Q3 2022 Gulfport Energy Corp Earnings Call

November 2, 2022

Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Gulfport Energy Corporation's Q3 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Jessica Antle. Thank you. You may begin.

Good morning, ladies and gentlemen, and thank you for standing by welcome to Gulfport Energy Corporation's third quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation should you require operator assistance during the conference. Please press star.

Zero to signal an operator. Please note. This conference is being recorded I will now turn the conference over to your host Jessica Antle. Thank you you may begin.

Jessica Antle: Thank you and good morning. Welcome to Gulfport Energy Corporation's Q3 2022 Earnings Conference Call. I am Jessica Antle, Director of Investor Relations. Tim Cutt, Gulfport's Chief Executive Officer, will not be on today's call due to a family emergency. Bill Buese, Executive Vice President and Chief Financial Officer, will provide today's scripted remarks and will be joined by Michael Sluiter, Senior Vice President of Reservoir Engineering, and RJ Moses, Senior Vice President of Operations and Drilling for the Q&A portion of the call. I would like to remind everybody that during this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance, and business. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors.

Thank you and good morning, welcome to Gulfport Energy Corporation's third quarter 2022 earnings Conference call I Am Jessica Antle director of Investor Relations, Kim Gulfport, Chief Executive Officer will not be on todays call due to a family emergency there'll BV executive Vice President and Chief Financial Officer will provide today.

Scripted remarks, and we'll be joined by Michael Slater Senior Vice President of Reservoir Engineering, and our game of this senior Vice President of operations and drilling for the Q&A portion of the call.

I'd like to remind everybody that during this conference call. The participants may make certain forward looking statements relating to the company's financial condition results of operations plans objectives future performance and business. We caution you that actual results could differ materially from those that are indicated in these forward looking statements due to a variety of factors.

Jessica Antle: Information concerning these factors can be found in the company's filings with the SEC. In addition, we may reference non-GAAP measures. Reconciliations to the comparable GAAP measures will be posted on our website. An updated Gulfport presentation was posted yesterday evening to our website in conjunction with the earnings announcement. Please review at your leisure. At this time, I would like to turn the call over to Bill.

Information concerning these factors can be found in the company's filings with the S. E C.

In addition, we may reference non-GAAP measures reconciliations to the claim variable GAAP measures will be posted on our website an updated gulfport presentation was posted yesterday evening to our website in conjunction with the earnings announcement. Please review at your leisure.

At this time I would like to turn the call over to Bill.

Bill Buese: Thanks, Jessica, and good morning, everyone. I'll begin this morning with a brief summary of Q3 highlights, followed by an operational update in both of our asset areas. I will then provide a high-level overview of our Q3 financial results, liquidity position, return of capital initiatives, and address the guidance updates provided in yesterday's earnings announcement. Q3 marked the most active period of our 2022 operational plan, with us investing a total of $141 million of capital between our two operating areas. Our production averaged 915 million cubic feet equivalent per day for the quarter, which is down from the Q2, primarily due to the timing of our development program, but was in line with our expectations.

Thank you Jessica and good morning, everyone.

I'll begin this morning with a brief summary of third quarter highlights followed by an operational update in both of our asset areas. I will then provide a high level overview of our third quarter financial results liquidity position return of capital initiatives and address the guidance updates provided in yesterday's earnings announcement.

The third quarter marked the most active period of our 2022 operational plan with us investing a total of $141 million of capital between our two operating areas are.

Our production averaged 915 million cubic feet equivalent per day for the quarter, which is down from the second quarter, primarily due to the timing of our development program, but was in line with our expectations.

Bill Buese: Our financial position remains strong, and we exited the quarter with a leverage ratio of 0.9 times and liquidity of more than $400 million. We continue to execute on our share repurchase program and have repurchased approximately $233 million year to date, decreasing our outstanding common share count by 10% and utilizing a significant percentage of forecasted 2022 free cash flow. Alongside yesterday's earnings announcement, we also issued our 2022 Corporate Sustainability Report. The report is a direct reflection of Gulfport's continuous improvement culture, and we are very proud of the progress made on several fronts, including reducing our greenhouse gas and methane emissions. We strive to reduce our environmental footprint, and as part of the analysis, we are conducting a formal gap assessment to improve our company practices and policies regarding emissions management.

