were $25.7 million and $638.7 million, respectively. Based on the quoted market prices (Level 1), the fair value of the 2026 Senior Notes and 2029 Senior Notes were determined to be $26.1 million and $658.7 million, respectively, at September 30, 2024.
4.MEZZANINE EQUITY
The Company's amended and restated certificate of incorporation with the Delaware Secretary of State provides for, among other things, (i) the authority to issue 42 million shares of common stock with a par value of $0.0001 per share and (ii) the designation of 110,000 shares of preferred stock, with a par value of $0.0001 per share and a liquidation preference of $1,000 per share (the "Liquidation Preference").
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Preferred Stock
In May 2021, the Company issued 55,000 shares of preferred stock.
Holders of preferred stock are entitled to receive cumulative quarterly dividends at a rate of 10% per annum of the Liquidation Preference with respect to cash dividends and 15% per annum of the Liquidation Preference with respect to dividends paid in kind as additional shares of preferred stock ("PIK Dividends"). Gulfport currently has the option to pay either cash dividends or PIK Dividends on a quarterly basis.
Each holder of shares of preferred stock has the right (the "Conversion Right"), at its option and at any time, to convert all or a portion of the shares of preferred stock that it holds into a number of shares of common stock equal to the quotient obtained by dividing (x) the product obtained by multiplying (i) the Liquidation Preference times (ii) an amount equal to one (1) plus the Per Share Makewhole Amount (as defined in the Preferred Terms) on the date of conversion, by (y) $14.00 per share (as may be adjusted under the Preferred Terms). The shares of preferred stock outstanding at September 30, 2024 would convert to approximately 3.1 million shares of common stock if all holders of preferred stock exercised their Conversion Right.
Gulfport may redeem all, but not less than all, of the outstanding shares of preferred stock by notice to the holders of preferred stock, at the greater of (i) the aggregate value of the preferred stock, calculated by the Current Market Price (as defined in the Preferred Terms) of the number of shares of common stock into which, subject to redemption, such preferred stock would have been converted if such shares were converted pursuant to the Conversion Right at the time of such redemption and (ii) the Liquidation Preference (the "Redemption Price").
Following the Emergence Date, if there is a Fundamental Change (as defined in the Preferred Terms), Gulfport is required to redeem all, but not less than all, of the outstanding shares of preferred stock by cash payment of the Redemption Price per share of preferred stock within three (3) business days of the occurrence of such Fundamental Change. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if Gulfport lacks sufficient cash to redeem all outstanding shares of preferred stock, the Company is required to redeem a pro rata portion of each holder's shares of preferred stock.
The preferred stock has no stated maturity and will remain outstanding indefinitely unless repurchased or redeemed by Gulfport or converted into common stock.
The preferred stock has been classified as mezzanine equity in the accompanying consolidated balance sheets due to the redemption features noted above.
Dividends and Conversions
The Company paid $1.1 million and $3.3 million of cash dividends to holders of our preferred stock during the three and nine months ended September 30, 2024, respectively, and $1.1 million and $3.7 million during the three and nine months ended September 30, 2023, respectively.
The following table summarizes activity of the Company's preferred stock for the nine months ended September 30, 2024 and 2023:
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Preferred stock, beginning of period 44,214 52,295
Conversion of preferred stock (469) (6,966)
Preferred stock, end of period 43,745 45,329
5.EQUITY
In May 2021, the Company filed an amended and restated certificate of incorporation with the Delaware Secretary of State to provide for, among other things, (i) the authority to issue 42 million shares of common stock with a par value of $0.0001 per share and (ii) the designation of 110,000 shares of preferred stock, with a par value of $0.0001 per share and a Liquidation Preference of $1,000 per share.
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Common Stock
In May 2021, Gulfport issued approximately 19.8 million shares of common stock and 1.7 million shares of common stock were issued to the Disputed Claims Reserve.
In January 2024, the remaining 62,000 shares in the Disputed Claims Reserve were issued to certain claimants. There are no remaining shares in the Disputed Claims Reserve subsequent to the January 2024 issuance.
Common Stock Offering
On June 26, 2023, Gulfport completed an underwritten public offering of 1.5 million shares of its common stock by certain stockholders at a price to the public of $95.00 per share. Gulfport did not sell any of its common stock as part of this offering and did not receive any proceeds from the sale of the shares sold by the selling stockholders.
Concurrent with the closing of the offering, Gulfport purchased 263,158 shares of its common stock at $95.00 per share. The repurchase was part of the Company's existing Repurchase Program discussed below.
Share Repurchase Program
In November 2021 the Company's Board of Directors approved the Repurchase Program to acquire up to $100 million of common stock, which was subsequently increased to $650 million and extended through December 31, 2024. Purchases under the Repurchase Program may be made from time to time in open market or privately negotiated transactions, and will be subject to available liquidity, market conditions, credit agreement restrictions, applicable legal requirements, contractual obligations and other factors. The Repurchase Program does not require the Company to acquire any specific number of shares of common stock. The Company intends to purchase shares under the Repurchase Program with available funds while maintaining sufficient liquidity to fund its capital development program. The Repurchase Program may be suspended from time to time, modified, extended or discontinued by the Board of Directors at any time.
The following table summarizes activity under the Repurchase Program for the nine months ended September 30, 2024 (number of shares and dollar value of shares purchased shown in thousands):
Total Number of Shares Purchased Dollar Value of Shares Purchased Average Price Paid Per Share
First quarter 2024 210 $ 29,492 $ 140.39
Second quarter 2024 161 25,000 155.65
Third quarter 2024 341 49,862 146.17
Total 712 $ 104,354 $ 146.60
As of September 30, 2024, the Company has repurchased 5.1 million shares for $504.0 million at a weighted average price of $99.25 per share since the inception of the Repurchase Program.
6.STOCK-BASED COMPENSATION
In May 2021, the Board of Directors adopted the Incentive Plan with a share reserve equal to 2.8 million shares of common stock. The Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and performance awards or any combination of the foregoing.
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The Company has granted both restricted stock units and performance vesting restricted stock units to employees and directors pursuant to the Incentive Plan, as discussed below. During the three and nine months ended September 30, 2024, the Company's stock-based compensation expense was $4.0 million and $12.6 million, respectively, of which the Company capitalized $1.3 million and $4.1 million, respectively, relating to its exploration and development efforts. During the three and nine months ended September 30, 2023, the Company's stock-based compensation expense was $3.5 million and $9.2 million, respectively, of which the Company capitalized $1.2 million and $3.0 million, respectively, relating to its exploration and development efforts. Stock compensation expense, net of the amounts capitalized, is included in general and administrative expenses in the accompanying consolidated statements of operations. As of September 30, 2024, the Company has awarded an aggregate of approximately 444,493 restricted stock units and approximately 462,982 performance vesting restricted stock units under the Incentive Plan.
The vesting for certain share-based awards was accelerated in the first three months of 2023 in conjunction with the restructuring activities described in Note 7and is included in restructuring costs in the accompanying consolidated statement of operations.
The following tables summarizes activity for the nine months ended September 30, 2024 and 2023:
Number of
Unvested
Restricted Stock Units 		Weighted
Average
Grant Date
Fair Value 		Number of
Unvested
Performance Vesting Restricted Stock Units 		Weighted
Average
Grant Date
Fair Value
Unvested shares as of January 1, 2024 193,602 $ 83.89 255,578 $ 54.40
Granted 69,436 152.54 58,346 156.00
Vested (17,720) 75.96 - -
Forfeited/canceled (747) 99.88 - -
Unvested shares as of March 31, 2024 244,571 $ 103.91 313,924 $ 73.28
Granted(1)
6,040 155.61 130,012 48.65
Vested (37,665) 95.83 (265,797) 48.65
Forfeited/canceled (989) 117.19 - -
Unvested shares as of June 30, 2024 211,957 $ 106.75 178,139 $ 92.06
Granted - - - -
Vested (41,361) 69.92 - -
Forfeited/canceled (3,386) 117.56 - -
Unvested shares as of September 30, 2024 167,210 $ 115.64 178,139 $ 92.06
_____________________
(1) The table includes the impacts of performance share units granted in a prior year that vested higher than 100% of target due to the Company's TSR performance compared to peers.
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Number of
Unvested
Restricted Stock Units 		Weighted
Average
Grant Date
Fair Value 		Number of
Unvested
Performance Vesting Restricted Stock Units 		Weighted
Average
Grant Date
Fair Value
Unvested shares as of January 1, 2023 197,772 $ 77.49 190,804 $ 52.15
Granted 43,415 77.84 68,726 56.57
Vested (11,608) 70.86 - -
Forfeited/canceled (971) 87.68 (5,069) 47.67
Unvested shares as of March 31, 2023 228,608 $ 77.85 254,461 $ 53.43
Granted 55,041 94.53 15,094 66.66
Vested (43,088) 86.28 - -
Forfeited/canceled (1,401) 89.08 (10,731) 50.69
Unvested shares as of June 30, 2023 239,160 $ 80.10 258,824 $ 54.32
Granted 6,319 109.82 - -
Vested (46,823) 67.17 - -
Forfeited/canceled (4,761) 92.93 (853) 47.67
Unvested shares as of September 30, 2023 193,895 $ 83.88 257,971 $ 54.34
The aggregate fair value of share-based awards that vested during the three and nine months ended September 30, 2024, was approximately $6.3 million and $55.5 million, respectively, based on the stock price at the time of vesting. During the three and nine months ended September 30, 2023, the aggregate fair value of share-based awards that vested was approximately $4.9 million and $9.7 million, respectively, based on the stock price at the time of vesting.
Restricted Stock Units
Restricted stock units awarded under the Incentive Plan generally vest over a period of 3 or 4 years in the case of employees and 1 or 4 years in the case of directors upon the recipient meeting applicable service requirements. Stock-based compensation expense is recorded ratably over the service period. The grant date fair value of restricted stock units represents the closing market price of the Company's common stock on the date of the grant. Unrecognized compensation expense as of September 30, 2024, was $14.3 million. The expense is expected to be recognized over a weighted average period of 1.88 years.
Performance Vesting Restricted Stock Units
The Company has awarded performance vesting restricted stock units to certain of its executive officers under the Incentive Plan. The number of shares of common stock issued pursuant to the award will be based on a combination of (i) the Company's TSR and (ii) the Company's RTSR for the performance period. Participants will earn from 0% to 200% of the target award based on the Company's TSR and RTSR ranking compared to the TSR of the companies in the Company's designated peer group at the end of the performance period. Awards will be earned and vested at the end of a three-year performance period, subject to earlier termination of the performance period in the event of a change in control. The grant date fair values were determined using the Monte Carlo simulation method and are being recorded ratably over the performance period.
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The table below summarizes the assumptions used in the Monte Carlo simulation to determine the grant date fair value of awards granted during the nine months ended September 30, 2024:
Grant date January 24, 2023 March 3, 2023 April 3, 2023 March 1, 2024
Forecast period (years) 3 3 3 3
Risk-free interest rates 3.88% 4.64% 3.79% 4.36%
Implied equity volatility 87.2% 86.4% 70.8% 46.70%
Stock price on the date of grant $72.99 $82.20 $79.50 $142.00
Unrecognized compensation expense as of September 30, 2024, related to performance vesting restricted shares was $9.4 million. The expense is expected to be recognized over a weighted average period of 1.94 years.
