DEAR FELLOW STOCKHOLDERS,
2011 represents a year of solid execution, growth and accomplishment for Gulfport’s employees and stockholders. Stronger oil pricing and compelling returns drove record activity levels during 2011, generating production growth of 18%. We also accumulated a significant position in the emerging Utica Shale and continued development of our investment in the Canadian Oil Sands. Key financial and operational highlights for 2011, as compared to the prior year, included:
- Total net production increased 18% to 2.33 million barrels of oil equivalent;
- Oil and gas revenues increased 79% to $229.0 million;
- Net Income increased 129% to $108.4 million;
- Net Income per fully diluted share increased 106% to $2.20.
Underlying these solid performance metrics is a focused strategy and a tremendous set of assets. Gulfport targets areas which are believed to have a large amount of oil in place and seeks to apply the latest technology to extract additional oil from those regions. Whether through the application of 3-D seismic, horizontal drilling, hydraulic fracturing or Steam Assisted Gravity Drainage (“SAGD”), new technologies and a bias in favor of oil are key elements of Gulfport’s strategy. With these criteria in mind, Gulfport seeks to pursue firstmover positions in emerging plays and acquire attractively located acreage in critical mass relative to Gulfport’s size.
Emerging as one of the most exciting plays in North America, the Utica Shale of Eastern Ohio has the potential to significantly impact Gulfport within a near-term time horizon. Gulfport’s early entrance into this play has enabled us to accumulate a substantial acreage position in the core of the play. Gulfport currently has an active drilling program planned for its acreage during 2012 and with each passing day, our understanding of the play grows stronger and we become increasingly enthusiastic about its potential. Gulfport’s planned development and de-risking of the play stand to potentially unlock considerable value from this asset.
Traditionally, U.S. E&P companies have participated in all the North American basins, with the exception of the Canadian Oil Sands. In 2006, Gulfport decided to buck this trend and began accumulating a position in the play. The Canadian Oil Sands are recognized to be the second largest known oil reserves in the world, surpassed only by Saudi Arabia. Accordingly, we took the long-term view that the oil sands would become a major contributor to the solution for the world’s growing demand for energy. By virtue of our 25% interest in Grizzly Oil Sands ULC, we have exposure to over 800,000 gross acres in an oil play that is expected to provide several decades of meaningful growth. In November of 2011, Grizzly achieved a significant milestone, receiving formal government approval for the development of its first SAGD facility at Algar Lake. This Algar Lake facility is currently on track for commissioning in the fourth quarter of 2012 and first oil is expected to begin flowing in mid-2013. In addition, Grizzly recently received a third party resource report from GLJ reflecting 16.8 million barrels of proved reserves net to Gulfport’s interest in Grizzly’s first SAGD project at Algar Lake.
Gulfport’s legacy assets in Southern Louisiana continue to demonstrate repeatable free cash flow generation and currently enjoy the benefit of a premium for its Louisiana Sweet crude. West Cote Blanche Bay continues to be a source of low-risk and high-return development opportunities. Meanwhile, recent results at Hackberry continue to be promising as we have been successful in expanding the extent of the play and continue to find good productive sands.
Over the past year, the Permian Basin has continued to develop and evolve, unlocking new opportunities from within the historically prolific basin. We believe that significant vertical drilling opportunities remain on traditional 40-acre spacing in the play. Meanwhile, encouraging results from the horizontal drilling activity of offset operators in the basin has led to the evaluation of the horizontal potential underlying Gulfport’s acreage in the play.
In the Niobrara Shale of Western Colorado, Gulfport continues to develop and de-risk its position in another promising oil-levered play. During the year we shot and processed a 60-square mile survey over our Craig Dome prospect. This seismic data will be key in optimizing well locations by identifying faulting and natural fracture systems within the formation. In the Niobrara, successful development of our position could unlock further potential crude oil reserve growth.
Gulfport is pleased to have put together a meaningful presence in a number of exciting developing plays. Supported by our legacy fields in Southern Louisiana which provide a strong and stable base of cash flows, we have been successful in amassing significant first-mover positions in several rapidly emerging plays.
LOOKING AHEAD:
Gulfport has a compelling set of milestones ahead during 2012. In the Utica, Gulfport plans to conduct an active drilling program to develop and de-risk its acreage. In Canada, Grizzly plans to submit a regulatory application for the development of Thickwood Hills during 2012 and expects to complete and commission its first SAGD project at Algar Lake in the fourth quarter 2012. In the Permian, the addition of a horizontal drilling component to the play has the potential to accelerate growth and amplify returns from the play. Lastly, we expect that Gulfport’s strong balance sheet coupled with the free cash flow generation of our core assets should provide for significant organic production growth.
With a substantial year-over-year increase in production and our continued focus towards capturing valuable oil-levered resource, 2012 is poised to be a very exciting year for Gulfport.
We thank you for your continued support.
Respectfully,
Mike Liddell James D. Palm
Chairman of the Board Chief Executive Officer