Quarterly report pursuant to Section 13 or 15(d)

Property And Equipment

v2.4.0.6
Property And Equipment
 9 Months Ended
Sep. 30, 2012
Property, Plant and Equipment [Abstract]  
Property And Equipment
PROPERTY AND EQUIPMENT

The major categories of property and equipment and related accumulated depletion, depreciation, amortization and impairment as of September 30, 2012 and December 31, 2011 are as follows:
 
 
September 30, 2012
 
December 31, 2011
Oil and natural gas properties
$
1,342,715,000

 
$
1,035,754,000

Office furniture and fixtures
4,437,000

 
3,692,000

Building
3,926,000

 
4,049,000

Land
260,000

 
283,000

Total property and equipment
1,351,338,000

 
1,043,778,000

Accumulated depletion, depreciation, amortization and impairment
(645,560,000
)
 
(575,142,000
)
Property and equipment, net
$
705,778,000

 
$
468,636,000



Included in oil and gas properties at September 30, 2012 is the cumulative capitalization of $29,664,000 in general and administrative costs incurred and capitalized to the full cost pool. 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 $2,034,000 and $6,170,000 for the three months and nine months ended September 30, 2012, respectively, and $1,338,000 and $4,126,000 for the three months and nine months ended September 30, 2011, respectively.

The following table summarizes the Company’s non-producing properties excluded from amortization by area at September 30, 2012:
 
 
September 30, 2012
West Texas Permian
$
14,661,000

Colorado
5,871,000

Bakken
300,000

Southern Louisiana
761,000

Ohio
207,281,000

Belize
5,711,000

Other
45,000

 
$
234,630,000



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 is expected to occur within three to five years.

A reconciliation of the asset retirement obligation for the nine months ended September 30, 2012 and 2011 is as follows:

 
September 30, 2012
 
September 30, 2011
Asset retirement obligation, beginning of period
$
12,653,000

 
$
10,845,000

Liabilities incurred
1,711,000

 
939,000

Liabilities settled
(1,002,000
)
 
—

Accretion expense
529,000

 
491,000

Asset retirement obligation as of end of period
13,891,000

 
12,275,000

Less current portion
60,000

 
635,000

Asset retirement obligation, long-term
$
13,831,000

 
$
11,640,000




On May 7, 2012, the Company entered into a contribution agreement with Diamondback Energy, Inc., (“Diamondback”). Under the terms of the contribution agreement, the Company agreed to contribute to Diamondback, prior to the closing of the Diamondback initial public offering (“Diamondback IPO”), all its oil and gas interests in the Permian Basin (the "Contribution"). The Contribution was completed on October 11, 2012. At the closing of the Contribution, Diamondback issued to the Company (i) 7,914,036 shares of Diamondback common stock and (ii) a promissory note for $63.6 million, which was repaid to the Company at the closing of the Diamondback IPO on October 17, 2012. This aggregate consideration is subject to a post-closing cash adjustment based on changes in the working capital, long-term debt and other items of Windsor Permian LLC (“Windsor Permian”) referred to in the contribution agreement as of the date of the Contribution. Windsor Permian is a wholly-owned subsidiary of Diamondback. If the Contribution had closed on September 30, 2012, based on Diamondback's preliminary estimates, Diamondback would have owed Gulfport approximately $16.0 million for this post-closing adjustment. However, the actual amount due based on the October 11, 2012 closing date has not been determined, and the actual amount may vary materially from the estimated amount on September 30, 2012. Under the contribution agreement, the Company is generally responsible for all liabilities and obligations with respect to the contributed properties arising prior to the Contribution and Diamondback is responsible for such liabilities and obligations with respect to the contributed properties arising after the Contribution.

In connection with the Contribution, the Company and Diamondback entered into an investor rights agreement under which the Company has the right, for so long as it beneficially owns more than 10% of Diamondback’s outstanding common stock, to designate one individual as a nominee to serve on Diamondback’s board of directors. Such nominee, if elected to Diamondback’s board, will also serve on each committee of the board so long as he or she satisfies the independence and other requirements for service on the applicable committee of the board. So long as the Company has the right to designate a nominee to Diamondback’s board and there is no Gulfport nominee actually serving as a Diamondback director, the Company has the right to appoint one individual as an advisor to the board who shall be entitled to attend board and committee meetings. The Company is also entitled to certain information rights and Diamondback granted the Company certain demand and “piggyback” registration rights obligating Diamondback to register with the Securities and Exchange Commission (the "SEC") any shares of Diamondback common stock that the Company owns. Immediately upon completion of the Contribution, the Company owned a 35% equity interest in Diamondback, rather than leasehold interests in the Company’s Permian Basin acreage. Upon completion of the Diamondback IPO on October 17, 2012, Gulfport owned approximately 22.5% of Diamondback's outstanding common stock. On October 18, 2012, the underwriters of the Diamondback IPO exercised in full their option to purchase additional shares of common stock of Diamondback and, upon the closing of such purchase on October 23, 2012, Gulfport owned approximately 21.4% of Diamondback's outstanding common stock. The Company's investment in Diamondback will be accounted for as an equity method investment going forward.