7.RESTRUCTURING COSTS
During the nine months ended September 30, 2023, Gulfport recognized $4.8 million in personnel-related restructuring expenses associated with changes in the organizational structure and leadership team resulting from the appointment of Gulfport's new CEO in January 2023. Of these expenses, $1.3 million resulted from accelerated vesting of certain share-based grants, which are non-cash charges.
8.EARNINGS (LOSS) PER SHARE
Basic income or loss per share attributable to common stockholders is computed as (i) net income or loss less (ii) dividends paid to holders of preferred stock less (iii) net income or loss attributable to participating securities divided by (iv) weighted average basic shares outstanding. Diluted net income or loss per share attributable to common stockholders is computed as (i) basic net income or loss attributable to common stockholders plus (ii) diluted adjustments to income allocable to participating securities divided by (iii) weighted average diluted shares outstanding. The "if-converted" method is used to determine the dilutive impact for the Company's convertible preferred stock and the treasury stock method is used to determine the dilutive impact of unvested restricted stock.
There were 0.2 million share-based awards that were considered anti-dilutive for the three months ended September 30, 2024, and 0.3 million share-based awards that were considered dilutive for the nine months ended September 30, 2024. There were 0.3 million share-based awards that were considered dilutive for each of the three months and nine months ended September 30, 2023. There were 3.1 million potential shares of common stock issuable due to the Company's convertible preferred stock for each of the three and nine months ended September 30, 2024. There were 3.2 million potential shares of common stock issuable due to the Company's convertible preferred stock for each of the three and nine months ended September 30, 2023.
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Reconciliations of the components of basic and diluted net income (loss) per common share are presented in the tables below (in thousands):
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023
Net (loss) income $ (13,967) $ 608,444
Dividends on preferred stock (1,093) (1,133)
Participating securities - preferred stock(1)
- (89,756)
Net (loss) income attributable to common stockholders $ (15,060) $ 517,555
Re-allocation of participating securities - 1,147
Diluted net (loss) income attributable to common stockholders $ (15,060) $ 518,702
Basic Shares 18,062 18,670
Dilutive Shares 18,062 18,954
Basic EPS $ (0.83) $ 27.72
Dilutive EPS $ (0.83) $ 27.37
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(1) Preferred stock represents participating securities because it participates in any dividends on shares of common stock on a pari passu, pro rata basis. However, preferred stock does not participate in undistributed net losses.
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Net income $ 11,856 $ 1,225,185
Dividends on preferred stock (3,293) (3,718)
Participating securities - preferred stock(1)
(1,259) (180,394)
Net income attributable to common stockholders $ 7,304 $ 1,041,073
Re-allocation of participating securities 20 2,043
Diluted net income attributable to common stockholders $ 7,324 $ 1,043,116
Basic Shares 18,133 18,686
Dilutive Shares 18,463 18,937
Basic EPS $ 0.40 $ 55.72
Dilutive EPS $ 0.40 $ 55.08
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(1) Preferred stock represents participating securities because it participates in any dividends on shares of common stock on a pari passu, pro rata basis. However, preferred stock does not participate in undistributed net losses.
9.COMMITMENTS AND CONTINGENCIES
Commitments
Firm Transportation and Gathering Agreements
The Company has contractual commitments with midstream and pipeline companies for future gathering and transportation of natural gas from the Company's producing wells to downstream markets. Under certain of these agreements, the Company has minimum daily volume commitments. The Company is also obligated under certain of these arrangements to pay a demand charge for firm capacity rights on pipeline systems regardless of the amount of pipeline capacity utilized by the Company. If the Company does not utilize the capacity, it often can release it to other counterparties, thus reducing the cost of these commitments. Working interest owners and royalty interest owners, where appropriate, will be responsible for their proportionate share of these costs. Commitments related to future firm transportation and gathering agreements are not recorded as obligations in the accompanying consolidated balance sheets; however, costs associated with utilized future firm transportation and gathering agreements are reflected in the Company's estimates of proved reserves.
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A summary of these commitments at September 30, 2024, are set forth in the table below (in thousands):
Remaining 2024 $ 55,240
2025 139,740
2026 134,257
2027 136,425
2028 136,581
Thereafter 600,031
Total $ 1,202,274
Future Firm Sales Commitments
The Company has entered into various firm sales contracts to deliver and sell natural gas. The Company expects to fulfill its delivery commitments primarily with production from proved developed reserves. The Company's operated production has generally been sufficient to satisfy its delivery commitments during the periods presented, and it expects its operated production will continue to be the primary means of fulfilling its future commitments. However, where the Company's operated production is not sufficient to satisfy its delivery commitments, it can and may use spot market purchases to satisfy the commitments.
A summary of these volume commitments at September 30, 2024, are set forth in the table below (MMBtu per day):
Remaining 2024 20,000
2025 68,000
2026 75,000
2027 12,000
Thereafter -
Total 175,000
Other Operational Commitments
The Company entered into various contractual commitments to purchase inventory and other material to be used in future activities. The Company's commitment to purchase these materials spans 2024, with approximately $5.5 million remaining.
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Contingencies
The Company is involved in a number of litigation and regulatory proceedings including those described below. Many of these proceedings are in early stages, and many of them seek or may seek damages and penalties, the amount of which is indeterminate. The Company's total accrued liabilities in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, its experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. Significant judgment is required in making these estimates and their final liabilities may ultimately be materially different. In accordance with ASC Topic 450, Contingencies, an accrual is recorded for a material loss contingency when its occurrence is probable and damages are reasonably estimable based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes.
Litigation and Regulatory Proceedings
The Company, along with other oil and gas companies, have been named as a defendant in a number of lawsuits where Plaintiffs assert their respective leases are limited to the Utica/Marcellus shale geological formations and allege that Defendants have willfully trespassed and illegally produced oil, natural gas, and other hydrocarbon products beyond these respective formations. They also allege that Defendants engaged in conversion and were unjustly enriched. Plaintiffs seek the full value of any production from below the Utica/Marcellus shale formations, unspecified damages from the diminution of value to their mineral estate, unspecified punitive damages, and the payment of reasonable attorney fees, legal expenses, and interest. On April 27, 2021, the Bankruptcy Court for the Southern District of Texas approved a settlement agreement in which the plaintiffs fully released the Company from all claims that accrued and any damages related to the period before the effective date of the Company's Chapter 11 plan, which occurred on May 17, 2021. The plaintiffs are continuing to pursue alleged damages after May 17, 2021.
The Company received Notice and Finding of Violations ("NOV/FOVs") from the United States Environmental Protection Agency ("USEPA") alleging violations of the Clean Air Act at 17 locations in Ohio between 2013 and 2019. On January 22, 2020, the Company entered a Consent Decree with the Department of Justice and USEPA addressing Gulfport's failure to capture and control air emissions from storage vessels and to comply with associated inspection, recordkeeping, and reporting requirements. During the process of terminating the Consent Decree, the Company was informed that there were untimely repairs on a number of locations subject to the Company's Consent Decree that failed to comply with Subpart OOOO or Permit to Install and Operate Applications. On July 31, the Company received a NOV/FOV from USEPA related to the alleged untimely repairs. While these repairs have been completed, resolution of the matter may result in monetary sanctions exceeding $300,000. The Company also received a Demand for Stipulated Penalties for Certain Instances of Alleged Non-Compliance with Consent Decree Requirements from the United States Department of Justice ("USDOJ") on September 5, 2024. The Company paid a $97,500 penalty to resolve the USDOJ demand for stipulated penalties.
In November 2020, Robert T. Stephenson and Sandra J. Bass, as the Successor Co-Trustees of the Robert L. Stephenson Living Trust, dated January 28, 2004, and express trust; and Norma E. Stephenson, Trustee of the Norma E. Stephenson Living Trust, dated July 29, 1991, and express trust filed an action against the Company in the District Court of Grady County in the State of Oklahoma. In June 2021 the case was removed to the United States District Court for the Western District of Oklahoma. The parties have engaged in discovery and a trial has been set for Summer 2025. The complaint alleges that the Company has failed to comply with a Letter Agreement from April 1979 granting an overriding royalty interest covering 16 sections (approximately 10,240 acres). The plaintiffs seek quiet title, declaratory judgment, breach of contract, specific performance, and damages under the Oklahoma Production Revenue Standards Act. Given the nature of this matter, the Company is unable to reasonably estimate the total possible loss or ranges of loss. The Company believes it has strong defenses to these claims and intends to vigorously defend this matter; however, an adverse decision could have a material effect on the Company, its financial condition, results of operations, and cash flows.
Business Operations
The Company is involved in various lawsuits and disputes incidental to its business operations, including commercial disputes, personal injury claims, royalty claims, property damage claims and contract actions.
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Environmental Contingencies
The nature of the oil and gas business carries with it certain environmental risks for Gulfport and its subsidiaries. Gulfport and its subsidiaries have implemented various policies, programs, procedures, training and audits to reduce and mitigate environmental risks. The Company conducts periodic reviews, on a company-wide basis, to assess changes in its environmental risk profile. Environmental reserves are established for environmental liabilities for which economic losses are probable and reasonably estimable. The Company manages its exposure to environmental liabilities in acquisitions by using an evaluation process that seeks to identify pre-existing contamination or compliance concerns and address the potential liability. Depending on the extent of an identified environmental concern, it may, among other things, exclude a property from the transaction, require the seller to remediate the property to its satisfaction in an acquisition or agree to assume liability for the remediation of the property.
Other Matters
Based on management's current assessment, they are of the opinion that no pending or threatened lawsuit or dispute relating to its business operations is likely to have a material adverse effect on their future consolidated financial position, results of operations or cash flows. The final resolution of such matters could exceed amounts accrued, however, and actual results could differ materially from management's estimates.
10.DERIVATIVE INSTRUMENTS
Natural Gas, Oil and NGL Derivative Instruments
The Company seeks to mitigate risks related to unfavorable changes in natural gas, oil and NGL prices, which are subject to significant and often volatile fluctuation, by entering into over-the-counter fixed price swaps, basis swaps, costless collars and various types of option contracts. These contracts allow the Company to mitigate the impact of declines in future natural gas, oil and NGL prices by effectively locking in a floor price for a certain level of the Company's production. However, these hedge contracts also limit the benefit to the Company in periods of favorable price movements.
The volume of production subject to commodity derivative instruments and the mix of the instruments are frequently evaluated and adjusted by management in response to changing market conditions. Gulfport may enter into commodity derivative contracts up to limitations set forth in its Credit Facility. The Company generally enters into commodity derivative contracts for approximately 30% to 70% of its forecasted current year annual production by the end of the first quarter of each fiscal year. The Company typically enters into commodity derivative contracts for the next 12 to 36 months. Gulfport does not enter into commodity derivative contracts for speculative purposes.
The Company does not currently have any commodity derivative transactions that have margin requirements or collateral provisions that would require payments prior to the scheduled settlement dates. The Company's commodity derivative contract counterparties are typically financial institutions and energy trading firms with investment-grade credit ratings. Gulfport routinely monitors and manages its exposure to counterparty risk by requiring specific minimum credit standards for all counterparties, actively monitoring counterparties' public credit ratings and avoiding the concentration of credit exposure by transacting with multiple counterparties. The Company has master netting agreements with some counterparties that allow the offsetting of receivables and payables in a default situation. As of September 30, 2024, our commodity derivative contracts were spread among 12 counterparties.
