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Gulfport Energy
GPOR
#3641
Rank
$3.77 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$203.59
Share price
0.13%
Change (1 day)
19.88%
Change (1 year)
๐Ÿ›ข Oil&Gas โšก Energy
Categories
  1. Gulfport Energy
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q1

Gulfport Energy - 10-Q quarterly report FY2022 Q1


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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 March 31, 2022
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)
Delaware86-3684669
(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification Number)
3001 Quail Springs Parkway
Oklahoma City,Oklahoma73134
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareGPORThe 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. (Check one):
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 April 25, 2022, 20,933,661 shares of the registrant’s common stock were outstanding.


GULFPORT ENERGY CORPORATION
TABLE OF CONTENTS
 
  Page
Item 1.
4
4
5
6
7
8
9
1. Basis of Presentation
9
2. Property and Equipment
11
3. Debt
12
4. Equity and Mezzanine Equity
13
5. Stock-Based Compensation
15
6. Earnings Per Share
16
7. Commitments and Contingencies
17
8. Derivative Instruments
19
9. Fair Value Measurements
23
10. Revenue from Contracts with Customers
23
11. Leases
24
12. Income Taxes
25
13. Subsequent Events
27
Item 2.
28
29
29
31
36
Item 3.
40
Item 4.
41
Item 1.
42
Item 1A.
42
Item 2.
42
Item 3.
42
Item 4.
42
Item 5.
43
Item 6.
44
46
i

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. Agreement dated May 17, 2021 between the Company, UMB Bank, National Association, as trustee, and the guarantors party thereto, under section 1145 of the Bankruptcy Code for our 8.000% Senior Notes due 2026.
2026 Senior Notes. 8.000% Senior Notes due 2026.
4(a)(2) Indenture. Certain eligible holders have made an election entitling such holders to receive senior notes issued pursuant to an indenture, dated as of May 17, 2021, by and among the Company, 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.
Bankruptcy Code. Chapter 11 of Title 11 of the United States Code.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil or other liquid hydrocarbons.
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.
Chapter 11 Cases. Voluntary petitions filed on November 13, 2020 by Gulfport Energy Corporation, Gator Marine, Inc., Gator Marine Ivanhoe, Inc., Grizzly Holdings, Inc., Gulfport Appalachia, LLC, Gulfport Midcon, LLC, Gulfport Midstream Holdings, LLC, Jaguar Resources LLC, Mule Sky LLC, Puma Resources, Inc. and Westhawk Minerals LLC.
CODI. Cancellation of indebtedness income.
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 new money senior secured reserve-based revolving credit facility effective as of October 14, 2021.
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. 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 revolving credit facility or certain other debt.
Incentive Plan. Gulfport Energy Corporation Stock Incentive Plan effective on the Emergence Date.
Indentures. Collectively, the 1145 Indenture and the 4(a)(2) Indenture governing the 2026 Senior Notes.
1

IRC. The Internal Revenue Code of 1986, as amended.
LIBOR. London Interbank Offered Rate.
LOE. Lease operating expenses.
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.
MMBtu. One million British thermal units.
MMcf. One million cubic feet of natural gas.
MMcfe. One million cubic feet of natural gas equivalent.
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.
NYMEX. New York Mercantile Exchange.
Plan. The Amended Joint Chapter 11 Plan of Reorganization of Gulfport Energy Corporation and Its Debtor Subsidiaries.
Predecessor Quarter. Period from January 1, 2021 through March 31, 2021.
Repurchase Program. A stock repurchase program to acquire up to $100 million of Gulfport's outstanding common stock. It is authorized to extend through December 31, 2022, and may be suspended from time to time, modified, extended or discontinued by the board of directors at any time.
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.
Section 382. Internal Revenue Code Section 382.
SOFR. Secured Overnight Financing Rate.
Successor Quarter. Period from January 1, 2022 through March 31, 2022.
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.
2

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 novel coronavirus disease (COVID-19) pandemic and the war in Ukraine on our business, our industry and the global economy, estimated future 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, 2021 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)
Successor
March 31, 2022December 31, 2021
Assets(Unaudited)
Current assets:
Cash and cash equivalents$5,898 $3,260 
Accounts receivable—oil and natural gas sales206,869 232,854 
Accounts receivable—joint interest and other38,480 20,383 
Prepaid expenses and other current assets5,348 12,359 
Short-term derivative instruments15,720 4,695 
Total current assets272,315 273,551 
Property and equipment:
Oil and natural gas properties, full-cost method
Proved oil and natural gas properties2,030,289 1,917,833 
Unproved properties203,678 211,007 
Other property and equipment5,420 5,329 
Total property and equipment2,239,387 2,134,169 
Less: accumulated depletion, depreciation and amortization(340,709)(278,341)
Total property and equipment, net1,898,678 1,855,828 
Other assets:
Long-term derivative instruments20,696 18,664 
Operating lease assets274 322 
Other assets19,557 19,867 
Total other assets40,527 38,853 
Total assets$2,211,520 $2,168,232 
Liabilities, Mezzanine Equity and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities$398,067 $394,011 
Short-term derivative instruments820,255 240,735 
Current portion of operating lease liabilities173 182 
Total current liabilities1,218,495 634,928 
Non-current liabilities:
Long-term derivative instruments281,622 184,580 
Asset retirement obligation28,972 28,264 
Non-current operating lease liabilities100 140 
Long-term debt573,996 712,946 
Total non-current liabilities884,690 925,930 
Total liabilities$2,103,185 $1,560,858 
Commitments and contingencies (Note 7)
Mezzanine Equity:
Preferred stock - $0.0001 par value, 110.0 thousand shares authorized, 57.9 thousand issued and outstanding at March 31, 2022 and December 31, 2021
57,878 57,896 
Stockholders’ Equity:
Common stock - $0.0001 par value, 42.0 million shares authorized, 21.1 million issued and outstanding at March 31, 2022, and 20.6 million issued and outstanding at December 31, 2021
2 2 
Additional paid-in capital662,573 692,521 
Common stock held in reserve, 62 thousand shares at March 31, 2022, and 938 thousand shares at December 31, 2021
(1,996)(30,216)
Accumulated deficit(604,804)(112,829)
Treasury stock, at cost - 59.6 thousand at March 31, 2022, and no shares at December 31, 2021
(5,318)— 
Total stockholders’ equity $50,457 $549,478 
Total liabilities, mezzanine equity and stockholders’ equity $2,211,520 $2,168,232 

See accompanying notes to consolidated financial statements.
4

GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited) 
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
REVENUES:
Natural gas sales$405,212 $235,321 
Oil and condensate sales30,239 18,239 
Natural gas liquid sales45,284 23,776 
Net loss on natural gas, oil and NGL derivatives(788,551)(29,978)
Total Revenues(307,816)247,358 
OPERATING EXPENSES:
Lease operating expenses17,644 12,653 
Taxes other than income12,468 8,704 
Transportation, gathering, processing and compression84,792 105,867 
Depreciation, depletion and amortization62,284 41,147 
Impairment of other property and equipment— 14,568 
General and administrative expenses7,105 12,757 
Accretion expense692 805 
Total Operating Expenses184,985 196,501 
(LOSS) INCOME FROM OPERATIONS(492,801)50,857 
OTHER (INCOME) EXPENSE:
Interest expense13,984 3,261 
Loss from equity method investments, net— 342 
Reorganization items, net— 38,721 
Other, net(14,810)(247)
Total Other (Income) Expense(826)42,077 
(LOSS) INCOME BEFORE INCOME TAXES(491,975)8,780 
Income tax expense— — 
NET (LOSS) INCOME$(491,975)$8,780 
Dividends on preferred stock$(1,447)$— 
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS$(493,422)$8,780 
NET (LOSS) INCOME PER COMMON SHARE:
Basic$(23.23)$0.05 
Diluted$(23.23)$0.05 
Weighted average common shares outstanding—Basic21,242 160,813 
Weighted average common shares outstanding—Diluted21,242 160,813 
 See accompanying notes to consolidated financial statements.
5

GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)

SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Net (loss) income$(491,975)$8,780 
Foreign currency translation adjustment— 2,570 
Other comprehensive income— 2,570 
Comprehensive (loss) income$(491,975)$11,350 


See accompanying notes to consolidated financial statements.

