Exhibit 10.1

 

 

 

FIRST AMENDMENT TO

AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of April 23, 2014

among

GULFPORT ENERGY CORPORATION,

as Borrower,

THE BANK OF NOVA SCOTIA,

as Administrative Agent

and

The Lenders Party Hereto

THE BANK OF NOVA SCOTIA,

as Sole Lead Arranger and Sole Bookrunner

AMEGY BANK NATIONAL ASSOCIATION,

as Syndication Agent

KEYBANK NATIONAL ASSOCIATION,

as Documentation Agent

 

 

 

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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”)
is entered into effective as of April 23, 2014, among GULFPORT ENERGY
CORPORATION, a Delaware corporation (“Borrower”), THE BANK OF NOVA SCOTIA, as
Administrative Agent (“Administrative Agent”) and L/C Issuer, the financial
institutions defined below as the Existing Lenders and as the Exiting Lender,
and BARCLAYS BANK PLC, and WELLS FARGO BANK, N.A., as new Lenders (“New
Lenders”).

R E C I T A L S

A. Borrower, the financial institutions signing as Lenders thereto,
Administrative Agent and the other agents party thereto are parties to an
Amended and Restated Credit Agreement dated as of December 27, 2013 (the
“Original Credit Agreement”).

B. As of the date hereof, the Existing Lenders and the Exiting Lender own 100%
of the Loans.

C. The parties desire to amend the Original Credit Agreement as hereinafter
provided.

NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Same Terms. All terms used herein that are defined in the Original Credit
Agreement shall have the same meanings when used herein, unless the context
hereof otherwise requires or provides. In addition, (i) all references in the
Loan Documents to the “Agreement” shall mean the Original Credit Agreement, as
amended by this Amendment, as the same may hereafter be amended from time to
time, and (ii) all references in the Loan Documents to the “Loan Documents”
shall mean the Loan Documents, as amended by the Modification Papers, as the
same may hereafter be amended from time to time. In addition, the following
terms have the meanings set forth below:

“Effective Date” means the date on which the conditions specified in Section 2
below are satisfied (or waived in writing by the Administrative Agent).

“Existing Lenders” means the Bank of Nova Scotia, Amegy Bank National
Association, KeyBank National Association, Credit Suisse AG, Cayman Islands
Branch, IberiaBank, and Associated Bank, N.A.

“Exiting Lender” means Deutsche Bank AG New York Branch.

“Fourth Amendment to Louisiana Mortgage” means the amendment to the Oil and Gas
Mortgages filed in Louisiana in the form attached hereto as Exhibit A.

“Modification Papers” means this Amendment, the Fourth Amendment to Louisiana
Mortgage, the Second Amendment to Limited Liability Company Interests Security
Agreement, Second Amendment to Pledge Agreement, Second Amendment to Security
Agreement, Second Amendment to Subsidiary Security Agreement, Third Amendment to
Pledge Agreement, and all of the other documents and agreements executed in
connection with the transactions contemplated by this Amendment.

“New Lenders” has the meaning specified in the opening paragraph.

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Page 1

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“New Notes” has the meaning set forth in Section 8 below.

“No Material Adverse Change Certificate” has the meaning set forth in
Section 2F.

“Second Amendment to Limited Liability Company Interests Security Agreement”
means the amendment to the Limited Liability Company Interests Security
Agreement in the form attached hereto as Exhibit B.

“Second Amendment to Pledge Agreement” means the amendment to the Pledge
Agreement in the form attached hereto as Exhibit C.

“Second Amendment to Security Agreement” means the amendment to the Security
Agreement in the form attached hereto as Exhibit D.

“Second Amendment to Subsidiary Security Agreement” means the amendment to the
Subsidiary Security Agreement in the form attached hereto as Exhibit E.

“Third Amendment to Pledge Agreement” means the amendment to the Subsidiary
Pledge Agreement in the form attached hereto as Exhibit F.

2. Conditions Precedent. The obligations and agreements of the Lenders as set
forth in this Amendment are subject to the satisfaction, unless waived in
writing by Administrative Agent, of each of the following conditions (and upon
such satisfaction, this Amendment shall be deemed to be effective as of the
Effective Date):

A. Upfront Fee. Borrower shall have paid to Administrative Agent, for the
accounts of the Existing Lenders and New Lenders, an upfront fee in the amounts
agreed to with Borrower.

