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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--During 2014, Gulfport Energy Corporation (NASDAQ:GPOR) (Oklahoma City, Oklahoma) gained a reputation as one of the few oil and gas companies able to operate profitably in the dry-gas areas of the Utica Shale formation. The company's full-year 2014 earnings report cemented its credentials, and investors are again warming to the stock.
The Utica Shale, once thought to rival the nearby Marcellus Shale in terms of potential oil and gas resources, has proven to be a difficult nut to crack. Most of the drilling to date has produced dry gas, with scant crude oil or natural gas liquids (NGLs). Without those more valuable commodities, producers of dry gas have had a hard time making ends meet. This is particularly true for the Utica, part of which lies underneath the Marcellus Shale, thus requiring additional drilling depths and costs. At current gas prices of about $3 per million British thermal units (MMBtu), many dry-gas producers find it difficult to operate profitably in the Utica.
Despite low gas prices, gas production from all companies operating in the Utica Shale has risen sharply in recent months. According to the U.S. Energy Information Administration's monthly Drilling Productivity Report, gas production in the Utica Shale is approaching 2 billion cubic feet per day (Bcf/d), a four-fold increase from comparable year-earlier production levels. Industry estimates project continued strong production gains for the Utica in the next few years.
Click on the image at right to see sharply increased gas production from the Utica Shale.
Gulfport's gas production last year totaled 88.7 billion cubic feet of gas equivalent (Bcfe), a 255% growth over 2013 production. Looking forward, Gulfport President and Chief Executive Michael G. Moore told investors that the company would increase production 80% to 100% this year, to about 166.4 Bcfe. He said about 60% of this year's gas production is "hedged attractively" at $4.03 per Mcf. In 2014, natural gas accounted for about 74% of the company's production.
The company owns about 188,000 acres of land in the Utica Shale, which holds about 907 Bcfe of proved gas reserves and an additional 300 Bcfe of probable reserves. Gulfport is one of the most active drillers in the Utica. The company also owns a smaller oil-prone acreage position in southern Louisiana, where it estimates it's proved reserves at 4.1 million barrels of oil equivalent (MMBoe) and 8.1 MMBoe of probable reserves. Gulfport also owns a 25% stake in an Alberta oil sands venture. Overall, gas accounted for 77% of the company's proved reserves as of December 31, 2014. Net proved reserves shot up 305% to about 934 Bcfe last year, when compared with 2013.
On a February 25 earnings conference call with investors, Moore said that the company would shave its planned 2015 capital spending to about $660 million, from $1.16 billion in 2014. The cutback in capital spending was "prudent in the current commodity price environment," Moore said, but the company has "superior firm agreements provide pricing of approximately 90% of our expected Utica gas volumes to premium markets. We also have a robust hedging program that has locked in a significant portion of expected cash flows during 2015."
All told, Moore said he was "pleased" with the decision to significantly slash capital spending, particularly because he was able to project an 80% to 100% year-over-year increase in production.
Investors shared Moore's enthusiasm, bidding the stock up by about 10% the day earnings were announced to about $48 per share, from about $44 per share the day prior to earnings were announced. However, like a lot of oil and gas companies, Gulfport still has ways to go to recapture the heights its stock hit in 2014, when it traded at more than $70 early in the year.
Still, Moore accentuated the positive during his investor call. He called 2014 a "transformational" year and said the company had "best-in-class well performance" in the Utica Shale. The economics of operating in that formation were improved by "optimizing well performance and reducing costs through operating efficiencies. As we enter 2015, these improvements are critical to our 2015 planned activity levels in this lower commodity price environment."
Gulfport's full-year revenue more than doubled, to $672 million from $263 million in 2013, and pre-tax operating earnings reached $226 million, a 310% increase over $55 million posted in 2013. Last year's earnings were helped by a $98 million non-cash gain on its hedging instruments and an $84 million gain on the value of an equity investment in Mammoth Energy Partners LP (NASDAQ:TUSK) (Oklahoma City, Oklahoma), a master limited partnership that launched an initial public offering in late 2014.
