Q4 2022 Gulfport Energy Corp Earnings Call
Greetings and welcome to the Gulfport Energy Corporation fourth quarter 2022 earnings call. At this time all participants are in a listen only mode. A brief question and 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 it is now my pleasure to introduce your host Jessica Antle director of Investor Relations. Thank you Jessica you may begin.
Thank you and good morning, welcome to Gulfport Energy Corporation's fourth quarter and full year 2022 earnings Conference call speakers on today's call include John Reinhart, President and CEO and Bill BZ Executive Vice President and Chief Financial Officer, 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 information concerning these factors can be found in the company's filing with the SEC. In addition.
We may make reference to non-GAAP measures reconciliations to 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 John <unk>, President and CEO .
Thank you Jessica and thank you to everyone for listening to our call today.
To open I would like to express my gratitude to the board of directors for the opportunity to be a part of the continuous evolution of Gulfport energy. The company is positioned with high quality natural gas weighted asset base and our balance sheet provides optionality to enhance shareholder value.
Working alongside the many talented individuals' Gulfport, we will remain focused on actions that facilitate efficient and sustainable development of the company's quality inventory enhanced margins and optimize efficiencies within our capital programs, all while maintaining an attractive balance sheet and utilizing our free cash.
Hello.
To the physician to position the company for success.
Further to this point the board recently authorized the expansion of our common share repurchase program by an incremental $100 million.
We believe allocating our free cash flow towards the continued investment in our undervalued stock as well as utilizing it and acquiring incremental leasehold will add value optionality and quality resource step for the company moving forward.
On behalf of the full board I would like to also thank Tim cut for his leadership of the company through the initial post restructuring period. This was a critical phase of the company and his leadership positioned us for meaningful shareholder value enhancement moving forward.
We all look forward to working closely with him as chairman of the board.
I will begin with a summary of our 2022 operational highlights followed by our 2023 outlook, including the cadence of our capital and production in the upcoming year.
Bill will then review our fourth quarter and full year 2022 financial results and provide some additional commentary surrounding our 2023 plans.
2022 was a productive year for gulfport, maintaining inventories of high quality acreage and delivering strong results from both the Utica and Scoop development programs.
The company generated over $240 million of adjusted free cash flow, which was utilized to return capital to shareholders and reduce our outstanding shares by over 12% or 3 million shares since initiating the common share repurchase program in early 2022.
The quality asset base contributed to an increase in both proved reserves and borrowing base, while also delivering top quartile well productivity results.
While the commodity markets have certainly been volatile the company is well positioned to deliver value, one or 2023 operating plans and maintain financial strength.
Turning to the specifics full year 2022 capital expenditures totaled approximately $450 million <unk>.
Production for the year averaged 983 million cubic feet equivalent per day at the midpoint of guidance.
Which includes the impact from winter Storm Elliot.
For the full year the company drilled 28, gross wells, which were predominantly focused in the Utica.
On the completion side Gulfport completed and turned to sales 15 gross wells in the Utica and 13 gross wells in the scoop throughout 2022.
Operationally, we continue to be very pleased with the recent well results in both the Utica and scoop.
On slide seven and eight of the Investor Relations deck. We included slides that highlight Gulfport recent single well performance compared to peers normalizing the cumulative production on a 1000 foot of lateral basis.
In the Utica Gulfport development results have led to production outperformance compared to peers with nine of the top 15, producing wells over the past two years being Gulfport operated wells.
In the Scoop for comparative purposes data was included depicts all wells drilled in both the scoop and stack.
Similarly, the Gulfport operated development program over the past two years has outpaced our peers as 13 of the top 15, producing wells, which include all five wells from the company's Nelda development being top performers when comparing cumulative production on a per 1000 foot of lateral normalized basis.
Turning to reserves, our strong and consistent well performance is reflected in the 2022 Reserve report as our proved reserves were up 4% year over year totaling four trillion cubic feet equivalent.
