Gulfport Energy (GPOR): Net debt could be reduced to around $ 325 million by end of 2022

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Gulfport Energy (GPOR) came out of bankruptcy after eliminating more than $ 1.2 billion in debt and also reducing its firm transportation commitments. Although Gulfport has higher leverage and higher interest costs than most E&P companies that recently filed for bankruptcy, strong natural gas prices should allow it to quickly reduce its debt.

Gulfport now appears reasonably priced for a long-term scenario of WTI oil of $ 65 and $ 3.00 NYMEX, with an estimated value of $ 62-76 per share at these commodity prices. A $ 5 change in long-term oil prices combined with a $ 0.25 change in long-term natural gas prices would affect Gulfport’s estimated value by approximately $ 13.

Debt situation

Gulfport had $ 837 million in net debt at emergence, plus $ 55 million in preferred stock. It also had a relatively modest amount of liquidity with $ 136 million in cash at emergence, although I don’t think its liquidity should be an issue due to continued debt reduction.

Source: Gulfport Energy

Gulfport has not provided updated guidance for the remainder of 2021, but it appears capable of reducing its net debt to less than $ 700 million by the end of 2021 given current strip prices, in assuming it aims to maintain production levels.

Outlook 2022

Gulfport produced an average of 983 Mcfe per day in the first quarter of 2021. This production was approximately 92.5% natural gas, 5.1% NGL and 2.4% petroleum. Recent Gulfport production has fluctuated with development activity as it averaged 992 Mcfe per day in the third quarter of 2020, followed by 1,076 Mcfe per day in the fourth quarter of 2020.

I’m going to assume that it will eventually keep production around Q1 2021 levels in 2022. This would allow it to generate around $ 1.171 billion in revenue before hedges at current strip prices (including $ 3.45 of gas. NYMEX). Gulfport’s natural gas differentials are expected to be significantly improved by reducing its firm transmission commitments.

Source: Gulfport Energy

Gulfport’s 2022 hedges are estimated to be worth around $ 80 million, as it has hedged about 45% of its natural gas production at a weighted average cap of $ 2.91.

Source: Gulfport Energy

For the purposes of this model, I applied these transportation costs as a differential (resulting in an estimated natural gas differential of minus $ 0.45 at NYMEX). Gulfport, however, appears to report transportation costs as an expense item going forward, so its financial reports may look a bit different (although there is no difference in EBITDA in either. other method).

Type Units $ / Unit Millions of $
Natural gas [MCF] 331,785,000 $ 3.00 $ 995
NGL (barrels) 3 041 667 $ 29.00 $ 88
Oil (Barrels) 1,399,167 $ 63.00 $ 88
Coverage value -80 $
Total income $ 1,091

Source: author’s work

Gulfport’s maintenance investments can be reduced to around $ 300 million now due to its lower production base and reduced D&C costs per side foot.

Expenses Millions of $
Collection and processing $ 230
LOE $ 50
Taxes other than income 40 $
GEORGIA $ 55
Preferred interests and dividends $ 55
Investment $ 300
Total expenses

$ 730

Source: author’s work

The result is a projection that Gulfport could generate around $ 361 million in positive cash flow at stripper prices in 2022 while maintaining production levels.

Gulfport’s net debt could be reduced to around $ 325 million, or around 0.45 times EBITDAX by the end of 2022 at current strip prices.

Evaluation

Prior to the restructuring, I generally valued Gulfport at an EBITDAX multiple of 3.5x. With long-term WTI oil of $ 65 and NYMEX gas of $ 3.00, Gulfport could generate $ 645 million in EBITDAX. Subtracting its expected net debt at the end of 2021 would then leave around $ 62 per share in value for Gulfport, assuming it has 25.5 million shares outstanding. It also assumes that its preferred stock is converted into common stock.

Source: Gulfport Energy

Using his expected net debt figure at the end of 2022 instead would give an estimated value of nearly $ 76 per share.

Conclusion

Gulfport came out of bankruptcy with net debt of $ 837 million, which is higher for a post-restructuring company. However, it appears capable of reducing its net debt to less than $ 700 million by the end of 2021, and then to potentially $ 325 million by the end of 2022, which would leave it with less than 0.5x leverage.

Thus, Gulfport’s debt situation appears to be moving forward. Gulfport’s current share price looks reasonable for a long-term environment of $ 65 for oil and $ 3.00 for natural gas, with an estimated range of $ 62 to $ 76 per share. In the long run, at $ 60 of WTI oil and $ 2.75 of natural gas, Gulfport’s estimated value would instead be reduced to around $ 49 to $ 63.

Ann J. Cox