Our financial position remains strong and we exited the quarter with a leverage ratio of <unk> nine times and liquidity of more than $400 million.

We continue to execute on our share repurchase program and have repurchased approximately $233 million year to date decreasing our outstanding common share count by 10% and utilizing a significant percentage of forecasted 'twenty two free cash flow.

Alongside yesterday's earnings announcement, we also issued our 2022 corporate sustainability report.

The report is a direct reflection of Gulfport is continuous improvement culture, and we are very proud of the progress made on several fronts, including reducing our greenhouse gas and methane emissions.

We strive to reduce our environmental footprint and as part of the analysis. We are conducting a formal GAAP assessment to improve our company practices and policies regarding emissions management.

Bill Buese: This analysis will also assess the measures required to comply with the monitoring requirements for gas certification. We look forward to continuing to share our ESG journey with you and believe the CSR will serve as an important resource for investors in the future. Turning now to production, as shown on slide 9, our base production and 2022 development wells continue to perform at or above expectations. Year to date, our base production has outperformed our forecast by roughly 7%, with both the Utica and Scoop performing above expectations. Our 2022 five-well Nelda pad in the Scoop has outperformed its forecast by over 80% year to date, and in aggregate, our 2022 Utica development wells are performing at a peer-leading average EUR of 2.2 Bcfe per 1,000 feet of lateral.

This analysis will also assess the measures required to comply with the monitoring requirements for gas certification.

We look forward to continuing to share our ESG journey with you and believe the CSR will serve as an important resource for investors in the future.

Yeah.

Turning now to production as shown on slide nine our base production in 2022 development wells continued to perform at or above expectations.

Year to date, our base production has outperformed our forecast by roughly 7% with both Utica and scoop performing above expectations.

Our 2022, five well nelda pad in the Scoop has outperformed its forecast by over 80% year to date and in aggregate. Our 2022 Utica development wells are performing at a peer leading average EUR of two two bcf per thousand foot of lateral.

Bill Buese: Our Q3 turn-in-lines, several of which occurred in late September, coupled with the additional wells we plan to bring online during Q4, will result in over 15% quarter-over-quarter production growth, which allows us to reiterate our previously provided annual production guidance. Turning to our 2022 development program. During Q3, we completed 18 wells across both operating areas. In the Utica, we turned in line 7 wells and are projecting to bring 5 additional wells online during Q4. We continue to execute our water space development program utilizing right-sized completions, and as shown on slide 11 of the IR deck, we now have a significant number of wells completed under this optimized design that are showing increased recovery factors when compared to our 1,000-foot spaced wells in the play.

Our third quarter turned in lines several of which occurred in late September coupled with the additional wells we plan to bring online during the fourth quarter will result in over 15% quarter over quarter production growth, which allows us to reiterate our previously provided annual production guidance.

Turning to our 2022 development program during the third quarter, we completed 18 wells across both operating areas in the Utica, We turned in line seven wells.

And are projecting to bring five additional wells online during the fourth quarter.

We continue to execute our water space development program, utilizing rightsize completions and as shown on slide 11 of the IR deck.

We now have a significant number of wells completed under this optimized design that are showing increased recovery factors when compared to our 1000 foot spaced wells in the play.

Bill Buese: This illustrates the benefit of our current approach, where every well is optimized for both placement and completion design, resulting in better overall recovery efficiencies. The recent results include our four-well Extreme pad brought online in late September, which are performing at a current average EUR of 2.2 Bcfe per 1,000 foot of lateral. The increase in recovery factors and EURs per well favorably impacts our development cost per Mcfe of reserves developed. Our 2022 cost per Mcfe of reserves developed has increased approximately 3% over 2021, but the 2022 costs include the impact of approximately 25% of inflation on our D&C capital, so we are pleased with our continued progress on this front.

This illustrates the benefit of our current approach.

Every well is optimized for both placement and completion design, resulting in better overall recovery efficiencies.

The recent results include our four well extreme pad brought online in late September which are performing at a current average EUR of two two bcf per thousand foot of lateral.

The increase in recovery factors and <unk> per well favorably impacts our development cost per Mcf of reserves develops.

Our 2000.