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GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
(Unaudited)
Common Stock Held in ReserveTreasury StockPaid-in
Capital		Accumulated Other
Comprehensive (Loss) Income		Retained Earnings (Accumulated
Deficit)		Total Stockholders’
Equity (Deficit)
Common Stock
SharesAmountSharesAmount
Balance at January 1, 2021 (Predecessor)160,762 $1,607 — $— — $4,213,752 $(43,000)$(4,472,859)$(300,500)
Net income— — — — — — — 8,780 8,780 
Other comprehensive income— — — — — — 2,570 — 2,570 
Stock compensation— — — — — 1,419 — — 1,419 
Shares repurchased(86)(1)— — — (7)— — (8)
Issuance of restricted stock203 3 — — — (2)— — 1 
Balance at March 31, 2021 (Predecessor)160,878 $1,609 — $— $— $4,215,162 $(40,430)$(4,464,079)$(287,738)

Common Stock Held in ReserveTreasury StockPaid-in
Capital		Accumulated Other
Comprehensive (Loss) Income		Retained Earnings (Accumulated
Deficit)		Total Stockholders’
Equity (Deficit)
Common Stock
SharesAmountSharesAmount
Balance at January 1, 2022 (Successor)21,537 $2 (938)$(30,216)$— $692,521 $— $(112,829)$549,478 
Net loss— — — — — — — (491,975)(491,975)
Conversion of preferred stock1 — — — — 18 — — 18 
Stock compensation— — — — — 1,755 — — 1,755 
Shares repurchased(378)— — — (5,318)(30,194)— — (35,512)
Issuance of common stock held in reserve— — 876 28,220 — — — — 28,220 
Issuance of restricted stock2 — — — — (80)— — (80)
Dividends on preferred stock— — — — — (1,447)— — (1,447)
Balance at March 31, 2022 (Successor)21,162 $2 (62)$(1,996)$(5,318)$662,573 $— $(604,804)$50,457 

 See accompanying notes to consolidated financial statements.

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GULFPORT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Cash flows from operating activities:
Net (loss) income$(491,975)$8,780 
Adjustments to reconcile net loss to net cash provided by operating activities:
Depletion, depreciation and amortization62,284 41,147 
Impairment of other property and equipment— 14,568 
Loss from equity investments— 342 
Net loss on derivative instruments788,551 29,978 
Net cash (payments) receipts on settled derivative instruments(125,046)125 
Other2,690 1,574 
Changes in operating assets and liabilities, net17,192 26,661 
Net cash provided by operating activities253,696 123,175 
Cash flows from investing activities:
Additions to oil and natural gas properties(80,271)(56,895)
Proceeds from sale of oil and natural gas properties— 15 
Other(7)(296)
Net cash used in investing activities(80,278)(57,176)
Cash flows from financing activities:
Principal payments on pre-petition revolving credit facility— (2,202)
Borrowings on pre-petition revolving credit facility— 26,050 
Principal payments on Credit Facility(456,000)— 
Borrowings on Credit Facility317,000 — 
Repurchase of common stock under Repurchase Program(30,192)— 
Dividends on preferred stock(1,447)— 
Other(141)(7)
Net cash (used in) provided by financing activities(170,780)23,841 
Net increase in cash, cash equivalents and restricted cash2,638 89,840 
Cash, cash equivalents and restricted cash at beginning of period3,260 89,861 
Cash, cash equivalents and restricted cash at end of period$5,898 $179,701 
 See accompanying notes to consolidated financial statements.
8