B. First Amendment to Credit Agreement. This Amendment shall have been duly
executed and delivered by each of the parties hereto.

C. Notes. Borrower shall have executed and delivered the New Notes to the New
Lenders.

D. Other Modification Papers. Borrower shall have delivered to Administrative
Agent executed counterparts to the Fourth Amendment to Louisiana Mortgage, the
Second Amendment to Limited Liability Company Interests Security Agreement,
Second Amendment to Pledge Agreement, Second Amendment to Security Agreement,
Second Amendment to Subsidiary Security Agreement, and Third Amendment to Pledge
Agreement.

E. Fees and Expenses. Administrative Agent shall have received payment of all
out-of-pocket fees and expenses (including reasonable attorneys’ fees and
expenses) incurred by Administrative Agent in connection with the preparation,
negotiation and execution of the Modification Papers.

F. Representations and Warranties. Administrative Agent shall have received a
certificate (the “No Material Adverse Change Certificate”) to the effect that
all representations and warranties contained herein or in the other Modification
Papers or otherwise made in writing in connection herewith or therewith shall be
true and correct in all material respects (provided that any such
representations or warranties that are, by their terms, already qualified by
reference to materiality shall be true and correct without regard to such
materiality standard) with the same force and effect as though such
representations and warranties have been made on and as of the Effective Date,
or if made as of a specific date, as of such date.

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Page 2

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3. Amendments to Original Credit Agreement. On the Effective Date, the Original
Credit Agreement shall be deemed to be amended as follows:

(a) The definition of L/C Sublimit set forth in Section 1.01 of the Original
Credit Agreement shall be deemed to be amended to read in its entirety as
follows:

“‘L/C Sublimit’ means an amount equal to $70,000,000. The L/C Sublimit is part
of, and not in addition to, the Aggregate Commitments.”

(b) Schedule 1.01 of the Original Credit Agreement shall be replaced with
Schedule 1.01 attached to this Amendment.

(c) Schedule 2.01 of the Original Credit Agreement shall be replaced with
Schedule 2.01 attached to this Amendment.

(d) Schedule 6.06 of the Original Credit Agreement shall be replaced with
Schedule 6.06 attached to this Amendment.

4. Temporary Waiver of Hedging Requirement. Subject to the satisfaction of the
conditions precedent set forth in Section 2, the undersigned Lenders hereby
waive the Borrower’s compliance with Section 8.09 of the Original Credit
Agreement until July 1, 2014.

5. Increase of Borrowing Base. The Borrowing Base is hereby increased from
$150,000,000 to $275,000,000. The Borrowing Base shall remain at this amount
until next redetermined in accordance with Article IV of the Original Credit
Agreement.

6. Adjustment of Applicable Percentages of Lenders. The New Lenders have become
Lenders upon their execution of this Amendment, and on the Effective Date, the
New Lenders shall assume all rights and obligations of a Lender under the
Original Credit Agreement, as amended hereby. The Administrative Agent, the
Lenders and the Borrower hereby consent to each New Lender’s acquisition of an
interest in the Aggregate Commitments and its Applicable Percentage. The Lenders
have agreed among themselves, in consultation with the Borrower, to reallocate
their respective Commitments and Applicable Percentages as set forth on
Schedule 2.01, and the Administrative Agent and the Borrower hereby consent to
such reallocation. The Administrative Agent, the Lenders and the Borrower hereby
waive (a) any requirement that an Assignment and Assumption or any other
documentation be executed in connection with such reallocation, and (b) the
payment of any processing and recordation fee to the Administrative Agent.
Notwithstanding the foregoing, the reallocation of the Commitments and
Applicable Percentages among the Lenders shall be deemed to have been
consummated pursuant to the terms of an Assignment and Assumption attached as
Exhibit D to the Original Credit Agreement as if the Lenders had executed an
Assignment and Assumption with respect to such reallocation. On the Effective
Date, the Commitment and Applicable Percentage of each Lender shall be as set
forth on Schedule 2.01 attached to this Amendment.