22 cost per Mcf reserves developed has increased approximately 3% over 2021.

But the 2020 costs include the impact of approximately 25% of inflation on our on our D&C capital. So we are pleased with our continued progress on this front.

Bill Buese: Furthermore, despite these inflationary pressures, we believe our target of $0.50 per Mcfe remains achievable using water spacing and more intense frack jobs in 2023 and beyond. We have updated the charts on slide 12 to include the results of our recent wells. We are currently running 1 rig in the Utica, and to improve the efficiency of our 2023 development program, we have elected to add a tophole rig during Q4 2022, which will allow us to begin drilling 7 additional wells in the Utica before year-end. We currently expect to continue with this tophole rig for roughly half of 2023 before we return to 1 continuous rig for the balance of the year.

Furthermore, despite these inflationary pressures, we believe our target of 50 per Mcf remains achievable using wider spacing and more intense frac jobs in 2023 and beyond we have updated the chart on slide 12 to include the results of our recent wells.

We're currently running one rig in the Utica and to improve the efficiency of our 2023 development program. We have elected to add a top hole rig during the fourth quarter of 2022, which will allow us to begin drilling seven additional wells in the Utica before year end.

We currently expect to continue with this top hole rig for roughly half of 2023 before we return to one continuous rig for the balance of the year.

Bill Buese: This level of activity should allow us to execute a continuous 8-month frack program in the Utica, eliminating the risk of releasing crews in today's tight service market and providing the opportunity for increased efficiencies and cost savings. Turning to the Scoop, we turned in line 2 wells during Q3 and plan to bring online an incremental 6 wells during Q4. On slide 14 of the IR deck, you can see how our Nelda pad has continued to outperform expectations and is now expected to remain on flat time production for nearly 8 months. Slide 15 illustrates the significant improvement in development costs and well performance generated by these Nelda wells.

This level of activity should allow us to execute a continuous eight month Frac program in the Utica, eliminating the risk of releasing crews in today's tight service market and providing the opportunity for increased efficiencies and cost savings.

Turning to the Scoop, we turned in line two wells during the third quarter and <unk> plan to bring online an incremental six wells during the fourth quarter.

On slide 14 in the IR deck, you can see how our nelda pad has continued to outperform expectations and is now expected to remain on flat flat time production for nearly eight months.

Slide 15 illustrates the significant improvement in development costs and well performance generated by these nelda wealth.

Bill Buese: We plan to return to drilling in the Scoop with 1 rig in January 2023, and as we have done in the Utica to improve the efficiency of our drilling program, we plan to run the rig continuously throughout the year. We anticipate this will result in a similar number of wells drilled and drilling capital as compared to 2022. However, our completion program will not begin until midway through the year, resulting in less wells brought online in the Scoop during 2023. Turning now to our Q3 financial results. We reported a net loss of $18 million and generated $173 million of adjusted EBITDA during Q3. The key driver of the net loss was a $109 million unrealized loss associated with our commodity derivatives portfolio.

We plan to return to drilling in the Scoop with one rig in January of 'twenty, three and as we have done in the Utica to improve the efficiency of our over of our drilling program. We plan to run the rig continuously throughout the year.

We anticipate this will result in a similar number of wells drilled and drilling capital as compared to 22. However, our completion program will not begin until midway through the year, resulting in less wells brought online in the scoop during 2023.

Turning now to our third quarter financial results, we reported a net loss of $18 million and generated $173 million of adjusted EBITDA during the third quarter.

A key driver of the net loss was $109 million unrealized loss associated with our commodity derivatives portfolio.

Bill Buese: Net cash provided by operating activities totaled $168 million during Q3, and we generated free cash flow of $11 million for the same period. Despite Q3 being negatively impacted by basis differentials that were wider than our guidance, we were still able to generate positive free cash flow for the quarter and have now done so in every quarter since our emergence from bankruptcy in May 2021. Moving on to derivatives. We believe that our 2023 natural gas production is appropriately covered as we move into the new year.

Net cash provided by operating activities totaled $168 million during the third quarter, and we generated free cash flow of $11 million for the same period.

Despite the third quarter will be negatively impacted by basis differentials that were water than our guidance, we were still able to generate positive free cash flow for the quarter and have now done so in every quarter since our emergence from bankruptcy in may of 'twenty one.