Fixed price swaps require that the Company receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. They are settled monthly based on differences between the fixed price specified in the contract and the referenced settlement price. When the referenced settlement price is less than the price specified in the contract, the Company receives an amount from the counterparty based on the price difference multiplied by the volume. Similarly, when the referenced settlement price exceeds the price specified in the contract, the Company pays the counterparty an amount based on the price difference multiplied by the volume.
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The Company has entered into natural gas, crude oil and NGL fixed price swap contracts based off the NYMEX Henry Hub, NYMEX WTI and Mont Belvieu C3 indices. Below is a summary of the Company's open fixed price swap positions as of September 30, 2024.
Index Daily Volume Weighted
Average Price
Natural Gas (MMBtu/d) ($/MMBtu)
Remaining 2024 NYMEX Henry Hub 400,000 $ 3.77
2025 NYMEX Henry Hub 250,000 $ 3.82
2026 NYMEX Henry Hub 160,000 $ 3.59
Oil (Bbl/d) ($/Bbl)
Remaining 2024 NYMEX WTI 500 $ 77.50
2025 NYMEX WTI 2,000 $ 74.50
NGL (Bbl/d) ($/Bbl)
Remaining 2024 Mont Belvieu C3 2,500 $ 30.25
2025 Mont Belvieu C3 2,000 $ 30.09
Each two-way costless collar has a set floor and ceiling price for the hedged production. They are settled monthly based on differences between the floor and ceiling prices specified in the contract and the referenced settlement price. If the applicable monthly price indices are outside of the ranges set by the floor and ceiling prices in the collar contracts, the Company will cash-settle the difference with the hedge counterparty. When the referenced settlement price is less than the floor price in the contract, the Company receives an amount from the counterparty based on the price difference multiplied by the hedged contract volume. Similarly, when the referenced settlement price exceeds the ceiling price specified in the contract, the Company pays the counterparty an amount based on the price difference multiplied by the hedged contract volume. No payment is due from either party if the referenced settlement price is within the range set by the floor and ceiling prices.
The Company has entered into natural gas and crude oil costless collars based off the NYMEX Henry Hub and NYMEX WTI indices. Below is a summary of the Company's costless collar positions as of September 30, 2024.
Index Daily Volume Weighted Average Floor Price Weighted Average Ceiling Price
Natural Gas (MMBtu/d) ($/MMBtu) ($/MMBtu)
Remaining 2024 NYMEX Henry Hub 225,000 $ 3.36 $ 5.14
2025 NYMEX Henry Hub 220,000 $ 3.37 $ 4.23
2026 NYMEX Henry Hub 70,000 $ 3.31 $ 4.06
Oil (Bbl/d) ($/Bbl) ($/Bbl)
Remaining 2024 NYMEX WTI 1,000 $ 62.00 $ 80.00
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From time to time, the Company has sold natural gas call options in exchange for a premium, and used the associated premiums received to enhance the fixed price for a portion of the fixed price natural gas swaps. Each sold call option has an established ceiling price. If at the time of settlement the referenced settlement price exceeds the ceiling price, the Company pays its counterparty an amount equal to the difference between the referenced settlement price and the price ceiling multiplied by the hedged contract volumes. No payment is due from either party if the referenced settlement price is below the price ceiling. Below is a summary of the Company's open sold call option positions as of September 30, 2024.
Index Daily Volume Weighted Average Price
Natural Gas (MMBtu/d) ($/MMBtu)
Remaining 2024 NYMEX Henry Hub 202,000 $ 3.33
2025 NYMEX Henry Hub 193,315 $ 5.80
In addition, the Company has entered into natural gas basis swap positions. These instruments are arrangements that guarantee a fixed price differential to NYMEX Henry Hub from a specified delivery point. The Company receives the fixed price differential and pays the floating market price differential to the counterparty for the hedged commodity. As of September 30, 2024, the Company had the following natural gas basis swap positions open:
Gulfport Pays Gulfport Receives Daily Volume Weighted Average Fixed Spread
Natural Gas (MMBtu/d) ($/MMBtu)
Remaining 2024 Rex Zone 3 NYMEX Plus Fixed Spread 150,000 $ (0.15)
Remaining 2024 NGPL TXOK NYMEX Plus Fixed Spread 70,000 $ (0.31)
Remaining 2024 TETCO M2 NYMEX Plus Fixed Spread 230,000 $ (0.94)
2025 Rex Zone 3 NYMEX Plus Fixed Spread 90,000 $ (0.21)
2025 NGPL TXOK NYMEX Plus Fixed Spread 40,000 $ (0.29)
2025 TETCO M2 NYMEX Plus Fixed Spread 230,000 $ (0.96)
2026 TETCO M2 NYMEX Plus Fixed Spread 110,000 $ (0.99)
Balance Sheet Presentation
The Company reports the fair value of derivative instruments on the consolidated balance sheets as derivative instruments under current assets, noncurrent assets, current liabilities and noncurrent liabilities on a gross basis. The Company determines the current and noncurrent classification based on the timing of expected future cash flows of individual trades. The following table presents the fair value of the Company's derivative instruments on a gross basis at September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024 December 31, 2023
Short-term derivative asset $ 111,076 $ 233,226
Long-term derivative asset 23,073 47,566
Short-term derivative liability (36,758) (21,963)
Long-term derivative liability (23,618) (18,602)
Total commodity derivative position $ 73,773 $ 240,227
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Gains and Losses
The following table presents the gain and loss recognized in net gain (loss) on natural gas, oil and NGL derivatives in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 (in thousands):
Net gain (loss) on derivative instruments
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023
Natural gas derivatives - fair value (losses) gains $ (57,168) $ 4,534
Natural gas derivatives - settlement gains 84,943 48,522
Total gains on natural gas derivatives 27,775 53,056
Oil derivatives - fair value gains (losses) 6,698 (8,414)
Oil derivatives - settlement gains (losses) 93 (2,130)
Total gains (losses) on oil and condensate derivatives 6,791 (10,544)
NGL derivatives - fair value gains (losses) 3,559 (5,763)
NGL derivatives - settlement (losses) gains (159) 2,668
Total gains (losses) on NGL derivatives 3,400 (3,095)
Total gains on natural gas, oil and NGL derivatives $ 37,966 $ 39,417
Net gain (loss) on derivative instruments
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Natural gas derivatives - fair value (losses) gains $ (168,516) $ 416,473
Natural gas derivatives - settlement gains 242,645 97,794
Total gains on natural gas derivatives 74,129 514,267
Oil derivatives - fair value gains (losses) 4,832 (1,424)
Oil derivatives - settlement losses (166) (2,204)
Total gains (losses) on oil and condensate derivatives 4,666 (3,628)
NGL derivatives - fair value losses (2,771) (2,730)
NGL derivatives - settlement (losses) gains (1,537) 6,357
Total (losses) gains on NGL derivatives (4,308) 3,627
Total gains on natural gas, oil and NGL derivatives $ 74,487 $ 514,266
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Offsetting of Derivative Assets and Liabilities
As noted above, the Company records the fair value of derivative instruments on a gross basis. The following tables present the gross amounts of recognized derivative assets and liabilities in the consolidated balance sheets and the amounts that are subject to offsetting under master netting arrangements with counterparties, all at fair value (in thousands):
As of September 30, 2024
Gross Assets (Liabilities) Presented in the Consolidated Balance Sheets Gross Amounts Subject to Master Netting Agreements Net Amount
Derivative assets $ 134,149 $ (56,232) $ 77,917
Derivative liabilities $ (60,376) $ 56,232 $ (4,144)
As of December 31, 2023
Gross Assets (Liabilities) Presented in the Consolidated Balance Sheets Gross Amounts Subject to Master Netting Agreements Net Amount
Derivative assets $ 280,792 $ (30,866) $ 249,926
Derivative liabilities $ (40,565) $ 30,866 $ (9,699)
Concentration of Credit Risk
By using derivative instruments that are not traded on an exchange, the Company is exposed to the credit risk of its counterparties. Credit risk is the risk of loss from counterparties not performing under the terms of the derivative instrument. When the fair value of a derivative instrument is positive, the counterparty is expected to owe the Company, which creates credit risk. To minimize the credit risk in derivative instruments, it is the Company's policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers. The Company's derivative contracts are spread between multiple counterparties to lessen its exposure to any individual counterparty. Additionally, the Company uses master netting agreements to minimize credit risk exposure. The creditworthiness of the Company's counterparties is subject to periodic review. None of the Company's derivative instrument contracts contain credit-risk related contingent features. Other than as provided by the Company's revolving credit facility, the Company is not required to provide credit support or collateral to any of its counterparties under its derivative instruments, nor are the counterparties required to provide credit support to the Company.
11.FAIR VALUE MEASUREMENTS
The Company records certain financial and non-financial assets and liabilities on the balance sheet at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. Market or observable inputs are the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. Fair value measurements are classified and disclosed in one of the following categories:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date.
Level 2 - Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 - Significant inputs to the valuation model are unobservable.
Valuation techniques that maximize the use of observable inputs are favored. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair value hierarchy. Reclassifications of fair value between Level 1, Level 2 and Level 3 of the fair value hierarchy, if applicable, are made at the end of each quarter.
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Financial assets and liabilities
The following tables summarize the Company's financial and non-financial assets and liabilities by valuation level as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024
Level 1 Level 2 Level 3
Assets:
Derivative instruments $ - $ 134,149 $ -
Contingent consideration arrangement - - 2,700
Total assets $ - $ 134,149 $ 2,700
Liabilities:
Derivative instruments $ - $ 60,376 $ -
December 31, 2023
Level 1 Level 2 Level 3
Assets:
Derivative instruments $ - $ 280,792 $ -
Contingent consideration arrangement - - 2,900
Total assets $ - $ 280,792 $ 2,900
Liabilities:
Derivative instruments $ - $ 40,565 $ -
The Company estimates the fair value of all derivative instruments using industry-standard models that consider various assumptions, including current market and contractual prices for the underlying instruments, implied volatility, time value, nonperformance risk, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be supported by observable data.
The Company's SCOOP water infrastructure sale, which closed in the first quarter of 2020, included a contingent consideration arrangement. As of September 30, 2024, the fair value of the contingent consideration was $2.7 million, of which $0.1 million is included in prepaid expenses and other assets and $2.6 million is included in other assets in the accompanying consolidated balance sheets. The fair value of the contingent consideration arrangement is calculated using discounted cash flow techniques and is based on internal estimates of the Company's future development program and water production levels. Given the unobservable nature of the inputs, the fair value measurement of the contingent consideration arrangement is deemed to use Level 3 inputs. The Company records changes in fair value in earnings. The Company recognized an immaterial gain for each the three and nine months ended September 30, 2024 with respect to this contingent consideration arrangement. The Company did not recognize a gain or loss for the three months ended September 30, 2023, and recognized a loss of $1.2 million for the nine months ended September 30, 2023, with respect to this contingent consideration arrangement. These fair value changes are included in other expense (income) in the accompanying consolidated statements of operations.
Non-financial assets and liabilities
The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with oil and gas properties. Given the unobservable nature of the inputs, including plugging costs and reserve lives, the initial measurement of the asset retirement obligation liability is deemed to use Level 3 inputs. See Note 2for further discussion of the Company's asset retirement obligations.
