From New York-based analyst Tim Rezvan of Sterne Agee on Gulfport Energy's latest reports on results in Ohio's Harrison County and its Utica shale:
February 7, 2013
GULFPORT ENERGY CORP. (NASDAQ: GPOR) RATING: BUY
Price Target: $52.00
Analysts: Tim Rezvan, CFA
Operations Update: Conservative Utica EUR, Persistent Utica Infrastructure Delays Could Drag on Stock Today.
Gulfport's operations update this morning contained in-line 4Q production data, but mixed news on the Utica. Shares may underperform on the headline data in the release, but we believe investors should focus on the reserve bookings figures and continued strong oil cuts from SW Harrison County as proof of the resource potential. Gulfport remains a compelling sum-of-the-parts story while it derisks its Utica position and we would be buyers on weakness.
4Q Production/Pricing Mostly in-Line. Averaged 6.62 mboe/d, in-line with our estimate, although gas volumes of 3.98 mmcf/d exceeded our estimate of 3.15 mmcf/d. Pricing was a mixed bag, with gas realizations of $3/mcf lagging our estimate of $3.56/mcf, oil realizations of $101.89/b lagging our estimate of $103.95/b and NGL realizations of $42.42/b exceeding our estimate of $39.70/b.
Newest Well Result is Further Proof of Condensate Sweet Spot in SW Harrison County. The Boy Scout 5-33H well had a peak IP rate of 1,662 mboe/d, and a strong condensate cut (902 b/d, or 54% of total production), consistent with the first well drilled off the Boy Scout pad.
2013 Production Growth Guidance May be at Risk. The company currently has three wells on production and expects to hook in four more by late March, three more in early April and four more in early June. This timeline could put 2013 production guidance of ~21 mboe/d at risk, although we believe the key factor for the equity this year is proving up the potential of the play, not hitting a specific production number.
Reserve Bookings - Liquids Skew Should Increase When Processing Infrastructure Operational. Reserve engineers Ryder Scott assigned estimate ultimate recoverables (EURs) of 1,766 mmboe for the company's first Wagner well. However, there was not much credit given to the liquids potential of the well. The composition of reserves was 9.5 Bcf of gas (90%), 117 mboe of NGLs (6%) and 65 mboe of oil (4%). We expected to receive conservative reserve bookings, considering the well has been on-line for five weeks into year-end. We believe the reserves composition is likely to be updated to reflect a 30-40% NGL skew once the Cadiz processing plant is operational. We were unable to speak with the company to get more color on the methodology of reserves calculation.
Grizzly Update - First Production May Be Pushed Back. Final construction is underway at Algar Lake, and the company believes the project could begin commissioning by the end of 1Q13, with first production by mid-year 2013. We have no contribution from Grizzly in our model.
Shares May Come Under Pressure Today, But Resource Potential Unchanged. Today's release shows that 2013 production guidance could be at risk due to persistent infrastructure delays, and that early reserve bookings are at the low end of the 2-3 mmboe range we believe investors were looking for from the first wells. However, we continue to believe that Gulfport's opportunity in the Utica remains one of the most attractive and inimitable leaseholds across any domestic resource play.
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For the latest company report:
GPOR Company Report