Moving onto derivatives, we believe that our 2023 natural gas production is appropriately covered as we move into the new year.

Bill Buese: As of the end of Q3, we had nearly 50% of our 2023 natural gas production covered through a combination of swaps and collars at an average floor price of $3.19 per Mcf, which is more than $0.50 higher than our 2022 average floor price. We also have a sold call position in 2023 covering a portion of our expected production. We will continue to opportunistically enter into additional derivative contracts for 2024 and beyond in future quarters when appropriate. Turning to our balance sheet.

As of the end of the third quarter, we had nearly 50% of our 23 natural gas production covered through a combination of swaps and collars at an average floor price of $3 19 per Mcf, which is more than 50 thats higher than our 2022 average floor price.

We also have a sole composition in 23, covering a portion of our expected production.

We will continue to opportunistically enter into additional derivative contracts for 2024 and beyond and future quarters when appropriate.

Bill Buese: At the end of Q3, total assets were approximately $2.5 billion, while total gross debt was approximately $729 million, consisting of $179 million outstanding under our credit facility and $550 million of outstanding senior notes. We also had $8 million of cash on hand and $113 million of letters of credit outstanding at the end of the quarter. We exited Q3 with $416 million of total liquidity, consisting of $8 million of cash and $408 million of borrowing capacity under our revolver.

Turning to our balance sheet at the end of the third quarter total assets were approximately $2 5 billion. While total gross debt was approximately $729 million.

Consisting of $179 million outstanding under our credit facility and $500 million.

$550 million of outstanding senior notes.

We also had $8 million of cash on hand, and $113 million of letters of credit outstanding at the end of the quarter.

We exited the third quarter with $416 million of total liquidity, consisting of $8 million of cash and $408 million of borrowing capacity under our revolver.

Bill Buese: We believe our annual free cash flow generation, borrowing capacity under the facility, and cash on hand will provide sufficient liquidity to fund our operations, capital expenditures, and any return of capital to shareholder initiatives during the next 12 months. We continue to prioritize the return of capital to shareholders through our common stock repurchase program during Q3. During the quarter, we repurchased approximately 750,000 common shares at an average price of $85.69 for a total cost of $64 million. As of 27 October, we had repurchased approximately 2.7 million shares of common stock at an average share price of $87.37, totaling $233 million since the inception of our $300 million share repurchase program.

We believe our annual free cash flow generation borrowing capacity under the facility and cash on hand will provide sufficient liquidity to fund our operations capital expenditures and any return of capital to shareholder initiatives. During the next 12 months.

We continue to prioritize the return of capital to shareholders through our common stock repurchase program during the third quarter during.

During the quarter, we repurchased approximately 750000 common shares at an average price of $85 69.

For a total cost of $64 million.

As of October 27th we had repurchased approximately $2 7 million shares of common stock at an average share price of $87 37.

Totaling $233 million since the inception of our $300 million share repurchase program.

Bill Buese: Looking ahead, we still have approximately $67 million remaining on our buyback authorization, which provides us with the necessary dry powder to repurchase additional shares at extremely attractive valuations going forward. We will continue to evaluate all return of capital options and expect to return the 2023 free cash flow not utilized in any organic growth or acquisition-related activities to shareholders while maintaining a conservative leverage ratio. Moving on to guidance. For the reasons and benefits I mentioned earlier, including the addition of the tophole rig in the Utica, Gulfport now expects to invest approximately $415 million on D&C capital during 2022. This, along with $35 million of land capital, takes our capital guidance to approximately $450 million for the year.

Looking ahead, we still have approximately $67 million remaining on our buyback authorization, which provides us with the necessary dry powder to repurchase additional shares at extremely attractive valuations going forward.

We will continue to evaluate all return of capital options and expect to return 2022.

2023 free cash flow not utilized in any organic growth or acquisition related activities to shareholders, while maintaining a conservative leverage ratio.

Moving on to guidance for the reasons and benefits I mentioned earlier, including the addition of the top hole rig in the Utica Gulfport.

Gulfport now expects to invest approximately $415 million on D&C capital during 'twenty. Two this along with $35 million of land capital. It takes our capital guidance to approximately $450 million for the year.

