Gulfport Energy Authorizes A New $100 Million Share Repurchase Program

Summary

Gulfport authorized a $100 million share repurchase program.

It may generate close to $400 million in positive cash flow in 2022 at current strip.

Net debt would end up at around $350 million at the end of 2022 if it completes its share repurchase program.

Share repurchases appear less risky now compared to in 2018 and 2019 when Gulfport had around $2 billion in net debt.

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grandriver/E+ via Getty Images Gulfport Energy ( GPOR ) has authorized a $100 million share repurchase program. It’s currently projected to generate around $385 million in positive cash flow in 2022 at current strip prices.

Gulfport spent $230 million on share repurchases during 2018 and 2019 before restructuring in 2020, but it appears that the share repurchases should be less risky this time. Gulfport’s net debt is projected to end up around $350 million at the end of 2022 (if it completes that share repurchase program), while its net debt was approximately $2 billion in 2019. 2022 Outlook

Gulfport is currently still looking at a target of around 1 Bcfe per day in production during 2022 with a $300 million capital expenditure budget. It believes that improved well productivity can help offset the roughly 10% to 15% service cost inflation that it expects. For example, Gulfport’s six-well Angelo pad in the Utica showed promising results at a combined gross production rate of 250 MMcfe per day.

Depending on the commodity pricing environment, Gulfport may aim for some production growth in 2023, but its 2022 production target isn’t likely to change much from 1 Bcfe per day.

The current 2022 strip is around $74 WTI oil and $3.80 NYMEX gas. At those prices, Gulfport may end up with $1.473 billion in revenues before hedges, while Gulfport’s hedges have around negative $248 million in estimated value. Type Units $/Unit $ Million Natural Gas [MCF] 331,785,000 $3.65 $1,211 NGLs (Barrels) 3,905,500 $34.00 $133 Oil (Barrels) 1,825,000 $70.50 $129 Hedge Value -$248 Total Revenue $1,225 Source: Author’s Work

Gulfport is now projected to generate $385 million in positive cash flow at current strip prices for 2022. Gulfport has hedged the majority of its natural gas production with a ceiling/swap price of around $2.90, so Gulfport’s estimated cash flow only changes relatively modestly unless prices fall below $2.90. For example, at $4 NYMEX gas in 2022, Gulfport’s estimated positive cash flow would be around $65 million higher than it would be at $3 NYMEX gas. Expenses $ Million Transportation, Gathering, Processing and Compression $343 LOE $51 Taxes Other Than Income $51 G&A $43 Interest and Preferred Dividends $52 Capex $300 Total Expenses $840 Source: Author’s Work

Gulfport’s net debt is now estimated to end up near $250 million by the end of 2022. This is a bit higher than my previous estimate of Gulfport’s net debt, due to the decrease in natural gas strip prices for 2022 (compared to when it was in the mid-$4 range).

This also doesn’t include the impact of any share repurchases Gulfport does under its $100 million share repurchase program. Estimated Valuation

At long-term $65 WTI oil and $3.25 NYMEX gas, I’d now estimate that Gulfport’s valuation range would be $81 to $96. The upper end of that range is reduced slightly due to my expectation that Gulfport ends 2022 with closer to $250 million in net debt than $200 million in net debt now.

Share repurchases at around $70 may add a little bit to Gulfport’s estimated value at well, potentially adding approximately $1 to Gulfport’s estimated value if the $100 million share repurchase program is completed at that average ($70) price.

Gulfport’s debt situation looks pretty good now, with its net debt still projected to end up below 0.5x EBITDAX by the end of 2022 even if it spends $100 million on share repurchases. Gulfport will need to make sure it is in a good position to refinance or repay its $550 million in unsecured notes due 2026, but share repurchases should be less risky now than before its restructuring.

Gulfport spent $200 million on share repurchases in 2018 and $30 million on share repurchases in 2019, but its net debt was around $2 billion at that time. Conclusion

Natural gas prices have declined compared to a couple months ago, but Gulfport still looks capable of generating close to $400 million in positive cash flow in 2022. It also should still be able to generate more than $300 million in […]

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