At the year end 2022, SEC price deck of $6 36 per <unk> and $94 14 per barrel of oil the companies before tax proved reserve value was $9 5 billion.
At a flat $3 per ml btu and $70 per barrel of oil case, our after tax proved reserve values totaled approximately $2 8 billion or $108 per share after subtracting our current net debt.
This highlights along with our peer leading free cash flow yield attractive margins debt maturity profile and attractive balance sheet, the compelling value opportunity the gulfport energy represents.
As the company progresses into 2023, we are focused on further optimizing margins and capital efficiencies through reductions in our cycle times and operating cost ultimately supporting the companys expected free cash flow generation.
Given the current market, we have taken proactive steps to moderate overall development activity with 2023, primarily focused on Utica development and Marcellus delineation activity.
Total capital spend for the year is projected to be approximately $450 million, which includes roughly $50 million to $75 million of land and lease hold investment.
The land spend is focused on bolstering our 2023 and 2024 drilling program facilitating increases in our working interest and lateral footage in units we plan to drill in near term.
Full year D&C spend is expected to be in the range of $375 million to $400 million.
A decrease of approximately 6% from full year 2022.
We expect minimal if any oilfield service inflation year over year and given the meaningful pullback in commodity prices. We believe there is potential to take advantage of a better service cost environment in the second half of the year as we lock in our 2024 program.
Looking at allocation between our assets, we project roughly 90% of D&C capital spend will be allocated to our Ohio development, which includes golf course first Marcellus delineation activities developing two gross wells in Belmont County, Ohio.
We currently forecast two thirds of our capital will be allocated in the first half of 2023 and <unk>.
Trend lower in both the third and fourth quarters of the year.
Turning to production, we anticipate this level of spend will deliver one to 1.04 billion cubic feet equivalent per day in 2023, an increase of 2% to 6% over full year 2022.
Production growth will be back half weighted driven primarily by timing of capital spend and the Utica turn in line schedule been heavily concentrated in the summer months.
In our Investor deck on Slide 11, we include a more detailed outlook on our expected 2023 capital and production cadence.
For 2023, we expect our per unit operating cost to decrease by approximately 7% compared to 2022, driven primarily by production tax impacts associated with lower commodity prices and midstream cost reductions year over year.
We continued to maintain top quartile G&A spend and forecast reoccurring cash G&A of 12.
For million cubic feet equivalent for the full year.
On slide 18 of our Investor presentation, we provided a range of 2023 adjusted free cash flow outlooks at various natural gas prices.
We project adjusted free cash flow will range from roughly $175 million at $2 50 gas to $320 million at $3 50 gas, implying a free cash flow yield range of 14% to 25%.
We plan to continue.
The return of capital to our shareholders through common share repurchases, while also actively pursuing incremental leasehold opportunities that increase our resource depth and provide optionality to our future development plans.
These opportunities would have characteristics comparable to our existing assets and further build on our core position, while improving our opportunity set and drilling economics and our future development plan.
In closing we have right sized our drilling program for 2023 and are intently focused on reducing cycle times and operating costs to further improve margins.
As we progress through the year, we plan to maintain capital discipline prioritize free cash flow generation, returning capital to shareholders through common share repurchases enhanced scale through incremental leasehold opportunities all while protecting our balance sheet and adding value to the company.
Now I will turn the call over to bill to discuss our financial results.
Thank you John and good morning, everyone, turning now to our fourth quarter financials. The company continued to achieve strong results in almost every area of the business during the quarter, despite a challenging commodity price environment.
We reported net income of $749 million and.
The $155 million of adjusted EBITDA during the quarter.
A key driver of the net income was a $437 million net gain associated with our commodity derivatives portfolio.
For the 12 month period, ending December 31, 2022, we reported net income of $495 million and generated $768 million of adjusted EBITDA.
On the capital front, we incurred capital expenditures of $102 million during the fourth quarter, consisting of $89 million in drilling and completion capital and $13 million in land and related capital both of which were in line with expectations.
