Gulfport Energy Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Property and Equipment

Property and Equipment

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

The major categories of property and equipment and related accumulated depletion, depreciation, amortization and impairment as of December 31, 2019 and 2018 are as follows:



	December 31,
	2019			2018
	(In thousands)
Oil and natural gas properties	$	10,595,735		$	10,026,836
Other depreciable property and equipment	91,198			87,146
Land	5,521			5,521
Total property and equipment	10,692,454			10,119,503
Accumulated depletion, depreciation, amortization and impairment	(7,228,660		)	(4,640,098		)
Property and equipment, net	$	3,463,794		$	5,479,405

Under the full cost method of accounting, capitalized costs of oil and natural gas properties are subject to a quarterly full cost ceiling test, which is discussed in Note 1. During the year ended December 31, 2019, the Company incurred $2.0 billion of impairments as a result of its oil and natural gas properties exceeding its calculated ceiling. The lower ceiling values resulted primarily from significant decreases in the 12-month average trailing prices for natural gas, oil and NGL, which significantly reduced proved reserves values and, to a lesser degree, proved reserves. No impairment of oil and natural gas properties was required under the ceiling test for the years ended December 31, 2018 and 2017.

General and administrative costs capitalized to the full cost pool represent management’s estimate of costs incurred directly related to exploration and development activities such as geological and other administrative costs associated with overseeing the exploration and development activities. All general and administrative costs not directly associated with exploration and development activities were charged to expense as they were incurred. Capitalized general and administrative costs were approximately $30.1 million, $37.7 million and $35.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. The average depletion rate per Mcfe, which is a function of capitalized costs, future development costs and the related underlying reserves in the periods presented, was $1.08, $0.96 and $0.90 per Mcfe for the years ended December 31, 2019, 2018 and 2017, respectively.

The following is a summary of Gulfport’s oil and natural gas properties not subject to amortization as of December 31, 2019:



	Costs Incurred in
	2019		2018		2017		Prior to 2017		Total
	(In thousands)
Acquisition costs	$	9,089	$	98,870	$	756,963	$	806,982	$	1,671,904
Exploration costs	259		—		—		—		259
Development costs	1,213		548		869		10,325		12,955
Capitalized interest	888		413		247		—		1,548
Total oil and natural gas properties not subject to amortization	$	11,449	$	99,831	$	758,079	$	817,307	$	1,686,666

The following table summarizes the Company’s non-producing properties excluded from amortization by area as of December 31, 2019:



	December 31, 2019
	(In thousands)
Utica	$	976,593
MidContinent	709,739
Other	334
	$	1,686,666

As of December 31, 2018, approximately $2.9 billion of non-producing leasehold costs was not subject to amortization.

The Company evaluates the costs excluded from its amortization calculation at least annually. Subject to industry conditions and the level of the Company’s activities, the inclusion of most of the above referenced costs into the Company’s amortization calculation typically occurs within three to five years. However, the majority of the Company's non-producing leases in the Utica Shale have five year extension terms which could extend this time frame beyond five years.

A reconciliation of the Company's asset retirement obligation for the years ended December 31, 2019 and 2018 is as follows:



	December 31,
	2019			2018
	(In thousands)
Asset retirement obligation, beginning of period	$	79,952		$	75,100
Liabilities incurred	5,935			1,827
Liabilities settled	(273		)	(719		)
Liabilities removed due to divestitures	(30,146		)	—
Accretion expense	3,939			4,119
Revisions in estimated cash flows	948			(375		)
Asset retirement obligation as of end of period	$	60,355		$	79,952