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Ohio Utica Shale

Analyst likes Gulfport Energy, a key player in Utica shale

By Bob Downing Published: April 4, 2013

From Sterne Agee and analys Tim Rezvan on Gulfport Energy, a key player in Ohio's Utica shale:


April 3, 2013

Exploration & Production



Price: $44.87

Price Target: $80.00

Analysts: Tim Rezvan, CFA

Increasing '14 EBITDA Estimate and Raising PT to $80 to Reflect Increasingly Bullish 2014 Outlook

Our Call
Impactful catalysts over the next 4-5 months should drive multiple expansion. Our analysis suggests shares do not reflect the likelihood of 100-acre spacing or 2 mmboe EUR wells in the Utica Shale. After analyzing Gulfport's Utica production and liquidity outlook, we increase 2014E EBITDA by 29% to $936 million and raise our PT to $80 (5x '14E EV/EBITDA). Despite the recent rally, Gulfport remains a compelling deep-value name (2.9x '14E EV/EBITDA).

  • Near-Term Catalysts Should Show Rally Has Legs. Gulfport recently stated that the seven Utica wells expected to be turned to sales at quarter-end remain mostly on schedule. Also, the company may release initial production results from (2) two-well pads in condensate-rich western Harrison County. We believe additional well results with strong condensate cuts would validate the repeatability of the oil potential. We could see results by 1Q earnings. The company may also provide type curve data on Utica wells by mid year, and could release updated reserves data by 2Q earnings in mid August, which would incorporate NGL volumes and could increase well EURs by 40% or more.
  • Strong Liquidity Can Fund Accelerated 2014 Activity. Gulfport's liquidity position can easily support a more intense development program than the 70-well program provided as informal guidance. Our updated estimates incorporate an eight-rig, 80-gross well program. Gulfport's $214 million interest in Diamondback Energy (FANG, $27.04, Neutral) and its soon-to-be-upsized credit facility (post mid-year reserves update) can fund the growth. We also believe the company can raise term debt by early 2014, if not sooner.
  • Don't Believe Ohio DNR Hype. We would aggressively buy GPOR shares on near-term weakness related to the release of 2012 Utica Shale wells from Ohio's Department of Natural Resources, which is likely to be released later this week. Results are likely to be an opaque data set of well results across eastern Ohio. With results of Gulfport's two 2012 producing wells known, fringe results from other operators should not be meaningful to Gulfport.
  • Increase 2014 EBITDA Estimates, Update EPS Estimates. Based on updated production estimates from an assumed eight-rig program, we increase 2014 EBITDA to $936 million from $727 million. 2013 EBITDA of $456 million is unchanged. We also decrease EPS in 2013/2014 to $1.27/$3.01 from $1.68/$4.08 to fully incorporate deferred income tax expense in the model.
  • Shares Remain Significantly Undervalued - Raising PT to $80. Based on our updated Utica analysis, our SOTP value for Gulfport increases to $80, which represents 79% upside from last night's close. The $80 PT represents a 5x 2014E EV/EBITDA multiple, in line with the group average.



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Utica and Marcellus shale web sites

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ODNR Division of Oil and Gas Resources Management. State drilling permits. List is updated weekly.

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