For the full year 'twenty, two we incurred capital expenditures of $448 million, consisting of 411, and the D&C capital at $37 million in land and related capital.
Our total incurred capital for the year was negatively impacted by inflationary pressures on our oilfield services costs as well as supply chain disruptions throughout the year.
Net cash provided by operating activities totaled $188 million during the fourth quarter and we generated adjusted free cash flow of $33 million for the same period. Despite some weather related headwinds during the quarter, we were still able to generate positive free cash flow for the seventh consecutive quarter post emergence.
For the full year 'twenty, two we generated roughly $240 million of adjusted free cash flow.
Moving on to derivatives to further support our ability to fund our capital program and return of capital initiatives going forward. We have continued to enter into commodities derivative contracts since our last Cogs.
As of February 23, we have downside protection covering approximately 56% of our 2023 and natural gas production at an average floor price of $3 53 per Mcf and roughly 355 million cubic feet per day of downside protection in 24 at an average floor price of just under $4 per <unk>.
Yes.
On the basis front, we now have nearly 40% of our 2023 natural gas basis covered providing.
Some pricing security at our largest points of exposure.
We plan to continue to layer on additional basis hedges for 23, as well as 2024 and the months to come.
Finally, we recently restructured approximately 20% of our 2023 sold calls.
The restructure increased the strike price from $2 90 per Mcf to $3 70 per Mcf on a restructured contracts.
The ability to capture additional benefit up to a $3 70 <unk> price on those volumes in total the restructure and increased our average 2023 strike price on the calls from $2 90 to $3 16 per Mcf.
Overall, we are pleased with the progress we have made on our derivative portfolio and you should expect us to continue to optimize and add to our portfolio in the future when opportunities present themselves.
Turning quickly to the balance sheet at the end of the fourth quarter total assets were approximately $2 5 billion. While total gross debt was approximately $695 million consisting of $145 million outstanding under our credit facility and $550 million of outstanding Senior notes. We also had $7 million of cash on hand and 113.
Of letters of credit outstanding at the end of the quarter.
We exited the fourth quarter was roughly $450 million of total liquidity consisting of $7 million of cash and 442, our borrowing capacity under the credit facility.
We continued to execute our common share repurchase program in the fourth quarter during which we repurchased approximately 293000 common shares at an average price of $79 per share as.
As of February 23rd we had repurchased approximately $3 1 million shares of common stock at an average share price of $85 per share lowering our outstanding share count by approximately 12%.
Inclusive of our recent expanded share repurchase authorization, we now have approximately $135 million of availability under the $400 million program to utilize over the next 12 plus months.
Let's now shift to our 2023 guidance as outlined on slide 18 in the slide deck.
Our 2023 total production guidance is 1.0 to 1.041 billion cubic feet equivalent per day with the midpoint up roughly 4% from the 2022 levels our year over year growth will be driven by our Ohio assets as we forecast a proactive moderation of scoop activity in 'twenty, three which will lead to a production decline of 5% to 10.
Sent in that basin compared to full year 'twenty two.
Our 2023 guidance for capital investment is $425 million to $475 million and includes $50 million to $75 million capital for leasehold and land related activities.
As John mentioned earlier, we expect inflation to be limited in 'twenty three as we believe we incurred the bulk of the oilfield service cost inflation as part of our 2022 development program.
Finally, we expect our 2023 realized natural gas differential before hedges to fall in a range of 20% to 35 off of Nymex.
Despite realizing wider guest differentials in the third and fourth quarters of 'twenty. Two we believe that the primary factors contributing to the weaker differentials are nonrecurring in nature and we're not seeing these impacts relative to the forward pricing used in our 'twenty three guidance.
Please see our earnings release and slide deck for a few additional details on our 2023 guidance.
In summary, despite a busy operational quarter and lower than expected realized natural gas pricing and differentials. We delivered another quarter of positive free cash flow. We are confident that our strong asset base will continue to support our ability to generate free cash flow in future quarters at a wide range of commodity prices, allowing us to continue to return capital to shareholders.