Fair value of other financial instruments
The carrying amounts on the accompanying consolidated balance sheet for cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities are carried at cost, which approximates market value due to their short-term nature. Long-term debt related to the Company's Credit Facility is carried at cost, which approximates market value based on the borrowing rates currently available to the Company with similar terms and maturities.
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12.REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
The Company's revenues are primarily derived from the sale of natural gas, oil, condensate and NGL. These sales are recognized in the period that the performance obligations are satisfied. The Company generally considers the delivery of each unit (MMBtu or Bbl) to be separately identifiable and represents a distinct performance obligation that is satisfied at the time control of the product is transferred to the customer. Revenue is measured based on consideration specified in the contract with the customer, and excludes any amounts collected on behalf of third parties. These contracts typically include variable consideration that is based on pricing tied to market indices and volumes delivered in the current month. As such, this market pricing may be constrained (i.e., not estimable) at the inception of the contract but will be recognized based on the applicable market pricing, which will be known upon transfer of the goods to the customer. The payment date is usually within 30 days of the end of the calendar month in which the commodity is delivered.
Gathering, processing and compression fees attributable to gas processing, as well as any transportation fees, including firm transportation fees, incurred to deliver the product to the purchaser, are presented as transportation, gathering, processing and compression expense in the accompanying consolidated statements of operations.
Transaction Price Allocated to Remaining Performance Obligations
A significant number of the Company's product sales are short-term in nature generally through evergreen contracts with contract terms of one year or less. These contracts typically automatically renew under the same provisions. For those contracts, the Company has utilized the practical expedient allowed in the revenue accounting standard that exempts the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For product sales that have a contract term greater than one year, the Company has utilized the practical expedient that exempts the Company from disclosure of the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required. Currently, the Company's product sales that have a contractual term greater than one year have no long-term fixed consideration.
Contract Balances
Receivables from contracts with customers are recorded when the right to consideration becomes unconditional, generally when control of the product has been transferred to the customer. Receivables from contracts with customers were $88.9 million and $122.5 million as of September 30, 2024 and December 31, 2023, respectively, and are reported in accounts receivable - oil, natural gas, and natural gas liquids sales in the accompanying consolidated balance sheets. The Company currently has no assets or liabilities related to its revenue contracts, including no upfront or rights to deficiency payments.
Prior-Period Performance Obligations
The Company records revenue in the month production is delivered to the purchaser. However, settlement statements for certain sales may be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production that was delivered to the purchaser and the price that will be received for the sale of the product. The differences between the estimates and the actual amounts for product sales is recorded in the month that payment is received from the purchaser. For each of the periods presented, revenue recognized in the reporting periods related to performance obligations satisfied in prior reporting periods was not material.
13.LEASES
Nature of Leases
The Company has operating leases on certain equipment with remaining lease durations in excess of one year. The Company recognizes a right-of-use asset and lease liability on the balance sheet for all leases with lease terms of greater than one year. Short-term leases that have an initial term of one year or less are not capitalized.
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The Company has entered into contracts for drilling rigs with varying terms with third parties to ensure operational continuity, cost control and rig availability in its operations.The Company has concluded its drilling rig contracts are operating leases as the assets are identifiable and the Company has the right to control the identified assets. At September 30, 2024, the Company had one active long-term drilling rig contract.
The Company rents office space for its corporate headquarters, field locations and certain other equipment from third parties, which expire at various dates through 2026. These agreements are typically structured with non-cancelable terms of one year to five years. The Company has determined these agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. The Company has included any renewal options that it has determined are reasonably certain of exercise in the determination of the lease terms.
Discount Rate
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company's incremental borrowing rate reflects the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
Future amounts due under operating lease liabilities as of September 30, 2024 were as follows (in thousands):
Remaining 2024 $ 2,652
2025 5,721
2026 561
2027 10
2028 -
Total lease payments $ 8,944
Less: imputed interest (277)
Total $ 8,667
Lease costs incurred for the three and nine months ended September 30, 2024 and 2023, consisted of the following (in thousands):
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023
Operating lease cost $ 3,403 $ 3,443
Variable lease cost - -
Short-term lease cost 4,834 5,112
Total lease cost(1)
$ 8,237 $ 8,555
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Operating lease cost $ 10,209 $ 10,329
Variable lease cost - -
Short-term lease cost 20,783 22,410
Total lease cost(1)
$ 30,992 $ 32,739
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(1) The majority of the Company's total lease cost was capitalized to the full cost pool, and the remainder was included in either lease operating expenses or general and administrative expenses in the accompanying consolidated statements of operations.
The weighted-average remaining lease term as of September 30, 2024 was 0.81 years. The weighted-average discount rate used to determine the operating lease liability as of September 30, 2024 was 6.56%.
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14.INCOME TAXES
The Company records its quarterly tax provision based on an estimate of the annual effective tax rate expected to apply to continuing operations for the various jurisdictions in which it operates. The tax effects of certain items, such as tax rate changes, significant unusual or infrequent items, and certain changes in the assessment of the realizability of deferred taxes, are recognized as discrete items in the period in which they occur and are excluded from the estimated annual effective tax rate.
The Company's effective income tax rate was 22.5% and (82.8)% for the nine months ended September 30, 2024 and September 30, 2023, respectively. The higher effective tax rates for the nine months ended September 30, 2024 is primarily related to the valuation allowance the Company released during the quarter ended September 30, 2023.
At each reporting period, the Company weighs all available positive and negative evidence to determine whether its deferred tax assets are more likely than not to be realized. A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized. To assess that likelihood, the Company uses estimates and judgment regarding future taxable income and considers the tax laws in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities and tax planning strategies as well as the current and forecasted business economics of the oil and gas industry. Based upon the Company's analysis, the Company currently believes that it is more likely than not that a portion of the Company's federal and state deferred tax assets will be utilized. The Company has an $85.8 million valuation allowance associated with its federal and state deferred tax assets.
The Company will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to the deferred tax assets. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of the deferred tax assets that could have a material impact on the consolidated financial statements. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time.
15.RELATED PARTY TRANSACTIONS
Share Repurchase Program
On March 19, 2024, the Company purchased 97,219 shares of its common stock from Silver Point Capital, L.P. for approximately $15.0 million. The repurchase is part of the Company's existing share Repurchase Program. Upon closing of the transaction on March 19, 2024, the repurchased common stock was canceled.
On September 19, 2024, the Company purchased 170,000 shares of its common stock from Silver Point Capital, L.P. for approximately $24.9 million. The repurchase is part of the Company's existing share Repurchase Program. Upon closing of the transaction on September 25, 2024, the repurchased common stock was canceled.
Concurrent with the closing of the June 2023 offering transaction discussed in Note 5, the Company purchased 215,060 shares of its common stock from Silver Point Capital, L.P. for approximately $20.4 million. The repurchase is part of the Company's existing share Repurchase Program. Upon closing of the transaction on June 26, 2023, the repurchased common stock was canceled.
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16.SUBSEQUENT EVENTS
Natural Gas, Oil and NGL Derivative Instruments
Subsequent to September 30, 2024, as of October 28, 2024, the Company entered into the following derivative contracts:
Period Type of Derivative Instrument Index
Daily Volume
Weighted
Average Price
Natural Gas
(MMBtu/d) ($/MMBtu)
2025
Basis Swaps
Rex Zone 3
20,000 $(0.18)
2025
Basis Swaps
TGP 500
10,000 $0.31
2025
Basis Swaps
Transco Station 85
5,000 $0.38
2026
Basis Swaps
Rex Zone 3
40,000 $(0.19)
2026
Basis Swaps
TGP 500
10,000 $0.54
2026
Basis Swaps
Transco Station 85
5,000 $0.52
2026
Basis Swaps
TETCO M2
20,000 $(0.94)
Expanded Common Stock Repurchase Program
On November 4, 2024, the Company's Board of Directors approved an increase to the authorized Repurchase Program from $650 million to $1 billion and extended the authorization through December 31, 2025.
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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide the reader of the financial statements with a narrative from the perspective of management on the financial condition, results of operations, liquidity and certain other factors that may affect the Company's operating results. MD&A should be read in conjunction with the financial statements and related Notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
The following information updates the discussion of Gulfport's financial condition provided in its Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Form 10-K") and analyzes the changes in the results of operations between the periods of July 1, 2024 through September 30, 2024, January 1, 2024 through September 30, 2024, July 1, 2023 through September 30, 2023 and January 1, 2023 through September 30, 2023. For definitions of commonly used natural gas and oil terms found in this Quarterly Report on Form 10-Q, please refer to the "Definitions" provided in this report.
Overview
Gulfport is an independent natural gas-weighted exploration and production company with assets primarily located in the Appalachia and Anadarko basins. Our principal properties are located in eastern Ohio targeting the Utica and Marcellus and in central Oklahoma targeting the SCOOP Woodford and Springer formations. Our strategy is to develop our assets in a safe, environmentally responsible manner, while generating sustainable cash flow, improving margins and operating efficiencies and returning capital to shareholders. To accomplish these goals, we allocate capital to projects we believe offer the highest rate of return and we deploy leading drilling and completion techniques and technologies in our development efforts.
Recent Developments
Long-Term Debt and Credit Facility
In September 2024, Gulfport Operating purchased approximately 95%, or $524.3 million of the 2026 Senior Notes in a tender offer using the net proceeds received from the issuance of the 2029 Senior Notes. The net impact of these transactions resulted in the Company extending the maturity of substantially all of the senior notes from 2026 to 2029.
Additionally, on September 12, 2024, the Company entered into the Commitment Increase, Borrowing Base Reaffirmation Agreement, and Fourth Amendment to Credit Agreement (the "Fourth Amendment"), which amended the Company's Third Amended and Restated Credit Agreement. The Fourth Amendment, among other things, (a) increased the aggregate elected commitment amounts under the Credit Facility to $1.0 billion, (b) reaffirmed the borrowing base under the Credit Facility at $1.1 billion, (c) extended the maturity date under the Credit Facility to September 12, 2028, and (d) reduced the pricing grid 50 bps.
Share Repurchase Program
During the three months ended September 30, 2024, the Company repurchased 341,132 shares for $49.9 million at a weighted average price of $146.17 per share. As of September 30, 2024, the Company repurchased 5.1 million shares for $504.0 million at a weighted average price of $99.25 per share since the inception of the Repurchase Program.
Impact of the War in Ukraine and the conflict in the Middle East
The invasion of Ukraine by Russia and the sanctions imposed in response to the crisis have increased volatility in the global financial markets and are expected to have further global economic consequences, including disruptions of the global energy markets and the amplification of inflation and supply chain constraints. Other armed conflicts, including the ongoing conflict in the Middle East, may result in further disruptions in the global economic environment. The ultimate impact of the war in Ukraine and the conflict in the Middle East will depend on future developments and the timing and extent to which normal economic and operating conditions resume.
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2024 Operational and Financial Highlights
During the third quarter of 2024, we had the following notable achievements:
•Reported total net production of 1,057.2 MMcfe per day.
•Turned to sales 10 gross (9.0 net) operated wells.
•Generated $189.7 million of operating cash flows.
•Repurchased 341,132 shares for $49.9 million at a weighted average price of $146.17 per share.
•Exited the quarter with total liquidity of $909.4 million.
•Extended the maturity of substantially all long-term Senior Notes from 2026 to 2029.
•Extended the maturity of the Credit Facility to 2028.