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Page 3

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7. Concerning the New Lenders and the Exiting Lender.

(a) In connection herewith, each of the Existing Lenders and the Exiting Lender
irrevocably sells and assigns to each New Lender, and each New Lender, severally
and not jointly, hereby irrevocably purchases and assumes from the Existing
Lenders and the Exiting Lender, as of the Effective Date, so much of each
Existing Lender’s and the Exiting Lender’s Commitment, outstanding Loans and
participations in Letters of Credit, and rights and obligations in its capacity
as a Lender under the Original Credit Agreement and any other documents or
instruments delivered pursuant thereto (including without limitation any
guaranties and, to the extent permitted to be assigned under applicable law, all
claims (including without limitation contract claims, tort claims, malpractice
claims, statutory claims and all other claims at law or in equity), suits,
causes of action and any other right of any Existing Lender or the Exiting
Lender against any Person, whether known or unknown, arising under or in
connection with the Original Credit Agreement, any other documents or
instruments delivered pursuant thereto or the loan transactions governed
thereby), such that each Existing Lender’s and each New Lender’s Commitment,
Applicable Percentage of the outstanding Loans and participations in Letters of
Credit, and rights and obligations as a Lender shall be equal to its Applicable
Percentage and Commitment set forth on Schedule 2.01 to this Amendment, and the
Exiting Lender shall have no Commitment or Applicable Percentage. The Exiting
Lender and each Existing Lender agree that the provisions of the form of
Assignment and Assumption attached as Exhibit D to the Credit Agreement shall
apply to it as applicable depending on whether it is the assignee or assignor of
such “Commitments” as applicable. Each party hereto agrees to execute an
Assignment and Assumption or related ancillary documentation to give effect to
the foregoing if requested by the Administrative Agent. Further, on the
Effective Date, the Exiting Lender is released of its “Commitment” under the
Credit Agreement.

(b) Upon the Effective Date, all Loans and participations in Letters of Credit
of the Existing Lenders and the Exiting Lender outstanding immediately prior to
the Effective Date shall be, and hereby are, restructured, rearranged, renewed,
extended and continued as provided in this Amendment and shall continue as Loans
and participations in Letters of Credit of each Existing Lender and each New
Lender under the Original Credit Agreement, as amended by the Modification
Papers (as so amended, the “Credit Agreement”).

(c) Each New Lender represents and warrants to the Administrative Agent as
follows:

(i) it has received a copy of the Original Credit Agreement, together with
copies of the most recent financial statements of the Borrower delivered
pursuant thereto;

(ii) it has, independently and without reliance upon any Lender or any related
party of the Administrative Agent or any Lender (an “Agent-Related Person”) and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of the Loan Parties
and their respective Subsidiaries, and all applicable bank or other regulatory
laws relating to the transactions contemplated by the Credit Agreement, and made
its own decision to enter into the Credit Agreement and to extend credit to the
Borrower and the other Loan Parties under the Credit Agreement;

(iii) it will, independently and without reliance upon any Lender or any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under the Credit
Agreement and the other Loan Documents, and to make such investigations as it
deems necessary to inform itself as to the business, prospects, operations,
property, and other condition and creditworthiness of the Borrower and the other
Loan Parties.

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Page 4

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(d) Each New Lender acknowledges as follows:

(i) no Lender or Agent-Related Person has made any representation or warranty to
it, and no act by the Administrative Agent hereafter taken, including any
consent to and acceptance of any assignment or review of the affairs of any Loan
Party or any Affiliate thereof, shall be deemed to constitute any representation
or warranty by any Lender or any Agent-Related Person to any Lender as to any
matter, including whether Agent-Related Persons have disclosed material
information in their possession;

(ii) except for notices, reports and other documents expressly required to be
furnished to the Lenders by the Administrative Agent pursuant to the Original
Credit Agreement, the Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of any of the Loan Parties or any of their
respective Affiliates which may come into the possession of any Agent-Related
Person; and

(iii) on the Effective Date, subject to the satisfaction of the conditions to
effectiveness set forth in Section 2 of this Amendment, it shall be deemed
automatically to have become a party to the Credit Agreement and have all rights
and obligations of a Lender under the Original Credit Agreement and the other
Loan Documents, each as amended by the Modification Papers, as if it were an
original Lender signatory thereto.

