TPH Morning Notes 1/18/2019: Upgrading GPOR to BUY from HOLD
Enhancing shareholder returns program at the expense of growth the correct strategic move
Sector: NAm E&P | Ticker: GPOR | Recommendation: BUY| Target: $15 | Close: $8.82
We've been proponents of management reducing capex expectations for the 2019 program and accelerating the unlock of TUSK to get more constructive on the name. Yesterday's announcement of a program calling for ~flattish growth in 2019 alongside a new $400MM share repurchase program does just that, in our view. With new CEO David Wood stepping in, we thought a strategic shift was possible, and this incremental pivot towards shareholder returns should act as a catalyst to bring positive momentum into the equity, while also supporting the gas macro backdrop from a supply perspective. We now see 1,406mmcfe/d of production on $590MM of capex, while generating ~$130MM of FCF at $49.93/bbl WTI and $2.77/mcf HHUB in 2019 and see 71% upside to our $15/shr NAV, trading at a 4.1x EV/EBITDA (peers 5.2x E&P only) with a 4% FCF yield in 2020 (12% with a +25c/mcf HHUB increase). Fully executing on the $400MM share buyback (~25% of current market cap) at current prices (assumes full monetization of TUSK, NAV somewhat offset by deceleration of the drill-bit) would increase our NAV ~30% to $19/shr.
Gulfport gets their first upgrade to a BUY
Gulfport gets their first upgrade to a BUY
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Gulfport gets their first upgrade to a BUY
More from TPH
GPOR Q4'18 Ops Update
Sticking to capital discipline at the cost of growth, while completing 2018 share repurchase program
Sector: NAm E&P | Ticker: GPOR | Recommendation: BUY| Target: $15 | Close: $8.82
Q4 production of 1,392mmcfe/d is below TPHe/Street 1,420/1,423 with FY'18 of 1,360mmcfe/d coming in at the low-end of management's 1,360-1,370 guidance. Miss is likely timing driven as FY'18 activity of drilling 19.5 / 12.1 net operated wells in the Utica / SCOOP while turning-to-sales 35 / 12.6 net operated Utica / SCOOP wells is in-line, but we're encouraged to see the capital discipline of staying within the confines of their $815MM FY guidance ($813.9MM actuals). Q4'18 pre-derivative gas realizations of $3.16/mcf vs. TPHe $3.27/mcf, while NGLs priced at $28.14/bbl vs. TPHe $29.64/bbl. Additionally, management completed the remaining $90MM of the $200MM repurchase program in 2018 by repurchasing 10.2MM shares, which would boost NAV on our legacy model by 50c/shr.
GPOR 2019 Outlook
Moving to ~flattish growth program while announcing new $400MM share repurchase program
Sector: NAm E&P | Ticker: GPOR | Recommendation: BUY| Target: $15 | Close: $8.82
Company making the right decision in our view moving to a ~flattish growth program with the official budget calling for 1,360-1,400mmcfe/d of production (vs. Q4'18 1,393mmcfe/d) on a $565-600MM capex program that is expected to generate FCF in excess of $100MM at current strip pricing. This compares to TPHe 1,520 / Street 1,510mmcfed of production on $775 / $800MM of capex. 2019 activity calls for 1 operated Utica rig (10-11 net wells drilled at 11.7kft / 40-45 net TTS at 10kft / 2-3 net non-op wells), 1.5 operated SCOOP rigs (7-8 net wells drilled at 8.8kft / 14-15 net TTS at 8kft / 1-2 net non-op wells). This level of activity was in-line with TPHe in the Utica, with the primary cut to growth expectations coming out of the SCOOP. Additionally, management has initiated a $400MM share repurchase program over the next 24 months to be funded with available funds (TPHe cash on hand, FCF, non-core asset sales), while a surplus of cash vs. internal expectations would allow for further expansion to this program down the road.
