Q2 2020 Gulfport Energy Corp Earnings Call

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Greetings and welcome to Gulfport second quarter Twentytwenty Conference call.

At this time, all participants are under listen only mode.

A question answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Jessica entail.

Thank you and good morning, welcome to Gulfport Energy Corporation second quarter 2020, <unk> earnings Conference call I'm, just getting a toll director of Investor Relations.

Peakers on today's call include David White, Chief Executive Officer, President in Quintin, Hicks Executive Vice President and Chief Financial Officer.

I would like to remind everybody that during this conference call at the participants may make certain forward looking statements relating to the Companys financial condition results of operations clients objective future performance in business.

We caution you that the actual results could differ materially from those that are indicated we scored looking statements due to a variety of factors.

Information concerning these doctors can be found in the company filings with the SBC.

In addition, we may make reference to non-GAAP measures reconciliations to the comparable GAAP measures will be posted on our website.

And I'll take a corporate presentation was posted yesterday evening to our website in conjunction with the earnings announcement. Please review at your leisure.

This time I would like to turn the call over to David what CEO of Gulfport energy.

Thank you Jessica welcome everyone and thank you all for joining us this morning.

We closed the very difficult quarter for our industry I want to hi employees of Gulf focus dedication and perseverance during each unique times, the global pandemic kind of resulting collapse in demand have appended many businesses.

That's economies around the world in March from walk down the path forward remains I'm sure.

Do you follow employees and contractors remains a top priority.

We continue to take the appropriate measures to provide a safe working environment.

Oh field staff continues to do a terrific job shorten that all operations carry on without significant disruption well, most importantly, even taking shape, but.

Overall, I am proud about silicon to stay focus during its extraordinary Todd while continuing to execute on the key strategic initiatives, we laid out 2000 and twice.

Although many lockdowns have been using the situation remains fluid invisibility on the world economic outlook remains extremely limited.

Given the unpredictability regarding I said, we're covering all the global economy, and specifically and that you man oil and gas producer activity in the second half a year is I'm sure.

And we see this continuing to wait across all energy markets [noise].

I'm not squash side, we witnessed a dramatic reduction in capital spending come up oil weighted peers early in here.

I want to go with oil now having just cost 40 at all its Oh, we have started to see some activity return and would it be associated gas production come back to market.

Same time, we are exploring experiencing ptwenty five year pricing was on natural gas.

Several gas producers, including Gulfport curtailed at or near term production and made interrupting the current natural gas supply and production declines extremely difficult.

Lastly, the ever evolving political environment continues to come on headlines within the energy space elevated risks in the future.

I'm sure. They all of these uncertainties together, we remain cautious near term on natural gas pricing, which impacts our financial position going forward.

Quick no will address this in more detail during his prepared remarks.

Turning to second quarter performance, we reported approximately $47.1 billion of adjusted net income generated $145 million of adjusted EBITDA.

Gulfports operating cash flow before the changes in working capital and inclusive of capitalized expenses.

$87.8 million, and we reported free cash flow of $43.8 million during the second quarter 20 Twond.

As a result of the commodity price environment during the second quarter, we made the strategic decision to do or near term production later periods in here and early 2021, when natural gas prices are expected to be hard.

In addition, juicy Peri LOE NGL and oil pricing, we chose to shut in a portion of our upgraded low margin liquids weighted production during the second quarter, largely consisting of legacy vertical production in the script.

We also experienced shut ins across both the scoop in Utica from our non operated part.

These factors as expected, but average daily production to declined slightly from first quarter up 20 Twond.

As of mid July nearly all the quits weighted volumes on Bocom operated assets and goes up or not off where I get partners had returned to production based on current natural gas pricing, we plan to continue executing on our curtailment strategy.

Taking out production profile to peak during the colder months ago here.

This is in line with our updated guidance provided mid June and we reaffirm our expectation.

We are 2020 production averaged 1.0 to 1.075 billion cubic feet equivalent per day.

Oh incurred capital expenditures came in well below forecast for the quarter highlighted by continued efficiency gains and the lowest service costs on the drilling front, we continue to achieve some of the lowest average spud to rig rooms metrics since entering both Utica shale and the scoop and stack the second quarter Mark.

Third consecutive quarterly records for the state government.

These performance gains allow the teams to high grade our rig fleet and release equipment head of budget, while remaining on target for our planned well spot or 20 twond.

In addition off Frac efficiency continues to trend upward and we are a basin leader in water reuse and recycling during frac operations, which has ultimately reduce total well costs and highlights our commitment to environmental stewardship.

All of these efforts combined like to substantial savings during the first six months of 2020 and I've provided the opportunity for us to better position Gulf War into 2021.