(e) On the Effective Date, each New Lender agrees to be bound by the terms and
conditions set forth in the Original Credit Agreement and the other Loan
Documents, each as amended by the Modification Papers, applicable to the Lenders
as if it were an original Lender signatory thereto (and expressly makes the
appointment set forth in, and agrees to the obligations imposed under, Article X
of the Original Credit Agreement).

8. New Notes. The New Lenders have become Lenders upon their execution of this
Amendment, and, on the Effective Date, the maximum Commitments of all Lenders
are now set forth on Schedule 2.01 to this Amendment. Accordingly, on the
Effective Date, Borrower shall issue Notes (“New Notes”) in the form of
Exhibit B attached to the Original Credit Agreement to the New Lenders.

9. Certain Representations. Borrower represents and warrants that, as of the
Effective Date: (a) Borrower has full power and authority to execute the
Modification Papers to which it is a party and such Modification Papers
constitute the legal, valid and binding obligation of Borrower enforceable in
accordance with their terms, except as enforceability may be limited by general
principles of equity and applicable bankruptcy, insolvency, reorganization,
moratorium, and other similar laws affecting the enforcement of creditors’
rights generally; and (b) no authorization, approval, consent or other action
by, notice to, or filing with, any Governmental Authority or other Person is
required for the execution, delivery and performance by Borrower thereof. In
addition, Borrower represents that after giving effect to this Amendment, all
representations and warranties contained in the Original Credit Agreement and
the other Loan Documents are true and correct in all material respects (provided
that any such representations or warranties that are, by their terms, already
qualified by reference to materiality shall be true and correct without regard
to such materiality standard) on and as of the Effective Date as if made on and
as of such date except to the extent that any such representation or warranty
expressly relates solely to an earlier date, in which case such representation
or warranty is true and correct in all material respects (or true and correct
without regard to such materiality standard, as applicable) as of such earlier
date.

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Page 5

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10. No Further Amendments. Except as previously amended or waived in writing or
as amended hereby, the Original Credit Agreement shall remain unchanged and all
provisions shall remain fully effective between the parties.

11. Acknowledgments and Agreements. Borrower acknowledges that on the date
hereof all outstanding Obligations are payable in accordance with their terms,
and Borrower waives any defense, offset, counterclaim or recoupment with respect
thereto. Borrower, Administrative Agent, L/C Issuer and each Lender do hereby
adopt, ratify and confirm the Original Credit Agreement, as amended hereby, and
acknowledge and agree that the Original Credit Agreement, as amended hereby, is
and remains in full force and effect. Borrower acknowledges and agrees that its
liabilities and obligations under the Original Credit Agreement, as amended
hereby, and under the other Loan Documents, are not impaired in any respect by
this Amendment. Upon the effectiveness of this Amendment, each reference in the
Credit Agreement to “this Agreement”, “hereunder”, or words of like import shall
mean and be a reference to the Credit Agreement, as affected and amended hereby.

12. Limitation on Agreements. The consents, waivers and modifications set forth
herein are limited precisely as written and shall not be deemed (a) to be a
consent under or a waiver of or an amendment to any other term or condition in
the Original Credit Agreement or any of the other Loan Documents, or (b) to
prejudice any right or rights that Administrative Agent now has or may have in
the future under or in connection with the Original Credit Agreement and the
other Loan Documents, each as amended hereby, or any of the other documents
referred to herein or therein. The Modification Papers shall constitute Loan
Documents for all purposes.

13. Confirmation of Security. Borrower hereby confirms and agrees that all of
the Collateral Documents that presently secure the Obligations shall continue to
secure, in the same manner and to the same extent provided therein, the payment
and performance of the Obligations as described in the Original Credit Agreement
as modified by this Amendment.

14. Counterparts. This Amendment may be executed in any number of counterparts,
each of which when executed and delivered shall be deemed an original, but all
of which constitute one instrument. In making proof of this Amendment, it shall
not be necessary to produce or account for more than one counterpart thereof
signed by each of the parties hereto.

