Gulfport Energy (GPOR): Potential For $1 Billion In Positive Cash Flow Over Next 2 Years

Gulfport Energy (NYSE:GPOR) may be able to generate over $1 billion in positive cash flow by the end of 2023 at current strip prices, despite massive ($1.5+ billion) projected hedging losses.

Gulfport doesn’t have hedges past 2023 currently and I’d value it at approximately $109 per share in a longer-term $3.50 NYMEX gas (and $70 WTI oil) scenario.

2022 Outlook

Gulfport is expecting to average around 1 Bcfe per day (90% gas) in production in 2022 with a $360 million capital expenditure budget. It has built in around 10% cost inflation compared to 2021 and also expects a similar budget for 2023 to result in around 5+% production growth.

At current strip of high-$90s WTI oil and approximately $6.50 NYMEX gas, Gulfport is projected to generate $2.434 billion in oil and gas revenues, while its 2022 hedges have negative $1.022 billion in estimated value. Gulfport has approximately 85% of its natural gas production hedged for 2022 at an average swap/ceiling/sold call price of $3.09.

Type	Units	$/Unit	$ Million
Natural Gas [MCF]	330,325,000	$6.30	$2,081
NGLs (Barrels)	4,136,667	$48.00	$199
Oil (Barrels)	1,642,500	94.00	$154
Hedge Value			-$1,022
Total Revenue			$1,412

Gulfport is now projected to generate $469 million in positive cash flow at high-$90s WTI oil and $6.50 NYMEX gas for 2022. Gulfport’s very large amount of hedges means that it only benefits modestly from increases in 2022 commodity prices.

Expenses	$ Million
Transportation, Gathering, Processing and Compression	$343
LOE	$62
Taxes Other Than Income	$83
G&A	$43
Interest and Preferred Dividends	$52
Capex	$360
Total Expenses	$943

Gulfport had $711 million in net debt at the end of 2021 and this positive cash flow would reduce its net debt to $242 million by the end of 2022 before any share repurchases.

2023 Outlook

For 2023, I have assumed that Gulfport can average 1.055 Bcfe per day in production, which would be 5.5% growth compared to 2022.

At current 2023 strip of approximately $88 WTI oil and $5.15 NYMEX gas, Gulfport is projected to generate $2.046 billion in oil and gas revenues, while its 2023 hedges have negative $549 million in estimated value. Gulfport has hedges covering 77% of its natural gas production for 2023.

Type	Units	$/Unit	$ Million
Natural Gas [MCF]	348,492,875	$4.95	$1,725
NGLs (Barrels)	4,364,184	$40.00	$175
Oil (Barrels)	1,732,838	$84.50	$146
Hedge Value			-$549
Total Revenue			$1,497

Source: Author’s Work

Gulfport is thus projected to generate $547 million in positive cash flow at $88 WTI oil and $5.15 NYMEX gas for 2023. This is higher than 2022 due to the expected 5.5% increase in production combined with reduced impact of hedges.

Expenses	$ Million
Transportation, Gathering, Processing and Compression	$362
LOE	$65
Taxes Other Than Income	$70
G&A	$43
Interest and Preferred Dividends	$50
Capex	$360
Total Expenses	$950

Source: Author’s Work

Thus Gulfport could end up with over $300 million in net cash by the end of 2023 before the effect of any share repurchases and/or common dividends.

Notes On Valuation

Gulfport currently has approximately 21.5 million common shares outstanding currently. It also has $57.9 million in preferred shares that are convertible into approximately 4.1 million common shares at a conversion price of $14 per share.

This would result in Gulfport having around 25.6 million common shares outstanding (at the moment) if its preferred shares are converted into common shares, but before any share repurchases.

Assuming that commodity prices average near current strip (high-$90s WTI oil and $6.50 NYMEX gas) during 2022, I’d value Gulfport at approximately $109 per share based on longer-term (after 2022) $70 WTI oil and $3.50 NYMEX gas.

This also assumes that Gulfport’s development activities proceed according to plan and that it will be on track to end up with around 5% to 6% production growth in 2023.

Conclusion

Gulfport may be able to generate close to $40 per share (assuming 25.6 million common shares) in positive cash flow by the end of 2023 at current strip prices. Without hedges, it would have been projected to generate over $100 per share in positive cash flow by the end of 2023 due to very strong natural gas prices.

By the time its hedges roll off, natural gas prices aren’t likely to be quite as strong as they are now. In a $3.50 longer-term NYMEX gas scenario though, I’d value Gulfport at approximately $109 per share.