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Gulfport Energy shares jump after earnings beat, pledge to rein in spending

Shares in Gulfport Energy Corp. charged higher despite the selloff that hammered other Appalachian shale gas drillers, after the company reported second-quarter results that beat profit expectations and pledged to hold capital spending in line.

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The Utica Shale producer's CEO reiterated his expectation that pricing and production volumes will only improve into 2018 as more and more pipeline expansions and new builds come into service, despite the delays that have hampered the biggest project, Energy Transfer Partners LP's 3.25-Bcf/d Rover Pipeline LLC.

Gulfport shares were up 4.5% in early afternoon Aug. 9 after the company reported $60.4 million, or 33 cents per share, in adjusted profits, well above consensus expectations of 24 cents per share, according to S&P Capital IQ's survey of analysts.

"Slightly positive," Capital One Securities Inc. upstream analyst Brian Velie told his clients Aug. 9. "Second quarter production and pricing were pre-released, but EPS beat Street estimates on lower expenses." Gulfport shares tumbled 8% on July 31 after the release of the production numbers.

Gulfport said it cut its overheard expenses to 13 cents per Mcfe from 16 cents per Mcfe in the second quarter, well below the company's 16-cent guidance for the full year, while pushing production up past the 1-Bcfe/d mark.

"Gulfport disclosed some strong individual results from 13 Utica wells brought online this year from across the aerial extent of its acreage," Capital One said. "Average 90-day rates for those wells was roughly 17 MMcfe/d."

Cost-cutting and longer horizontal laterals coaxing more natural gas from Utica rock are putting Gulfport in position to be cash flow neutral in 2018, CEO Michael Moore told analysts on the company's Aug. 9 conference call to discuss earnings.

"Our 2017 development activities have allowed the companies to reach a point financially and operationally where we can provide not only a strong rate of growth for 2017, but we believe places us in a position of growing at a healthy long-term growth rate within operational cash flow," Moore said. "As we plan for 2018, Gulfport is targeting cash flow neutrality for the calendar year, which at today's tier price, we estimate will generate approximately 30% growth year-over-year."

Before the earnings release and call, S&P Capital IQ's analyst consensus was for Gulfport to outspend its cash from operations by $402 million in 2017 and $225 million in 2018.

"The company affirmed full-year capital spending (all-in) of $1 billion to $1.1 billion, although [first-half] spending totaled $614 million (D&C, leasing, midstream)," Mizuho Securities USA LLC analyst Tim Rezvan told his clients Aug. 8. "The company drilled 65% of its planned 2017 operated Utica wells in [first-half 2017]. We expect [second-half 2017] activity to focus on turning to sales 37 net wells in the Utica and 15 net in the SCOOP [formation in Oklahoma]. We view spending vigilance as paramount in this environment."

Moore was not concerned that pipeline projects to take gas away from Appalachia would be delayed. He expects them to start service later in 2017, with a subsequent uplift in the prices Gulfport realizes for its gas and liquids.

"2017 was always expected to be a pivotal year in Appalachia, with the numerous capacity projects coming into service ultimately leading to structural improvement in local differentials," Moore told analysts on the call. "While we and many of our peers have stayed away from speculating on the exact timing of Rover, multiple other projects appear to be on time or even ahead of schedule with respect to their publicly provided in-service dates."