GULFPORT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.BASIS OF PRESENTATION
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 in central Oklahoma targeting the SCOOP Woodford and SCOOP Springer formations. 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. The Company refers to the post-emergence reorganized organization in the condensed financial statements and footnotes as the "Successor" for periods subsequent to May 17, 2021, and the pre-emergence organization as "Predecessor" for periods on or prior to May 17, 2021.
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 and periods as of and for the three months ended March 31, 2022 ("Successor Quarter") and the three months ended March 31, 2021 (“Predecessor Quarter”). The Company's annual report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”) 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.
Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code
In connection with the Company's emergence from bankruptcy and in accordance with ASC 852, the Company qualified for and applied fresh start accounting on the Emergence date. For further information on the Company’s reorganization value and the resulting fresh start adjustments made on the Emergence Date, refer to the “Fresh Start Accounting” footnote in the notes to the consolidated financial statements in Item 8 of the Company’s 2021 Form 10-K.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following at March 31, 2022 and December 31, 2021 (in thousands):
Successor
March 31, 2022December 31, 2021
Accounts payable and other accrued liabilities$183,786 $143,938 
Revenue payable and suspense173,285 180,857 
Accrued contract rejection damages and shares held in reserve40,996 69,216 
Total accounts payable and accrued liabilities$398,067 $394,011 
Reorganization Items, Net
In the Predecessor Quarter, the Company incurred significant expenses related to its Chapter 11 filing. The amount of these items, which were incurred in reorganization items, net within the Company's accompanying consolidated statements of
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operations, significantly affected the Company's statements of operations. The Company also incurred adjustments for allowable claims related to its legal proceedings and executory contracts approved for rejection by the Bankruptcy Court.
The following table summarizes the components in reorganization items, net included in the Company's consolidated statements of operations for the Predecessor Quarter (in thousands):
Predecessor
Three Months Ended March 31, 2021
Legal and professional fees$40,783 
Adjustment to allowed claims2,088 
Gain on settlement of pre-petition accounts payable(4,150)
Reorganization items, net$38,721 
Other Income
Other, net included in the Company's consolidated statements of operations for the Successor Quarter included $11.5 million related to the TC claim distribution received as discussed in Note 7.
Supplemental Cash Flow and Non-Cash Information (in thousands)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Supplemental disclosure of cash flow information:
Cash paid for reorganization items, net$— $21,367 
Interest payments$2,110 $4,763 
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable - oil and natural gas sales$25,985 $(14,117)
Increase in accounts receivable - joint interest and other(17,722)(478)
Increase in accounts payable and accrued liabilities2,135 15,555 
Decrease in prepaid expenses6,811 26,356 
Increase in other assets(17)(655)
Total changes in operating assets and liabilities$17,192 $26,661 
Supplemental disclosure of non-cash transactions:
Capitalized stock-based compensation$597 $630 
Asset retirement obligation capitalized$16 $483 
Release of common stock held in reserve$28,220 $— 
Foreign currency translation gain on equity method investments$— $2,570 
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2.PROPERTY AND EQUIPMENT
The major categories of property and equipment and related accumulated DD&A and impairment as of March 31, 2022 and December 31, 2021 are as follows (in thousands):
Successor
March 31, 2022December 31, 2021
Proved oil and natural gas properties$2,030,289 $1,917,833 
Unproved properties203,678 211,007 
Other depreciable property and equipment5,034 4,943 
Land386 386 
Total property and equipment2,239,387 2,134,169 
Accumulated DD&A and impairment(340,709)(278,341)
Property and equipment, net$1,898,678 $1,855,828 
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 March 31, 2022, the net book value of the Company's oil and gas properties was below the calculated ceiling for the period leading up to March 31, 2022. As a result, the Company did not record an impairment of its oil and natural gas properties for the Successor Quarter. The Company did not record impairment of its oil and natural gas properties for the Predecessor Quarter.
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 $4.7 million and $5.5 million for the Successor Quarter and Predecessor Quarter, 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 as of March 31, 2022:
Successor
March 31, 2022
(In thousands)
Utica$168,809 
SCOOP34,865 
Other4 
Total unproved properties$203,678 
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Asset Retirement Obligation
The following table provides a reconciliation of the Company’s asset retirement obligation for the Successor and Predecessor Quarters (in thousands):
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Asset retirement obligation, beginning of period$28,264 $63,566 
Liabilities incurred16 483 
Accretion expense692 805 
Total asset retirement obligation as of end of period$28,972 $64,854 
Less: amounts reclassified to liabilities subject to compromise$— $(64,854)
Total asset retirement obligation reflected as non-current liabilities$28,972 $— 
3.DEBT
Debt consisted of the following items as of March 31, 2022 and December 31, 2021 (in thousands):
Successor
March 31, 2022December 31, 2021
Credit Facility$25,000 $164,000 
8.000% senior unsecured notes due 2026550,000 550,000 
Net unamortized debt issuance costs(1,004)(1,054)
Total debt, net573,996 712,946 
Less: current maturities of long-term debt— — 
Total long-term debt, net$573,996 $712,946 
Credit Facility
On October 14, 2021, the Company entered into the Third Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lender parties ("Credit Facility"). The Credit Facility provides for an aggregate maximum principal amount of up to $1.5 billion, an initial borrowing base of $850.0 million and an initial aggregate elected commitment amount of $700.0 million. The credit agreement also provides for a $175.0 million sublimit of the aggregate commitments that is available for the issuance of letters of credit. The Credit Facility matures October 14, 2025.
As of March 31, 2022, the Company had $25.0 million outstanding borrowings under the Credit Facility and $113.2 million in letters of credit outstanding. As of March 31, 2022, the Company was in compliance with all covenants under the Credit Facility.
The Credit Facility bears interest at a rate equal to, at the Company’s election, either (a) LIBOR 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. The Company is 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 is also required to pay customary letter of credit and fronting fees.
The borrowing base will be redetermined semiannually on or around May 1 and November 1 of each year, with the first scheduled redetermination to be on or around May 1, 2022. On May 2, 2022, the Company completed its semi-annual borrowing base redetermination as discussed in Note 13.
As of March 31, 2022, the Credit Facility bore interest at a weighted average rate of 3.21%.
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The credit agreement 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 3.25 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 agreement 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.
2026 Senior Notes
On the Emergence Date, pursuant to the terms of the Plan, the Company issued $550 million aggregate principal amount of its 8.000% senior notes due 2026. The notes are guaranteed on a senior unsecured basis by 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 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) pay dividends or distributions in respect of certain equity interests or redeem, repurchase or retire certain equity interests or subordinated indebtedness, (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.
Capitalization of Interest
The Company did not capitalize interest expense for the Successor Quarter or Predecessor Quarter.
Fair Value of Debt
At March 31, 2022, the carrying value of the outstanding debt represented by the 2026 Senior Notes was $549.0 million. Based on the quoted market prices (Level 1), the fair value of the 2026 Senior Notes was determined to be $570.1 million at March 31, 2022.
4.EQUITY AND MEZZANINE EQUITY
On the Emergence Date, 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.
Equity
Common Stock
On the Emergence Date, all existing shares of the Predecessor's common stock were cancelled. The Successor issued approximately 19.8 million shares of common stock and 1.7 million shares of common stock were issued to the Disputed Claims reserve.
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In January 2022, approximately 876,000 shares in the Disputed Claims reserve at December 31, 2021 were issued to certain claimants. As of March 31, 2022, approximately 62,000 shares continue to be held in the Disputed Claims reserve and may be issued upon finalization of remaining claims.
Share Repurchase Program
On November 1, 2021, the Company's Board of Directors approved a stock repurchase program to acquire up to $100.0 million of its common stock ("Repurchase Program"). 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 opportunistically with available funds while maintaining sufficient liquidity to fund its capital development program. The Repurchase Program is authorized to extend through December 31, 2022, and may be suspended from time to time, modified, extended or discontinued by the board of directors at any time. Any shares of common stock repurchased are expected to be cancelled. As of March 31, 2022, 438,082 shares have been repurchased for approximately $35.5 million under the Repurchase Program at a weighted average price of $81.06 per share.
Mezzanine Equity
Preferred Stock
On the Emergence Date, the Successor 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 (as defined below) 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 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 “Conversion Price”). The shares of preferred stock outstanding at March 31, 2022 would convert to approximately 4.1 million shares of common stock if all holders of preferred stock exercised their Conversion Right.
Gulfport shall have the right, but not the obligation, to 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) (y) if the date of such redemption is on or prior to the three year anniversary of the Emergence Date, the sum of the Liquidation Preference plus the sum of all unpaid PIK Dividends through the three year anniversary of the Emergence Date, or (x) if the date of such redemption is after the three year anniversary of the Emergence Date, 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. Each share of preferred stock has a liquidation preference of $1,000 (the "Liquidation Preference").
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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
During the Successor Quarter, the company paid $1.5 million of cash dividends to holders of our preferred stock.
The following table summarizes activity of the Company’s preferred stock for the Successor Quarter:
Preferred stock at December 31, 202157,896 
Conversion of preferred stock(18)
Preferred stock at March 31, 202257,878 
5.STOCK-BASED COMPENSATION
On the Emergence Date, the Company's Predecessor common stock was cancelled and the Company's Successor common stock was issued. Accordingly, the Company's then existing stock-based compensation awards were also cancelled. Stock-based compensation for the Predecessor and Successor periods are not comparable.
Successor Stock-Based Compensation
As of the Emergence Date, 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. 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 Successor Quarter, the Company's stock-based compensation expense was $1.8 million, of which the Company capitalized $0.6 million 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 March 31, 2022, the Company has awarded an aggregate of approximately 196,000 restricted stock units and approximately 153,000 performance vesting restricted stock units under the Incentive Plan.
The following table summarizes restricted stock unit activity for the Successor Quarter:
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, 2022198,413 $66.04 153,138 $48.54 
Granted2,154 73.83 — — 
Vested(3,074)65.75 — — 
Forfeited/canceled(1,157)66.89 — — 
Unvested shares as of March 31, 2022196,336 $67.16 153,138 $48.54 
Successor Restricted Stock Units
Restricted stock units awarded under the Incentive Plan generally vest over a period of 1 to 4 years in the case of employees and 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 March 31, 2022 was $10.0 million. The expense is expected to be recognized over a weighted average period of 2.63 years.
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Successor 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 total shareholder return ("TSR") and (ii) the Company's relative total shareholder return ("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 over a performance period from May 17, 2021 to May 17, 2024, 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. Unrecognized compensation expense as of March 31, 2022, related to performance vesting restricted shares was $5.7 million. The expense is expected to be recognized over a weighted average period of 2.13 years.
Predecessor Stock-Based Compensation
The Predecessor granted restricted stock units to employees and directors pursuant to the 2019 Plan. During the Predecessor Quarter, the Company’s stock-based compensation cost was $3.0 million, of which the Company capitalized $0.6 million, relating to its exploration and development efforts. Stock compensation costs, net of the amounts capitalized, are included in general and administrative expenses in the accompanying consolidated statements of operations.
The following table summarizes restricted stock unit activity for the Predecessor Quarter:
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, 20211,702,513 $4.74 840,595 $4.07 
Granted— — — — 
Vested(202,583)8.32 — — 
Forfeited/canceled(19,707)3.61 — — 
Unvested shares as of March 31, 20211,480,223 $4.26 840,595 $4.07 
Predecessor Restricted Stock Units
Restricted stock units awarded under the 2019 Plan generally vested over a period of one year in the case of directors and three years in the case of employees and vesting was dependent upon the recipient meeting applicable service requirements. Stock-based compensation costs are 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 grant. All unrecognized compensation expense was recognized as of the Emergence Date.
Predecessor Performance Vesting Restricted Stock Units
The Company previously awarded performance vesting restricted stock units to certain of its executive officers under the 2019 Plan. The number of shares of common stock issued pursuant to the award was based on RTSR. RTSR is an incentive measure whereby participants will earn from 0% to 200% of the target award based on the Company’s TSR ranking compared to the TSR of the companies in the Company’s designated peer group at the end of the performance period. Awards were to be earned and vested over a performance period measured from January 1, 2019 to December 31, 2021, subject to earlier termination of the performance period in the event of a change in control. All unrecognized compensation expense was recognized as of the Emergence Date.
