Gulfport Energy (NYSE:GPOR) announced Q4 2022 earnings recently along with guidance for 2023 that was generally better than my expectations. It is doing a good job in terms of controlling costs and believes that it can grow production by 2% to 6% in 2023 with the same overall capex budget (and a slightly reduced D&C capex budget) compared to 2022. As well, Gulfport added more hedges over the last few months when natural gas prices were much stronger than they are now.
The combination of good performance around costs and the additional hedges means that Gulfport is projected to generate $300 million in positive cash flow in 2023 at current strip of $3.18 NYMEX gas. It also added 2024 hedges at solid prices as well.
The strong cost performance and improved hedging position boosts Gulfport’s estimated value to $115 per share in a long-term $4.00 NYMEX gas scenario and $95 per share in a long-term $3.50 NYMEX gas scenario.
Gulfport expects to grow its production by approximately 2% to 6% in 2023 to an average of 1.0 Bcfe to 1.04 Bcfe per day. This is slightly lower 2023 production than what Gulfport expected at the beginning of 2022 when it suggested 5+% production growth in 2023 from projected 2022 production of approximately 1.0 Bcfe per day.
Gulfport provided some pretty positive guidance around 2023 costs. It expects approximately $450 million in capital expenditures in 2023, which is similar to its 2022 capex and around 7% lower than what I had modeled for it in 2023. As well, Gulfport’s D&C capex is actually expected to go down 6% in 2023 as it is spending more on leasehold and land capex to likely more than replenish its inventory.
Gulfport also noted that it expects minimal (if any) service cost inflation in 2023 and that it expects to reduce its per unit operating costs by 7% in 2023 compared to 2022. The reduced operating costs per unit is primarily driven by lower production taxes due to weaker projected natural gas prices in 2023.
Gulfport has added some more hedges over the past few months. It now has hedges on approximately 100% of its 2023 natural gas production, although that includes sold calls that limit its upside and provide no downside protection. Gulfport has hedges providing downside protection on approximately 56% of its 2023 natural gas production.
The changes to Gulfport’s 2023 hedges are positive, as it added swaps covering an additional 7% of its 2023 natural gas production at an average price of approximately $5.91 per share. It also modified its 2023 sold calls to raise the average sold call strike price by $0.26.
Gulfport also added swaps covering another 16% of its 2024 natural gas production (assuming flat to low-single digits production growth) at an average swap price of $4.47. Gulfport now has hedges covering around 60% of its 2024 natural gas production, including downside protection on around 39% of its natural gas production with an average floor price of $3.97.
2023 Results At Strip
Gulfport now expects to average approximately 1.02 Bcfe per day in production during 2023, with 90% of that production being natural gas. At current strip of $3.18 NYMEX gas, Gulfport may realize approximately $2.90 for its natural gas.
This leads to a projection that Gulfport will generate $1.315 billion in revenues during 2023, including the effect of its hedges. Gulfport’s hedges have around $73 million in positive value during 2023, largely due to its natural gas swaps. It has swaps covering 25% of its 2023 natural gas production at an average swap price of $4.28.
|Natural Gas [MCF]||335,070,000||$2.90||$972|
This results in a projection that Gulfport can generate $300 million in free cash flow in 2023 at current strip. Gulfport estimated that it would generate $320 million in free cash flow at $3.50 NYMEX gas.
My projections have it getting close to that amount at $3.18 NYMEX gas since oil is around $8 higher than the flat $70 oil that Gulfport used in its estimates.
|Transportation, Gathering, Processing and Compression||$361|
|Taxes Other Than Income||$41|
|Interest and Preferred Dividends||$55|
Gulfport’s strong performance around controlling costs and its improved hedging position increases my estimated value for Gulfport to around $115 per share in a long-term (post 2023) scenario with $4.00 NYMEX gas and $95 per share with long-term $3.50 NYMEX gas. This also assumes flat $70 WTI oil in both scenarios.
Gulfport’s capital efficiency has been helped by its strong well performance. It is devoting over 80% of its 2023 D&C capex to the Utica Shale. The below chart shows Gulfport’s excellent Utica well results in 2021 and 2022 compared to various peers.
Gulfport Energy expects to grow production modestly in 2023 with a similar total capex budget to 2022. It is devoting more of its budget to land capex, so its D&C capex is actually expected to decrease 6% compared to 2022. Gulfport’s capital efficiency is helped by the strong performance of its recent wells.
With excellent cost control efforts and an improved hedging position, Gulfport is projected to generate $300 million in free cash flow in 2023 at current strip of $3.18 NYMEX gas.
I have increased my estimate of Gulfport’s value to $95 in a long-term $3.50 NYMEX gas environment and $115 in a long-term $4.00 NYMEX gas environment.