Bill Buese: We have also updated guidance for our expected realized natural gas differential before hedges to between $0.30 and $0.40 off NYMEX from a previous range of $0.15 to $0.25 off NYMEX. The widening basis differential is driven by actual settled prices during the months of September and October, which were lower than our original forecast, as well as current expectations for the remainder of Q4 2022. Primary factors contributing to the weaker differentials included weakened demand due to weather, LNG facility outage and maintenance, a pipeline force majeure in Appalachia, and the disruption from Hurricane Ian on the Gulf Coast. All of this occurred right as contracts were settling, creating significant pressure on first-of-the-month bid week pricing.

We have also updated guidance for our expected realized natural gas differential before hedges to between 30% and 40 off Nymex from a previous range of 15 to 25 off of Nymex.

The widening basis differential is driven by actual several prices during the months of September and October which were lower than our original forecast as well as current expectations for the remainder of the fourth quarter of 'twenty two.

The primary factors contributing to the weaker differentials included weakened demand due to weather LNG facility outage and maintenance our pipeline force majeure in Appalachia and the disruption from hurricane in on the Gulf Coast.

All of this occurred right as contracts were settling creating significant pressure on first of month bid week pricing.

Bill Buese: While the recent volatility has impacted our prices near term, based on the current strip and pricing at the basis points where we sell our natural gas, we currently forecast our basis differentials to be back within the range of $0.15 to $0.25 off NYMEX in 2023. Our midstream line item, which includes transportation, gathering, processing, and compression, came in above the high end of our guidance in Q3, largely driven by timing of production, volumes, and minimum volume commitments in the Utica. We anticipate that the increase in production volumes during Q4 will bring us back in line with our guidance, and we currently forecast 2022 full year will be at the top end of the previously provided range of $0.96 to $1 per Mcfe.

While the recent volatility has impacted our prices near term based on the current strip and pricing at the basis points, where we sell our natural gas. We currently forecast our basis differentials to be back within the range of 15% to 25 sets off Nymex in 2023.

Our midstream line item, which includes transportation gathering processing and compression came in above the high end of our guidance in the third quarter, largely driven by timing of production volumes and minimum volume commitments in the Utica.

We anticipate that the increase in production volumes during the fourth quarter will bring us back in line with our guidance and we currently forecast 2022 full year will be at the top end of the previously provided range of <unk> 96 to $1 per Mcf.

Bill Buese: The combination of the adjustments mentioned above, plus a decrease in forward natural gas strip, has impacted our free cash flow guidance, and we now expect to generate approximately $300 million for the full year of 2022 at strip pricing. You can see a complete summary of our 2022 guidance on slide 17 of our IR deck. We continue to finalize the details of our 2023 plan, but assuming roughly 1.5 rigs in the Utica and a continuous rig program in the Scoop, we are currently forecasting a less than 5% increase in D&C capital in 2023 when compared to 2022. This level of spend is expected to result in an increase in production of more than 5% over the midpoint of our 2022 production guidance.

The combination of the adjustments mentioned above plus a decrease in forward natural gas strip has impacted our free cash flow guidance and we now expect to generate approximately $300 million for the full year of 'twenty two at strip pricing.

You can see a complete summary of our 2022 guidance on slide 17 of our IR deck.

We continue to finalize the details of our 2023 plan, but assuming roughly one five rigs in the Utica and a continuous rig program in the Scoop. We are currently forecasting in less than 5% increase in D&C capital and 23 when compared to 2002.

This level of spend is expected to result in an increase in production of more than 5% over the midpoint of R 22 production guidance.

Bill Buese: On the land front, to stay ahead of our continuous rig programs while building inventory into the future, we currently anticipate increasing our leasehold spend by approximately $20 million in 2023 when compared to 2022. In summary, despite our busiest operational quarter, which resulted in our highest capital quarter of the year, and lower than expected realized natural gas differentials in pricing, we still delivered another quarter of positive free cash flow. This continued positive financial momentum allowed us to execute our share repurchase program throughout Q3 while still maintaining a conservative leverage ratio. We are confident that our strong asset base will continue to support our ability to generate free cash flow in the future quarters at a wide range of commodity prices, allowing us to continue to return capital to shareholders, all while maintaining a strong financial position.