2024 Production and Drilling Activity
Production Volumes
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023
Natural gas (Mcf/day)
Utica & Marcellus 822,015 795,191
SCOOP 144,507 176,161
Total 966,522 971,352
Oil and condensate (Bbl/day)
Utica & Marcellus 3,105 528
SCOOP 1,513 2,667
Total 4,618 3,195
NGL (Bbl/day)
Utica & Marcellus 3,491 2,271
SCOOP 6,998 8,790
Total 10,489 11,061
Combined (Mcfe/day)
Utica & Marcellus 861,592 811,985
SCOOP 195,572 244,902
Total 1,057,164 1,056,887
Totals may not sum or recalculate due to rounding.
Our total net production averaged approximately 1,057.2 MMcfe per day during the three months ended September 30, 2024, as compared to 1,056.9 MMcfe per day during the three months ended September 30, 2023. Production per day remained consistent largely as a result of our 2023 and 2024 development programs.
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Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Natural gas (Mcf/day)
Utica & Marcellus 816,788 755,372
SCOOP 154,054 198,616
Total 970,842 953,989
Oil and condensate (Bbl/day)
Utica & Marcellus 1,815 558
SCOOP 1,754 3,256
Total 3,569 3,813
NGL (Bbl/day)
Utica & Marcellus 2,610 2,466
SCOOP 7,629 9,921
Total 10,239 12,387
Combined (Mcfe/day)
Utica & Marcellus 843,339 773,512
SCOOP 210,348 277,676
Total 1,053,687 1,051,188
Totals may not sum or recalculate due to rounding.
Our total net production averaged approximately 1,053.7 MMcfe per day during the nine months ended September 30, 2024, as compared to 1,051.2 MMcfe per day during the nine months ended September 30, 2023. Production per day remained consistent largely as a result of our 2023 and 2024 development programs.
Utica/Marcellus. We spud three gross (3.0 net) operated wells targeting the Utica formation during the three months ended September 30, 2024. In addition, we commenced sales on seven gross (6.6 net) operated Utica wells.
As of October 28, 2024, we had one operated drilling rig running in Ohio drilling the Utica formation.
SCOOP. We did not spud any operated wells in the SCOOP during the three months ended September 30, 2024. We commenced sales on three gross (2.4 net) operated wells.
As of October 28, 2024, we had one operated drilling rig running in the SCOOP.
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RESULTS OF OPERATIONS
Comparison of the Three Month Periods Ended September 30, 2024 and 2023
Natural Gas, Oil and Condensate and NGL Production and Pricing (sales totals in thousands)
The following table summarizes our natural gas, oil and condensate and NGL production and related pricing for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Some totals below may not sum or recalculate due to rounding.
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023
Natural gas sales
Natural gas production volumes (MMcf) 88,920 89,364
Natural gas production volumes (MMcf) per day 967 971
Total sales $ 159,862 $ 177,401
Average price without the impact of derivatives ($/Mcf) $ 1.80 $ 1.99
Impact from settled derivatives ($/Mcf) $ 0.95 $ 0.54
Average price, including settled derivatives ($/Mcf) $ 2.75 $ 2.53
Oil and condensate sales
Oil and condensate production volumes (MBbl) 425 294
Oil and condensate production volumes (MBbl) per day 5 3
Total sales $ 29,467 $ 22,896
Average price without the impact of derivatives ($/Bbl) $ 69.35 $ 77.90
Impact from settled derivatives ($/Bbl) $ 0.22 $ (7.25)
Average price, including settled derivatives ($/Bbl) $ 69.57 $ 70.65
NGL sales
NGL production volumes (MBbl) 965 1,018
NGL production volumes (MBbl) per day 10 11
Total sales $ 26,617 $ 26,953
Average price without the impact of derivatives ($/Bbl) $ 27.58 $ 26.49
Impact from settled derivatives ($/Bbl) $ (0.16) $ 2.62
Average price, including settled derivatives ($/Bbl) $ 27.42 $ 29.11
Natural gas, oil and condensate and NGL sales
Natural gas equivalents (MMcfe) 97,259 97,234
Natural gas equivalents (MMcfe) per day 1,057 1,057
Total sales $ 215,946 $ 227,250
Average price without the impact of derivatives ($/Mcfe) $ 2.22 $ 2.34
Impact from settled derivatives ($/Mcfe) $ 0.87 $ 0.50
Average price, including settled derivatives ($/Mcfe) $ 3.09 $ 2.84
Production Costs:
Average lease operating expenses ($/Mcfe) $ 0.19 $ 0.16
Average taxes other than income ($/Mcfe) $ 0.07 $ 0.07
Average transportation, gathering, processing and compression ($/Mcfe) $ 0.92 $ 0.89
Total lease operating expenses, taxes other than income and midstream costs ($/Mcfe) $ 1.18 $ 1.12
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Natural Gas, Oil and Condensate and NGL Sales (in thousands)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 % Change
Natural gas $ 159,862 $ 177,401 (10) %
Oil and condensate 29,467 22,896 29 %
NGL 26,617 26,953 (1) %
Natural gas, oil and condensate and NGL sales $ 215,946 $ 227,250 (5) %
The decrease in natural gas sales without the impact of derivatives when comparing the three months ended September 30, 2024, to the three months ended September 30, 2023 was due to a 10% decrease in realized prices. The realized price change was primarily driven by the decrease in the average Henry Hub gas index from $2.55 per Mcf in the three months ended September 30, 2023, to $2.16 per Mcf during the three months ended September 30, 2024.
The increase in oil and condensate sales without the impact of derivatives when comparing the three months ended September 30, 2024, to the three months ended September 30, 2023, was due to a 45% increase in sales volumes, partially offset by a 11% decrease in realized prices. The 45% increase in oil and condensate production was primarily due to commencement of sales on new wells targeting the Utica liquids window, partially offset by lower SCOOP production as a result of limited 2023 development activity. The realized price change was primarily driven by the decrease in the average WTI crude index from $82.26 per barrel in the three months ended September 30, 2023, to $75.09 per barrel during the three months ended September 30, 2024.
The decrease in NGL sales without the impact of derivatives when comparing the three months ended September 30, 2024, to the three months ended September 30, 2023, was due to a 5% decrease in NGL sales volumes, partially offset by a 4% increase in realized prices. The 5% decrease in NGL production was primarily due to natural declines and limited 2023 development activity in the SCOOP. The realized price change was primarily driven by the increase in the average Mont Belvieu NGL index from $28.27 per barrel in the three months ended September 30, 2023, to $30.22 per barrel during the three months ended September 30, 2024.
Natural Gas, Oil and NGL Derivatives (in thousands)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023
Natural gas derivatives - fair value (losses) gains $ (57,168) $ 4,534
Natural gas derivatives - settlement gains 84,943 48,522
Total gains on natural gas derivatives 27,775 53,056
Oil derivatives - fair value gains (losses) 6,698 (8,414)
Oil derivatives - settlement gains (losses) 93 (2,130)
Total gains (losses) on oil and condensate derivatives 6,791 (10,544)
NGL derivatives - fair value gains (losses) 3,559 (5,763)
NGL derivatives - settlement (losses) gains (159) 2,668
Total gains (losses) on NGL derivatives 3,400 (3,095)
Total gains on natural gas, oil and NGL derivatives $ 37,966 $ 39,417
We recognize fair value changes on our natural gas, oil and NGL derivative instruments in each reporting period. The changes in fair value resulted from new positions and settlements that occurred during each period, as well as the relationship between contract prices and the associated forward curves. The change in the total gain for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was primarily the result of changes in futures pricing for oil, natural gas, and NGLs during each period. See Note 10of our consolidated financial statements for hedged volumes and pricing.
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Lease Operating Expenses (in thousands, except per unit)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 % Change
Lease operating expenses
Utica & Marcellus $ 13,080 $ 10,343 26 %
SCOOP 5,138 5,284 (3) %
Total lease operating expenses $ 18,218 $ 15,627 17 %
Lease operating expenses per Mcfe
Utica & Marcellus $ 0.17 $ 0.14 21 %
SCOOP 0.29 0.23 26 %
Total lease operating expenses per Mcfe $ 0.19 $ 0.16 17 %
The increase in our total and per unit LOE for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was primarily the result of an increase in water disposal activities in the Utica/Marcellus and an increase in repairs, maintenance and compression activities in the SCOOP.
Taxes Other Than Income (in thousands, except per unit)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 % Change
Production taxes $ 4,528 $ 5,897 (23) %
Property taxes 1,797 1,163 55 %
Other 508 156 226 %
Total taxes other than income $ 6,833 $ 7,216 (5) %
Total taxes other than income per Mcfe $ 0.07 $ 0.07 - %
The decrease in total taxes other than income for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was primarily related to a decrease in production taxes resulting from the decrease in our natural gas, oil and NGL revenues excluding the impact of hedges discussed above.
Transportation, Gathering, Processing and Compression (in thousands, except per unit)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 % Change
Transportation, gathering, processing and compression $ 89,900 $ 86,602 4 %
Transportation, gathering, processing and compression per Mcfe $ 0.92 $ 0.89 4 %
Transportation, gathering, processing and compression for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, increased primarily as a result of the increase in our production as noted above.
Depreciation, Depletion and Amortization (in thousands, except per unit)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 % Change
Depreciation, depletion and amortization of oil and gas properties $ 82,368 $ 79,166 4 %
Depreciation, depletion and amortization of other property and equipment 457 339 35 %
Total depreciation, depletion and amortization $ 82,825 $ 79,505 4 %
Depreciation, depletion and amortization per Mcfe $ 0.85 $ 0.82 4 %
The total and per unit depreciation, depletion and amortization of our oil and gas properties for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, increased 4% primarily as a result of our drilling and development activities during 2023 and 2024.
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Impairment of Oil and Natural Gas Properties
At September 30, 2024, the net book value of our oil and gas properties exceeded the calculated ceiling. As a result, we recorded a non-cash ceiling test impairment of $30.5 million for the three months ended September 30, 2024. The impairment resulted from declines in the full cost ceiling, which primarily resulted from the significant decrease in the 12-month average trailing price for natural gas. We did not record an impairment during the three months ended September 30, 2023.
General and Administrative Expenses (in thousands, except per unit)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 % Change
General and administrative expenses, gross $ 20,694 $ 18,983 9 %
Reimbursed from third parties (3,720) (3,431) 8 %
Capitalized general and administrative expenses (6,495) (5,658) 15 %
General and administrative expenses, net $ 10,479 $ 9,894 6 %
General and administrative expenses, net per Mcfe $ 0.11 $ 0.10 6 %
The increase in total and per unit general and administrative expenses for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was primarily driven by increases in employee compensation.
Interest Expense (in thousands, except per unit)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 % Change
Interest on 2026 Senior Notes $ 9,014 $ 11,000 (18) %
Interest on 2029 Senior Notes 2,194 - 100 %
Interest expense on Credit Facility 4,423 4,088 8 %
Amortization of loan costs 1,016 927 10 %
Capitalized interest (1,230) (1,115) 10 %
Other 449 19 2263 %
Total interest expense $ 15,866 $ 14,919 6 %
Interest expense per Mcfe $ 0.16 $ 0.15 6 %
Due to the tender of the 2026 Senior Notes, interest paid on the 2026 Senior Notes decreased 18% for the three months ended September 30, 2024 compared to the three months September 30, 2023. The Company also paid $2.2 million of interest on the 2029 Senior Notes for the three months ended September 30, 2024. Interest expense on our Credit Facility increased 8% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, as a result of a higher average balance outstanding. Amortization of loan costs increased 10% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, as a result of the Third and Fourth Amendments to the Credit Facility which increased the elected commitments and borrowing base. The Company also capitalized $1.2 million and $1.1 million in interest expense for the three months ended September 30, 2024 and September 30, 2023, respectively.
