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Gulfport Ramping-Up Production in 4Q, But Plans for 2015 Remain Unclear

Gulfport Energy Corp. offered few details about next year’s budget and operational plans during a third quarter earnings call, telling financial analysts it needs more time to gauge where commodity markets are heading.

"Gulfport will wait to provide 2015 budgeted activity until after the first of the year to allow us time to gain more clarity around the expected commodity price environment," said CEO Michael Moore. "Regardless of activity levels, we expect to be able to deliver significant growth in 2015, shouldered by a healthy 2014 exit rate, a sizable completion backlog and strong individual well performance under our managed pressure program."

If the second half of this year is any indication, Gulfport should have no problem carrying momentum into the latter part of the fourth quarter and into next year. The third quarter marked a rebound for the company after a dismal start to the year, which jolted analysts when the company announced before the second quarter ended that it would scale back in its core Utica Shale to build an inventory of wells aimed at long-term growth and cost controls (seeShale Daily, May 8).

Despite a caveat that production could remain flat throughout 2014, Gulfport's strategy paid off sooner that expected when it announced in October that it had produced more than 3.8 million boe, or 42,332 boe/d (see Shale Daily, Oct. 15). That figure was well above the 26,725 boe/d it produced in the second quarter (see Shale Daily, July 31). What's more, year-over-year production in the third quarter increased considerably from the 12,976 boe/d it produced in 3Q2013.

The company currently has five dry gas pads in inventory that it will get started on this quarter and keep working to tie-in next year. Although Gulfport couldn't say exactly how much it would spend next year, or even how many dry gas versus wet gas wells it would drill in the Utica then, management said the eight rigs it currently has running in the play will drop to six rigs by year's end, mainly due to expiring contracts and greater drilling and completion efficiencies.

"We continue to refine our completion design trending toward shorter stages and more sand per foot of lateral," Moore told analysts. "From this, we hope to see further improvements from well performance and believe results will outweigh the associated uptick in costs."

The company also has many of its wells in the Utica on a restricted choke program to help preserve reservoir quality. Current completion costs there are running at about $10.2 million for condensate wells and $11.2 million for wet and dry gas wells. 

While the company has acquired 500 net acres in the Utica since August, where it now has 184,000 net acres, management acknowledged that attractive leasehold in Ohio is getting harder to come by these days.

"On the leasing front our activities have materially slowed," Moore added. "Gulfport continues to seek core acreage in and around its drilling units, but the availability of unleased acreage that fits within our leasing parameters is becoming scarce." As a result, Moore said the company will likely spend less to acquire additional acreage in the play next year.

In the Utica, Gulfport drilled about 27 wells last quarter and brought 19 of those online. Production in the play is currently averaging more than 55,000 boe/d, which analysts have said will need to be sustained in order for the company to meet full-year guidance.

A strong firm transportation portfolio helped insulate the company from seeing its realized natural gas prices decline significantly last quarter. Without hedges, the company's natural gas was priced at $3.65/Mcf, up from the $3.51/Mcf in the year-ago period.

Gulfport reported net income of $6.9 million (8 cents/share) in the third quarter, down from the $40.5 million (52 cents/share) it earned in 3Q2013. The drop in profits was mainly due to a loss of $32.4 million related to its equity interest in Permian Basin operator Diamondback Energy Inc., in which it owns 940,000 common shares.

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