15. Incorporation of Certain Provisions by Reference. The provisions of
Section 11.15. of the Original Credit Agreement captioned “Governing Law,
Jurisdiction; Etc.” and Section 11.16. of the Original Credit Agreement
captioned “Waiver of Right to Trial by Jury” are incorporated herein by
reference for all purposes.

16. Entirety, Etc. This Amendment, the other Modification Papers and all of the
other Loan Documents embody the entire agreement between the parties. THIS
AMENDMENT, THE OTHER MODIFICATION PAPERS AND ALL OF THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[This space is left intentionally blank. Signature pages follow.]

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Page 6

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IN WITNESS WHEREOF, the parties hereto have executed this Amendment to be
effective as of the date and year first above written.

 

BORROWER GULFPORT ENERGY CORPORATION By:  

/s/ Michael G. Moore

  Name: Michael G. Moore   Title: Interim Chief Executive Officer,  
          President and Chief Financial Officer

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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ADMINISTRATIVE AGENT

THE BANK OF NOVA SCOTIA,

as Administrative Agent and L/C Issuer

By:  

/s/ Jay Salitza

  Name:  

Jay Salitza

  Title:  

Director

THE BANK OF NOVA SCOTIA,

as Lender

By:  

/s/ Jay Salitza

  Name:  

Jay Salitza

  Title:  

Director

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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AMEGY BANK NATIONAL ASSOCIATION

By:

 

/s/ Jill McSorley

 

Name:

 

Jill McSorley

 

Title:

 

Senior Vice President

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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KEYBANK NATIONAL ASSOCIATION

By:

 

/s/ John Dravenstott

 

Name:

 

John Dravenstott

 

Title:

 

Vice President

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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CREDIT SUISSE AG,

Cayman Islands Branch

By:

 

/s/ Michael Spaight

 

Name:

 

Michael Spaight

 

Title:

 

Authorized Signatory

By:

 

/s/ Samuel Miller

 

Name:

 

Samuel Miller

 

Title:

 

Authorized Signatory

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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IBERIABANK

By:

  /s/ Moni Collins  

Name:

 

Moni Collins

 

Title:

 

Vice President

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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ASSOCIATED BANK, N.A.

By:

  /s/ Farhan Iqbal   Name:  

Farhan Iqbal

 

Title:

 

Senior Vice President

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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WELLS FARGO BANK, N.A.

By: 

 

/s/ David C. Brooks

 

Name: 

  David C. Brooks  

Title: 

  Director

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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BARCLAYS BANK PLC, as New Lender

By: 

  /s/ Noam Azachi  

Name: 

  Noam Azachi  

Title: 

  Vice President

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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DEUTSCHE BANK AG NEW YORK BRANCH,

as an Exiting Lender, solely with respect to Section 7

By:

  /s/ Michael Getz  

Name:

  Michael Getz  

Title:

  Vice President

By:

  /s/ Michael Shannon  

Name:

  Michael Shannon  

Title:

  Vice President

 

FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT – Signature Page

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SCHEDULE 1.01

Designated Investment Entities

(all information as of December 31, 2013)

 

Name

   Number of Shares or
Percentage Ownership   

Principal Business Activity

Bison Drilling and Field Services LLC

   40%    Owns and operates drilling rigs.

Blackhawk Midstream LLC

   50%    Coordinates gathering, compression, processing and marketing
activities for the Company in connection with the development of its Utica Shale
acreage.

Diamondback Energy, Inc.

   3,379,500 shares    Focuses on the acquisition, development, exploration and
exploitation of unconventional, onshore oil and natural gas reserves in the
Permian Basin in West Texas.

Grizzly Oil Sands ULC

   24.9999%    Owns leasehold interests in the oil sands regions of Alberta,
Canada and is engaged in the development and production of such leasehold
interests.

Muskie Proppant LLC

   25%    Owns rights in a lease covering land in Wisconsin for mining oil and
natural gas fracture grade sand.

Stingray Cementing LLC

   50%    Provides well cementing services.

Stingray Energy Services LLC

   50%    Provides rental tools for land-based oil and natural gas drilling,
completion and workover activities as well as the transfer of fresh water to
wellsites.