6.EARNINGS 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)
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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 no potential shares of common stock that were considered dilutive for the Successor Quarter or Predecessor Quarter. There were 4.1 million shares of potential common shares issuable due to the Company's convertible preferred stock and 0.1 million shares of restricted stock that were considered anti-dilutive during the Successor Quarter.
Reconciliations of the components of basic and diluted net (loss) income per common share are presented in the table below (in thousands):
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Net (loss) income$(491,975)$8,780 
Dividends on preferred stock(1,447)— 
Participating securities - preferred stock(1)
— — 
Net (loss) income attributable to common stockholders$(493,422)$8,780 
Basic Shares21,242 160,813 
Basic and Dilutive EPS$(23.23)$0.05 
_____________________
(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.
7.COMMITMENTS AND CONTINGENCIES
Commitments
Future 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.
A summary of these commitments at March 31, 2022 are set forth in the table below, excluding contracts in the process of being rejected as discussed in the Litigation and Regulatory Proceedings section below (in thousands):
Remaining 2022$180,807 
2023229,733 
2024220,708 
2025139,706 
2026136,235 
Thereafter889,674 
Total$1,796,863 
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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
Commencement of the Chapter 11 Cases automatically stayed the proceedings and actions against us that are described below, in addition to actions seeking to collect pre-petition indebtedness or to exercise control over the property of the Company's bankruptcy estates. The Plan in the Chapter 11 Cases, which became effective on May 17, 2021, provided for the treatment of claims against the Company's bankruptcy estates, including pre-petition liabilities that had not been satisfied or addressed during the Chapter 11 Cases.
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") (jointly, the “Pending Motions to Reject”). The Pending Motions to Reject were removed to the United States District Court for the Southern District of Texas. While the Pending Motions to Reject are litigated, the Company isn’t required to perform under these firm transportation agreements. During the third quarter of 2021, Gulfport finalized a settlement agreement with TC that was approved by the Bankruptcy Court on September 21, 2021. Pursuant to the settlement agreement, Gulfport and TC agreed that the firm transportation contracts between Gulfport and TC would be rejected without any further payment or obligation by Gulfport or TC, and TC assigned its damages claims from such rejection to Gulfport. In exchange, Gulfport agreed to make a payment of $43.8 million in cash to TC. The $43.8 million was paid to TC on October 7, 2021. Gulfport expects to receive distributions for a significant portion of such amounts through future distributions with respect to the assigned claims pursuant to Gulfport’s Chapter 11 plan of reorganization that became effective in May 2021. Any future distributions will be recognized once received by Gulfport. In February 2022, Gulfport received an initial distribution of $11.5 million from the above mentioned claim, which is included in Other, net in the accompanying consolidated statements of operations. The timing and amount of any future distributions are not certain, and the total amount received will be impacted by the bankruptcy trustee's liquidation of Mammoth Energy shares and other bankruptcy claims. The Company believes that the Pending Motion to Reject with respect to Rover will be ultimately granted, and that the Company does not have any ongoing obligation pursuant to the contract; however, in the event that the Company is not permitted to reject the Rover firm transportation contract, it could be liable for demand charges, attorneys' fees and interest in excess of approximately $64 million.
In March 2020, Robert F. Woodley, individually and on behalf of all others similarly situated, filed a federal securities class action against the Company, David M. Wood, Keri Crowell and Quentin R. Hicks in the United States District Court for the Southern District of New York. The complaint alleges that the Company made materially false and misleading statements regarding the Company’s business and operations in violation of the federal securities laws and seeks unspecified damages, the payment of reasonable attorneys’ fees, expert fees and other costs, pre-judgment and post-judgment interest, and such other and further relief that may be deemed just and proper. On January 11, 2022, the court granted Gulfport's motion to dismiss and the case was closed by the court on February 14, 2022. The plaintiffs appealed the district court ruling on March 10, 2022.
The Company, along with other oil and gas companies, have been named as a defendant in J&R Passmore, LLC, individually and on behalf of all others similarly situated, in the United States District Court for the Southern District of Ohio on December 6, 2018. Plaintiffs assert their respective leases are limited to the Marcellus and Utica shale geological formations and allege that Defendants have willfully trespassed and illegally produced oil, natural gas, and other hydrocarbon products beyond these respective formations. Plaintiffs seek the full value of any production from below the Marcellus and Utica 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 for amounts allegedly owed to the plaintiffs through 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.
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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.
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 their 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, they may, among other things, exclude a property from the transaction, require the seller to remediate the property to their 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.
8.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, 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 50% to 75% of its forecasted 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 24 months. Gulfport does not enter into commodity derivative contracts for speculative purposes.
Fixed price swaps 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. The prices contained in these fixed price swaps are based on the NYMEX Henry Hub for natural gas, the NYMEX WTI for oil and Mont Belvieu for propane.
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.
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Below is a summary of the Company’s open fixed price swap positions as of March 31, 2022. 
IndexDaily VolumeWeighted
Average Price
Natural Gas(MMBtu/d)($/MMBtu)
Remaining 2022NYMEX Henry Hub190,145 $2.90 
2023NYMEX Henry Hub155,014 $3.54 
2024NYMEX Henry Hub24,973 $3.62 
Oil(Bbl/d)($/Bbl)
Remaining 2022NYMEX WTI2,335 $66.17 
2023NYMEX WTI2,000 $67.89 
NGL(Bbl/d)($/Bbl)
Remaining 2022Mont Belvieu C33,502 $35.62 
2023Mont Belvieu C32,000 $35.05 
The Company entered into costless collars based off the NYMEX WTI and Henry Hub oil and natural gas indices. Each two-way price collar has a set floor and ceiling price for the hedged production. If the applicable monthly price indices are outside of the ranges set by the floor and ceiling prices in the various collars, the Company will cash-settle the difference with the hedge counterparty. Below is a summary of the Company's costless collar positions as of March 31, 2022.
IndexDaily VolumeWeighted Average Floor PriceWeighted Average Ceiling Price
Natural Gas(MMBtu/d)($/MMBtu)($/MMBtu)
Remaining 2022NYMEX Henry Hub431,391 $2.56 $3.07 
2023NYMEX Henry Hub85,000 $2.75 $4.25 
Oil(Bbl/d)($/Bbl)($/Bbl)
Remaining 2022NYMEX WTI1,500 $55.00 $60.00 
In the third quarter of 2019, the Company sold call options in exchange for a premium, and used the associated premiums received to enhance the fixed price for a portion of the fixed price natural gas swaps primarily for 2020. Each short call option has an established ceiling price. When the referenced settlement price is above the price ceiling established by these short call options, the Company pays its counterparty an amount equal to the difference between the referenced settlement price and the price ceiling multiplied by the hedged contract volumes. No payment is due from either party if the referenced settlement price is below the price ceiling. Below is a summary of the Company's open sold call option positions as of March 31, 2022.
IndexDaily VolumeWeighted Average Price
Natural Gas(MMBtu/d)($/MMBtu)
Remaining 2022NYMEX Henry Hub152,675 $2.90 
2023NYMEX Henry Hub507,925 $2.90 
2024NYMEX Henry Hub162,000 $3.00 
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In addition, the Company entered into natural gas basis swap positions. As of March 31, 2022, the Company had the following natural gas swap positions open:
Gulfport PaysGulfport ReceivesDaily VolumeWeighted Average Fixed Spread
Natural Gas(MMBtu/d)($/MMBtu)
2023Rex Zone 3NYMEX Plus Fixed Spread20,000 $(0.21)
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 March 31, 2022 and December 31, 2021 (in thousands):
Successor
March 31, 2022December 31, 2021
Short-term derivative asset$15,720 $4,695 
Long-term derivative asset20,696 18,664 
Short-term derivative liability(820,255)(240,735)
Long-term derivative liability(281,622)(184,580)
Total commodity derivative position$(1,065,461)$(401,956)
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Gains and Losses
The following table presents the gain and loss recognized in net loss on natural gas, oil and NGL derivatives in the accompanying consolidated statements of operations for the Successor Quarter and Predecessor Quarter (in thousands):
Net loss on derivative instruments
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Natural gas derivatives - fair value losses$(619,319)$(25,538)
Natural gas derivatives - settlement (losses) gains(111,157)125 
Total losses on natural gas derivatives(730,476)(25,413)
Oil derivatives - fair value losses(29,853)(1,731)
Oil derivatives - settlement losses(8,144)— 
Total losses on oil derivatives(37,997)(1,731)
NGL derivatives - fair value losses(14,333)(2,834)
NGL derivatives - settlement losses(5,745)— 
Total losses on NGL derivatives(20,078)(2,834)
Total losses on natural gas, oil and NGL derivatives$(788,551)$(29,978)
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):
Successor
As of March 31, 2022
Gross Assets (Liabilities)Gross Amounts
Presented in theSubject to MasterNet
Consolidated Balance SheetsNetting AgreementsAmount
Derivative assets$36,416 $(36,416)$— 
Derivative liabilities$(1,101,877)$36,416 $(1,065,461)
Successor
As of December 31, 2021
Gross Assets (Liabilities)Gross Amounts
Presented in theSubject to MasterNet
Consolidated Balance SheetsNetting AgreementsAmount
Derivative assets$23,359 $(20,265)$3,094 
Derivative liabilities$(425,315)$20,265 $(405,050)
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
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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.
9.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.
Financial assets and liabilities
The following tables summarize the Company’s financial and non-financial assets and liabilities by valuation level as of March 31, 2022 and December 31, 2021 (in thousands):
Successor
 March 31, 2022
Level 1Level 2Level 3
Assets:
Derivative instruments$— $36,416 $— 
Contingent consideration arrangement— — 5,300 
Total assets$— $36,416 $5,300 
Liabilities:
Derivative instruments $— $1,101,877 $— 
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Successor
 December 31, 2021
Level 1Level 2Level 3
Assets:
Derivative instruments$— $23,359 $— 
Contingent consideration arrangement— — 5,800 
Total assets$— $23,359 $5,800 
Liabilities:
Derivative instruments $— $425,315 $— 
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 adjusted the fair value of its derivative instruments as a fresh start adjustment at the Emergence Date as a result of changes in the Company's credit adjustment to reflect its new credit standing at emergence.
The Company's SCOOP water infrastructure sale, which closed in the first quarter of 2020, included a contingent consideration arrangement. As of March 31, 2022, the fair value of the contingent consideration was $5.3 million, of which $0.8 million is included in prepaid expenses and other assets and $4.5 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 has elected the fair value option for this contingent consideration arrangement and, therefore, records changes in fair value in earnings. The Company recognized a $0.1 million loss for the Successor Quarter and a nominal gain for the Predecessor Quarter, which 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 2 for 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.
10.REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
The Company’s revenues are primarily derived from the sale of natural gas, oil and condensate and NGL. Sales of natural gas, oil and condensate and NGL 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.
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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 new 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 $206.9 million and $232.9 million as of March 31, 2022 and December 31, 2021, respectively, and are reported in accounts receivable - oil and natural gas sales on the 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 the Predecessor Quarter and Successor Quarter, revenue recognized in the reporting periods related to performance obligations satisfied in prior reporting periods was not material.
11.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.
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. However, at March 31, 2022, the Company did not have any active long-term drilling rig contracts in place.
The Company rents office space for its corporate headquarters, field locations and certain other equipment from third parties, which expire at various dates through 2023. These agreements are typically structured with non-cancelable terms of one 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. The lease for the Company's corporate headquarters has a primary term of one year and is classified as a short-term operating lease.
24
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 March 31, 2022 were as follows (in thousands):
Remaining 2022$137 
2023142 
Total lease payments$279 
Less: Imputed interest(6)
Total$273 
Lease costs incurred for the Successor Quarter and Predecessor Quarter consisted of the following (in thousands):
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Operating lease cost$50 $32 
Variable lease cost— — 
Short-term lease cost8,622 2,189 
Total lease cost(1)
$8,672 $2,221 
_____________________
(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.
Supplemental cash flow information related to leases was as follows (in thousands):
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$49 $31 
The weighted-average remaining lease term as of March 31, 2022 was 1.56 years. The weighted-average discount rate used to determine the operating lease liability as of March 31, 2022 was 2.38%.
12.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.