On the land front to stay ahead of our continuous rig programs, while building inventory into the future. We currently anticipate increasing our leasehold spend by approximately $20 million 23, when compared to 22.

In summary, despite our busiest operational quarter, which resulted in our highest capital quarter of the year and lower than expected realized natural gas differentials and pricing, we still delivered another quarter of positive free cash flow. This continued positive financial momentum allowed us to execute our share repurchase program throughout the third quarter, while still maintaining.

A conservative leverage ratio, we are confident that our strong asset base will continue to support our ability to generate free cash flow in the future quarters at a wide range of commodity prices, allowing us to continue to return capital to shareholders, all while maintaining a strong financial position.

Bill Buese: With that, we will now open the call up for discussion. Questions?

With that we'll now open the call up for discussion.

Operator: Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star two. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Neal Dingmann with Truist Securities.

<unk>.

Thank you.

At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue. Please press star two for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Our first question is from Neal Dingmann with <unk> Securities.

Neal Dingmann: Morning, guys. Thanks for the time. Bill, just wondering how you, Tim, the board sort of think about when you think about shareholder return versus growth. Obviously, it's a heck of a shareholder return, you know, with the payback that you outlined in the release. I guess my question is, you know, given the size

Good morning, guys. Thanks for the time.

Bill just wondering how you Tim the board sort of think about when you think about shareholder return versus growth.

Obviously, it's a heck of a shareholder return what's the payback that you outlined in the release I guess my question is given the size you certainly have the inventory. It sounds like you are scaling up thoughts about maybe pushing growth versus maybe youre basically taken some of that free cash flow and currently and more versus paying that out.

Neal Dingmann: You certainly have the inventory. It sounds like you are scaling up thoughts about maybe pushing growth versus maybe you're basically taking some of that free cash flow and growing more versus paying that out.

Bill Buese: Hey, Neal, good to hear from you. It's a good question. I mean, I'll remind you that we are growing, you know, 5% next year, and then we have that 5% CAGR for the next three years. We are doing some growth, and we're always on the lookout, as we said in prior calls, for additional like bolt-on and leasehold opportunities. We'll continue to do that and push that front, as well as, you know, look at, you know, maybe slightly larger acquisitions as well. You know, yeah, I think, you know, growth is definitely on our mind, but what's left, we will certainly, you know, return to shareholders is our plan at this point, so.

Good to hear from you.

A good question.

Ill remind you that we are growing 5% next year and then we have the 5% CAGR for the next three years. So we are doing some growth and we're always on the lookout as we've said in prior calls for additional bolt on and leasehold opportunities will continue to do that and pushed upfront.

As well as look at maybe slightly larger acquisitions as well.

So yes, I think growth is definitely on our mind, but whats left and we will certainly.

Return to shareholders as our plan at this point so.

Neal Dingmann: Do you think buybacks will continue to be the primary allocation there?

And do you think buybacks will continue to be the primary allocation there.

Bill Buese: Yeah, I don't wanna get too far over my skis, but I mean, you know, we still have the buyback program going now. We have, you know, probably enough capacity to continue doing that, into Q4 and then, you know, early in Q1. We'll have some additional color probably on return of capital initiatives, on our next call. It's something we continue to evaluate and discuss with the board. It is definitely front of mind, Neal, and we'll hopefully have more to share with you, next time we gather.

Yeah, I don't want to get too far over my skis, but I mean, we still have the buyback program going now we have probably enough capacity to continue doing that into the fourth quarter and early in the first but we will have some additional color on probably on return of capital initiatives on our next call.

We continue to evaluate and discuss with the board. So it is definitely front of mind for neon and hopefully have more to share with you.

Neal Dingmann: Great. Then, one just quick one if I could. Sounds like your Q4 op costs, you're pretty confident those will be down handily. Is that largely due to the increased production? I think you talked about, you know, a lot of that due to the increased production. I'm just trying to get a sense of, I think you've talked about this before, what portion of cost is fixed versus variable, you know, obviously production will help drive that down.

Next time, we gather.

Great and then one just quick one if I could.

It sounds like your fourth quarter op costs, you're pretty confident those will be down handily.

Is that largely I think you talked about.

