Energy Prospectus

Gulfport doesn't get much love because it is a "gasser", but it is one of the most profitable companies in the Sweet 16. I believe it has the lowest PE ratio. Q4 results are outstanding.
Adjusted net income of $81.7 million, or $0.45 per diluted share. < Compares to my forecast of $0.35 EPS.
----------------------------
OKLAHOMA CITY, Feb. 21, 2018 (GLOBE NEWSWIRE) -- Gulfport Energy Corporation (GPOR) (“Gulfport” or the “Company”) today reported financial and operational results for the quarter and year ended December 31, 2017 and provided an update on its 2018 activities. Key information includes the following:

> Year-end 2017 total proved reserves grew to 5.4 Tcfe, as compared to 2.3 Tcfe at year-end 2016, an increase of 132% year-over-year.

> Net of the SCOOP acquisition, year-end 2017 total proved reserves grew to 3.9 Tcfe, as compared to 2.3 Tcfe at year-end 2016, an increase of 70% year-over-year.

> SEC PV-10 value grew to $2.9 billion at year-end 2017, as compared to $696 million at year-end 2016, an increase of 314% year-over-year.

> Net production during 2017 averaged 1,089.2 MMcfe per day. < Q4 production was above my forecast

> Net income of $435.2 million, or $2.41 per diluted share, for 2017.

> Adjusted net income of $254.0 million, or $1.41 per diluted share, for 2017.

> Adjusted EBITDA (as defined and reconciled below) of $730.2 million for 2017.

> Reduced unit lease operating expense for 2017 by 23% to $0.20 per Mcfe from $0.26 per Mcfe for 2016.

> Reduced unit general and administrative expense for 2017 by 19% to $0.13 per Mcfe from $0.16 per Mcfe for 2016.

> Budgeted 2018 total capital expenditures are $770 million to $835 million to be funded within cash flow. < NOTE that it will be funded 100% by cash flow from operations


> Forecasted 2018 full year net production is estimated to average 1,250 MMcfe to 1,300 MMcfe per day, an increase of approximately 15% to 19% over the average daily net production of 1,089.2 MMcfe per day during 2017.

> Increased hedge position to approximately 908 MMcf per day of natural gas fixed price swaps for 2018 at an average fixed price of $3.06 per Mcf, securing approximately 80% of anticipated natural gas production.

> Initiated stock repurchase program to acquire up to $100 million of outstanding common stock.

Michael G. Moore, Chief Executive Officer and President, commented, "2017 was a pivotal year for Gulfport as our Utica asset provided reliable, repeatable growth throughout the year and we began the journey of increasing recoveries and further delineating the underappreciated, multi-zone opportunities across our SCOOP position. We experienced a year of strong production growth and our reserve report for year-end 2017 truly highlights the depth and quality of Gulfport's asset base.

We believe our 2017 development activities have enabled us to reach a size and scale, both financially and operationally, that allows us to navigate the current commodity price environment and align our business model to deliver a strong rate of growth within cash flow for 2018. In addition to our planned operational activity for 2018, we recently announced a stock repurchase program. The repurchase program underscores the confidence we have in our business model, financial performance and top-tier asset base and further demonstrates our commitment to recognizing value for our shareholders. We are eager to initiate the program and plan to be aggressive in repurchasing our shares, subject to market conditions."

2017 Financial Position and Liquidity
As of December 31, 2017, Gulfport had cash on hand of approximately $99.6 million. In addition, as of December 31, 2017, Gulfport’s revolving credit facility of $1.2 billion, with elected commitments under this facility of $1.0 billion, was undrawn and $759.0 million was available for future borrowing after giving effect to outstanding letters of credit totaling $241.0 million.

In the last 3 months, 13 ranked analysts set 12-month price targets for GPOR. The average price target among the analysts is $17.02. Price targets range from $11.25 to $26.00.

I am sure that First Call's price target will be going up after the Wall Street Gang has some time to adjust for the company's outstanding Q4 results.

The main reasons that GPOR's Q4 results beat my forecast is that they got much higher realized prices for their NGLs and they had lower lease operating expenses. As I have posted here many time, the market for NGLs is outstanding and higher NGL prices should give all the Sweet 16 a nice revenue boost. Higher NGL prices are offsetting the lower natural gas prices.

So.....
1. Here we have a company with 15% to 20% YOY production growth locked in and that growth is going to be fully funded by cash flows (locked in by 80% of their gas hedged at $3.05 for 2018)
2. They have a strong balance sheet and lots of liquidity.
3. They have lots of running room within their existing leasehold
4. SCOOP drilling program should continue to increase liquids production
5. They have a share repurchase program in place (I am not a big fan of them, but Wall Street seems to like them)
6. Cash flow from operations was $3.45/share in 2017 and should be AT LEAST $4.00/share in 2018. My forecast is $4.15, which compares to FC's CFPS forecast of $4.22.

I have updated my forecast/valuation model based on the company's detailed guidance. My valuation is $24.00, which is less than 6X operating CFPS.

My forecast/valuation model for GPOR will be posted to the EPG website this afternoon.

Dan,

What events (that have any reasonable chance of occurring) would cause WS sentiment to adjust from valuing a gasser like GPOR higher than its current ~ 2.4x 2018 cash flow ps to something closer to your 6x? I'm just trying to get my head around the probability of your 6x valuation (or something close to it) ever coming to pass. It definitely helps to have your valuation analysis, but it would be more useful if the thesis/assumptions that underlie your 6x cf valuation were known so that we could arrive at an opinion of the risk/reward.

Separately, is there any realistic chance of their being bought while their valuation is so low? I.e., does GPOR have assets that any player who could afford them would want and prefer to buy on WS? What potential acquirers would fall in such a group?

Thanks

Why should it matter where a company's cash flow from operations comes from? Cash is cash, right? Are the dollars that GPOR gets for selling gas and NGLS different than the dollars that they get for oil?

I have been doing this for decades. The "Wall Street Gang" goes through phases where they simply will not recommend a subsector (i.e. "gassers") to any of their clients. That is the dark cloud hanging over AR, RRC and GPOR. Just remember that the Wall Street herd can change directions quite quickly.

Another thing to keep in mind is that all "gassers" sell a lot of NGLs and that market is tight and getting tighter.

GPOR was up more than 14% today on VERY HIGH volume, so at least some of the "herd" is starting to figure it out.

I have followed GPOR for over ten years. I first put it into the Sweet 16 when their production was under 7,000 boepd. Q4 production was 210,553 boepd. This is one of the most incredible growth companies that I've ever seen. It has top shelf management and top shelf assets. Production was up more than 51% YOY in 2017 and will be up another 18% to 20% this year and that growth is being fully funded by cash flow from operations.

There is NOTHING that I see that justifies it trading at less than 3X operating cash flow per share.

Go to the Sweet 16 main spreadsheet and under Tab 1 on the far right side you can see what multiple of operating cash flow each company is trading for.
CXO, EOG, FANG, PXD all trade at more than 8X operating cash flow per share. They all deserve it. GPOR does not deserve to be trading for under 3X CFPS.