For the three months ended March 31, 2022, the Company's effective tax rate was 0%, which differs from the statutory rate of 21% primarily as a result of the valuation allowance on the Company's deferred tax assets.

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
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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 determined a full valuation allowance was necessary against its net deferred tax assets as of March 31, 2022.

The Company will continue to evaluate whether the valuation allowance is needed in future reporting periods. The valuation allowance will remain until it is determined that the net deferred tax assets are more likely than not to be realized. Future events or new evidence which may lead us to conclude that it is more likely than not that its net deferred tax assets will be realized include, but are not limited to, cumulative historical pre-tax earnings, improvements in oil prices, and taxable events that could result from one or more transactions. The valuation allowance does not prevent future utilization of the tax attributes if the Company recognizes taxable income. As long as the Company concludes that the valuation allowance against its net deferred tax assets is necessary, the Company likely will not have any additional deferred income tax expense or benefit.

Elements of the Plan provided that the Company’s indebtedness related to Predecessor Senior Notes and certain general unsecured claims were exchanged for common stock in settlement of those claims. Absent an exception, a debtor recognizes CODI upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The IRC provides that a debtor in a Chapter 11 bankruptcy case may exclude CODI from taxable income, but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is determined based on the fair market value of the consideration received by the creditors in settlement of outstanding indebtedness. As a result of the market value of equity upon emergence from Chapter 11 bankruptcy proceedings, the estimated amount of CODI and reduction in historical interest expense is approximately $661 million, which will reduce the value of the Company’s net operating losses. The actual reduction in tax attributes does not occur until the first day of the Company’s tax year subsequent to the date of emergence, or January 1, 2022. The reduction of net operating losses is expected to be fully offset by a corresponding decrease in valuation allowance.

