Q3 2024 Gulfport Energy Corp Earnings Call
and hired a cumulative recovery for a thousand foot of lateral after an extended production period. As we have noted since the roll out of this program, we firmly believe this approach leads to lower upfront capital requirements.
Longer production plateau periods, shallower declines, improved reserves, lower lease operating expenses, lower water recoveries, let's midstream and offset legacy production impacts from new pads-brain brought online, and overall lower production downside.
In addition to the well performance results, proven production from development wells allows the company to provide consistent, repeatable results and ultimately improves overall corporate declinerates and lowers future maintenance capital requirements.
to summarize 2024 has been a year where the company delivered results that highlighted our focus on sharedholder returns.
Capital Reduction
Operational efficiency improvements, inventory additions, balance sheet improvements, and the shift towards high margin liquids development. Each of these efforts deliver fundamental value improvements for the company, and we believe our line with enhancing shareholder value.
Our focus on these key tenants will remain as the company enters 2025. Now, we'll turn the call over to Michael to discuss our financial results.
Michael: Thank you, John, and good morning everyone. During a quarter with continued volatility in the commodity backdrop, the company achieved strong results across all facets of the business.
Michael: Netcash provided by operating activities before changes in working capital, total to approximately $160 million during the third quarter. More than funding our capital expenditures and common share repurchases while maintaining our balance sheet strength.
Michael: We reported a just city about approximately $1.78 million during the quarter, and generated a just-ed-free cash flow of approximately $73 million for the same period.
Michael: Both better than analysts expectations, driven by our strong liquid production, gas realizations and operating costs performance. Production for the third quarter average 1.06 billion cubic feet equivalent per day, in line with analysts expectations and consistent with the first half of 2024 results.
Michael: But included a meaningful 68% increase in high margin oil volumes.
Michael: Given the current commodity environment, we elected to bring online recent production at restricted rates, as well as work collaboratively with our midstream partners on the timing of periodic maintenance, providing flexibility to quickly add production in the future if warranted by commodity prices.
Michael: For the remainder of 2024, we anticipate our daily production to remain relatively flat on an M.M. CFE per day basis as we look ahead to what we believe will be an improving gas macro in 2025.
Michael: Our all-in realized price for the third quarter was $3.9 per MCFE, including the impact of patch that'll derivatives.
Michael: This realized price is 93 cents or 43 percent above the 9x Henry Hub index price. Highlighting the benefit of golfports differentiated hedge position, diverse marketing portfolio for natural gas, and the pricing uplift from our liquid support folio in both of our asset areas.
Michael: We realize the cash hedging gain of approximately $85 million for the quarter demonstrating the value of our hedge book and its impact to our cash flows.
Michael: With respect to our current hedge position, we are pleased to have downside protection covering nearly 65% of our remaining 2024 natural gas production at an average floor price of $3.63 per MMBTU.
Michael: and Natural Gas Swap and Color Contracts, totaling approximately $470 million cubic feet per day at an average floor price of $3.61 per MMB to you for 2025. So, carrying a significant portion of our forecasted Natural Gas production.
Michael: We remain constructive on gas prices in 2025 and 2026, carefully choosing to maintain significant upside by utilizing color structures on a portion of our downside hedges that allow us to participate in prices well above $4 per MMB to you.
Michael: On the basis front, we continue to lock in our natural gas-based exposure, providing pricing security or largest sales points. In addition to the risk mitigation, our diverse portfolio of FT offers.
Michael: Approximately 15% of our natural gas has firm delivery to the Gulf Coast.
Michael: at TGP500 like pool and transcos station 85. And during the third quarter we locked in a portion of this exposure at various active premiums of 9x10er hub plus 30 cents and plus 50 cents for 2025 and 2026 respectively.
Michael: We provide further details of our full derivative position on slide 22 of our investor presentation, as well as later today when we expect to file our TNTU.
Michael: Turning to the balance sheet, our financial position remains strong with trailing 12-month-month-met leverage, exiting the quarter below one time. During the third quarter, we successfully tendered for approximately 95% of the company's $550 million of 8% senior notes due to 2020-6.
Michael: While concurrently issuing new long-term senior notes totaling $650 million due $2,029, price is 6.75%.
Michael: The completion of these transactions extended the weighted average maturity of the company's long-term senior notes.
Michael: by about 3.2 years and lowers the company's weighted average interest rate.
Michael: on its long-term senior notes by approximately 1.2%. In addition, we completed our fall borrowing base re-determination in September and amended our revolving credit facility. The amendment, among other things, increased elected commitments from $900 million to $1 billion.
