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Utica Shale driller Gulfport spent less in 2016, got 31% more production

Shares in Utica Shale driller Gulfport Energy Corp. rose Jan. 18 after the company said its 2016 oil and gas production was 31% higher than in 2015 despite a deep dip in capital expenditures.

Gulfport on Jan. 17 said fourth-quarter 2016 production was 787 MMcfe/d, made up of 87% gas, 9% liquids and 4% oil. For the full year, the company reported 719.8 MMcfe/d.

Gulfport said it layered in an additional 145 MMcf/d of gas swaps for 2017, increasing its hedge portfolio to 555 MMcf/d, 59% of its anticipated 2017 gas production, according to S&P Global Market Intelligence's consensus data, at an average price of $3.18/Mcf.

Gulfport shares were up 3% in early afternoon trading Jan. 18, at $21.27 per share.

The increasing production was accompanied by lower CapEx. Gulfport did not report its CapEx in the production news release, but analysts estimated that Gulfport spent $555 million on CapEx in 2016, about 26% less than the $747 million it spent in 2015, according to S&P Global Market Intelligence data.

Gulfport shares lost 12% in 2016, a rebuilding year for most Appalachian shale drillers, and the producer remains vulnerable to delays in pipeline construction out of the shale, analysts said. It has committed 150,000 MMBtu/d, 16% of anticipated 2017 production, to Energy Transfer Partners LP's Rover pipeline westbound out of Ohio's Utica Shale, but Rover is still waiting for permits to finish the line, which is scheduled to open in July.

"Gulfport faces natural gas takeaway risk," Mizuho Securities USA Inc. analyst Timothy Rezvan told his clients in a note after the announcement. "Near-term production growth has been limited by a lack of compression on gas gathering lines and interstate pipelines. Uncertainty on the duration of this issue creates some uncertainty on production growth. Gulfport is also reliant on the build-out of several interstate pipelines to take its Appalachia gas to markets providing stronger pricing. A significant delay in one or more projects could impact near-term growth, although the depth of the company's firm takeaway portfolio should be able to absorb some delays."

Nonetheless, Gulfport is a top pick for longtime shale gas analyst Gabriele Sorbara at Williams Capital Group LP because it is trading at a discount to his $32 price target. "[Gulfport] remains on our top picks list given the valuation discount with operational catalysts ahead in 2017," Sorbara told clients. "We believe [Gulfport] is well positioned in the Utica shale (~213,000 net acres, of which ~72% is in the dry gas window) with diversification in SCOOP play in Oklahoma (~46,400 net acres) following the recent acquisition."