Emergence from Chapter 11 bankruptcy proceedings resulted in a change in ownership for purposes of IRC Section 382. The Company currently expects to apply rules under IRC Section 382(l)(5) that would allow the Company to mitigate the limitations imposed under the regulations with respect to the Company’s remaining tax attributes. The Company’s deferred tax assets and liabilities, prior to the valuation allowance, have been computed on such basis. Taxpayers who qualify for this provision may, at their option, elect not to apply the election. If the provision does not apply, the Company’s ability to realize the value of its tax attributes would be subject to limitation and the amount of deferred tax assets and liabilities, prior to the valuation allowance, may differ. Additionally, under IRC Section 382(l)(5), an ownership change subsequent to the Company’s emergence could severely limit or effectively eliminate its ability to realize the value of its tax attributes.
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13.SUBSEQUENT EVENTS
Natural Gas, Oil and NGL Derivative Instruments
The Company entered into additional natural gas, oil and NGL derivative contracts subsequent to March 31, 2022, which included restructuring a portion of the Company's 2023 sold call options. The Company entered into the following natural gas, oil and NGL derivative contracts subsequent to March 31, 2022 as of April 29, 2022:
Type of Derivative InstrumentIndexDaily VolumeWeighted
Average Price
Natural Gas(MMBtu/d)($/MMBtu)
January 2023 - December 2023Fixed price swapNYMEX Henry Hub10,000 $5.17
January 2023 - December 2023Costless collarNYMEX Henry Hub200,000 
$3.00 / $5.00
January 2023 - December 2023Call optionNYMEX Henry Hub(100,000)$2.90
January 2024 - December 2024Fixed price swapNYMEX Henry Hub10,000 $4.16
January 2024 - December 2024Call optionNYMEX Henry Hub40,000 $4.65
January 2025 - October 2025Call optionNYMEX Henry Hub40,000 $4.65
Oil(Bbl/d)($/Bbl)
January 2023 - December 2023Fixed price swapNYMEX WTI1,000 $87.62
NGL(Bbl/d)($/Bbl)
January 2023 - December 2023Fixed price swapMont Belvieu C31,000 $44.10
Credit Facility Redetermination
On May 2, 2022, the Company entered into the borrowing base redetermination agreement and first amendment to its credit agreement (the “Amendment”) governing the Credit Facility. The Amendment, among other things, (a) increased the borrowing base under the New Credit Agreement from $850 million to $1.0 billion as a result of the spring 2022 scheduled redetermination with aggregate elected lender commitments to remain at $700 million, (b) amended certain covenants related to hedging to ease certain requirements and limitations and (c) amended the covenants governing restricted payments to (i) increase the Net Leverage Ratio allowing unlimited restricted payments from 1.00 to 1.00 to 1.25 to 1.00 and (ii) permit additional restricted payments to redeem preferred equity until December 31, 2022 provided certain leverage, no event of default or borrowing base deficiency and availability tests are met and (d) provide for the transition from a LIBOR to a SOFR benchmark, with a 10 basis point credit spread adjustment for all tenors.
Expanded Common Stock Repurchase Program
In April 2022, the Company's Board of Directors approved an increase to the authorized common stock repurchase amounts under its Repurchase Program from $100 million to $200 million.
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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, 2021 (“2021 Form 10-K”), and analyzes the changes in the results of operations between the periods of January 1, 2022 through March 31, 2022 (“Successor Quarter”) and January 1, 2021, through March 31, 2021 (“Predecessor Quarter”). 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 and in our 2021 Form 10-K.
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 in central Oklahoma targeting the SCOOP Woodford and SCOOP 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
Share Repurchase Program
On November 1, 2021, our board of directors has approved a stock Repurchase Program to acquire up to $100 million of our outstanding common stock ("Repurchase Program"). 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 us to acquire any specific number of shares of common stock. We intend to purchase shares under the Repurchase Program with available funds while maintaining sufficient liquidity to fund our capital development program. The Repurchase Program is authorized to extend through December 31, 2022 and may be suspended from time to time, modified, extended or discontinued by the board of directors at any time. Any shares of common stock repurchased are expected to be cancelled. As of March 31, 2022, 438,082 shares have been repurchased for approximately $35.5 million under the Repurchase Program at a weighted average price of $81.06 per share.
In April 2022, our Board of Directors approved an increase to the authorized common stock repurchase amounts under our Repurchase Program from $100 million to $200 million.
Inflation and Changes in Commodity Prices
Our revenues, the value of our assets and our ability to obtain bank loans or additional capital on attractive terms have been and will continue to be affected by changes in natural gas, oil and NGL prices and the costs to produce our reserves. Natural gas, oil and NGL prices are subject to significant fluctuations that are beyond our ability to control or predict. Certain of our capital expenditures and expenses are affected by general inflation and we expect costs for the remainder of 2022 to continue to be a function of supply and demand.
Impact of the War in Ukraine
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 supply chain and energy markets. The ultimate impact of the war in Ukraine will depend on future developments and the timing and extent to which normal economic and operating conditions resume.
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2022 Operational and Financial Highlights
During the first quarter of 2022, we had the following notable achievements:
•Reported total net production of 1,008 MMcfe per day.
•Turned to sales five gross (4.8 net) operated wells.
•Generated $253.7 million of operating cash flows.
•Reduced total debt by $139.0 million as compared to December 31, 2021.
•Repurchased 438,082 shares for $35.5 million at a weighted average price of $81.06 per share.
2022 Production and Drilling Activity
Production Volumes
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Natural gas (Mcf/day)
Utica761,810 797,452 
SCOOP162,654 111,708 
Other32 80 
Total924,496 909,240 
Oil and condensate (Bbl/day)
Utica697 1,403 
SCOOP2,928 2,379 
Other7 40 
Total3,632 3,822 
NGL (Bbl/day)
Utica2,183 2,665 
SCOOP8,111 5,758 
Other1 4 
Total10,294 8,427 
Combined (Mcfe/day)
Utica779,089 821,858 
SCOOP228,885 160,528 
Other77 343 
Total1,008,052 982,729 
Totals may not sum or recalculate due to rounding.
Our total net production averaged approximately 1,008.1 MMcfe per day during the Successor Quarter, as compared to 982.7 MMcfe per day during the Predecessor Quarter. The 3% increase in production per day is largely the result of the improved base production associated with our 2021 development program, strong uptime during the winter months of 2022 and the addition of five gross SCOOP wells performing above the Company expectations.
Utica. We spud five gross (5.0 net) wells in the Utica during the Successor Quarter, all of which were being drilled at March 31, 2022. In addition, we completed three gross (1.7) net operated wells. We did not participate in any additional wells that were drilled by other operators on our Utica acreage.
As of April 25, 2022, we had two operated drilling rigs running in the Utica, and we expect to drop to one operated drilling rig during the second half of 2022.
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SCOOP. We spud four gross (2.8 net) wells in the SCOOP during the Successor Quarter, all of which were being drilled at March 31, 2022. In addition, we completed five gross (4.8 net) operated wells. We also participated in an additional six gross (0.002 net) wells that were drilled by other operators on our SCOOP acreage.
As of April 25, 2022, we had two operated drilling rigs running in the SCOOP, and we expect to conclude the 2022 drilling program mid-year for an average of one operated drilling rig in 2022.
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RESULTS OF OPERATIONS
Comparison of the Three Month Periods Ended March 31, 2022 and 2021
Natural Gas, Oil and NGL Production and Pricing (sales totals in thousands)
The following table summarizes our natural gas, oil and condensate and NGL production, sales and related pricing for the Successor Quarter as compared to the Predecessor Quarter. Some totals below may not sum or recalculate due to rounding.
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Natural gas sales
Natural gas production volumes (MMcf)83,205 81,832 
Natural gas production volumes (MMcf) per day924 909 
Total sales$405,212 $235,321 
Average price without the impact of derivatives ($/Mcf)$4.87 $2.88 
Impact from settled derivatives ($/Mcf)$(1.34)$— 
Average price, including settled derivatives ($/Mcf)$3.53 $2.88 
Oil and condensate sales
Oil and condensate production volumes (MBbl)327 344 
Oil and condensate production volumes (MBbl) per day4 4 
Total sales$30,239 $18,239 
Average price without the impact of derivatives ($/Bbl)$92.51 $53.03 
Impact from settled derivatives ($/Bbl)$(24.91)$— 
Average price, including settled derivatives ($/Bbl)$67.60 $53.03 
NGL sales
NGL production volumes (MBbl)926 758 
NGL production volumes (MBbl) per day10 8 
Total sales$45,284 $23,776 
Average price without the impact of derivatives ($/Bbl)$48.88 $31.35 
Impact from settled derivatives ($/Bbl)$(6.20)$— 
Average price, including settled derivatives ($/Bbl)$42.68 $31.35 
Natural gas, oil and condensate and NGL sales
Natural gas equivalents (MMcfe)90,725 88,446 
Natural gas equivalents (MMcfe) per day1,008 983 
Total sales$480,735 $277,336 
Average price without the impact of derivatives ($/Mcfe)$5.30 $3.14 
Impact from settled derivatives ($/Mcfe)$(1.38)$— 
Average price, including settled derivatives ($/Mcfe)$3.92 $3.14 
Production Costs:
Average lease operating expenses ($/Mcfe)$0.19 $0.14 
Average taxes other than income ($/Mcfe)$0.14 $0.10 
Average transportation, gathering, processing and compression ($/Mcfe)$0.93 $1.20 
Total lease operating expenses, midstream costs and production taxes ($/Mcfe)$1.27 $1.44 
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Natural Gas, Oil and Condensate and NGL Sales (in thousands)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021% Change
Natural gas$405,212 $235,321 72 %
Oil and condensate30,239 18,239 66 %
NGL45,284 23,776 90 %
Natural gas, oil and condensate and NGL sales$480,735 $277,336 73 %