Gas Stock Thoughts
Equities could work in 2019 if additional cuts are announced in the coming weeks
Sector: NAm E&P | Ticker: NA | Recommendation: NR | Target: NA | Close: NA
As our marginally bearish macro outlook continues to improve, Gulfport has joined a growing list of producers who have proactively cut near, and in some cases long, term growth in order to accelerate free cash flow and focus on shareholder returns. We continue to believe this is a necessary change in capital allocation to get investors back into the gas space, and should be well received if we have follow through from the remaining Northeast E&Ps in the coming weeks. While on the road, we have been discussing the view that if upstream management teams in the gas space truly deliver on return, balance sheet, and capital discipline mandates that growth should materially slow in 2019 helping both the micro (accelerating buybacks or balance sheet repair) and the macro. With Range, Southwestern and CNX still on deck to announce official guidance, moving toward maintenance capital may continue to improve sentiment. We will also closely be watching to see if EQT further lowers its growth to accelerate FCF, buybacks, and operational improvements.
Gas Maintenance Capital Thoughts
The case for cutting to maintenance capital
Sector: NAm E&P | Ticker: NA | Recommendation: NR | Target: NA | Close: NA
Outside of the obvious near term need to slow natural gas growth in 2019 given the supply demand dynamics, we believe it may ultimately prove to be value destructive to continue to deplete limited core inventory in gas basins while associated growth is still extremely robust. Our asset level analysis continues to suggest that over the next 4-5 years US oil basins like the Bakken, Eagle Ford, DJ, STACK, and even parts of the Permian will start to approach an activity plateau as core inventory depletes. Additionally, as we have highlighted, some gassy public core inventories are likely to deplete rapidly over the same time in an accelerated case. From our perspective, the forward curve does not fully reflect this fact long term, and one could ask why companies would want to grow in 2019 into an oversupplied market.
GPOR Q4'18 Ops Update
Sticking to capital discipline at the cost of growth, while completing 2018 share repurchase program
Sector: NAm E&P | Ticker: GPOR | Recommendation: BUY| Target: $15 | Close: $8.82
Q4 production of 1,392mmcfe/d is below TPHe/Street 1,420/1,423 with FY'18 of 1,360mmcfe/d coming in at the low-end of management's 1,360-1,370 guidance. Miss is likely timing driven as FY'18 activity of drilling 19.5 / 12.1 net operated wells in the Utica / SCOOP while turning-to-sales 35 / 12.6 net operated Utica / SCOOP wells is in-line, but we're encouraged to see the capital discipline of staying within the confines of their $815MM FY guidance ($813.9MM actuals). Q4'18 pre-derivative gas realizations of $3.16/mcf vs. TPHe $3.27/mcf, while NGLs priced at $28.14/bbl vs. TPHe $29.64/bbl. Additionally, management completed the remaining $90MM of the $200MM repurchase program in 2018 by repurchasing 10.2MM shares, which would boost NAV on our legacy model by 50c/shr.
GPOR 2019 Outlook
Moving to ~flattish growth program while announcing new $400MM share repurchase program
Sector: NAm E&P | Ticker: GPOR | Recommendation: BUY| Target: $15 | Close: $8.82
Company making the right decision in our view moving to a ~flattish growth program with the official budget calling for 1,360-1,400mmcfe/d of production (vs. Q4'18 1,393mmcfe/d) on a $565-600MM capex program that is expected to generate FCF in excess of $100MM at current strip pricing. This compares to TPHe 1,520 / Street 1,510mmcfed of production on $775 / $800MM of capex. 2019 activity calls for 1 operated Utica rig (10-11 net wells drilled at 11.7kft / 40-45 net TTS at 10kft / 2-3 net non-op wells), 1.5 operated SCOOP rigs (7-8 net wells drilled at 8.8kft / 14-15 net TTS at 8kft / 1-2 net non-op wells). This level of activity was in-line with TPHe in the Utica, with the primary cut to growth expectations coming out of the SCOOP. Additionally, management has initiated a $400MM share repurchase program over the next 24 months to be funded with available funds (TPHe cash on hand, FCF, non-core asset sales), while a surplus of cash vs. internal expectations would allow for further expansion to this program down the road.