Michael: Reaffirmed our borrowing base of $1.1 billion. Reduced our borrowing cost by 50 basis points, and extended the maturity of the credit facility to September of 2028.
Michael: As a September 30th, 2024, our liquidity totaled approximately $909 million. Comprives of about $3.2 million cash plus $96.2 million of borrowing base availability.
Michael: Our liquidity today is more than sufficient to fund any development needs we might have for the foreseeable future and provides tremendous flexibility from a financial perspective going forward. As we are positioned to be opportunistic, situations arise, that allow us to capture value for our stakeholders.
Michael: As we close out 2024 and look ahead to 2025, we forecast continued significant free cash flow generation and common share repurchases will remain a key part of our return of capital strategy.
Michael: Given the unrecognized value we believe remains in our equity. While others often talk about returning value to shareholders through sharing purchases, Goldfort continues to deliver on our plan, and the third quarter was no exception, as we purchased nearly 2% of our current market cap in this quarter alone.
Michael: mentioned early in the call. Our board of directors increased our common stock repurchased authorization by 50 per 4% to $1 billion and extended the program by a full year so that we can continue our strategy of capturing unappreciated value in our equity.
Michael: As of October 28th and since the inception of the program we have repurchased approximately 5.2 million shares of our common stock. At an average price of just over $100 per share, lowering our share account by about 18% at a weighted average price nearly 30% below our current share price.
Michael: We currently have approximately $481 million available under the expanded $1 billion share repurchase program.
Michael: We remain steadfast in our free cash flow allocation from it framework and will continue to return substantially all of our adjusted free cash flow, excluding discretionary acrejack positions.
Michael: to our shareholders through common stock repurchases. We believe that consistency of our committed approach to sharing purchases over the past few years has delivered tremendous value to our shareholders and changes to our capital allocation framework or other potential strategic considerations.
Michael: We need to be a creative to our fundamental value and compare favorably to repurchasing our undervalued stock. In summary, our quarterly results reflect the same theme that has been communicated the past seven-quarters.
Michael: Continuous operational improvements delivering excellent results while maintaining a healthy financial position. This year's program is delivering on all fronts in the capital efficiencies and operational improvements being realized are creating long lasting improvements.
Michael: A loudness to reduce our future maintenance capital requirements on comparable drilling programs or simply put, we are delivering more with less.
Michael: The further supports the Free Cash Loat Generation Potential of Gulf War. And as shown on slide six of our investor presentation, illustrates the peer-leading Free Cash Loat yields and five-year Free Cash Loat capacity capable of retiring our market cap at its current level.
Michael: With that, I will turn the call back over to the operator to open up the call for questions.
Speaker Change: Thank you.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Speaker Change: Our first question comes from the line of Bert Donitz with Chula Security. Please proceed with your question.
Bert Donitz: Hi. Good morning, team. The improved capital guide looks pretty strong at face value, but we've seen some of your peers, you know, update their guidance due to shifting activity plans rather than cost reductions. So could you maybe walk us through where the savings came from, maybe how much was efficiencies or vendor costs, and were there any shifts in your plans?
Bert Donitz: Hi, good morning, Bert. This is John. I appreciate the question.
John: Overall, for 2024, we've been very pleased with the operational efficiencies and cost reductions that we've seen, and very specifically, there hasn't been any material shifts with regards to our planned activity out of 2024 into 2025, similar to other operators.
Speaker Change: So, I would attribute, you know...
Speaker Change: The cost savings and capital savings this year, really two-thirds to efficiency gains. This is planning, dead time between operations, execution, and just cycle time improvement. And probably about a third of these savings on the service cost side. So really pleased with the progress of the team's year-to-date with regards to capital reductions. And these two-thirds savings, again, these are long-lived savings that will last throughout the years as we continue to progress. Appreciate the question. Hopefully that answers your question.
Speaker Change: That sure does. And then you had some pretty strong liquids growth as well in the quarter, you know, from your condensate wells. And you put in a disclosure about more than half of your northeast wells go into those locations. Just wanted to get an update on how you think about your inventory, maybe ranking them. You know, you have the Utica condensate and Marcellus wells, the dry gas Utica and your scoop. Are any of them, you know, edging ahead of the rest? No, it's great. It's a great question. This is John again. You know, we're in a very, you know, good position actually, corporately, especially with our discretionary acreage acquisitions over the past two years, to have a lot of toggles that the company can pull with regards to inventory. So as you know, we have several liquids window options.