Loss on Debt Extinguishment
In September 2024, Gulfport Operating purchased and retired $524.3 million of the 2026 Senior Notes in a tender offer using net proceeds from the 2029 Senior Notes offering. The 2026 Senior Notes were tendered at an average price equal to 102.3% of the principal amount. The retirement of the 2026 Senior Notes resulted in a loss on debt extinguishment of $13.4 million, which included cash costs of $12.9 million.
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Other, net (in thousands)
Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 % Change
Other, net $ 3,133 $ (1,438) (318) %
Other, net in the Company's consolidated statements of operations for the three months ended September 30, 2024, included approximately $3.0 million related to changes in the Company's legal reserves for certain litigation and regulatory proceedings.
Income Taxes
We recorded income tax benefit of $3.8 million and $554.7 million for the three months ended September 30, 2024 and September 30, 2023, respectively. See Note 14of our consolidated financial statements for further discussion of our income tax benefit.
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Comparison of the Nine Month Periods Ended September 30, 2024 and 2023
Natural Gas, Oil and Condensate and NGL Production and Pricing (sales totals in thousands)
The following table summarizes our natural gas, oil and condensate, and NGL production and related pricing for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Some totals below may not sum or recalculate due to rounding.
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Natural gas sales
Natural gas production volumes (MMcf) 266,011 260,439
Natural gas production volumes (MMcf) per day 971 954
Total sales $ 492,606 $ 619,181
Average price without the impact of derivatives ($/Mcf) $ 1.85 $ 2.38
Impact from settled derivatives ($/Mcf) $ 0.91 $ 0.37
Average price, including settled derivatives ($/Mcf) $ 2.76 $ 2.75
Oil and condensate sales
Oil and condensate production volumes (MBbl) 978 1,041
Oil and condensate production volumes (MBbl) per day 4 4
Total sales $ 70,295 $ 76,212
Average price without the impact of derivatives ($/Bbl) $ 71.89 $ 73.21
Impact from settled derivatives ($/Bbl) $ (0.17) $ (2.29)
Average price, including settled derivatives ($/Bbl) $ 71.72 $ 70.92
NGL sales
NGL production volumes (MBbl) 2,805 3,382
NGL production volumes (MBbl) per day 10 12
Total sales $ 80,870 $ 92,935
Average price without the impact of derivatives ($/Bbl) $ 28.83 $ 27.48
Impact from settled derivatives ($/Bbl) $ (0.55) $ 1.88
Average price, including settled derivatives ($/Bbl) $ 28.28 $ 29.36
Natural gas, oil and condensate and NGL sales
Natural gas equivalents (MMcfe) 288,710 286,974
Natural gas equivalents (MMcfe) per day 1,054 1,051
Total sales $ 643,771 $ 788,328
Average price without the impact of derivatives ($/Mcfe) $ 2.23 $ 2.75
Impact from settled derivatives ($/Mcfe) $ 0.83 $ 0.35
Average price, including settled derivatives ($/Mcfe) $ 3.06 $ 3.10
Production Costs:
Average lease operating expenses ($/Mcfe) $ 0.18 $ 0.18
Average taxes other than income ($/Mcfe) $ 0.08 $ 0.09
Average transportation, gathering, processing and compression ($/Mcfe) $ 0.91 $ 0.91
Total lease operating expenses, taxes other than income and midstream costs ($/Mcfe) $ 1.16 $ 1.18
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Natural Gas, Oil and Condensate and NGL Sales (in thousands)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 % Change
Natural gas $ 492,606 $ 619,181 (20) %
Oil and condensate 70,295 76,212 (8) %
NGL 80,870 92,935 (13) %
Natural gas, oil and condensate and NGL sales $ 643,771 $ 788,328 (18) %
The decrease in natural gas sales without the impact of derivatives when comparing the nine months ended September 30, 2024, to the nine months ended September 30, 2023 was due to a 22% decrease in realized prices, partially offset by a 2% increase in sales volumes. The realized price change was primarily driven by the decrease in the average Henry Hub gas index from $2.69 per Mcf in the nine months ended September 30, 2023, to $2.10 per Mcf in the nine months ended September 30, 2024. The 2% increase in natural gas production was primarily due to our 2023 and 2024 development programs in the Utica/Marcellus, partially offset by natural declines and limited activity in the SCOOP.
The decrease in oil and condensate sales without the impact of derivatives when comparing the nine months ended September 30, 2024, to the nine months ended September 30, 2023, was due to a 6% decrease in sales volumes and a 2% decrease in realized prices. The 6% decrease in oil and condensate production was primarily due to natural declines in the SCOOP, partially offset by commencement of sales on new wells targeting the Utica liquids window.
The decrease in NGL sales without the impact of derivatives when comparing the nine months ended September 30, 2024, to the nine months ended September 30, 2023, was due to a 17% decrease in NGL sales volumes, partially offset by a 5% increase in realized prices. The 17% decrease in NGL production was primarily due to natural declines and limited 2023 development in the SCOOP. The realized price change was driven by the increase in the average Mont Belvieu NGL index from $29.83 per barrel in the nine months ended September 30, 2023, to $32.13 per barrel in the nine months ended September 30, 2024.
Natural Gas, Oil and NGL Derivatives (in thousands)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Natural gas derivatives - fair value (losses) gains $ (168,516) $ 416,473
Natural gas derivatives - settlement gains 242,645 97,794
Total gains on natural gas derivatives 74,129 514,267
Oil derivatives - fair value gains (losses) 4,832 (1,424)
Oil derivatives - settlement losses (166) (2,204)
Total gains (losses) on oil and condensate derivatives 4,666 (3,628)
NGL derivatives - fair value losses (2,771) (2,730)
NGL derivatives - settlement (losses) gains (1,537) 6,357
Total (losses) gains on NGL derivatives (4,308) 3,627
Total gains on natural gas, oil and NGL derivatives $ 74,487 $ 514,266
We recognize fair value changes on our natural gas, oil and NGL derivative instruments in each reporting period. The changes in fair value resulted from new positions and settlements that occurred during each period, as well as the relationship between contract prices and the associated forward curves. The significant change in the total gain (loss) for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, was primarily the result of changes in futures pricing for oil, natural gas, and NGLs during each period. See Note 10of our consolidated financial statements for hedged volumes and pricing.
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Lease Operating Expenses (in thousands, except per unit)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 % Change
Lease operating expenses
Utica & Marcellus $ 34,560 $ 33,354 4 %
SCOOP 16,283 18,290 (11) %
Total lease operating expenses $ 50,843 $ 51,644 (2) %
Lease operating expenses per Mcfe
Utica & Marcellus $ 0.15 $ 0.16 (6) %
SCOOP 0.28 0.24 17 %
Total lease operating expenses per Mcfe $ 0.18 $ 0.18 (2) %
The decrease in our total and per unit LOE for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, was primarily the result of a decrease in water disposal activities, surface rental and labor expenses throughout our SCOOP operations and non-operated expenses in Utica/Marcellus.
Taxes Other Than Income (in thousands, except per unit)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 % Change
Production taxes $ 14,236 $ 19,616 (27) %
Property taxes 6,326 4,802 32 %
Other 1,549 1,431 8 %
Total taxes other than income $ 22,111 $ 25,849 (14) %
Total taxes other than income per Mcfe $ 0.08 $ 0.09 (15) %
The decrease in total and per unit taxes other than income for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, was primarily related to a decrease in production taxes resulting from the decrease in our natural gas, oil and NGL revenues excluding the impact of hedges discussed above.
Transportation, Gathering, Processing and Compression (in thousands, except per unit)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 % Change
Transportation, gathering, processing and compression $ 263,048 $ 259,883 1 %
Transportation, gathering, processing and compression per Mcfe $ 0.91 $ 0.91 1 %
Transportation, gathering, processing and compression for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 increased in total and on a per unit basis primarily as a result of the increase in our production as noted above.
Depreciation, Depletion and Amortization (in thousands, except per unit)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 % Change
Depreciation, depletion and amortization of oil and gas properties $ 240,279 $ 237,874 1 %
Depreciation, depletion and amortization of other property and equipment 1,122 873 29 %
Total depreciation, depletion and amortization $ 241,401 $ 238,747 1 %
Depreciation, depletion and amortization per Mcfe $ 0.84 $ 0.83 1 %
Depreciation, depletion and amortization of our oil and gas properties for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, increased 1% primarily as a result of our drilling and development activities during 2023 and 2024.
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Impairment of Oil and Natural Gas Properties
At September 30, 2024, the net book value of our oil and gas properties exceeded the calculated ceiling. As a result, we recorded a non-cash ceiling test impairment of $30.5 million for the nine months ended September 30, 2024. The impairment resulted from declines in the full cost ceiling, which primarily resulted from the significant decrease in the 12-month average trailing price for natural gas. We did not record an impairment in the first or second quarters of 2024 or during 2023.
General and Administrative Expenses (in thousands, except per unit)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 % Change
General and administrative expenses, gross $ 59,921 $ 53,814 11 %
Reimbursed from third parties (10,962) (10,390) 6 %
Capitalized general and administrative expenses (18,530) (16,186) 14 %
General and administrative expenses, net $ 30,429 $ 27,238 12 %
General and administrative expenses, net per Mcfe $ 0.11 $ 0.09 11 %
The increase in total and per unit general and administrative expenses for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, was primarily driven by increases in employee compensation.
Restructuring costs
During the nine months ended September 30, 2023, Gulfport recognized $4.8 million in personnel-related restructuring expenses associated with changes in the organizational structure and leadership team resulting from the appointment of Gulfport's new CEO in January 2023. Of these expenses, $1.3 million resulted from accelerated vesting of share-based grants, which are non-cash charges. The organizational changes were completed in the second quarter of 2023 and there are no remaining employee termination liabilities associated with these changes.
Interest Expense (in thousands, except per unit)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 % Change
Interest on 2026 Senior Notes $ 31,014 $ 33,000 (6) %
Interest on 2029 Senior Notes 2,194 - 100 %
Interest expense on Credit Facility 12,001 9,921 21 %
Amortization of loan costs 2,910 2,323 25 %
Capitalized interest (3,603) (2,954) 22 %
Other 1,511 112 1249 %
Total interest expense $ 46,027 $ 42,402 9 %
Interest expense per Mcfe $ 0.16 $ 0.15 8 %
Due to the tender of the 2026 Senior Notes, interest paid on the 2026 Senior Notes decreased 6% for the nine months ended September 30, 2024 compared to the nine months September 30, 2023. The Company also paid $2.2 million of interest on the 2029 Senior Notes for the nine months ended September 30, 2024. Interest expense on our Credit Facility increased 21% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, as a result of a higher average balance outstanding. Amortization of loan costs increased 25% for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, as a result of the Third and Fourth Amendments to the Credit Facility which increased the elected commitments and borrowing base. The Company also capitalized $3.6 million and $3.0 million in interest expense for the nine months ended September 30, 2024 and September 30, 2023, respectively.