Gas Stock Thoughts
Equities could work in 2019 if additional cuts are announced in the coming weeks
Sector: NAm E&P | Ticker: NA | Recommendation: NR | Target: NA | Close: NA
As our marginally bearish macro outlook continues to improve, Gulfport has joined a growing list of producers who have proactively cut near, and in some cases long, term growth in order to accelerate free cash flow and focus on shareholder returns. We continue to believe this is a necessary change in capital allocation to get investors back into the gas space, and should be well received if we have follow through from the remaining Northeast E&Ps in the coming weeks. While on the road, we have been discussing the view that if upstream management teams in the gas space truly deliver on return, balance sheet, and capital discipline mandates that growth should materially slow in 2019 helping both the micro (accelerating buybacks or balance sheet repair) and the macro. With Range, Southwestern and CNX still on deck to announce official guidance, moving toward maintenance capital may continue to improve sentiment. We will also closely be watching to see if EQT further lowers its growth to accelerate FCF, buybacks, and operational improvements.
Gas Maintenance Capital Thoughts
The case for cutting to maintenance capital
Sector: NAm E&P | Ticker: NA | Recommendation: NR | Target: NA | Close: NA
Outside of the obvious near term need to slow natural gas growth in 2019 given the supply demand dynamics, we believe it may ultimately prove to be value destructive to continue to deplete limited core inventory in gas basins while associated growth is still extremely robust. Our asset level analysis continues to suggest that over the next 4-5 years US oil basins like the Bakken, Eagle Ford, DJ, STACK, and even parts of the Permian will start to approach an activity plateau as core inventory depletes. Additionally, as we have highlighted, some gassy public core inventories are likely to deplete rapidly over the same time in an accelerated case. From our perspective, the forward curve does not fully reflect this fact long term, and one could ask why companies would want to grow in 2019 into an oversupplied market.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Gulfport gets their first upgrade to a BUY
I am updating my GPOR forecast based on their 2019 guidance (below) and the expected reduction in share count from the accelerated stock repurchase plan. It will be posted to the EPG website late today. My valuations is $21/share. - Dan
Per GPOR:
2019 Capital Budget and Production Guidance
For 2019, Gulfport estimates its total capital expenditures will be approximately $565 million to $600 million, which will be funded entirely within cash flow at current strip pricing. The 2019 budget includes approximately $525 million to $550 million for drilling and completion (“D&C”) activities and approximately $40 million to $50 million for land activities. With this level of capital spend, Gulfport forecasts its 2019 average daily net production will be in the range of 1,360 MMcfe to 1,400 MMcfe per day, consistent with the Company’s fourth quarter of 2018 average net production of 1,392.8 Bcfe per day.
Utilizing current strip pricing at the various regional pricing points at which the Company sells its natural gas, Gulfport forecasts its realized natural gas price differential, before the effect of hedges and inclusive of the Company’s firm transportation expense, will average in the range of $0.49 to $0.66 per Mcf below NYMEX settlement prices in 2019. Gulfport expects its 2019 realized NGL price, before the effect of hedges and including transportation expense, will be approximately 45% to 50% of WTI and its 2019 realized oil price will be in the range of $3.00 to $3.50 per barrel below WTI.
Based on current strip pricing, Gulfport’s 2019 activities are expected to generate in excess of $100 million of free cash flow during 2019.
OKLAHOMA CITY, Jan. 17, 2019 (GLOBE NEWSWIRE) -- Gulfport Energy Corporation (NASDAQ: GPOR) (“Gulfport” or the “Company”) today announced its 2019 capital budget, its 2019 operational outlook and that its board of directors has approved a new stock repurchase program to acquire up to $400 million of its outstanding common stock within the next 24 months. This authorization follows closely behind the completion of the 2018 previously announced and expanded $200 million share repurchase program, which concluded in the fourth quarter of 2018. Key information concerning the 2019 budget and outlook includes the following:
•Budgeted 2019 total capital expenditures of $565 million to $600 million to be funded entirely within cash flow.