Now playing to complete an incremental seven gross wells being 2020 in the Utica shale.

This additional activity provides incremental production late this year I know, we expect it will have minimal impact to full year 2020 production line.

Efficient operations and continued improvements in drilling and completion cost allows the incremental activity and still be within our previously provided capex guidance for.

Great credit card Dhoni his teams in making this whole.

Turning to specifics in the Utica entering the first six months of 2020 at least 12 gross wells utilizing roughly 1.2 rigs and currently have one we're drilling ahead in the play.

The wells released had an average drilled lateral length of 9500 feet and when normalizing to an 8000 foot lateral we average days spud to rig release 18.5 days down 6% of full year 2019 results. We are leader in the dry gas window of the play.

I'm pleased to say, our Utica drilling program, even manufacturing mode, well there was little low hanging fruit remaining the team continues to gain efficiencies through the drill but and deliver on expectations quarter have to core.

I think your completions in the Utica shale, we began the year active and completed 22 wells during the first six months and 2020.

[laughter] she continues to trend upward averaging over seven stages per day today and market quite simple completion crews has trended well below the original budget.

Incorporating both drilling and completion activities during the first six months of 2020.

We estimate that Gulfports, Utica, well cost averaged $915 sort of lateral approximately 17% below our budget of 1100 foot.

And $760 per foot lateral when including B and C O.

This improvement in our well costs, the significant or off future development highlights our drive to deliver a leading cost structure the base.

Switching over to the scoop during the first six months or 2020, we spent six gross wells and currently have one rig drilling into play the wells released had an average lateral length of 9400 feet and when normalized to 7500 foot lateral wells averaged to spud to rig release of 37 day.

Days during the first six months ago here, a decrease of 32% when compared to about 2019 program, which as I mentioned, the second quarter marked a new record since entering the play and when comparing.

2020 results to pass activity Gulfport delivered one wells spud to rig release of less than 40 days during 2019 and zero in 2018 in 2017 today five of the six wells drilled be drilling 2020 have been sub 40 day.

As we highlighted last quarter all of these improvements were achieved while we were adding new rig increasing measured that increasing lateral lengths.

We completed all planned Frac I'm totally in line program for the Scoop.

First quarter and have no further completion activity planned for 2012.

Incorporating both drilling and completion activities during the first six months of 2020, we estimate that golf course, good well cost averaged approximately $1065, that's sort of lateral approximately 29% below our budget of $1500 per foot and 995.

Dallas foot lateral when including B and C L.

Yeah, I'll be turning to deliver consistent repeatable results in scoop and our continued progress highlights how emphasis on identifying implemented and realizing efficiencies plus.

In summary, our results continue to demonstrate value enhancing progress for what improvements in efficiency gains cost reductions and shortened cyclic.

We are continuing on a tailwind strategy. The current production from mid year 2020, when prices are low.

Two like 2020 and into 2021 when prices are expected to be higher in the winter season.

We believe these efforts we're better positioned the company as we enter 2021, allowing for higher production in a better forward commodity price environment.

The maximize returns and cash flow.

With that I would turn the call over to Quentin.

This call.

Thank you, Dave and good morning, everyone.

They've indicated we reaffirm our full year, probably 20 capex guidance of 285 to 310 million and expect to come in at the low into that range.

During the second quarter, Gulfport incurred $54 million, indeed, see Atlanta, Capex, roughly 65% of our anticipated 2020 capital budgets have been incurred as of June thirtyth or 2020 capital spending is coming in well below prior expectations due to efficient drilling and completion operation.

And some service cost reductions.

During the second quarter production averaged 1.3 billion cubic feet of gas equivalent per day, compared to 90% natural gas, 7% natural gas liquids and 3% all.

Looking to the third quarter as Dave mentioned, we plan to continue our curtailment strategy and the forecast our third quarter production will average 980 million to 1.03 billion cubic feet equivalent per day.

During the second quarter, our realized natural gas price before that effective hedges and including transportation cost settled at approximately 70 cents per mcf below Nymex prices, which was the low end of our guidance range of 70 to 80 cents per Mcf.

As previously discussed our 2020 <unk> guidance excludes expected firm transport fees incurred during periods when our production flow fault blocks I'm transport commit.

We continue to work hard at reducing near term firm transport.

But are not reflecting these opportunities in our current guidance and reaffirmed our full year basis differential guidance of 70 cents.

80 cents per Mcf.

During the second quarter before the effective hedges are realized oil price came in at $7.71 below W. tea.

We saw significant pricing swing into BTI during the quarter in our realized oil differentials were negatively impacted by this volatility.

Looking at the forward curve, we did not anticipate the same kind of the volatility going forward.

