Energy Prospectus

Working gas in storage was 3,806 Bcf as of Friday, December 9, 2016, according to EIA estimates. This represents a net decline of 147 Bcf from the previous week. Stocks were 50 Bcf less than last year at this time and 186 Bcf above the five-year average of 3,620 Bcf. At 3,806 Bcf, total working gas is within the five-year historical range.

This is the first of what should be three more VERY BULLISH storage reports for natural gas in December. As I said at yesterday's EPG luncheon in Dallas, I now believe storage levels will drop below the 5-year average in early January. After two more colder than normal weeks, it will warm a bit in the eastern half of the U.S. for the last week of December. Keep in mind that states around Chicago is where most demand to gas comes from. COLD moving deep into Texas this weekend is very bullish.

Comments below are from Morgan Stanley Energy Research report (12-15-2016):

"We are bullish on natural gas and see further upside to 2017-18 prices, including in Appalachia, with our newly introduced 2018 Henry Hub forecast ~5% above forwards".

1. Structural gas demand growth has arrived. We forecast a nearly ~7 bcf/d (14%) increase in non-power demand for natural gas over the next two years primarily driven by exports and increased industrial activity.
2. Supply growth will be limited by widespread infrastructure delays, recent low commodities prices, and higher natural gas liquids (NGL) extraction.
3. Tighter supply-demand balance forces prices higher. With supply-side challenges, power sector gas consumption needs to move lower by ~10-15% relative to 2016 levels for the market to remain balanced.

I discussed this with Range Resources at yesterday's luncheon in Dallas. The risk they see is a surge in Permian Basin "associated gas" production. However, I do not see that as a significant possibility until late in 2017, assuming a big spike in oil prices. Associated gas production is still falling in the Eagle Ford, which should more than offset increasing gas production in the Permian through 2017.

See the EIA's new Drilling Productivity Report: http://www.eia.gov/petroleum/drilling/#tabs-summary-2

EIA is now forecasting the first increase in U.S. natural gas production in over two years.

Simmons is forecasting that demand for natural gas will increase by 3 Bcf per day from 2016 to 2017, primarily driven by increased exports and industrial demand. Demand for gas-fired power generation goes up by approximately 0.5 Bcf per day each year.

Last year's "El Nino" winter (record warmth) left a big surplus of natural gas in storage; +865 Bcf at the end if April, 2016.

Over the 32 weeks ending December 9th, the surplus to the 5-year average has declined by 670 Bcf; an average of ~21 Bcf per week. If this trend continues through April, 2017, gas in storage will be WAY BELOW the 5-year average at the end of the heating season.

Think of refilling storage for the next winter as the "Wild Card" for gas demand. It is much easier to predict gas demand for power generation, exports and industrial demand.

Over the last ten years, natural gas in storage has dipped below the 5-year average three times. Each time, gas prices spiked to over $6.00/MMBtu.

Hope you are correct as our natgas stocks have been awful in the last week

GPOR is down today because the Wall Street Gang thinks they paid too much for the SCOOP acquisition.

Read: http://www.fool.com/investing/2016/12/1 ... yptr=yahoo

Wall Street tends to over-react to surprises like this. GPOR is based in Oklahoma City and they have a first class team. I trust their opinion. GPOR has been in the Sweet 16 since 1-1-2010. Since that date, production has increased more than 1,000%.

Acquisition Highlights

> Substantially contiguous acreage position totaling approximately 85,000 net effective acres, which includes rights to 46,400 Woodford acres and 38,600 Springer acres, in Grady, Stephens and Garvin Counties, Oklahoma, with approximately 80% held by production.
> Stacked-pay potential with approximately 1,750 gross drilling locations, including over 775 gross locations with internal rates of return of approximately 75%, targeting the Woodford and Springer intervals with significant upside potential through infill drilling and additional prospective zones.
> Existing production of approximately 183 MMcfe per day in the month of October 2016. (Compares to GPOR's production of 734,142 MMcfe per day in Q3)
> Total estimated proved reserves at September 30, 2016 were 1.1 Tcfe. (Compares to GPOR's P1 reserves of 1.7 Tcfe at 12-31-2015)

As of December 13, 2016, Gulfport entered into a definitive agreement with Vitruvian to acquire approximately 46,400 net surface acres with multiple producing zones, including the Woodford and Springer formations, in Grady, Stephens and Garvin Counties, Oklahoma. Given the potential for numerous producing intervals across this high-quality position, Gulfport has identified approximately 1,750 gross drilling locations, composed of only Woodford and Springer zones with significant upside potential through infill drilling and additional prospective zones present on the acreage. The acquired properties are located primarily in the over-pressured liquids-rich to dry gas windows of the play and include approximately 183 Mmcfepd of net production for October 2016. The transaction also includes 48 producing horizontal wells and an additional interest in over 150 non-operated horizontal wells.

Four rigs are currently operating on the acreage and Gulfport currently intends to maintain a four rig cadence in the play during 2017 and add an additional two rigs at the beginning of 2018. Based on the estimated internal reserve report prepared by Vitruvian as of September 30, 2016 and audited by Netherland, Sewell & Associates, Inc., the estimated proved reserves attributable to the acreage are approximately 1.1 Tcfe. The acquisition is expected to close in February 2017, subject to the satisfaction of certain closing conditions.

Consideration in the transaction includes a total purchase price of approximately $1.85 billion, consisting of $1.35 billion in cash and approximately 18.8 million in shares of Gulfport common stock privately placed to the sellers, subject to adjustment. The Company intends to fund the cash portion of the acquisition through potential debt and equity financings prior to closing.

Chief Executive Officer and President, Michael G. Moore commented, “Today is a defining day for Gulfport Energy. Combining Vitruvian’s high-quality SCOOP position with our prolific Utica assets will transform our company and solidify Gulfport with core positions in two of North America’s high-return natural gas basins. In Vitruvian, we believe we have found a prolific stacked pay resource with strong production history, a multi-year, high-return drilling inventory – an opportunity with significant upside from both a resource and operational perspective. The asset consists of a low-risk, substantially contiguous acreage position in the core of the SCOOP. This acquisition is not only additive to our Company but in our opinion truly one-of-a-kind. The transaction is expected to be accretive to cash flow and net asset value per share and provides us with a blocky, sizeable and scalable footprint in a new operating area.”

Vitruvian CEO and President, Richard F. Lane commented, “We are pleased to be part of this significant transaction, both for the complimentary asset it represents for Gulfport and for the achievement it represents for Vitruvian’s employees and stakeholders. We plan to work closely with the Gulfport team to ensure a seamless transition of the asset to Gulfport.”

President of Quantum Energy Partners, Dheeraj Verma commented, “We are excited about this transaction and believe that the combination of these assets will provide Mike and his team with more opportunities for margin expansion and cash flow growth immediately. We are quite optimistic about the value creation potential here and look forward to participating in this upside as a shareholder of the combined company.”

BofA Merrill Lynch acted as exclusive financial advisor to Gulfport in connection with the transaction and Akin Gump Strauss Hauer & Feld LLP served as Gulfport’s legal counsel. Jefferies acted as financial advisor to Vitruvian in connection with the transaction and Vinson & Elkins served as Vitruvian’s legal counsel.