Energy Prospectus

October 3, 2018: Gulfport Energy Initiated at Outperform by Oppenheimer with a price target of $18.00.

I am expecting the Wall Street Gang to take more interest in all of the "gassers" this quarter.

I have updated my forecast/valuation model for GPOR and it will be posted to the EPG website under the Sweet 16 tab this afternoon.

Gulfport is one of the most profitable companies in the Sweet 16. Reported earnings per share s/b approximately $2.00 in 2018.
More important, operating cash flow per share is growing rapidly and now fully funds their capital expenditure budget.
Operating cash flow per year ("CFPS")
2016A = $2.98
2017A = $3.45
2018E = $4.63 < Compares to First Call's estimate of $4.53
2019E = $5.07 < Compares to First Call's estimate of $4.67

Note that my 2019 forecast assumes that Gulfport's realized natural gas price will be $2.50/mcf for the full year. There is no doubt that Q1 2019 realized gas prices will be much higher.

Going forward, the primary driver of Gulfport's share price will be well results in SCOOP. If they can pick up the pace in SCOOP, there is a lot of upside for us in this stock.

Dan,

What is the bear thesis surrounding GPOR and currently pressuring the pps? Skepticism about future SCOOP results? something else? Just trying to understand better what to look for and how to evaluate this company's prospects for receiving a change of sentiment.

Thanks.

The only "Bear Case" that makes any sense to me is that some of the Wall Street Gang still thinks that Gulfport paid too much for what they have in SCOOP. Individual well results in SCOOP have been very good, but I was hoping they would have a more aggressive drilling program in Oklahoma. Plus, I was hoping they would focus their drilling on the more liquid prone areas of SCOOP.

There is the on-going Wall Street fear that after this winter we will have "glut" of natural gas and ngas prices will plunge. As you know by now, I do not think gas prices will "plunge", primarily because I think EIA and Wall Street continue to under-estimate demand growth for gas.

Wall Street is still very negative on natural gas: All three of the "gassers" in the Sweet 16 (AR, GPOR and RRC) are trading below book value. Since all three are profitable and have double digit production growth locked in, that should be impossible. GAAP accounting rules are VERY CONSERVATIVE for upstream companies. Each company's external auditors are required to take a hard look at book value of oil & gas properties and write them down if the book value exceeds market value (PV of future production). So... the current share prices for all three only make sense if you firmly believe that natural gas and NGL prices are going to plunge in the near future.

Take a look at the bottom of my forecast model for Gulfport and let us know if you think the commodity prices (gas, oil and NGLs) that I'm using in the model are too high.

Your assumed prices for rest of 2018 and 2019 seem reasonable, though I am certainly no expert. I agree that sentiment for ngas prices remains bearish. My question was directed more to the fact that it appears that GPOR pps is struggling more than that of RRC, so I thought there might be something other than commodity prices to explain that difference.

Thanks.

Gulfport's big bet on SCOOP is what makes it different than RRC. Read the profile on GPOR that we published on August 23. Focus your attention on what they are doing in Central Oklahoma.

"Natural Gas Prices and SCOOP results will determine the share price in 2018: The Company is now focused on an area in SCOOP that is rich in liquids. Recent SCOOP completions produce high BTU gas that contains 30% to 35% liquids. Gulfport plans to complete 21 net horizontal wells in SCOOP this year that should improve the Company’s production mix. In the 2nd quarter, SCOOP production averaged 247.3 MMcfepd (41,217 Boepd) with a mix of approximately 69% natural gas, 20% NGLs and 11% crude oil." - from our 8-23-2018 profile.

Gulfport's total production in Q2 was 1,330.3 MMCfepd (221,724 Boepd) with a mix of approximately 89.4% natural gas, 6.9% NGLs and 3.7% crude oil.

RRC and AR both produce a lot more NGLs than GPOR does. GPOR is the "purest gasser" in the Sweet 16.

By focusing their D&C spending on SCOOP, Gulfport should improve their production mix (more liquids) and reduce their exposure to natural gas prices. < The Wall Street Gang should like this.