Gulfport Energy holds first earnings' call since emerging from bankruptcy

Gulfport Energy emerged from bankruptcy midway through the second quarter with a new executive body and a plan to maintain flat capital spending and steady production rather than chasing temporary price spikes.

"Today, for the first time in a long time, we have a balance sheet that reflects our value," said interim CEO Timothy Cutt, during an Aug. 6 earnings call. "We have a new board of directors that prefers returns over production growth."

For the foreseeable future, Gulfport plans to produce roughly 1 Bcfe/d with an annual capital spending plan of approximately $300 million targeting sustainable cash flow generation of roughly $300 million/year. The company operates in the Utica Shale of eastern Ohio and the SCOOP Woodford and SCOOP Springer plays in Oklahoma.

"We are targeting dry gas in the Utica," Cutt said. "We have the opportunity for some oil and liquids production out of the SCOOP development, but about 70% or more of development over the next five to 10 years will be in the Utica."

Gulfport Energy filed for Chapter 11 bankruptcy on Nov. 13, 2020. It announced its emergence from restructuring on May 18, 2021. The company featured a new interim CEO, a new board and significantly less debt. Gulfport announced a much stronger balance sheet coming out of Chapter 11. It reduced its debt by more than $1.2 billion, announced $135 million of liquidity and a net debt to EBITDA ratio of roughly 1.5 times.

The company is also tweaking the nature of its producing wells in the Utica compared to some peers. Rather than bring on new wells with very high initial rates of production, the operator is optimizing completions to bring on more long-term, sustainable wells.

"The Utica has historically been built on smaller spacing which brings high initial production but also higher rates of decline," Cutt said. "We believe optimal design is wider spacing of 1,200 feet. We believe the wider spacing will create longer plateaus."

Utica internal rates of return improved in July to 26% in the Utica Wet and 28% in the Utica Dry window, according to S&P Global Platts Analytics. The 12-month forward curve for natural gas in the Utica is $2.98/MMBtu. The Utica's rig count has averaged 12 over the past three months, which is a little more than it averaged for the three months leading up to the commodity price crash in March 2020.

Platts Analytics IRRs are based on a half-cycle, after-federal corporate tax analysis, which excludes sunk costs such as acreage acquisition, seismic expenses and appraisal drilling. Returns above 25% typically incentivize increased drilling and completion activity.

The SCOOP currently features IRRs of 25%. Wells there produce a near equal mix of natural gas, oil and natural gas liquids.