•Forecasted 2019 full year net production is estimated to average 1,360 MMcfe to 1,400 MMcfe per day, consistent with the Company’s fourth quarter of 2018 average net production.
•Forecasted 2019 full year free cash flow in excess of $100 million.
•Announced stock repurchase program to acquire up to $400 million of outstanding common stock within the next 24 months.
Since joining Gulfport as President, Chief Executive Officer and Board member in mid-December 2018, David M. Wood has worked closely with Gulfport’s executive team and Board of Directors to finalize the Company’s 2019 capital budget and operational plan. The Board of Directors met today to provide final approval of the Company’s plans.
Mr. Wood commented, “The past several weeks have been a very busy and enjoyable time, immersing myself in the business by working with our teams as well as speaking with many of our current shareholders. Gulfport has a bright future and I look forward to leading the Company in its next phase of development, anchored by capital discipline and a focus on shareholder returns.”
Mr. Wood continued, “With the 2019 budget now published, I want to underscore our commitment to further enhancing shareholder value with a newly authorized $400 million stock repurchase program to be executed within the next 24 months. The authorization follows closely behind the completion of the 2018 previously announced and expanded $200 million share repurchase program, which concluded in the fourth quarter of 2018. The new program will be funded through organically generated free cash flow and anticipated monetizations of certain non-core assets held in the portfolio today. Should these monetizations be realized earlier than anticipated, the expected timeline of the repurchase program is subject to acceleration. In addition, the repurchase program could be expanded to include any funds received in excess of the current projected monetizations and would be incremental to the $400 million share repurchase program announced today.”
“Our forecasted generation of free cash flow during 2019 is underpinned by our plan to hold fourth quarter of 2018 production relatively constant throughout 2019, allowing us to maximize and prioritize cash flow available for our share repurchase program. The current commodity environment is challenged, with depressed natural gas prices in the near-term, an uncertain forecast represented in the strip and, as we have recently experienced, a volatile and unpredictable broader market sentiment. We feel that prudent capital spending and disciplined capital allocation are distinguishing features in our business and couple well with our intention to maintain a strong hedge position through 2019 and beyond, reducing commodity risk and providing certainty to anticipated cash flows,” Mr. Wood added.
“Our Ohio and Oklahoma positions are core assets in our portfolio with the ability to generate and grow attractive returns with tremendous leverage to any improvements in natural gas prices. We forecast a year-on-year improvement of approximately $0.25 cents per Mcf in 2020 would further increase our free cash flow generation by over $100 million, illustrating the opportunity created within our core assets. I believe the mid and long-term outlook for North American natural gas producers is favorable, however, we must be disciplined and diligent as we move toward those horizons. I am pleased to provide you with our 2019 budget today and look forward to addressing our plan in more detail on our fourth quarter and full year 2018 earnings conference call in late February,” Mr. Wood concluded.
Per GPOR:
2019 Capital Budget and Production Guidance
For 2019, Gulfport estimates its total capital expenditures will be approximately $565 million to $600 million, which will be funded entirely within cash flow at current strip pricing. The 2019 budget includes approximately $525 million to $550 million for drilling and completion (“D&C”) activities and approximately $40 million to $50 million for land activities. With this level of capital spend, Gulfport forecasts its 2019 average daily net production will be in the range of 1,360 MMcfe to 1,400 MMcfe per day, consistent with the Company’s fourth quarter of 2018 average net production of 1,392.8 Bcfe per day.
