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

Quarterly report pursuant to Section 13 or 15(d)

LEASES

LEASES

9 Months Ended

Sep. 30, 2022

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 September 30, 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 2026. 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. In July 2022, the Company moved its headquarters to a new location. The impact of the Company's new headquarters lease is reflected in the tables below.

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 September 30, 2022 were as follows (in thousands):


Remaining 2022	$	247
2023	966
2024	824
2025	824
2026	550
Total lease payments	$	3,411
Less: imputed interest	(351)
Total	$	3,060

The tables below summarize lease cost for the periods presented (in thousands):


	Successor
	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021
Operating lease cost	$	187	$	10
Variable lease cost	—		—
Short-term lease cost	8,035		2,873
Total lease cost(1)	$	8,222	$	2,883


	Successor				Predecessor
	Nine Months Ended September 30, 2022		Period from May 18, 2021 through September 30, 2021		Period from January 1, 2021 through May 17, 2021
Operating lease cost	$	287	$	18	$	41
Variable lease cost	—		—		—
Short-term lease cost	26,817		5,033		4,496
Total lease cost(1)	$	27,104	$	5,051	$	4,537

_____________________

(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):


	Successor				Predecessor
	Nine Months Ended September 30, 2022		Period from May 18, 2021 through September 30, 2021		Period from January 1, 2021 through May 17, 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	354	$	46	$	48

The weighted-average remaining lease term as of September 30, 2022 was 3.75 years. The weighted-average discount rate used to determine the operating lease liability as of September 30, 2022 was 5.90%.