Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gulfport Energy Corp (GPOR, Financial) generated $164 million of adjusted EBITDA and $20 million of adjusted free cash flow in Q2 2024.
- The company achieved significant operational efficiencies, including a 28% improvement in frac pumping hours per day in the Utica formation.
- Gulfport Energy Corp (GPOR) realized over $25 million in capital savings on its full-year 2024 drilling and completion budget.
- The company has a strong hedge position, covering nearly 65% of its remaining 2024 natural gas production at an average floor price of $3.63 per MMBtu.
- Gulfport Energy Corp (GPOR) continues to return capital to shareholders, repurchasing nearly 161,000 shares of common stock for approximately $25 million in Q2 2024.
Negative Points
- The company operates in a volatile commodity environment, which could impact future financial performance and capital allocation decisions.
- Despite operational improvements, Gulfport Energy Corp (GPOR) faces challenges with low commodity prices, particularly in the natural gas market.
- The company's discretionary acreage acquisitions, while potentially beneficial, require significant capital investment and may compete with share repurchases for free cash flow allocation.
- Gulfport Energy Corp (GPOR) has a substantial amount of dry gas inventory, which may limit its ability to further reduce its gas production percentage below the high-80s.
- The company's liquidity, while currently sufficient, relies heavily on its revolving credit facility, which could be impacted by market conditions and financial performance.
Q & A Highlights
Q: On the $25 million of potential savings, could you go through what you need to see in the markets to trigger additional E&P activity? Is it just price or is it stability or a larger macro theme? And is that earmarked for dry gas or liquids?
A: John Reinhart, President, Chief Executive Officer, Director: We are very pleased with the execution performance of the teams. We want to take a pause for a few months and monitor the general macro environment, focusing primarily on oil pricing. Any potential allocation to accelerated activity would target more the oil and condensate area. We will share more over the next few months on how we will allocate the $25 million.
Q: On the acreage acquisition, how does that work on a free cash flow allocation versus buybacks? Are these not competing with each other?
A: Michael Hodges, Chief Financial Officer: We look at our options for allocating free cash flow every quarter with our Board of Directors. Both opportunities consistently rate at the top of the portfolio. To the extent that we can identify these liquids-rich, high-margin opportunities, those are typically the highest and best use of capital. We think of it as co-number ones in terms of our opportunity to buy either one.
Q: Based on your Marcellus success and the condensate-focused drilling, how do you see the liquid SKU evolving through 2025?
A: John Reinhart, President, Chief Executive Officer, Director: We are very pleased with the pivot to liquids-rich inventory. Over the next year-and-a-half, you will see a reduction of 1% to 2% in the oil percentage or liquids cut in our commodity stream. By 2026, it will go down a few more percentage points, likely into the high-80s.
Q: Mountain Valley started up in July. Are you seeing any basis impact in the region, and do you anticipate that being a material positive for you all in Ohio?
A: Michael Hodges, Chief Financial Officer: The basis markets have been moving around a little bit, but we have not seen any material change. The market largely expected the MVP pipe to come on in 2024 and priced a lot of that in. We are focused on 2025 and beyond.
Q: Is the $25 million of savings something that's been accruing through the year, or should we think about those as showing up more meaningfully in Q3 and Q4 capital?
A: John Reinhart, President, Chief Executive Officer, Director: There has been no accrual to date. Should that be allocated towards accelerated activity, it would be included in our public deck in Q4. Any allocation would be geared towards condensate development.
Q: Could you close the valuation gap by implementing something more permanent or formulaic for share repurchases?
A: Michael Hodges, Chief Financial Officer: We are not formulaic in our approach but consistent with our framework in returning substantially all of our free cash flow. We prefer the dynamic option as opposed to a more formulaic approach, but we do talk about it consistently at the Board level.
Q: Does the stock price factor into the decision on how to allocate the $25 million in savings?
A: Michael Hodges, Chief Financial Officer: Yes, we consistently look at the stock price and like being dynamic in our ability to deploy capital towards that return. The macro environment is also a factor. If the share price dictates that particular option is more attractive, we would lean in there.
Q: Can you talk about how the discretionary acreage acquisitions compare to your current inventory? When would you expect to start developing these locations?
A: John Reinhart, President, Chief Executive Officer, Director: We are targeting liquids-rich, high-margin areas. Last year's program allowed us to begin the permitting process within 12 to 15 months. We are looking to start drilling quickly, and these new acreage acquisitions will likely be on the schedule within a year to year-and-a-half.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