The increase in natural gas sales without the impact of derivatives when comparing the Successor Quarter to the Predecessor Quarter was due to a 69% increase in realized natural gas prices combined with a 2% increase in sales volumes. The realized price change was primarily driven by the significant increase in the average Henry Hub gas index from $2.69 per Mcf in the Predecessor Quarter to $4.95 per Mcf during the Successor Quarter.
The increase in oil and condensate sales without the impact of derivatives when comparing the Successor Quarter to the Predecessor Quarter was due to an 74% increase in realized prices, partially offset by a 5% decrease in sales volumes. The realized price change was driven by the significant increase in the average WTI crude index from $57.84 per barrel in the Predecessor Quarter to $94.29 per barrel during the Successor Quarter.
The increase in NGL sales without the impact of derivatives when comparing the Successor Quarter to the Predecessor Quarter was due to a 56% increase in realized prices combined with a 22% increase in NGL sales volumes. The realized price change was driven by the significant increase in the average Mont Belvieu NGL index from $32.59 per barrel in the Predecessor Quarter to $54.24 per barrel during the Successor Quarter.
Natural Gas, Oil and NGL Derivatives (in thousands)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Natural gas derivatives - fair value losses$(619,319)$(25,538)
Natural gas derivatives - settlement (losses) gains(111,157)125 
Total losses on natural gas derivatives(730,476)(25,413)
Oil derivatives - fair value losses(29,853)(1,731)
Oil derivatives - settlement losses(8,144)— 
Total losses on oil derivatives(37,997)(1,731)
NGL derivatives - fair value losses(14,333)(2,834)
NGL derivatives - settlement losses(5,745)— 
Total losses on NGL derivatives(20,078)(2,834)
Total losses on natural gas, oil and NGL derivatives$(788,551)$(29,978)
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 increase in losses compared to the Predecessor Quarter is primarily the result of an increase in both realized and futures pricing for oil, natural gas, and NGL. See Note 8 of our consolidated financial statements for hedged volumes and pricing.
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Lease Operating Expenses (in thousands, except per unit)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021% Change
Lease operating expenses
Utica$13,188 $9,222 43 %
SCOOP4,452 3,357 33 %
Other4 74 (95)%
Total lease operating expenses$17,644 $12,653 39 %
Lease operating expenses per Mcfe
Utica$0.19 $0.12 51 %
SCOOP0.22 0.23 (7)%
Other0.51 2.41 (79)%
Total lease operating expenses per Mcfe$0.19 $0.14 36 %
The increase in total and per unit LOE for the Successor Quarter were primarily the result of increased water hauling, driven by recent wells turned to sales, disposal and compression expenses throughout our Utica operations.
Taxes Other Than Income (in thousands, except per unit)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021% Change
Production taxes$9,472 $5,803 63 %
Property taxes1,893 1,912 (1)%
Other1,103 989 11 %
Total taxes other than income$12,468 $8,705 43 %
Total taxes other than income per Mcfe$0.14 $0.10 40 %
The increase in total and per unit taxes other than income was primarily related to an increase in production taxes resulting from the significant increase 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)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021% Change
Transportation, gathering, processing and compression$84,792 $105,867 (20)%
Transportation, gathering, processing and compression per Mcfe$0.93 $1.20 (22)%
The decrease in total and per unit transportation, gathering, processing and compression was primarily related to savings associated with rejected midstream contracts and renegotiation through the bankruptcy process.
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Depreciation, Depletion and Amortization (in thousands, except per unit)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021% Change
Depreciation, depletion and amortization of oil and gas properties$61,942 $39,767 56 %
Depreciation, depletion and amortization of other property and equipment342 1,380 (75)%
Total Depreciation, depletion and amortization$62,284 $41,147 51 %
Depreciation, depletion and amortization per Mcfe$0.69 $0.47 48 %
The increase in total and per unit depreciation, depletion and amortization of our oil and gas properties for the Successor Quarter compared to the Predecessor Quarter is primarily the result of an increased depletion rate as a result of the fresh start valuations on our oil and natural gas properties.
Impairment of Other Property and Equipment
We recognized a $14.6 million impairment charge on the Company's corporate headquarters during the Predecessor Quarter as a result in a change in expected future use.
General and Administrative Expenses (in thousands, except per unit)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021% Change
General and administrative expenses, gross$15,047 $21,317 (29)%
Reimbursed from third parties(3,198)(3,039)5 %
Capitalized general and administrative expenses(4,744)(5,521)(14)%
General and administrative expenses, net$7,105 $12,757 (44)%
General and administrative expenses, net per Mcfe$0.08 $0.14 (46)%
The decrease in general and administrative expenses for the Successor Quarter compared to the Predecessor Quarter was primarily driven by retention payments made during the Predecessor Quarter and our continued focus on the workforce and leadership structure to align to our current operating environment.
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Interest Expense (in thousands, except per unit)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Interest on 2026 Senior Notes$11,051 $— 
Interest expense on Credit Facility2,268 — 
Amortization of loan costs665 — 
Interest on DIP Credit Facility— 2,166 
Interest expense on Pre-Petition Revolving Credit Facility— 1,020 
Other— 75 
Total interest expense$13,984 $3,261 
Interest expense per Mcfe$0.15 $0.04 
The change in interest expense when comparing the Successor Quarter to the Predecessor Quarter was due to the changes in our debt structure upon emergence from Chapter 11.
Reorganization Items, Net
The following table summarizes costs associated with our bankruptcy in the Company's consolidated statements of operations for the Predecessor Quarter (in thousands):
Predecessor
Three Months Ended March 31, 2021
Legal and professional fees$40,783 
Adjustment to allowed claims2,088 
Gain on settlement of pre-petition accounts payable(4,150)
Reorganization items, net$38,721 
Other, net (in thousands)
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021% Change
Other, net$(14,810)$(247)5896 %
The increase in other income when comparing the Successor Quarter to the Predecessor Quarter was due primarily to settlement payment receipts as discussed in Note 7.
Income Taxes
We did not record any income tax expense for the Successor Quarter or Predecessor Quarter as a result of maintaining a full valuation allowance against our net deferred tax asset. See Note 12 for further details of our valuation allowance.
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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. Since the Emergence Date, we have generally funded our operations, planned capital expenditures and any share repurchases with cash flow from our operating activities, cash on hand, and borrowings under our revolving credit facility. Additionally, we may access debt and equity markets and sell properties to enhance our liquidity.
For the Successor Quarter, 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, the repayment of debt and share repurchases.
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 any return of capital to shareholders, if declared by the Board, during the next 12 months.
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 3 of our consolidated financial statements for further discussion of our debt obligations, including the principal and carrying amounts of our senior notes.
As of March 31, 2022, we had $5.9 million of cash and cash equivalents, $25.0 million of borrowings under our Credit Facility, $113.2 million of letters of credit outstanding, and $550 million of outstanding 2026 Senior Notes. Our total principal amount of funded debt as of March 31, 2022 was $575.0 million.
As of April 25, 2022 we had $59.1 million of cash and cash equivalents, no borrowings under our Credit Facility, $113.2 million of letters of credit outstanding, and $550 million of outstanding 2026 Senior Notes.
Debt. On October 14, 2021, we entered into the Third Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and various lender parties. The Credit Facility provides for an aggregate maximum principal amount of up to $1.5 billion, an initial borrowing base of $850.0 million and an initial aggregate elected commitment amount of $700.0 million. The credit agreement also provides for a $175.0 million sublimit of the aggregate commitments that is available for the issuance of letters of credit.
On May 2, 2022, we entered into the borrowing base redetermination agreement and first amendment to our credit agreement (the “Amendment”) governing the Credit Facility. The Amendment, among other things, (a) increased the borrowing base under the New Credit Agreement from $850 million to $1.0 billion as a result of the spring 2022 scheduled redetermination with aggregate elected lender commitments to remain at $700 million, (b) amended certain covenants related to hedging to ease certain requirements and limitations and (c) amended the covenants governing restricted payments to (i) increase the Net Leverage Ratio allowing unlimited restricted payments from 1.00 to 1.00 to 1.25 to 1.00 and (ii) permit additional restricted payments to redeem preferred equity until December 31, 2022 provided certain leverage, no event of default or borrowing base deficiency and availability tests are met and (d) provide for the transition from a LIBOR to a SOFR benchmark, with a 10 basis point credit spread adjustment for all tenors.
Additionally, on the Emergence Date, pursuant to the terms of the Plan, 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.
See Note 3 of our consolidated financial statements for additional discussion of our outstanding debt.
Preferred Dividends. As discussed in Note 4 of 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 (as defined below) 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 a cash or PIK dividend on a quarterly basis.
During the Successor Quarter, the company paid $1.5 million of cash dividends to holders of our preferred stock.
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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 3 Quantitative and Qualitative Disclosures About Market Risk for further discussion on the impact of commodity price risk on our financial position. Additionally, see Note 8 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 Successor Quarter, the Company's incurred capital expenditures totaled $100.4 million, of which $94.3 million related to drilling and completion activity and $6.1 million related to leasehold and land investment.
