Gulfport Energy Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

LEASES

LEASES

6 Months Ended

Jun. 30, 2021

Nature of Leases

The Company has operating leases on certain equipment and field offices 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 with varying terms for drilling rigs. 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 June 30, 2021, the Company did not have any active long-term drilling rig contracts in place.

The Company rents office space for its corporate headquarters and field locations and certain other equipment from third parties, which expire at various dates through 2024. 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.

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.

Maturities of operating lease liabilities as of June 30, 2021 were as follows:


	(In thousands)
Remaining 2021	$	20
2022	25
2023	—
2024	—

Total lease payments	$	45
Less: Imputed interest	(1)
Total	$	44

The table below summarizes lease cost for the periods presented:


	Successor		Predecessor
	Period from May 18, 2021 through June 30, 2021		Period from April 1, 2021 through May 17, 2021		Three months ended June 30, 2020
Operating lease cost	$	8	$	9	$	2,196

Variable lease cost	$	—	$	—	$	235

Short-term lease cost	$	2,160	$	2,307	$	2,629
Total lease cost(1)	$	2,168	$	2,316	$	5,060


	Successor		Predecessor
	Period from May 18, 2021 through June 30, 2021		Period from January 1, 2021 through May 17, 2021		Six months ended June 30, 2020
Operating lease cost	$	8	$	41	$	6,278

Variable lease cost	$	—	$	—	$	460

Short-term lease cost	$	2,160	$	4,496	$	5,439
Total lease cost(1)	$	2,168	$	4,537	$	12,177


(1)			The majority of the Company's total lease cost was capitalized to the full cost pool, and the remainder was included in general and administrative expenses in the accompanying consolidated statements of operations.

Supplemental cash flow information related to leases was as follows:


	Successor		Predecessor
	Period from May 18, 2021 through June 30, 2021		Period from January 1, 2021 through May 17, 2021		Six months ended June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	15	$	48	$	72
Investing cash flow from operating leases	$	—	$	—	$	7,727
Investing cash flow from operating leases—related party	$	—	$	—	$	6,800

The weighted-average remaining lease term as of June 30, 2021 was 1.14 years. The weighted-average discount rate used to determine the operating lease liability as of June 30, 2021 was 3.98%.