Loss on Debt Extinguishment
In September 2024, Gulfport Operating purchased and retired $524.3 million of the 2026 Senior Notes in a tender offer using net proceeds from the 2029 Senior Notes offering. The 2026 Senior Notes were tendered at an average price equal to 102.3% of the principal amount. The retirement of the 2026 Senior Notes resulted in a loss on debt extinguishment of $13.4 million, which included cash costs of $12.9 million.
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Other, net (in thousands)
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 % Change
Other, net $ 3,530 $ (20,492) (117) %
Other, net in the Company's consolidated statements of operations for the nine months ended September 30, 2024, included approximately $3.0 million related to changes in the Company's legal reserves for certain litigation and regulatory proceedings.
As part of its Chapter 11 Cases and restructuring efforts, the Company filed motions to reject certain firm transportation agreements between the Company and affiliates of TC Energy Corporation ("TC") and Rover Pipeline LLC ("Rover"). During the first quarter of 2023, Gulfport finalized a settlement agreement with Rover that was approved by the Bankruptcy Court on February 21, 2023. Pursuant to the settlement agreement, Gulfport and Rover agreed that the firm transportation contracts between them would be rejected. As part of the settlement, Gulfport paid a $1.0 million administrative claim, which is included in Other, net. Additionally, on February 24, 2023, Gulfport received an additional $17.8 million interim distribution for its TC claim, which is also included in Other, net. Other, net in the second quarter of 2023 included a $5.0 million recoupment of previously placed collateral for certain firm transportation commitments during our Chapter 11 Cases.
Income Taxes
We recorded income tax expense of $3.4 million for the nine months ended September 30, 2024 compared to an income tax benefit of $554.7 million for the nine months ended September 30, 2023. See Note 14of our consolidated financial statements for further discussion of our income tax expense.
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Liquidity and Capital Resources
Overview. We strive to maintain sufficient liquidity to ensure financial flexibility, withstand commodity price volatility, fund our development projects, operations and capital expenditures and return capital to shareholders. We utilize derivative contracts to reduce the financial impact of commodity price volatility and provide a level of certainty to the Company's cash flows. We generally fund our operations, planned capital expenditures and any share repurchases with cash flow from our operating activities, cash on hand, and borrowings under our Credit Facility. Additionally, we may access debt and equity markets and sell properties to enhance our liquidity. There is no guarantee that the debt or equity capital markets will be available to us on acceptable terms or at all.
For the three and nine months ended September 30, 2024, our primary sources of capital resources and liquidity have consisted of internally generated cash flows from operations, and our primary uses of cash have been for development of our oil and natural gas properties, share repurchases and dividend payments on our preferred stock.
We believe our annual free cash flow generation, borrowing capacity under the Credit Facility and cash on hand will provide sufficient liquidity to fund our operations, capital expenditures, interest expense and share repurchases during the next 12 months and the foreseeable future.
To the extent actual operating results, realized commodity prices or uses of cash differ from our assumptions, our liquidity could be adversely affected. See Note 3of our consolidated financial statements for further discussion of our debt obligations, including the principal and carrying amounts of our senior notes.
As of September 30, 2024, we had $3.2 million of cash and cash equivalents, $30.0 million of outstanding borrowings under our Credit Facility, $63.8 million of letters of credit outstanding, $25.7 million of outstanding 2026 Senior Notes, and $650.0 million of outstanding 2029 Senior Notes. Our total principal amount of funded debt as of September 30, 2024 was $705.7 million.
As of October 28, 2024 we had $3.3 million of cash and cash equivalents, $10.0 million in borrowings under our Credit Facility, $63.8 million of letters of credit outstanding, $25.7 million of outstanding 2026 Senior Notes, and $650.0 million of outstanding 2029 Senior Notes.
Debt. In May 2021, we issued our 2026 Senior Notes. The 2026 Senior Notes are guaranteed on a senior unsecured basis by each of the Company's subsidiaries that guarantee the Credit Facility. In September 2024, Gulfport Operating purchased approximately 95%, or $524.3 million, of the 2026 Senior Notes in a tender offer using net proceeds received from the private placement of the 2029 Senior Notes. This results in extending the maturity of substantially all of our senior notes from 2026 to 2029.
Additionally, on May 1, 2023, the Company entered into that certain Joinder, Commitment Increase and Borrowing Base Redetermination Agreement, and Third Amendment to Credit Agreement (the "Third Amendment") which amended the Company's Credit Facility. The Third Amendment, among other things, (a) increased the aggregate elected commitment amounts under the Credit Facility to $900 million, (b) increased the borrowing base under the Credit Facility to $1.1 billion, (c) increased the excess cash threshold under the Credit Facility to $75 million, and (d) extended the maturity date under the Credit Facility from October 14, 2025 to the earlier of (i) May 1, 2027 and (ii) the 91st day prior to the maturity date of the 2026 Senior Notes or any other permitted senior notes or any permitted refinancing debt under the Credit Facility having an aggregate outstanding principal amount equal to or exceeding $100 million; provided that such notes have not been refinanced, redeemed or repaid in full on or prior to such 91st day. On April 18, 2024, Gulfport completed its semi-annual borrowing base redetermination under its Credit Facility during which the borrowing base was reaffirmed at $1.1 billion with elected commitments remaining at $900 million.
On September 12, 2024, the Company entered into the Commitment Increase, Borrowing Base Reaffirmation Agreement, and Fourth Amendment to Credit Agreement (the "Fourth Amendment"), which amended the Company's Third Amended and Restated Credit Agreement. The Fourth Amendment, among other things, (a) increased the aggregate elected commitment amounts under the Credit Facility to $1.0 billion, (b) reaffirmed the borrowing base under the Credit Facility at $1.1 billion and (c) extended the maturity date under the Credit Facility to September 12, 2028.
See Note 3of our consolidated financial statements for additional discussion of our outstanding debt.
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Dividends on Preferred Stock. As discussed in Note 4of our consolidated financial statements, holders of preferred stock are entitled to receive cumulative quarterly dividends at a rate of 10% per annum of the Liquidation Preference with respect to cash dividends and 15% per annum of the Liquidation Preference with respect to dividends paid in kind as additional shares of preferred stock ("PIK Dividends"). We currently have the option to pay either cash dividends or PIK Dividends on a quarterly basis.
The Company paid $1.1 million and $3.3 million of cash dividends to holders of our preferred stock during the three and nine months ended September 30, 2024, respectively, and $1.1 million and $3.7 million during the three and nine months ended September 30, 2023, respectively.
Supplemental Guarantor Financial Information. The 2026 Senior Notes are guaranteed on a senior unsecured basis by all existing consolidated subsidiaries that guarantee our Credit Facility or certain other debt (the "Guarantors"). The 2026 Senior Notes are not guaranteed by Grizzly Holdings or Mule Sky, LLC (the "Non-Guarantors"). The Guarantors are 100% owned by the Parent, and the guarantees are full, unconditional, joint and several. There are no significant restrictions on the ability of the Parent or the Guarantors to obtain funds from each other in the form of a dividend or loan. The guarantees rank equally in the right of payment with all of the senior indebtedness of the subsidiary guarantors and senior in the right of payment to any future subordinated indebtedness of the subsidiary guarantors. The 2026 Senior Notes and the guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness (including all borrowings and other obligations under our amended and restated credit agreement) to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries that do not guarantee the 2026 Senior Notes.
SEC Regulation S-X Rule 13-01 requires the presentation of "Summarized Financial Information" to replace the "Condensed Consolidating Financial Information" required under Rule 3-10. Rule 13-01 allows the omission of Summarized Financial Information if assets, liabilities and results of operations of the Guarantors are not materially different than the corresponding amounts presented in our consolidated financial statements. The Parent and Guarantor subsidiaries comprise our material operations. Therefore, we concluded that the presentation of the Summarized Financial Information is not required as our Summarized Financial Information of the Guarantors is not materially different from our consolidated financial statements.
Derivatives and Hedging Activities. Our results of operations and cash flows are impacted by changes in market prices for natural gas, oil and NGL. To mitigate a portion of the exposure to adverse market changes, we have entered into various derivative instruments. Our natural gas, oil and NGL derivative activities, when combined with our sales of natural gas, oil and NGL, allow us to predict with greater certainty the total revenue we will receive. See Item 3Quantitative and Qualitative Disclosures About Market Risk for further discussion on the impact of commodity price risk on our financial position. Additionally, see Note 10 of our consolidated financial statements for further discussion of derivatives and hedging activities.
Capital Expenditures. Our capital expenditures have historically been related to the execution of our drilling and completion activities in addition to certain lease acquisition activities. Our capital investment strategy is focused on prudently developing our existing properties to generate sustainable cash flow considering current and forecasted commodity prices. For the nine months ended September 30, 2024, the Company's incurred capital expenditures totaled $367.8 million, of which $277.4 million related to drilling and completion activities, $51.6 million related to maintenance leasehold and land investment and $38.8 million related to discretionary acreage acquisitions.
Our drilling and completion capital expenditures for 2024 are currently estimated to be in the range of $325 million to $335 million. Also, we currently expect to spend approximately $50 million to $60 million in 2024 for maintenance leasehold and land investment, which is focused on near-term drilling programs and facilitating increases in our working interests and lateral footage in units we plan to drill in 2024, 2025 and 2026. We expect this capital program to result in approximately 1,055 to 1,070 MMcfe per day of production in 2024.
Additionally, we are pursuing accretive acreage opportunities that expand our resource footprint and provide optionality to our near-term development plans and intend to allocate approximately $45 million in discretionary acreage acquisitions for 2024.
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Sources and Uses of Cash
The following table presents the major changes in cash and cash equivalents for the nine months ended September 30, 2024 and 2023 (in thousands):
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Net cash provided by operating activities $ 501,185 $ 567,680
Additions to oil and natural gas properties (376,910) (421,132)
Debt activity, net 24,761 (50,000)
Debt issuance and loan commitment fees (14,820) (6,965)
Repurchases of common stock (103,885) (82,757)
Dividends on preferred stock (3,293) (3,718)
Shares exchanged for tax withholdings (23,606) (3,191)
Other (2,141) 1,149
Net change in cash and cash equivalents $ 1,291 $ 1,066
Cash and cash equivalents at end of period $ 3,220 $ 8,325
Net cash provided by operating activities. Net cash flow provided by operating activities was $501.2 million for the nine months ended September 30, 2024, as compared to $567.7 million for the nine months ended September 30, 2023. The decrease was primarily the result of decreases in natural gas revenues.
Additions to oil and natural gas properties. During the nine months ended September 30, 2024, we spud 13 gross (12.7 net) operated wells and commenced sales from 16 gross (15.4 net) operated wells targeting the Utica formation for a total incurred cost of approximately $227.5 million. During the nine months ended September 30, 2024, we commenced sales from 3 gross (2.4 net) operated wells in the SCOOP for a total incurred cost of approximately $47.5 million.
Drilling and completion costs discussed above reflect incurred costs while drilling and completion costs presented in the table below reflect cash payments for drilling and completions. Incurred capital expenditures and cash capital expenditures may vary from period to period due to the cash payment cycle. Cash capital expenditures for the nine months ended September 30, 2024 and 2023, were as follows (in thousands):
Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023
Oil and Natural Gas Property Cash Expenditures:
Drilling and completion costs $ 267,802 $ 339,170
Leasehold acquisitions 89,931 65,845
Other 19,177 16,117
Total oil and natural gas property expenditures $ 376,910 $ 421,132
Debt activity, net. In the nine months ended September 30, 2024, the Company had $737.0 million and $825.0 million in borrowings and repayments, respectively, on its Credit Facility. In September 2024, the Company purchased $524.3 million of the 2026 Senior Notes in a tender offer. The retirement of the 2026 Senior Notes resulted in a loss on debt extinguishment of $13.4 million, which included cash costs of $12.9 million. The Company also issued $650.0 million aggregate principal amount of its 6.750% senior notes due 2029. As of October 28, 2024 the Company had $10.0 million in borrowings outstanding on its Credit Facility.