Stingray Logistics LLC

   50%    Provides well services.

Stingray Pressure Pumping LLC

   50%    Provides well completion services.

Tatex Thailand II, LLC

   23.5%    Owns interests in APICO, LLC, an international oil and gas
exploration company.

Tatex Thailand III, LLC

   17.9%    Owns a concession in Southeast Asia.

Timber Wolf Terminals LLC

   50%    Formed to operate a crude/condensate terminal and a sand transloading
facility in Ohio.

Windsor Midstream LLC

   22.5%    Owns interest in MidMar Gas LLC, a gas processing plant in West
Texas.

 

SCHEDULE 1.01 – Page Solo

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SCHEDULE 2.01

Commitments

and Applicable Percentages

 

Lender

   Applicable Percentage     Commitment  

The Bank of Nova Scotia

     17.27272727 %    $ 47,500,000   

Amegy Bank National Association

     15.45454545 %    $ 42,500,000   

KeyBank National Association

     14.54545455 %    $ 40,000,000   

Credit Suisse AG, Cayman Islands Branch

     14.54545455 %    $ 40,000,000   

IberiaBank

     10.00000000 %    $ 27,500,000   

Associated Bank, N.A.

     10.00000000 %    $ 27,500,000   

Wells Fargo Bank, N.A.

     9.09090909 %    $ 25,000,000   

Barclays Bank PLC

     9.09090909 %    $ 25,000,000   

TOTAL:

     100.00000000 %    $ 275,000,000   

Maximum Facility Amount: $1,500,000,000

 

SCHEDULE 2.01 – Page Solo

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SCHEDULE 6.06

Litigation

Severance Taxes

The Louisiana Department of Revenue (the “LDR”), is disputing Borrower’s
severance tax payments to the State of Louisiana from the sale of oil under
fixed price contracts during the years 2005 to 2007. The LDR maintains that
Borrower paid approximately $1.8 million less in severance taxes under fixed
price terms than the severance taxes it would have had to pay had it paid
severance taxes on the oil at the contracted market rates only. Borrower has
denied any liability to the LDR for underpayment of severance taxes and has
maintained that it was entitled to enter into the fixed price contracts with
unrelated third parties and to pay severance taxes based upon the proceeds
received under those contracts. Borrower has maintained its right to contest any
final assessment or suit for collection if brought by the State of Louisiana. On
April 20, 2009, the LDR filed a lawsuit in the 15th Judicial District Court,
Lafayette Parish, Louisiana against Borrower seeking $2.3 million in severance
taxes, plus interest and court costs. Borrower filed a response denying any
liability to the LDR for underpayment of severance taxes and is defending itself
in the lawsuit. The LDR has taken no further action on this lawsuit since filing
its petition other than propounding discovery requests to which Borrower has
responded. The Borrower served discovery requests on the LDR and received the
LDR’s responses in 2012. The Borrower is currently engaged in settlement
discussion with LDR on this case, however no settlement has yet been reached.

In December 2010, the LDR filed two identical lawsuits against Borrower in
different venues to recover allegedly underpaid severance taxes on crude oil for
the period January 1, 2007 through December 31, 2010, together with a claim for
attorney’s fees. The petitions do not make any specific claim for damages or
unpaid taxes. As with the first lawsuit filed by the LDR in 2009, Borrower
denies all liability and will vigorously defend the lawsuit. The cases are in
the early stages, and Borrower has not yet filed a response to the recent
lawsuits. The LDR filed motions to stay the lawsuits before Borrower filed any
responsive pleadings. Although there had been no activity on either of these
lawsuits for a significant period of time, the LDR recently moved to dismiss one
of the identical lawsuits it filed in the 19th Judicial District Court in 2010,
amended the petition it filed in the 15th Judicial District Court in 2010, and
served discovery requests on Borrower. The LDR asserts that Borrower underpaid
severance taxes by nearly $12 million from 2007 to 2010. The LDR also asserts
that Borrower owes an additional $4.4 million and may be subject to additional
penalties. In 2014, the LDR asserted that Gulfport owes additional severance
taxes in connection with the cash settlements it received to terminate forward
sales contracts. The LDR’s claims are still in their infancy and there has been
no formal discovery. Borrower maintains that the LDR’s claims are not
well-grounded in fact or law and intends to aggressively defend the lawsuits.
The Borrower is currently engaged in settlement discussion with LDR on this
case, however no settlement has yet been reached.

