Gulfport Energy and Wexford Capital Part V: Parsing Gulfport's cash flow statement

From the last 10Q here are Gulfport Energy's revenue numbers for the past three months:

	Three Months Ended March 31,
		2012				2011
Revenues:
Oil and condensate sales		$	64,004,000			$	45,196,000
Gas sales			613,000				720,000
Natural gas liquids sales			806,000				659,000
Other income			38,000				63,000
			65,461,000				46,638,000

They had $65 million in revenue.

Net income was $26.7 million dollars.

Here is the cash flow statement for operating cash flows:

		Three Months Ended March 31,
		2012				2011
Cash flows from operating activities:
Net income		$	26,869,000			$	21,174,000
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of discount - Asset Retirement Obligation			176,000				159,000
Depletion, depreciation and amortization			21,395,000				12,158,000
Stock-based compensation expense			681,000				77,000
Loss from equity investments			268,000				316,000
Interest income - note receivable			—				(36,000	)
Unrealized loss on derivative instruments			266,000				—
Amortization of loan commitment fees			112,000				110,000
Changes in operating assets and liabilities:
Increase in accounts receivable			(1,718,000	)			(5,419,000	)
Increase in accounts receivable - related party			(463,000	)			(160,000	)
(Increase) decrease in prepaid expenses			(57,000	)			618,000
Increase (decrease) in accounts payable and accrued liabilities			22,431,000				(709,000	)
Settlement of asset retirement obligation			(531,000	)			—
Net cash provided by operating activities			69,429,000				28,288,000

The cash generated was - believe it or not - slightly larger than the revenue - and over 40 million higher than profits. Part of that was depletion (depreciation adds to cash flow). Most the rest was simply an increase in accounts payable of 22 million.

Here is the cash flow from investing for that three months:

Cash flows from investing activities:
Additions to other property, plant and equipment			(82,000	)			(13,000	)
Additions to oil and gas properties			(84,778,000	)			(33,285,000	)
Proceeds from sale of other property, plant and equipment			140,000				—
Proceeds from sale of oil and gas properties			—				1,384,000
Advances on note receivable to related party			—				(1,319,000	)
Contributions to investment in Grizzly Oil Sands ULC			(67,063,000	)			(4,878,000	)
Distributions from investment in Tatex Thailand II, LLC			200,000				—
Contributions to investment in Tatex Thailand III, LLC			(483,000	)			(895,000	)
Contributions to investment in Muskie Holdings LLC			(312,000	)			—
Contributions to investment in Timber Wolf Terminals LLC			(1,000,000	)			—
Contributions to investment in Windsor Midstream LLC			(7,021,000	)			—
Net cash used in investing activities			(160,399,000	)			(39,006,000	)

In those three months they invested $160 million but only had cash flows of $69 million and earnings of $26.7 million.

How did they finance this?

As noted the company had to finance $160 million of investing activities from only $26.7 million in operating earnings. This presents financing issues.

Firstly the company (as noted) ran up its accrued liabilities.

Then the company borrowed $10 million dollars.

But mostly the company ran down its cash holdings from $93 million to $13 million.

Where did those cash holdings come from?

The cash holdings did not represent past profits. What they were was proceeds from equity issuance. The company cash flow statement in 2011 shows $307 million in equity issuance - much of which has gone into investing in various quarters. The cash is now heavily depleted (note only $13 million is left).

If they intend on investing at these rates they will need to raise more capital.

What were the investments?

In the last quarter they invested $67 million in Grizzly Oil Sands. That is controlled by Wexford.

They also invested in Tatex, Muskie, Timberwolf and Windsor. All of these are Wexford entities.

Indeed they invested more than their entire revenue in Wexford Entities.

But they also added $85 million to oil and gas properties. A fair bit of that was with respect to the Permian Basin properties (they drilled wells and acquired acreage). Those assets are also being sold to a Wexford controlled entity. Other releases have envisaged a sale of that entity which will raise some cash allowing them to continue to invest.

I read many 10K and 10Q filings. Few are this fascinating.






John