Gulfport Energy (GPOR) Q4 Results - Feb 27

[dan_s]

For the fourth quarter of 2018, Gulfport reported net income of $134.0 million, or $0.78 per diluted share, on oil and natural gas revenues of $416.0 million. For the fourth quarter of 2018, EBITDA (as defined and reconciled below) was $303.2 million and cash flow from operating activities before changes in operating assets and liabilities was $218.1 million. < This compares to my forecast of $220.7 million cash flow from operations. Amazingly close (if I say so myself). - Dan

Gulfport’s GAAP net income for the fourth quarter of 2018 includes the following items:
•Aggregate non-cash derivative gain of $41.3 million.
•Aggregate loss of $0.2 million in connection with a litigation settlement.
•Aggregate gain of $14.6 million in connection with Gulfport's equity interests in certain equity investments.

Excluding the effect of these items, Gulfport’s financial results for the fourth quarter of 2018 would have been as follows:
•Adjusted oil and natural gas revenues of $374.6 million.
•Adjusted net income of $78.2 million, or $0.46 per diluted share.
•Adjusted EBITDA of $247.4 million.

For the full year of 2018, Gulfport reported net income of $430.6 million, or $2.45 per diluted share, on oil and natural gas revenues of $1.4 billion. For the full year of 2018, EBITDA was $1.1 billion and cash flow from operating activities before changes in operating assets and liabilities was $829.3 million. Gulfport’s GAAP net income for the full year of 2018 includes the following items:
•Aggregate non-cash derivative loss of $65.1 million.
•Aggregate loss of $1.1 million in connection with a litigation settlement.
•Aggregate gain of $0.2 million attributable to net insurance proceeds.
•Aggregate gain of $124.8 million in connection with the sale of Gulfport's equity interests in certain equity investments.
•Aggregate gain of $49.9 million in connection with Gulfport's equity interests in certain equity investments.

Excluding the effect of these items, Gulfport’s financial results for the full year of 2018 would have been as follows:
•Adjusted oil and natural gas revenues of $1.4 billion.
•Adjusted net income of $321.7 million, or $1.83 per diluted share.
•Adjusted EBITDA of $947.8 million.
---------------------------------
Gulfport continues to be the most profitable company in the Sweet 16 (on a PE ratio basis), yet the Wall Street Gang remains bearish on natural gas. With ~99% of their 2019 gas hedged with SWAPs at $2.83/MMBtu solid profits are locked in for this year. - Dan

[dan_s]

Financial Position and Liquidity
As of December 31, 2018, Gulfport had cash on hand of approximately $52.3 million. In addition, as of December 31, 2018, Gulfport’s revolving credit facility was $1.4 billion, under which Gulfport has an elected commitment of $1.0 billion, with outstanding borrowings of $45.0 million and outstanding letters of credit totaling $316.6 million.

As of December 31, 2018, Gulfport's net debt-to-trailing twelve months EBITDA ratio was 2.15 times.

Completed Previously Announced Stock Repurchase Program
As previously announced, Gulfport repurchased 10.2 million shares during the fourth quarter of 2018 and completed in full the previously announced and expanded authorized program to acquire up to $200 million of the Company's outstanding common stock during 2018. From the initiation of the share repurchase program in February 2018 through December 31, 2018, Gulfport
repurchased 20.7 million shares and reduced its shares outstanding by over 10%.

Newly Authorized Stock Repurchase Program
As previously announced, Gulfport's board of directors has approved a stock repurchase program to acquire up to $400 million of the Company's outstanding common stock within the 24 months following the announcement on January 17, 2019. Purchases under the repurchase program may be made from time to time in open market or privately negotiated transactions, and will be subject to market conditions, applicable legal requirements, contractual obligations and other factors. The repurchase program does not require the Company to acquire any specific number of shares. The Company intends to purchase shares under the repurchase program opportunistically with available funds while maintaining sufficient liquidity to fund its 2019 capital development program. This repurchase program is authorized to extend through December 31, 2020 and may be suspended from time to time, accelerated, modified, extended or discontinued by the board of directors at any time.

2019 Capital Budget and Production Guidance
For 2019, Gulfport estimates total capital expenditures will be in the range of $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 MMcfe per day. < Keep in mind that Gulfport's cash flows are locked in for 2019 by hedges.

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, 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.

[dan_s]

I have gone over my forecast/valuation model for Gulfport line-by-line a dozen times and I cannot find anything that justifies this stock trading for less than 2X operating cash flow per share.
My valuation is $21.00/share and I can easily justify a higher price.
First Call's price target is $11.62 (prior to the Q4 results and detailed guidance for 2019).
Five analysts have filed new reports on the company in the last 45 days. Their valuations range from $7.00 to $15.00 per share. < All dated prior to the Q4 earnings report & guidance.

My forecast model will be posted to the EPG website this evening.

Results and Forecasts

2017 Actuals: $2.38 EPS / $3.45 operating cash flow per share / production of 181,287 Boepd
2018 Actuals: $2.64 EPS /$4.62 operating cash flow per share / production of 226,636 Boepd a YOY increase of 25%
2019 Forecast: $1.34 EPS / $5.22 operating cash flow per share / production of 230,000 Boepd (per company guidance)
2020 Forecast: $2.30 EPS / $5.91 operating cash flow per share / production of 239,900 Boepd (my SWAG)

Gulfport is generating strong production growth, FREE CASH FLOW and generating very strong per share earnings.
What am I missing? I know the Wall Street Gang is bearish on natural gas, but this makes no sense.

[dave_n]

Sure would be nice if they used some of their excess cash flow to acquire one of the many under-valued gassers. But they won't come and talk to us to hear what we think.

[dan_s]

Gulfport now has a very aggressive share repurchase program that should reduce their outstanding stock by over 30% from where it was at the beginning of 2018.
From 12/31/2017 to 12/31/2018 the number of outstanding common stock is down 11%.
This program also SIGNIFICANTLY REDUCES the risk in this stock.

I have talked to their investor relations people many times, asking them to host a Houston or Dallas luncheon for us. I even tried to get them to speak at Oklahoma University, which is close to their office. Each time they have refused. Maybe the new CEO will change the culture of hiding up in OKC.

[dave_n]

I think a more aggressive stance would bring more value to the share price. Plus it would give them more control of assets to moderate production.