Speaker Change: the Marcellas, the Utica, and there's various lean and regular condensate wells, along with dry gas options. What I'll tell you is that the high quality inventory, really, there's a really good deal of content.
Speaker Change: They're within about 15% to 20% returns, generally speaking, and we as a company, as we look at how do we allocate that capital, it's really returns-based and what drives the best margins and improves cash flow. So we're sitting on some options, depending on where commodity prices go, to have a lot of different levers to pull. And right now, what I would tell you is you've seen us lean in on the liquids area, the wet gas and the condensate area with regards to acquisitions and capital moving that way. So we're going to continue to focus on that in the near term because it provides the largest uplift to the company. But we also remain pretty nimble and we have the ability and the flexibility to shift towards gas.
Speaker Change: should those returns go the other way.
Speaker Change: Thank you for watching!
Speaker Change: Thanks for the update.
Speaker Change: Thank you. Our next question comes from the line of Doug Lugate with Gulf Research. Please proceed with your question.
Doug Lugate: Thanks, good morning everybody. John, the 60% liquids weight on tills in 2025, when we spoke last night you talked about years and years of inventory. Should we consider this as the new normal for the mix?
Doug Lugate: Yeah, Doug, this is John. I appreciate the question. What I'll tell you is, considering our investment in the Liquors Rich, considering the commodity price outlook and just the high-quality acreage we've been able to pick up and that the company already had in its inventory.
Doug Lugate: This liquid shift will have a fairly continuous presence in the company's portfolio for years to come.
Doug Lugate: You know, and overall, you might want to say, well, you're a gas company, and we'll always be a gas company, but it will be a meaningful shift in the near term, let's just call it over the next 12 to 18 months, you know, to, you know, 4 or 5 percent shift towards more liquids.
Doug Lugate: versus dry gas and which is directly kind of resulting in higher margins and improved free cash flow. So the bottom line is yes, it'll be a fairly continuous part of our programs, whether it's the Utica Condensate, Utica Lean Condensate, or Marcellus and Continued Scoop in some variation or form with regards to what's driving the best returns for
Doug Lugate: for the company. So hopefully that answers your question, Doug.
Doug Lugate: It does, thanks John, I appreciate the detail, but I wonder if I could have a quick follow-up on the pressure management program.
Doug Lugate: I guess, I wonder if you could just characterize what the nature of that is. Now, obviously, back pressure, compression is one part of it, but...
Doug Lugate: Are you also managing your flow back differently in terms of, you know, for example, choking back wells to moderate declines, limit liquids uplift, and all the kind of stuff that goes into that. Can you just characterize what exactly is behind that and how widely this can be applied across the portfolio?
Speaker Change: Yeah, no, it's a great question. I think, generally speaking, this philosophy is applied across the portfolio, but what I'll tell you is, depending on commodity prices, there is some flexibility with what that actual rate will be. So it does vary with commodity prices, and it does vary between gas and the condensate window. But generally speaking, to your point, it is, it has a lot of benefits that we tried to provide a slide out there that not only showed some of the benefits with bullet points, but also showed you the actual production profile over the last 12 to 18 months. So many benefits from the program, pinching it back, reducing the potential damage, increasing the plateau period, all the things I talked about in the script.
Doug Lugate: It is transferable to condensate, to your point, as well as lean condensate areas. So it's a program that we're managing early flow back and initial production periods.
Doug Lugate: throughout the portfolio. But again, we're going to be very responsive to commodity prices and continue to assess what exactly is that rate and pressure drawdown that's going to provide the best risk adjusted returns for the company.
Speaker Change: Thanks for taking my questions guys.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question comes from the line of Zach Parham with J.P. Morgan. Please proceed with your question.
Zach Parham: Thanks for taking my questions. First, I just wanted to talk about, you know, last quarter you talked about having the flexibility to take $25 million out of the budget.
Zach Parham: In this quarter, you officially removed $15 million from the budget while spending that remaining $10 million. Can you just talk a little bit about the decision process there? Why were those the right amounts to reduce CapEx and to spend?
Zach Parham: Hey Zach, this is Michael. I'll take the first shot and John can jump in. I think as we assess the various options, we're continuously looking at the highest rate to return. And we do, as I talked about in some of my comments, feel like our equity presents a compelling opportunity. So we did decide to take a bit of a hybrid approach, I would call it, between allocating some of that savings back to shareholders and then actually redeploying a bit of it into a little bit of activity here late in the year with a drilling pad. So I think it's been just a continuous assessment. We certainly could have gone either direction with it. We could have accelerated further or put it all to shareholders. And I think that was the decision that made the most sense to us.