Other Litigation

On July 30, 2010, six individuals and one limited liability company sued 15 oil
and gas companies in Cameron Parish, Louisiana for surface contamination in
areas where the defendants operated in an action entitled Reeds et al. v. BP
American Production Company et al., 38th Judicial District. No. 10-18714. The
plaintiffs’ original petition for damages, which did not name Borrower as a
defendant, alleges that the plaintiffs’ property located in Cameron Parish,
Louisiana, within the Hackberry oil field, is contaminated as a result of
historic oil and gas exploration and production activities. The plaintiffs
allege that the defendants conducted, directed and participated in various oil
and gas exploration

 

SCHEDULE 6.06 – Page Solo

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and production activities on their property which allegedly have contaminated or
otherwise caused damage to the property, and have sued the defendants for
alleged breaches of oil, gas and mineral leases, as well as for alleged
negligence, trespass, failure to warn, strict liability, punitive damages, lease
liability, contract liability, unjust enrichment, restoration damages,
assessment and response costs and stigma damages. On December 7, 2010, Borrower
was served with a copy of the plaintiffs’ first supplemental and amending
petition which added four additional plaintiffs and six additional defendants,
including Borrower, bringing the total number of defendants to twenty one. It
also increased the total acreage at issue in this litigation from 240 acres to
approximately 1,700 acres. In addition to the damages sought in the original
petition, the plaintiffs now also seek: damages sufficient to cover the cost of
conducting a comprehensive environmental assessment of all present and yet
unidentified pollution and contamination of their property; the cost to restore
the property to its pre-polluted original condition; damages for mental anguish
and annoyance, discomfort and inconvenience caused by the nuisance created by
defendants; land loss and subsidence damages and the cost of backfilling canals
and other excavations; damages for loss of use of land and lost profits and
income; attorney fees and expenses and damages for evaluation and remediation of
any contamination that threatens groundwater. In addition to Borrower, current
defendants include ExxonMobil Oil Corporation, Mobil Exploration & Producing
North America Inc., Chevron U.S.A. Inc., The Superior Oil Company, Union Oil
Company of California, BP America Production Company, Tempest Oil Company, Inc.,
ConocoPhillips Company, Continental Oil Company, WM. T. Burton Industries, Inc.,
Freeport Sulphur Company, Eagle Petroleum Company, U.S. Oil of Louisiana, M&S
Oil Company, and Empire Land Corporation, Inc. of Delaware. On January 21, 2011,
Borrower filed a pleading challenging the legal sufficiency of the petitions on
several grounds and requesting that they either be dismissed or that plaintiffs
be required to amend such petitions. In response to the pleadings filed by
Borrower and similar pleadings filed by other defendants, the plaintiffs filed a
third amending petition with exhibits which expands the description of the
property at issue, attaches numerous aerial photos and identifies the mineral
leases at issue. In response, Borrower and numerous defendants re-urged their
pleadings challenging the legal sufficiency of the petitions. Some of the
defendants’ grounds for challenging the plaintiffs’ petitions were heard by the
court on May 25, 2011 and were denied. The court signed the written judgment on
December 9, 2011. Borrower noticed its intent to seek supervisory review on
December 19, 2011, and the trial court fixed a return date of January 11, 2012
for the filing of the writ application. Borrower filed its supervisory writ,
which was denied by the Louisiana Third Circuit Court of Appeal and the
Louisiana Supreme Court. Borrower has been active in serving discovery requests
and responding to discovery requests from the plaintiffs. The parties engaged in
a non-binding mediation in July 2013 to discuss settlement and settlement
discussions are on-going. In 2014, the Borrower and the plaintiffs have had
settlement discussions focused on the Borrower’s payment of approximately $18
million plus the cost of state required remediation, which is currently
estimated to be between $4 and $5 million and payable over a period of time.
This settlement has not yet been formalized, and there can be no assurance that
a settlement will be reached on these or other terms.

 

SCHEDULE 6.06 – Page Solo