A lot of that due to the increased production. So I'm just trying to get a sense of I think you've talked about this before what portion is of cost is fixed versus variable debt, obviously production to be helped driving that down.

Bill Buese: Yeah, I don't know if I have an exact number, but you know, the GP&T is obviously the largest part of our cost structure, and there's MVCs tied to that. You know, as we bring these additional wells on in Q4, you know, we'll certainly, on a unit rate, things will go down and our LOE will go down as well. You know, I mean, the GP&T is certainly the largest piece of our cost structure.

I don't know if I have an exact number but <unk> is obviously the largest part of our cost structure and theres nbc's tied to that.

So as we bring these additional wells on in the fourth quarter.

Certainly on a unit rate things will go down and our LOE will go down as.

As well, but.

The <unk> is certainly the largest piece of our cost structure.

Neal Dingmann: Got it. Okay. Thank you.

Got it okay. Thank you.

Operator: Our next question comes from Tim Rezvan with KeyBanc Capital Markets.

Sure.

Our next question comes from Tim <unk> with Keybanc capital markets.

Tim Rezvan: Hi. Good morning, everybody. Neal kinda hit on, I guess, one of my questions, you know, repurchases versus the dividend. Bill, I guess we'll get more color in Q4 earnings, but, you know, we see a stock that trades about $9 million worth of value per day. I'm just wondering, like, how much is that a factor, you know, in kind of how sustainable repurchases are? Because I know there's, you know, it's countering, you know, the liquidity impact is probably detrimental in some regards. Just curious your thoughts on that.

Hi, good morning, everybody Neil kind of hit on I guess, one of my questions.

Repurchases versus the dividend and Bill I guess, we'll get more color at fourth quarter earnings, but we see a stock that trades that $9 million worth of value per day. So I'm just wondering like how much is that a factor.

And kind of how sustainable repurchases are because I know this.

It's countering the liquidity impact is probably detrimental.

In some regards so just curious your thoughts on that.

Bill Buese: Yeah. That's a good question, Tim, and it's nice to hear your voice again. It's been a while for me anyway. You know, it's definitely something we talk about, and it's real. You know, when you're doing that, you're obviously impacting the liquidity. So it's something that is front and center. You know, our current authorization isn't going to, you know, cause any problems, isn't gonna trip anything. We have enough liquidity out there to continue, you know, at least through that. As I alluded to, we'll continue to evaluate things. We can't do it. In theory, we can't do it forever. So to your point, we'll have to branch out a bit, and that's something we look forward to sharing with you in the future.

Yes that is a good question, Tim and it's nice to hear your voice again, it's been a while for me anyway, but.

It's definitely something we.

We talked about this in Israel.

When youre doing that Youre, obviously impacting the liquidity. So it's something that is front and center.

Our current authorization isn't going to cause any problems isn't going to trip anything we have enough liquidity out there to continue at least through that and as I alluded to we'll continue to evaluate things and we can't do it in theory, you can't do it forever.

To your point, we will have to want to branch out a bit and thats something we look forward to sharing with you in the future.

Tim Rezvan: Okay. Thanks, Bill. If I could pivot to the 2023, you put some guideposts out there. I'm just curious, what gives you all, you know, in this high inflation environment, what gives you confidence of this kind of less than 5% increase in year-over-year CapEx? Are you pretty much contracted on that? Or just kinda curious why you felt confident to give that kind of range.

Okay. Thanks Bill.

Could pivot to it to the 2023 put some guideposts out there.

I'm just curious what gives you wall in this high inflation environment. What gives you confidence of this kind of less than 5% increase in year over year Capex are you pretty much contracted all matter.

Kind of curious why.

You saw confidence to give that kind of range.

Bill Buese: Yeah. I'll start, and I'll probably hand it to RJ to give a little more color. I mean, the short answer is yes. You know, we saw most of our inflation already in 2022. Coming out of bankruptcy, we didn't have a lot of contracts, you know, in place as we entered into 2022. We you know, felt the full brunt of that, about 25%, if you will, in 2022. We're not anticipating additional. To your point, we do have, you know, most of our service contracts, and tangibles locked down. I'll turn over to RJ to see if he has any additional color or comments on that.