Our capital expenditures for 2022 are currently estimated to be in the range of $355 million to $395 million for drilling and completion expenditures. In addition, we currently expect to spend approximately $25 million in 2022 for non-drilling and completion expenditures, which primarily includes leasehold acquisition, lease extension and lease maintenance payments in the Utica Shale.
Sources and Uses of Cash
The following table presents the major changes in cash and cash equivalents for the Successor Quarter and Predecessor Quarter (in thousands):
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Net cash provided by operating activities$253,696 $123,175 
Capital expenditures(80,271)(56,895)
Debt activity, net(139,000)23,848 
Repurchases of common stock(30,192)— 
Preferred stock dividends(1,447)— 
Other(148)(288)
Net Change in cash, cash equivalents and restricted cash$2,638 $89,840 
Cash, cash equivalents and restricted cash at end of period$5,898 $179,701 
Net Cash Provided by Operating Activities
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Net cash flow provided by operating activities was $253.7 million for the Successor Quarter as compared to $123.2 million for the Predecessor Quarter. The increase was primarily the result of an increase in cash receipts from our oil and natural gas purchasers due to increased realized commodities pricing. We also incurred significant charges related to our Chapter 11 reorganization in the Predecessor Quarter prior to our emergence in the second quarter of 2021.
Capital Expenditures
During the Successor Quarter, we spud five gross and net operated wells and completed three gross (1.7 net) operated wells in the Utica for a total incurred cost of approximately $43.6 million. During the Successor Quarter, we spud four gross (2.8 net) operated wells and completed and commenced sales from five gross (4.8 net) operated wells in the SCOOP for a total incurred cost of approximately $45.3 million.
During the Successor Quarter, we did not participate in any wells that were spud or turned to sales by other operators on our Utica acreage. In addition, six gross (0.002 net) wells were spud and 13 gross (0.86 net) wells were turned to sales by other operators on our SCOOP acreage during the Successor Quarter.
Incurred capital expenditures and cash capital expenditures may vary from period to period due to the cash payment cycle. Cash capital expenditures for the Successor Quarter and Predecessor Quarter were as follows (in thousands):
SuccessorPredecessor
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Oil and Natural Gas Property Cash Expenditures:
Drilling and completion costs
$70,360 $51,702 
Leasehold acquisitions
5,775 2,354 
Other
4,136 2,839 
Total oil and natural gas property expenditures
$80,271 $56,895 
Debt Activity
In the Successor Quarter, the Company had $456.0 million and $317.0 million in borrowings and repayments, respectively, on its Credit Facility. As of April 25, 2022 the Company had no borrowings outstanding on its Credit Facility.
Repurchases of Common Stock
During the Successor Quarter, we repurchased 438,082 of our common shares for approximately $35.5 million under the Repurchase Program at a weighted average price of $81.06 per share. As of April 25, 2022, we repurchased 736,448 shares for approximately $62.0 million under the Repurchase Program at a weighted average price of $84.19 per share.
Preferred Stock Dividends
During the Successor Quarter, the company paid $1.5 million of cash dividends to holders of our preferred stock.
Contractual and Commercial Obligations
We have various contractual obligations in the normal course of our operations and financing activities, as discussed in Note 7. 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, 2021.    
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 March 31, 2022, our material off-balance sheet arrangements and transactions include $113.2 million in letters of credit outstanding against our Credit Facility and $33.1 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. There are no other transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to
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materially affect our liquidity or availability of our capital resources. See Note 7 of our consolidated financial statements for further discussion of the various financial guarantees we have issued.
Critical Accounting Policies and Estimates
As of March 31, 2022, there have been no significant changes in our critical accounting policies from those disclosed in our 2021 Annual Report on Form 10-K.
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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 believe we have sufficient internal controls to prevent unauthorized trading.
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, taking 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 3rd 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 9 of our consolidated financial statements for further discussion of the fair value measurements associated with our derivatives.
As of March 31, 2022, 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 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 March 31, 2022, we had a net liability derivative position of $1.1 billion as compared to a net liability derivative position of $402.0 million as of December 31, 2021. Utilizing actual derivative contractual volumes, a 10% increase in underlying commodity prices would have increased our liability by approximately $262.2 million, while a 10% decrease in underlying commodity prices would have decreased our liability by approximately $254.3 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 revolving amended and restated credit agreement is structured under floating rate terms, as advances under this facility may be in the form of either base rate loans or Eurodollar loans. As such, our interest expense is sensitive to fluctuations in the prime rates in the United States, or, if the Eurodollar rates are elected, the Eurodollar rates. At March 31, 2022, we had $25.0 million in borrowings outstanding under our Credit Facility which bore interest at a weighted average rate of 3.21%. As of March 31, 2022, 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 March 31, 2022, 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 March 31, 2022, 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 7 of 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, 2021.
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 March 31, 2022 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(2)
Approximate maximum dollar value of shares that may yet be purchased under the plans or programs(2)
January 1 - January 311,189 $66.57 —$— 
February 1 - February 28— $— —$— 
March 1 - March 31438,082 $81.06 438,082 $64,500,000 
Total439,271 $81.02 438,082 
_____________________
(1)    During January 2022, we repurchased and canceled 1,189 shares of our common stock at a weighted average price of $66.57 to satisfy tax withholding requirements incurred upon the vesting of restricted stock unit awards.
(2)    In November 2021 our Board of Directors approved a stock repurchase program to acquire up to $100.0 million of its Common Stock. The stock repurchase program extends through December 31, 2022. At March 31, 2022, there was approximately $64.5 million that may yet be repurchased under $100.0 million approved amount.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5.
OTHER INFORMATION
Chief Executive Officer Employment Agreement
Effective April 29, 2022, the Company and the Company’s Chief Executive Officer, Timothy Cutt, entered into an employment agreement (the “CEO Employment Agreement”), which supersedes Mr. Cutt’s prior offer letter, dated as of May 17, 2021 and amended on September 2, 2021, in its entirety.
The CEO Employment Agreement does not provide for a fixed term of employment. During Mr. Cutt’s term of employment as the Chief Executive Officer of the Company, Mr. Cutt will also serve as the Executive Chairman of the Company’s Board of Directors (the “Board”). Subject to the Board’s ability to remove Mr. Cutt at any time, Mr. Cutt will continue to serve as Executive Chairman of the Board following the conclusion of the term of Mr. Cutt’s employment as Chief Executive Officer of the Company. Pursuant to the CEO Employment Agreement, Mr. Cutt will receive the following: (i) an annual base salary of $785,000, (ii) a target annual bonus opportunity equal to 120% of base salary, and (iii) eligibility to receive annual equity awards as determined in the sole discretion of the Compensation Committee of the Board.
Upon a termination of Mr. Cutt’s employment (i) by the Company without “Cause” or (ii) by Mr. Cutt for “Good Reason” (each as defined in the CEO Employment Agreement), in each case, following the occurrence of a “Change in Control” (as defined in the Company’s 2021 Stock Incentive Plan), subject to Mr. Cutt’s execution and non-revocation of a release of claims, Mr. Cutt will receive a cash severance payment equal to three times the sum of (x) Mr. Cutt’s then-current base salary plus (y) Mr. Cutt’s target annual bonus for the year in which such termination occurs, payable in a lump sum on the date that is 60 days following such termination of employment. Such severance is subject to forfeiture and clawback if Mr. Cutt breaches any of the restrictive covenants contained in the CEO Employment Agreement.
The CEO Employment Agreement provides for the following restrictive covenants: (i) non-solicitation of customers, employees or independent contractors during employment or service and for 12 months thereafter, (ii) perpetual non-disclosure of confidential information, and (iii) assignment of intellectual property.
The foregoing description of the CEO Employment Agreement is qualified in its entirety by reference to the full text of the CEO Employment Agreement, a copy of which is attached hereto as Exhibit 10.2 and is incorporated herein by reference.
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Table of Contents
ITEM 6.EXHIBITS
INDEX OF EXHIBITS
Incorporated by Reference
Exhibit NumberDescriptionFormSEC File NumberExhibitFiling DateFiled or Furnished Herewith
2.18-K001-195142.24/29/2021
3.18-K000-195143.15/17/2021
3.28-K000-195143.25/17/2021
10.1X
10.2X
31.1X
31.2X
32.1X
32.2X
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document.X
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.X
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.X
101.LABXBRL Taxonomy Extension Labels Linkbase Document.X
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.X
44
Table of Contents
104Cover 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
45
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: May 4, 2022
 
GULFPORT ENERGY CORPORATION
By:/s/    William Buese
William Buese
Chief Financial Officer

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