trending Market Intelligence /marketintelligence/en/news-insights/trending/_RUsUHq2aALIfTJdRcNHuA2 content esgSubNav
In This List

S&P downgrades shale gas driller Gulfport Energy on low natural gas prices

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


S&P downgrades shale gas driller Gulfport Energy on low natural gas prices

In what may be the first of several shale gas producers to be downgraded, S&P Global Ratings cut Gulfport Energy Corp.'s credit rating one notch to B+ from BB- Aug. 20 but maintained the company's stable outlook going forward.

S&P lowered the price it uses for oil and gas credit assessments on July 29 and warned that shale gas producers, in particular, could expect downgrades. S&P is now using average prices of $2.25/MMBtu and $2.50/MMBtu for 2019 and 2020, respectively, when examining credit, which is 25 cents/MMBtu less than its previous natural gas price baseline.

With most of 2020's gas production unhedged and open to market pricing, S&P said it expects Gulfport's annual funds from operations to range between 20% and 30% of its roughly $2 billion in debt but warned it would lower Gulfport's credit rating if funds from operations dropped below that 20% floor. The consensus of analyst surveyed by S&P Global Market Intelligence is that Gulfport's cash from operations for the next three years will be 35% of its net debt.

"The stable outlook on Gulfport reflects our expectations that it will maintain a conservative financial policy while continuing to develop its [South Central Oklahoma Oil Province] and Utica asset base," S&P credit analyst David Lagasse said in a note. "We expect the company to maintain [funds from operations] to debt greater than 20% and at least adequate liquidity.

While Gulfport is expected to generate free cash flow for 2019 and 2020, the company is juggling its options on how to use that extra cash as it tries to pay down debt and accommodate investor pressure to buy back its own shares.

"Debt reduction may take precedence over buyback," Jefferies LLC shale oil and gas analyst Zach Parham told his clients Aug. 5. "We expect [Gulfport] may opt to use more funds to retire debt near-term given the current gas price environment, as we estimate that strip leverage would climb to over three-time by tear-end 2020 if [Gulfport] GPOR repurchased 30% of shares at today's price," Parham said. "While [Gulfport] does not have any maturities until 2023, the bond market is clearly concerned, with longer dated notes trading at 76% of par."

Gulfport's bond pricing fell to 72% of par by Aug. 20, according to S&P Global Market Intelligence data.

S&P said it would be inclined to raise Gulfport's credit rating if gas prices increased and pushed Gulfport's funds from operations higher to 45% of its debt.

Williams Capital Group oil and gas analyst Gabriele Sorbara, long a Gulfport booster, downgraded the company to "Hold" from "Buy" on Aug. 19, also on concern about low gas prices.

The stock market took little notice of S&P's downgrade after a year of beating up Gulfport and the stocks of most oil and gas producers. Gulfport shares were down less than 1%, to $2.99 at midday, on light volume, close to the firm's 52-week low.

SNL Image

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.