"As the industry continues mapping the wet and dry gas windows in the Utica Shale, we recommend equipment and service providers keep a close eye on Gulfport," said Jesus Davis, Industrial Info's vice president of research for Oil & Gas Production, Pipelines and Terminals. "Like a lot of companies, Gulfport is finding ways to produce more from shale formations with less capital investment. While that may hurt sales of equipment and services in the short term, we focus on the valuable market and geologic intelligence that successful operators, like Gulfport, are producing in the field."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
The Utica Shale, once thought to rival the nearby Marcellus Shale in terms of potential oil and gas resources, has proven to be a difficult nut to crack. Most of the drilling to date has produced dry gas, with scant crude oil or natural gas liquids (NGLs). Without those more valuable commodities, producers of dry gas have had a hard time making ends meet. This is particularly true for the Utica, part of which lies underneath the Marcellus Shale, thus requiring additional drilling depths and costs. At current gas prices of about $3 per million British thermal units (MMBtu), many dry-gas producers find it difficult to operate profitably in the Utica.
Despite low gas prices, gas production from all companies operating in the Utica Shale has risen sharply in recent months. According to the U.S. Energy Information Administration's monthly Drilling Productivity Report, gas production in the Utica Shale is approaching 2 billion cubic feet per day (Bcf/d), a four-fold increase from comparable year-earlier production levels. Industry estimates project continued strong production gains for the Utica in the next few years.
Click on the image at right to see sharply increased gas production from the Utica Shale.Gulfport's gas production last year totaled 88.7 billion cubic feet of gas equivalent (Bcfe), a 255% growth over 2013 production. Looking forward, Gulfport President and Chief Executive Michael G. Moore told investors that the company would increase production 80% to 100% this year, to about 166.4 Bcfe. He said about 60% of this year's gas production is "hedged attractively" at $4.03 per Mcf. In 2014, natural gas accounted for about 74% of the company's production.
The company owns about 188,000 acres of land in the Utica Shale, which holds about 907 Bcfe of proved gas reserves and an additional 300 Bcfe of probable reserves. Gulfport is one of the most active drillers in the Utica. The company also owns a smaller oil-prone acreage position in southern Louisiana, where it estimates it's proved reserves at 4.1 million barrels of oil equivalent (MMBoe) and 8.1 MMBoe of probable reserves. Gulfport also owns a 25% stake in an Alberta oil sands venture. Overall, gas accounted for 77% of the company's proved reserves as of December 31, 2014. Net proved reserves shot up 305% to about 934 Bcfe last year, when compared with 2013.
On a February 25 earnings conference call with investors, Moore said that the company would shave its planned 2015 capital spending to about $660 million, from $1.16 billion in 2014. The cutback in capital spending was "prudent in the current commodity price environment," Moore said, but the company has "superior firm agreements provide pricing of approximately 90% of our expected Utica gas volumes to premium markets. We also have a robust hedging program that has locked in a significant portion of expected cash flows during 2015."
All told, Moore said he was "pleased" with the decision to significantly slash capital spending, particularly because he was able to project an 80% to 100% year-over-year increase in production.
Investors shared Moore's enthusiasm, bidding the stock up by about 10% the day earnings were announced to about $48 per share, from about $44 per share the day prior to earnings were announced. However, like a lot of oil and gas companies, Gulfport still has ways to go to recapture the heights its stock hit in 2014, when it traded at more than $70 early in the year.
Still, Moore accentuated the positive during his investor call. He called 2014 a "transformational" year and said the company had "best-in-class well performance" in the Utica Shale. The economics of operating in that formation were improved by "optimizing well performance and reducing costs through operating efficiencies. As we enter 2015, these improvements are critical to our 2015 planned activity levels in this lower commodity price environment."
Gulfport's full-year revenue more than doubled, to $672 million from $263 million in 2013, and pre-tax operating earnings reached $226 million, a 310% increase over $55 million posted in 2013. Last year's earnings were helped by a $98 million non-cash gain on its hedging instruments and an $84 million gain on the value of an equity investment in Mammoth Energy Partners LP (NASDAQ:TUSK) (Oklahoma City, Oklahoma), a master limited partnership that launched an initial public offering in late 2014.
"As the industry continues mapping the wet and dry gas windows in the Utica Shale, we recommend equipment and service providers keep a close eye on Gulfport," said Jesus Davis, Industrial Info's vice president of research for Oil & Gas Production, Pipelines and Terminals. "Like a lot of companies, Gulfport is finding ways to produce more from shale formations with less capital investment. While that may hurt sales of equipment and services in the short term, we focus on the valuable market and geologic intelligence that successful operators, like Gulfport, are producing in the field."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
