Rex_Wholster
Gulfport Energy (NYSE:GPOR) still appears to be a decent value at its current share price assuming that long-term natural gas prices are close to $4 or better. At long-term (after 2023) $70 WTI oil and $4 NYMEX gas, I estimate Gulfport’s value at around $114 per share.
I am not quite as positive on Gulfport as I was a few months ago, since its near-term projected cash flow has been reduced a bit by continued cost inflation while its share price has gone up by around 15%. However, Gulfport appears to be roughly fairly priced for long-term $3.70 NYMEX gas at the moment, while I have a moderately more favorable view on long-term gas prices (in the $4 to $4.50 range).
Guidance Changes
Gulfport reduced the high-end of its production guidance for 2022 to 1,000 MMCFE per day from the previous high-end of 1,025 MMCFE per day. The low-end of its production guidance remained at 975 MMCFE per day.
Gulfport’s well-level performance remains strong, but the casing remediation work in the Utica has resulted in delays bringing wells online. Gulfport mentioned last quarter that it experienced a casing failure in the Utica, resulting in additional work to ensure that this didn’t happen again with other similar pipes from the same shipment.
The casing remediation work pushed Gulfport’s capex up a bit, while it is also dealing with continued inflationary effects. Thus Gulfport’s 2022 D&C capex is now estimated to be $375 million to $405 million, while it has increased its leasehold and land capex budget to $35 million. Gulfport’s original guidance was for $320 million to $360 million in D&C capex, along with $20 million in leasehold and land capex.
2H 2022 Outlook
Gulfport is projected to generate $1.352 billion in oil and gas revenue in the second half of 2022 before the impact of hedges. This is based on approximately 990 MMCFE per day in production during the second half of the year, while current strip for that period includes approximately $7.40 NYMEX gas.
Gulfport’s 2H 2022 hedges have an estimated value of negative $653 million, primarily due to it having most of its natural gas production hedged near $3.
| Type | Units | $/Unit | $ Million |
| Natural Gas [MCF] | 163,430,400 | $7.20 | $1,177 |
| NGLs (Barrels) | 2,276,352 | $43.00 | $98 |
| Oil (Barrels) | 885,248 | $87.00 | $77 |
| Hedge Value | -$653 | ||
| Total Revenue | $699 |
Gulfport expects approximately $220 million in capital expenditures in the second half of 2022, leading to total projected cash expenditures of $522 million.
| Expenses | $ Million |
| Transportation, Gathering, Processing and Compression | $181 |
| LOE | $31 |
| Taxes Other Than Income | $43 |
| Cash G&A | $21 |
| Interest and Preferred Dividends | $26 |
| Capex | $220 |
| Total Expenses |
$522 |
Gulfport is projected to generate $177 million in positive cash flow in the second half of 2022.
Gulfport has been spending most of its free cash flow on share repurchases, and increased its share repurchase authorization to $300 million. It has $111 million in remaining authorization for its share repurchase program, so if it completes its current share repurchase program by the end of 2022 it would have $601 million in net debt at the end of 2022.
Gulfport is also projected to have 22.3 million shares at the end of 2022, assuming its preferred shares are converted into common shares for the purposes of this calculation.
Potential 2023 Outlook
Gulfport expects over 5% production growth in 2023, and I am keeping my model at 1.0625 Bcfe per day in production. This is around 7.5% production growth compared to 2022.
At current strip of $5.55 NYMEX gas, Gulfport is projected to generate $1.579 billion in revenues after hedges.
| Type | Units | $/Unit | $ Million |
| Natural Gas [MCF] | 350,970,313 | $5.35 | $1,878 |
| NGLs (Barrels) | 4,395,209 | $37.00 | $163 |
| Oil (Barrels) | 1,745,156 | $77.00 | $134 |
| Hedge Value | -$596 | ||
| Total Revenue | $1,579 |
I’ve increased my estimates for Gulfport’s 2023 capex by 5% to $435 million, to reflect continued service cost inflation.
| Expenses | $ Million |
| Transportation, Gathering, Processing and Compression | $365 |
| LOE | $66 |
| Taxes Other Than Income | $74 |
| G&A | $43 |
| Interest and Preferred Dividends | $50 |
| Capex | $435 |
| Total Expenses |
$1,033 |
This results in a projection that Gulfport can generate $546 million in positive cash flow in 2023 at current strip, which it may put partially towards share repurchases (assuming it expands its share repurchase program again).
Valuation
I now estimate Gulfport’s value at approximately $114 per share in a long-term (after 2023) $70 WTI oil and $4 NYMEX gas scenario. This assumes that Gulfport roughly maintains production at 1.0625 Bcfe per day and gives its a 3.0x EV/EBITDAX multiple using long-term commodity prices and its projected end of 2022 net debt and share count.
Conclusion
Gulfport’s hedges are expected to have a significant negative effect on its projected cash flow in the second half of 2022 and in 2023. Gulfport is still projected to generate over $700 million in positive cash flow during this period while growing production though.
Assuming that long-term natural gas prices average in the upper-$3s or better, Gulfport still should have some upside. I estimate its value at approximately $114 per share in a long-term $4 NYMEX gas scenario.
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