And to invest in incremental leasehold opportunities all while maintaining our strong financial position.
With that we will now open the call up for questions.
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Okay.
Thank you. Our first question is from Neal Dingmann with <unk> Securities. Please proceed with your question.
Hey, good morning, guys.
John .
My first question just John you sound confident you guys reiterated this a couple of you in a couple of times free came on just about the <unk>.
Minimal or even no inflation. This year just could you talk.
A bit about that just what the confidence there and maybe a little bit more color on what this might lead you to do I know you don't want to I am not expecting 24 guide this early but maybe what sort of opportunities.
Opportunities you might have then is you mentioned later on that.
Maybe lock some things in.
Yes, good morning.
Thanks for the question.
As we look back at the company throughout the <unk>.
2022.
Post restructuring.
I would say that the contracts or the services. The company was contracted forward pretty light and so we were bit exposed to some moderate inflation in 2022, perhaps maybe slightly above the peers as we move forward, though into 2023.
While we expect minimal is we have services contracted up to out the year at least the highest spin services. So we feel very comfortable with where we sit on those as well as we see with the fundamentals in the market somewhat changing.
We expect towards the second half of the year general activity will be impacted in the service side, which will create an environment for us to perhaps take a little bit better advantage in the second half of the year of some service pricing. In addition to potential discussions about 2020 for work. So once you combine the current environment the.
<unk> last year, we're locked up for contracts and we see the market being pretty volatile and a better kind of atmosphere moving into the rest of this year. There is some opportunity for us to actually make some headway not only keeping it flat, but a possible reduction.
Great Great point, and then just wanted to I don't know if its still too early you had been terribly long have you been able to sort of get your hand around you guys have a lot of inventory a lot of acreage and I'm just wondering.
Kind of wrap it into an M&A question. When you look at things I mean are there things to trade are there I'm. Just wondering when you think about sort of overall inventory and M&A, what sort of opportunities you see.
Yes.
Another good question, what I'll see us have been.
We're very happy with the quality of resources that the company has in its portfolio. So we're very fortunate to have some very solid as you see in the IR deck. Some scoop results very good acreage you can see in the Utica very good well performance good acreage a lot of runway and now were recently talking about the Marcellus as far as the delineation, which the company has no value currently.
<unk>.
Booked under I mean, theres a lot of opportunities to actually get some take some advantage of actually accruing that value within accompanied by this delineation test so as we look at.
Where our focus is we see a really quality good asset base and we're going to be.
Putting focus on value of the company increasing value of the company improving margins protecting the balance sheet keeps.
Keeping the company healthy are very attractive.
With some attributes that are very favorable as we navigate this kind of volatile market throughout the next 12 to 18 months and position the company in a really good place as we look at fundamentals changing in the gas macro changing.
To be able to be a very attractive investment. So that's kind of where we're focused I think right now.
Relative to positioning the company for value enhancement.
Kind of with an eye towards the future.
And if I could just add one last one just on that macro folks you mentioned.
Bill you mentioned the hedges a little bit.
Todays market are you, adding more hedges or would you wait to kind of see what prices do I just wanted to meet the future curve still looks quite positive. So just I was wondering on your earlier comments.
How much Youre added are you would you add 24 already added 24 would you add 25, just your thoughts on hedging here. Thanks.
Good question.
So the answer is yes, we're going to continue to layer on hedges, that's our philosophy as a company we will continue to do that.
We put some hedges on 2012 as recently as last week. So we will continue to do that and we will as I mentioned in my comments. We started two and 23 basis, you can expect us to start looking at 24 basis as well going forward. So we've taken a methodical approach to hedging and we will continue to do it.
As opportunities present themselves.
Right got it thanks guys.
Thanks Neil.
Thank you. Our next question will be from Tim resident with Keybanc capital markets. Please proceed with your question.
Good morning, everybody. Thank you for taking my call I'd like to start with dig.