Her June our year to date realized oil price before the effective haggens came in at $3.71 below W.P.I.

We continue to work with purchasers in the basin to optimize our oil cells and there's no guiding toward a four year discounts to get BTI of $4.50 to $5, we hope to do better.

Turning to in NGL before the effective hedges I realized NGL price came in at approximately 37% of W.G. I in the quarter.

You are trending into right direction, and reaffirm our guidance to be 30% to 35% that'd be T.I. for the full year 2020.

I realized prices continue to be supported by strong hedge position than during the second quarter 2020, we realized hedge settlement gain of $1.33 for in CFP for $124.5 million.

As we noted in May we chose unwind dark 2020 oil hedges ahead of the borrowing base Redetermination in late April.

We monetized roughly 5000 for <unk>.

<unk> barrels per day of oil hedges for over $40 million in cash the second half a 2020. We currently have 424 million cubic feet per day of gas hedged with swaps at an average price of two dogs and 78 cents per and then B to you.

In addition, we have a large hedge position covering our oil exposure for the rate remainder of the year. We continue to look for opportunities to add additional downside protection to support our cash flows, particularly in 2021 by actively managing our hedge book.

For the first six months to 2020 are realized prices UN hedged position resulted in adjusting oil adjusted oil and gas revenues of 449.3 million, which is composed of approximately 76% natural gas and 24% liquids revenues.

In terms of cash expenses, our per unit operating expense, which include Delaware production tax and midstream gathering and processing totaled 85 cents per mcf during the second quarter.

If you add recurring DNA 16 cents per Mcf each of this figure.

Our per unit operating costs totaled one dollar one during the quarter or penny below the high end of our full year guidance range.

Second quarter Eloise.

Approximately 17 cents per Mcf, he was slightly higher than expectations because of higher costs related to our Utica not all assets, we reaffirm our guidance range of 14 to 16 cents per Mcf equal for the full year are currently trending toward the high end of the range, primarily due to higher non op Halloween.

Production taxes for the quarter totaled four cents principii and CFP at the low end of our expected range due to low pricing environment during the quarter.

Midstream gathering and processing expense totaled approximately 60 cents per mcf, he and the second quarter, which was above the high end of our range.

Due to architect curtailment strategy volumes and one of our gathering areas in the Utica shale have fallen below admitted minimum volume commitment, we have which is driving this increase.

You're an active ongoing discussions with this midstream provider surrounding optimization and are working towards the solution to hopefully amid alleviate this burden through the remainder of the year.

We have had recent success surrounding optimization and cost reduction efforts.

And when our midstream expenses combined with our lower expected differential that that we forecast total costs associated with midstream are trending better than the midpoint of our guidance for the full year.

Karen Gionee.

<unk> expense, including both cash and capitalize portions totaled $14.8 million during the second quarter, a 16% improvement from the first quarter 2020.

As Dave mentioned read recently implemented several gene a initiatives to reduce our corporate cost structure.

These are extremely challenging times and we appreciate the resiliency and flexibility of our employees as we navigate through this environment.

We currently expect returned DNA for the full year to be at or below the low end of our full year guidance range of 69 million to $74 million.

Moving to the balance sheet, we continue to explore a wide range of alternatives to best position Gulfport for the future as part of that effort. We recently received an amendment from our bank fruits that allows us to issue up to 750 million of second lien debt the facilitate our ongoing liability management initiatives.

The partnership we have with our bank group remains very important to us and we are actively managing these relationships. However, given the historical low pricing environment. We are seeing banks remain extremely conservative and many are looking to reduce their exposure to our industry.

Accordingly, we remain very focused on improving our balance sheet and cost structure, because we paid the borrowing base redetermination and the necessary extension of our revolver. This fall.

Our liquidity as of June Thirtyth total of approximately 255 million.

It is possible however that this liquidity could be reduced materially later this year due to a lower borrowing base, if we do not significantly improve or leveraging cost profile.

As a result, we have included language in our earnings release and 10-Q regarding the risk associated with our ability to continue as a going concern.

We continue to work with our advisors to explore available opportunities to improve our balance sheet, who will provide an update on these efforts when we're able to do so.

I'll now turn the call back over to Dave for closing remarks.

Thank you quick in closing I want to reiterate that we are laser focused on controlling what is within our control, making the right steps to reduce costs enhanced operational efficiency and improve the companys financial condition.

<unk> energy environment is historically challenging unpredictable.

We are doing everything it up out to mitigate the effect on our business.

We will continue to take appropriate steps to strengthen the companys financial position and the work to improve our balance sheet in a way that preserves value for all our stakeholders. This concludes our prepared remarks. Thank you again for joining us for coal today.

This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.

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