Utilizing current strip pricing at the various regional pricing points at which the Company sells its natural gas, Gulfport forecasts its realized natural gas price differential, before the effect of hedges and inclusive of the Company’s firm transportation expense, will average in the range of $0.49 to $0.66 per Mcf below NYMEX settlement prices in 2019. Gulfport expects its 2019 realized NGL price, before the effect of hedges and including transportation expense, will be approximately 45% to 50% of WTI and its 2019 realized oil price will be in the range of $3.00 to $3.50 per barrel below WTI.
Based on current strip pricing, Gulfport’s 2019 activities are expected to generate in excess of $100 million of free cash flow during 2019.
OKLAHOMA CITY, Jan. 17, 2019 (GLOBE NEWSWIRE) -- Gulfport Energy Corporation (NASDAQ: GPOR) (“Gulfport” or the “Company”) today announced its 2019 capital budget, its 2019 operational outlook and that its board of directors has approved a new stock repurchase program to acquire up to $400 million of its outstanding common stock within the next 24 months. This authorization follows closely behind the completion of the 2018 previously announced and expanded $200 million share repurchase program, which concluded in the fourth quarter of 2018. Key information concerning the 2019 budget and outlook includes the following:
•Budgeted 2019 total capital expenditures of $565 million to $600 million to be funded entirely within cash flow.
•Forecasted 2019 full year net production is estimated to average 1,360 MMcfe to 1,400 MMcfe per day, consistent with the Company’s fourth quarter of 2018 average net production.
•Forecasted 2019 full year free cash flow in excess of $100 million.
•Announced stock repurchase program to acquire up to $400 million of outstanding common stock within the next 24 months.
Since joining Gulfport as President, Chief Executive Officer and Board member in mid-December 2018, David M. Wood has worked closely with Gulfport’s executive team and Board of Directors to finalize the Company’s 2019 capital budget and operational plan. The Board of Directors met today to provide final approval of the Company’s plans.
Mr. Wood commented, “The past several weeks have been a very busy and enjoyable time, immersing myself in the business by working with our teams as well as speaking with many of our current shareholders. Gulfport has a bright future and I look forward to leading the Company in its next phase of development, anchored by capital discipline and a focus on shareholder returns.”
Mr. Wood continued, “With the 2019 budget now published, I want to underscore our commitment to further enhancing shareholder value with a newly authorized $400 million stock repurchase program to be executed within the next 24 months. The authorization follows closely behind the completion of the 2018 previously announced and expanded $200 million share repurchase program, which concluded in the fourth quarter of 2018. The new program will be funded through organically generated free cash flow and anticipated monetizations of certain non-core assets held in the portfolio today. Should these monetizations be realized earlier than anticipated, the expected timeline of the repurchase program is subject to acceleration. In addition, the repurchase program could be expanded to include any funds received in excess of the current projected monetizations and would be incremental to the $400 million share repurchase program announced today.”
“Our forecasted generation of free cash flow during 2019 is underpinned by our plan to hold fourth quarter of 2018 production relatively constant throughout 2019, allowing us to maximize and prioritize cash flow available for our share repurchase program. The current commodity environment is challenged, with depressed natural gas prices in the near-term, an uncertain forecast represented in the strip and, as we have recently experienced, a volatile and unpredictable broader market sentiment. We feel that prudent capital spending and disciplined capital allocation are distinguishing features in our business and couple well with our intention to maintain a strong hedge position through 2019 and beyond, reducing commodity risk and providing certainty to anticipated cash flows,” Mr. Wood added.
“Our Ohio and Oklahoma positions are core assets in our portfolio with the ability to generate and grow attractive returns with tremendous leverage to any improvements in natural gas prices. We forecast a year-on-year improvement of approximately $0.25 cents per Mcf in 2020 would further increase our free cash flow generation by over $100 million, illustrating the opportunity created within our core assets. I believe the mid and long-term outlook for North American natural gas producers is favorable, however, we must be disciplined and diligent as we move toward those horizons. I am pleased to provide you with our 2019 budget today and look forward to addressing our plan in more detail on our fourth quarter and full year 2018 earnings conference call in late February,” Mr. Wood concluded.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group