Speaker Change: Thank you. Thank you. Thank you.
Zach Parham: Thanks a lot. And just by follow-up, I wanted to talk about kind of oil and how it trades or how it trends from here. You grew oil significantly quarter over quarter off a relatively low base just given what you're seeing from the early production from the condensate wells.
Zach Parham: and your plan to add the four additional condensate wells in early 2025. Can you talk a little bit about the trajectory of oil production from here?
Speaker Change: Yeah. Hey, Zach. I think you saw, like you said, a big jump here in the third quarter for our company from an oil perspective. I think if you think about the last quarter of the year, we will have a full quarter of the pad that we talked about this morning. So maybe a bit of upside there remaining, but most of that increase has probably been realized for this year. But going into next year, we're pretty excited, as John talked about, with the allocation that we're at least preliminarily planning for our capital program. I think you'll see us move from a low 90s gas company, 92%, I think was our official guide this year, to kind of a high 80s.
Speaker Change: So you can think about, you know, exactly where that falls, I'm not exactly sure, but it's something, you know, 87, 88, 89 percent gas and probably a similar mixture of oil and NGLs between the two on the liquid side, but again, that's going to be a meaningful increase from what we did here in 2024. So it's going to really juice the bottom line, as John mentioned, from a margin perspective. We see that as a pretty exciting catalyst for next year.
Michael: Thanks, Michael. Appreciate the color.
Michael: Thanks, Eric.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Tim Rezvin with eBay Capital Markets, Inc. Please proceed with your question. Good morning and thank you for taking my questions.
Tim Rezvin: There's a lot I could ask, but I guess I'll start as you think about your capital program next year I know you don't have guidance out
Tim Rezvin: But you've tended to have more front-loaded programs, and I know there's a third grade coming in this year. Do you anticipate that sort of cadence next year? And then as we think about the free or the repurchase cadence.
Tim Rezvin: We kind of think about that in line with quarterly free cash flow or you can be thinking of more on an annual basis Trying to understand that the free cash flow cadence as gas prices improve and you have that upsized authorization. Thanks
Speaker Change: Yeah, Tim, I'll comment on the DNC activity, and Michael can chime in on the share of purchases. Appreciate the question. You know, with regards to the capital program, we will be, very similarly to 2024, have a front-loaded capital program. We're currently running two rigs. We'll be picking up that third rig, let's just call it the Lake Q4 here in the Utica, and in much, or very similar at least, although we haven't provided specific guidance, what you'll find is the drilling activity will go down to one rig, likely in the Utica, and then the scoop will fall off sometime mid-year, and then we'll be at one rig continuously. So how I would characterize it is a very similar program. It's just going to be shifted more towards liquids.
Speaker Change: and higher margin acreage versus historically some dry gas stuff that we've drilled. So I'll turn to, Michael, you want to address the share for? Yeah, I mean, I think it's a good question, Tim. I think to John's point, similar to this year, you know, with the capital being front loaded, you may see a bit of an impact, but I think.
Tim Rezvin: On our share purchase, we think of it more on an annual basis to answer your question. And then also, I just want to kind of remind folks that we are opportunistic in our approach as well. So if we have an opportunity, especially, you know, we've had a large shareholder in the past that has looked to monetize some of their position, and we like that as an opportunity to step in and buy. So I don't think it'll be necessarily in sync with the quarterly capital cadence. We do kind of keep an eye on that, but we do look at it on more of an annual basis and again, like to be able to step in when there's a unique opportunity like we've seen in the past.
Speaker Change: Okay, that makes sense. That's helpful.
Speaker Change: And on my follow-up, I just wanted to...
Speaker Change: It did a little more into the, you know, the liquids kind of commentary you gave. You know, I know you don't have production guidance out, but I'm sure in the back of your head you have a sense of where that'll shake out.
Speaker Change: Given the big increase in liquids as expected, do you have a need to keep total BOEs flat?
Speaker Change: Or is the idea that if the liquids economics are so good and you allocate there, you know, is that really what matters over total production? You know, how do you think about that in 2025?
Speaker Change: Yeah, I mean just I think at a high level You know, we'd like to discuss make a lot of people like to discuss kind of maintenance capital maintenance production So I mean just by and large The philosophy next year will be the same as you know, low single-digit or flat ish production on an equivalent basis But most certainly we are really focusing on enhancing our margins and free cash flow generation and you know As I've articulated in the script that really means a shift towards more meaningful way to turn the lines towards the liquids next year So all that said
Tim Rezvin: Generally equivalent production, you know, we would be somewhere in the flattish range, but you'll see liquids growth and pretty pretty Significant liquids growth moving forward in the next year, which will impact our cash flow capabilities
Speaker Change: I appreciate the details. Thank you. All right. Thanks, Tim.