Yeah, I'll start and I'll, probably hand, it to RJ to give you a little more color, but I mean, the short answer is yes, we saw most of our inflation already in 'twenty. Two we didn't have a lot of coming out of bankruptcy didn't have a lot of contracts in place as we entered into 'twenty two so we.

We felt the full brunt of that about 25% ish. If you will in 'twenty two so.

We're not anticipating additional and to your point, we do have most of our service contracts and tangibles locked down, but I'll turn it over to RJ. If he has any additional color or comments on that yes, thanks, Phil and good morning all.

RJ Moses: Yeah. Thanks, Bill, and good morning. I'll just add, if you think about how our program shaped for 2022, again, the H2, as you're aware, was really loaded with a lot of our activity. Really what we're doing is kinda moving that same program forward, using a lot of the same services. Today we've got most all our services and tangibles, either contracted or very significant line of sight on what that looks like going into next year. A lot of the inflationary pressures that we realized the H2 of this year kind of have already flowed into next year. We don't really see a significant uptick going into 2023 like others may.

Just add if you think about how our program shaped for 2022 again the back half as Youre aware.

Was really loaded with a lot of our activity and really what we're doing is kind of a move in that same.

That same program forward using a lot of the same services and today, we've got most all our services and tangibles, either contracted or very significant line of sight on what that looks like going into in the next year and so a lot of the inflationary pressures that.

We realize the back half of this year kind of already flown into next year. So we don't really see a significant uptick going into 2023 like others may.

Tim Rezvan: Okay. Okay. Thank you. Then if I could sneak one more in, on that 2023 outlook. You've talked about this 5% growth CAGR for multiple years and 2023 being slightly above that. Is that a tactical decision, you know, based on prices trying to get incremental unhedged volume, or is that just more an output from sort of this heavy sequential growth in the Q4 of 2022?

Okay. Okay. Thank you and then if I could sneak one more in on.

On that 2023 outlook, you've talked about this 5% growth CAGR for multiple years, and 2023 being slightly above that.

Is that a tactical decision based.

Based on prices trying to get incremental unhedged volume or is that just more of an output from sort of this heavy.

Sequential growth in the fourth quarter of 2022.

Bill Buese: Yeah. It's a little, just an output. You know, Tim, we're you know, we obviously continue to refine 2024 and 2025, but it's more of an output more than anything else, you know, just with the way the development plan is laid out and the timing and whatnot into Q4 and beyond.

Yes, it's a little it is an output.

Tim We're we're obviously continuing to refine 'twenty four 'twenty five, but it's more of an output more than anything else just with the way. The development plan is laid out and the timing and whatnot into the fourth quarter and beyond.

Tim Rezvan: Okay. Okay, great. If I could ask one final one. You talked about the MVC impact in Q3. We assume that would not be an issue going forward given that the growth we're expecting-

Okay, Okay, great and then if I could ask one final one you talked about.

The MVC impact in the third quarter should we assume that.

Would not be an issue going forward given the growth.

Bill Buese: Yeah, that's correct.

Tim Rezvan: in the next couple quarters.

Bill Buese: That's correct.

Tim Rezvan: Okay.

Bill Buese: You know, as going forward, you know, in Q4 and actually beyond, we do not anticipate that being an issue for the next couple years.

And the next couple of quarters.

That's correct okay.

Going forward in the fourth quarter and actually beyond we didn't we don't anticipate that being an issue for the next.

Tim Rezvan: Okay. All right. Thanks so much for your time.

A couple of years.

Bill Buese: Got it.

Okay, alright, thanks, so much for your time.

Got it.

Operator: Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to management for closing remarks.

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to management for closing remarks.

Bill Buese: Thanks, and thank you for taking the time to join our call today. If you have any additional questions, please do not hesitate to reach out to our investor relations team. Thanks again, and this concludes our call.

Thanks, and thank you for taking the time to join our call. Today. If you have any additional questions. Please do not hesitate to reach out to our Investor Relations team.

Thanks, again, and this concludes our call.

Operator: This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.

This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.

Okay.

Great.

Okay.

Yes.

Thank you.

Okay.

Yes.

Okay.

[music].

Sure.

Okay.

Yes.

Q3 2022 Gulfport Energy Corp Earnings Call

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