Gulfport PV

[dave_n]

Dan,

I was going through your model of Gulfport this morning. Thank you as always. My concern is around their proved reserve calculation going into year-end. In looking at their 2018 10-K, there is following statement under "Proved Undeveloped Reserves":

"As noted above, our December 31, 2018 proved reserves were calculated using prices based on the 12-month unweighted arithmetic average of the first-day-of-the month price for the period January through December 2018 of $65.56 per barrel and $3.10 per MMBtu. Holding production and development costs constant, if SEC pricing were $50.00 per barrel and $2.50 per MMBtu, this would have resulted in a loss of 1.3 Tcfe of our PUD volumes at December 31, 2018. Holding production and development costs constant, if SEC pricing were $40.00 per barrel and $2.00 per MMBtu, this would have resulted in a loss of 2.3 Tcfe of our PUD volumes at December 31, 2018."

I am trying to understand extent of potential write-down at year-end and impact on their debt covenants. The Chevron $10B impairment is driving concern for me.

This may be what is driving management to buy down debt so that they stay within covenant compliance...

Thoughts on this would be appreciated.

Thx
Dave

[dan_s]

Gulfport did take a $35.6 million impairment charge in Q3 and I don't think they will need another one in Q4. Gulfport uses the "Full Cost" method of accounting, so they must do the Ceiling Test at the end of each quarter.

Almost all of their Q4 gas production is hedged at $2.81/MMBtu, so they should come close to my Q4 operating cash flow forecast of $176 million ($1.10 per share for the quarter).

Gulfport is profitable and it does generate free cash flow from operations. The stock price is less than 1X operating cash flow per share.

Cash proceeds from the non-core asset sale to Bison and FCF will be used to pay down debt. Downside risk on the stock is minimal since there is no near-term bankruptcy risk on this one.

That said, the Wall Street Gang has no interest in the "gassers" these days. We all know that a couple of back-to-back "Polar Vortex" cold waves can draw more investor interest, but the Paradigm today is that low natural gas prices are here to stay.