Speaker Change: Thank you. Our next question comes from the line of Noah Hungness with Bank of America. Please proceed with your question.
Noah Hungness: Hi, morning all. I just had a question here on your discretionary acreage opportunities and how you see that developing in 2025. This year you guys have done a really good job adding inventory.
Speaker Change: both in quality, but also giving you guys extra optionality, and I was wondering if that would continue into next year. Yeah, no, this is John. I'll touch on that. Michael can chime in on anything he wishes to add. You know, this is
John: This has been an opportunity over the past couple years where we've really taken advantage of some high-quality acreage opportunities that are bucketed in a way where we can kind of package together three, four, five, six pads together in highly economic and highly attractive areas. So over the past couple years, we've talked about adding about two and a half years of total inventory to the company in its liquid-rich activity areas. I would say that there are subsequent opportunities available out there, although we set the bar pretty high with regards to our expectations. But we're going to remain, as I would call it, opportunistic and less programmatic in how we approach these.
John: So, we're going to continue to monitor the landscape, look for those opportunities, and be opportunistic versus programmatic, but we're certainly open to adding anything that adds fundamental value to the company.
Speaker Change: That makes sense. And then my second question is just on your oil differentials. This year you guys widened the oil differentials, and I was just wondering what was driving that.
Noah Hungness: Yeah, hey Noah, this is Michael. It's a good question, actually. It's really a math function, to be totally honest with you. So our production is obviously back half-weighted this year, and because of that, the oil curve has come down in the second half of the year. But when we guide, we use a calendar month WTI number that's flat, you know, a linear average of those months. So we did widen it out just to give folks kind of the right idea for the full year number. But I would tell you that actually our oil differentials themselves on a kind of month-to-month basis have actually remained very strong. You know, there is more oil production coming out of Ohio, and certainly some folks are seeing a little bit of pressure, but we've actually been able to hold in that differential really well. So I think as you go into next year, we'll reassess it and get you some better numbers. But really not much of an operational change there. It's just simply a math function.
Noah Hungness: Great, thank you so much.
Speaker Change: Thanks now.
Speaker Change: Thank you. And our last question comes from the line of Jacob Roberts with TPH. Please proceed with your question.
Jacob Roberts: Good morning.
Speaker Change: Morning, Jake.
Jacob Roberts: I was wondering if you could comment on your ability to be flexible relative to the liquids mix as we progress through the coming years, and what you would need to see on the respective forward curves to make that shift from one way or the other, and if possible, the price points you guys look at to make that determination.
Jacob Roberts: Yeah, this is Michael. I'll start out and John can jump in. I mean, I think a lot of our commentary has been around that flexibility, right? So there's certainly a lead time between, you know, turning a drill bit and then turning oil and gas into sales and being able to make those changes, but I do think that, you know, if we see a significant fundamental change in commodity price coming, we do have the ability to move from one to the next and, quite frankly, the ads that we've made over the last couple of years have really enhanced our ability to do that. I don't know that that was always the case, but we have a deep dry gas inventory both in Oklahoma and in Ohio and then now have a much more substantial and significant liquids portfolio. So as far as exactly where those prices go, again, the returns, as John mentioned, are not all that different. They're leaning a little bit towards the liquids right now and that's why you see us go in that direction with our
Jacob Roberts: to be able to make those changes in a pretty quick fashion. I don't know, John, if you wanted to add anything. No.
Speaker Change: Thank you. I appreciate that.
Speaker Change: Great answer. My follow-up would be on the efficiencies you guys have seen, obviously lowering the capital guide.
Speaker Change: I'm just wondering as you transition more toward Marcellus or even this more liquids-weighted program, do you expect those to continue, flatline, or even reverse as you kind of explore new, so to speak, areas?
Speaker Change: Michael Hodges, John Reinhart, John Reinhart, John Reinhart, John Reinhart, John Reinhart,
Speaker Change: Thank you. We have reached the end of the question and answer session. I would like to turn the floor back to John Reinhart for closing remarks.
John Reinhart: Thank you everyone for taking the time to join our call today. The team continues to improve business fundamentals.
Speaker Change: which further positions Gulfport Energy as an attractive investment with a focus on continuing value enhancement. Should you have any questions, please do not hesitate to reach out to our investor relations team.
Speaker Change: Thank you very much. This concludes our call. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.