Dig it into slide 11, a little bit on your 2023 development plan.
Can you talk about.
Why you chose the spot you did in southeast Belmont for that Marcellus pad.
Yes good.
Good morning, Tim and thanks for the question.
As we look at our lease hold around the area I think what's attractive to that particular areas. We have an existing pad out there with infrastructure lease roads that we wanted to take advantage of there is also right across the river a lot of activity in the Marcellus.
It looks very attractive to us so whenever you step back and take a look at where this delineation test is.
It gives us a lot of assurances that we're in a good spot here for a test we can actually drill to the southeast and northwest to get a better handle on liquids content to see how prolific this side of the river is so thats basically the genesis of the location and southeast film for the test.
Okay. Okay I appreciate that.
And then looking farther north.
Usually in Ohio.
Four well pad is planted in western Harrison County.
Without knowing where exactly the phase windows lie on this map is that a dry gas target is that liquids rich how are you thinking about liquids rich and dry gas overall.
Ohio.
Yes no.
Great question. So this is targeting as it shows for late in the year for us, but so this particular window here is definitely liquids rich and wet gas.
As we view it the Marcellus to me is where we're going to be drilling this liquids rich as well the economics on these things should compete with regards to capital or or we wouldn't be prioritizing. This so we feel pretty bullish about where it stands as far as ranks.
Our ranks on the economic scale. So I think as we look at it between the mix we have a lot of liquids rich production in the scoop. That's a toggle for US we have some western type Utica acreage that we can kind of toggle for some liquids rich we are dry gas is solid and the core of the Utica from Jefferson Belmont and Monroe and now we're introducing <unk>.
In the Marcellus, which gives us more optionality. So the more triggers we have to pull on the more toggles, we have for a variety of commodity type environment dependent on where prices go. It's nice to have a portfolio like that so you can kind of ebb and flow in free prioritizes needed.
Okay I appreciate that color and if I could just sneak one last one in.
I know post restructuring.
You've been sort of there's been an intermittent program across your assets and you can sort of CEO .
Excuse me the spud to pop schedule.
Our ability across these pads.
Do you think about how do you think about running a more continuous program is I guess, you get through 2023 and beyond you've talked about reducing cycle times.
Is your plan to kind of get rid of these extended spud to pop cycles are.
How do you think about that in terms of driving more efficiencies through the business.
Alex It's a great question actually Tim I appreciate it I think is as we look at it we look at it from purely a pad level type rate of return so.
<unk> and optimizing that cycle time, when you spend money and when you deliver revenue and what that means is theres going to be some overlap certainly in 'twenty three where we have a couple of frac crews running and there'll be times, when we had zero frac crews running and I think as long as we keep those those balances within.
Cadence of 1% to two crews very manageable and quite frankly, it's a much more efficient and it's much more efficient from a capital efficiency standpoint, and actually a return on the investment so.
Youre going to see some rigs kind of the cadence of them will come there will be some overlap you won't see frac crews somewhat overlap, but generally speaking it will be that one one in the quarter type rig and generally one frac crew throughout the year, there will be though however, some overlap as we look to optimize these cycle times and bring.
Some value forward for the company.
Okay. Thanks, John I appreciate all the color.
Yeah, you bet. Thank you very much.
Thank you there are no further questions at this time I would like to hand, the floor back over to John Reinhart for any closing comments.
Yes, I'd like to thank everybody for joining our call today appreciate the questions.
We're very excited about 2023 and the development plan. The company is in a great position to be able to generate free cash flow at a variety of commodity prices and we're very focused again to reiterate on when actually focusing and targeting those funds to increase value of the company and the toggles that were used.
Or are the share repurchase program, which we've recently announced an extension on as well as incremental leasehold to bolster our total footprint and grow some scale from an inventory perspective. So again very excited about 'twenty three and look forward to share more about the results for next quarter's call. So thank you very much.
This.
Today's conference you may disconnect your lines at this time, thank you for your participation.