Debt issuance and loan commitment fees. During the nine months ended September 30, 2024, the Company incurred debt issuance and loan commitment fees of $14.8 million, as compared to $7.0 million during the nine months ended September 30, 2023. The increase was primarily related to the issuance of the 2029 Senior Notes and the Fourth Amendment to the Credit Facility. See Note 3of our consolidated financial statements for further discussion of the long-term debt activity.
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Repurchases of common stock. During the nine months ended September 30, 2024, the Company repurchased 711,829 shares for approximately $104.4 million under the Repurchase Program at a weighted average price of $146.60 per share. For the same period in 2023, the Company repurchased 976,769 shares for $82.9 million at a weighted average price of $84.88 per share. As of October 28, 2024, we repurchased 5.2 million shares for approximately $518.7 million under the Repurchase Program at a weighted average price of $100.17 per share.
Dividends on preferred stock. During the nine months ended September 30, 2024, the Company paid $3.3 million of cash dividends to holders of our preferred stock compared to $3.7 million in the nine months ended September 30, 2023.
Shares exchanged for tax withholdings. During the nine months ended September 30, 2024, the Company paid $23.6 million of shares exchanged for tax withholdings compared to $3.2 million in the nine months ended September 30, 2023. The increase in shares traded for taxes was primarily due to the vesting of certain PSU awards as discussed in Note 6.
Other. During the nine months ended September 30, 2024, the Company incurred other expenses of $2.1 million, as compared to other income of $1.1 million during the nine months ended September 30, 2023. The change was primarily related to proceeds from sales of oil and gas properties of $2.6 million during the nine months ended September 30, 2023.
Contractual and Commercial Obligations
We have various contractual obligations in the normal course of our operations and financing activities, as discussed in Note 9of our consolidated financial statements. There have been no other material changes to our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Off-balance Sheet Arrangements
We may enter into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations. As of September 30, 2024, our material off-balance sheet arrangements and transactions include $63.8 million in letters of credit outstanding against our Credit Facility and $43.8 million in surety bonds issued. Both the letters of credit and surety bonds are being used as financial assurance, primarily on certain firm transportation agreements. Additionally, the Company entered into various contractual commitments to purchase inventory and other material to be used in future activities. The Company's commitment to purchase these materials spans 2024, with approximately $5.5 million remaining. There are no other transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect our liquidity or availability of our capital resources. See Note 9of our consolidated financial statements for further discussion of the various financial guarantees we have issued.
Critical Accounting Policies and Estimates
As of September 30, 2024, there have been no significant changes in our critical accounting policies from those disclosed in our 2023Annual Report on Form 10-K.
Oil and Natural Gas Properties. Lower natural gas, oil and NGL prices can reduce the value of our assets. In addition to commodity prices, our production rates, levels of proved reserves, future development costs, transfers of unevaluated properties and other factors will determine the actual ceiling test calculation and impairment analysis in future periods. Given the decline of commodity prices through the date of this filing and the current pricing outlook for the remainder of 2024, we may have additional ceiling test impairments of our oil and natural gas properties in subsequent quarters. Any such ceiling test impairment could be material to our net earnings; however, given the inter-relationship of the various judgements made to estimate proved reserves, it is impractical to estimate the potential changes in these estimates and their impact on the impairment. Full cost impairments have no impact to our cash flow or liquidity.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Natural Gas, Oil and Natural Gas Liquids Derivative Instruments. Our results of operations and cash flows are impacted by changes in market prices for natural gas, oil and NGL. To mitigate a portion of our exposure to adverse price changes, we have entered into various derivative instruments. Our natural gas, oil and NGL derivative activities, when combined with our sales of natural gas, oil and NGL, allow us to predict with greater certainty the revenue we will receive. We believe our derivative instruments continue to be highly effective in achieving our risk management objectives.
Our general strategy for protecting short-term cash flow and attempting to mitigate exposure to adverse natural gas, oil and NGL price changes is to hedge into strengthening natural gas, oil and NGL futures markets when prices reach levels that management believes provide reasonable rates of return on our invested capital. Information we consider in forming an opinion about future prices includes general economic conditions, industrial output levels and expectations, producer breakeven cost structures, liquefied natural gas trends, oil and natural gas storage inventory levels, industry decline rates for base production and weather trends. Executive management is involved in all risk management activities and the board of directors reviews our derivative program at its quarterly board meetings.
We use derivative instruments to achieve our risk management objectives, including swaps, options and costless collars. All of these are described in more detail below. We typically use swaps for a large portion of the oil and natural gas price risk we hedge. We have also sold calls in the past to take advantage of premiums associated with market price volatility.
We determine the notional volume potentially subject to derivative contracts by reviewing our overall estimated future production levels, which are derived from extensive examination of existing producing reserve estimates and estimates of estimated production from new drilling. Production forecasts are updated at least monthly and adjusted if necessary to actual results and activity levels. We do not enter into derivative contracts for volumes in excess of our share of forecasted production, and if production estimates were lowered for future periods and derivative instruments are already executed for some volume above the new production forecasts, the positions are typically reversed. The actual fixed prices on our derivative instruments is derived from the reference prices from third-party indices such as NYMEX. All of our commodity derivative instruments are net settled based on the difference between the fixed price as stated in the contract and the floating-price, resulting in a net amount due to or from the counterparty.
We review our derivative positions continuously and if future market conditions change and prices are at levels we believe could jeopardize the effectiveness of a position, we will mitigate this risk by either negotiating a cash settlement with our counterparty, restructuring the position or entering a new trade that effectively reverses the current position. The factors we consider in closing or restructuring a position before the settlement date are identical to those we review when deciding to enter the original derivative position.
We have determined the fair value of our derivative instruments utilizing established index prices, volatility curves, discount factors and option pricing models. These estimates are compared to counterparty valuations for reasonableness. Derivative transactions are also subject to the risk that counterparties will be unable to meet their obligations. This non-performance risk is considered in the valuation of our derivative instruments, but to date has not had a material impact on the values of our derivatives. The values we report in our financial statements are as of a point in time and subsequently change as these estimates are revised to reflect actual results, changes in market conditions and other factors. See Note 11of our consolidated financial statements for further discussion of the fair value measurements associated with our derivatives.
As of September 30, 2024, our natural gas, oil and NGL derivative instruments consisted of the following types of instruments:
•Swaps: We receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. In exchange for higher fixed prices on certain of our swap trades, we may sell call options.
•Basis Swaps: These instruments are arrangements that guarantee a fixed price differential to NYMEX from a specified delivery point. We receive the fixed price differential and pay the floating market price differential to the counterparty for the hedged commodity.
•Costless Collars: Each two-way price collar has a set floor and ceiling price for the hedged production. If the applicable monthly price indices are outside of the ranges set by the floor and ceiling prices in the various collars, the Company will cash-settle the difference with the counterparty.
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•Call Options: We sell, and occasionally buy, call options in exchange for a premium. At the time of settlement, if the market price exceeds the fixed price of the call option, we pay the counterparty the excess on sold call options, and we would receive the excess on bought call options. If the market price settles below the fixed price of the call option, no payment is due from either party.
Our hedge arrangements may expose us to risk of financial loss in certain circumstances, including instances where production is less than expected or commodity prices increase. At September 30, 2024, we had a net asset derivative position of $73.8 million as compared to a net asset derivative position of $240.2 million as of December 31, 2023. Utilizing actual derivative contractual volumes, a 10% increase in underlying commodity prices would have decreased our asset by approximately $86.2 million, while a 10% decrease in underlying commodity prices would have increased our asset by approximately $85.9 million. However, any realized derivative gain or loss would be substantially offset by a decrease or increase, respectively, in the actual sales value of production covered by the derivative instrument.
Interest Rate Risk. Our Credit Facility is structured under floating rate terms, as advances under these facilities may be in the form of either base rate loans or term benchmark loans. As such, our interest expense is sensitive to fluctuations in the prime rates in the United States, or, if the term benchmark rates are elected, the term benchmark rates. At September 30, 2024, we had $30.0 million outstanding borrowings under our Credit Facility which bore interest at a weighted average rate of 8.37% for the nine months ended September 30, 2024. As of September 30, 2024, we did not have any interest rate swaps to hedge interest rate risks.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Control and Procedures. Under the supervision of our Chief Executive Officer and our Chief Financial Officer, and with participation of management, we have established disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
As of September 30, 2024, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act. Based upon our evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of September 30, 2024, our disclosure controls and procedures are effective.
In designing and evaluating the Company's disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the control system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events and the application of judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of these and other inherent limitations of control systems, there is only reasonable assurance that the Company's controls will succeed in achieving their goals under all potential future conditions.
Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS
The information with respect to this Item 1. Legal Proceedings is set forth in Note 9of our consolidated financial statements.
ITEM 1A. RISK FACTORS
Our business has many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our common stock or senior notes are described below and under "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Issuer Repurchases of Equity Securities
Our common stock repurchase activity for the three months ended September 30, 2024 was as follows:
Period
Total Number of Shares Purchased(1)
Average Price Paid per Share Total number of shares purchased as part of publicly announced plans or programs Approximate maximum dollar value of shares that may yet be purchased under the plans or programs
July 1 - July 31 59,898 $ 154.32 50,995 $ 188,021,000
August 1 - August 31 66,541 $ 140.92 62,730 $ 179,184,000
September 1 - September 30 227,903 $ 145.95 227,407 $ 145,996,000
Total 354,342 $ 146.42 341,132
_____________________
(1) We repurchased and canceled 8,903, 3,811 and 496 shares of our common stock at a weighted average price of $157.92, $141.83 and $151.49 to satisfy tax withholding requirements incurred upon the vesting of restricted stock unit awards during July, August and September 2024, respectively.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
Trading Arrangements
During the three months ended September 30, 2024, none of our officers (as defined in Rule 16a-1(f) of the Exchange Act) or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement"(as defined in Item 408 of Regulation S-K).
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ITEM 6. EXHIBITS
INDEX OF EXHIBITS
Incorporated by Reference
Exhibit Number Description Form SEC File Number Exhibit Filing Date Filed or Furnished Herewith
2.1 8-K 001-19514 2.2 4/29/2021
3.1 8-K 000-19514 3.1 5/17/2021
3.2 8-K 000-19514 3.2 5/17/2021
4.1
8-K 000-19514
4.1
9/16/2024
10.1
8-K 000-19514
10.1
9/16/2024
31.1
Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
X
31.2
Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
X
32.1
Certification of Chief Executive Officer of the Registrant pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
X
32.2
Certification of Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
X
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
101.SCH XBRL Taxonomy Extension Schema Document. X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X
101.LAB XBRL Taxonomy Extension Labels Linkbase Document. X
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101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X
104 Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 6, 2024
GULFPORT ENERGY CORPORATION
By: /s/ Michael Hodges
Michael Hodges
Chief Financial Officer
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