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Ohio Utica Shale

Analyst pleased with Gulfport Energy's strong 4Q earnings

By Bob Downing Published: March 13, 2013

From Sterne Agee analyst Tim Rezvan on Gulfport Energy, a major player in Ohio's Utica shale:

 

SterneAgee

Marh 12 2013

Exploration & Production

 

GULFPORT ENERGY CORP. (NASDAQ: GPOR) RATING: BUY

Price: $42.23

Price Target: $60.00

Analysts: Tim Rezvan, CFA

New $60 PT Reflects Updated Utica Valuation. Increasing '14 EBITDA Estimate and Cutting EPS Estimates to Reflect Taxes.

Our Call

Following a strong 4Q earnings call that helped quantify the Utica Shale's resource potential, we raise our PT to $60 and increase 2014E EBITDA estimate by 7% to $714 million. Longer-term flow rates from the Wagner and Boy Scout wells show that the traditional hyperbolic decline curve for shale wells may not be applicable in the Utica, and that the 1.8 mmboe EUR reserve booking for the Wagner well could prove to be a conservative reserve estimate across the play's fairway.

  • Gathering Line Delays Behind Company. With winter weather easing and right-of-way issues fading as a growth obstacle, Gulfport is increasingly confident in 2013 production guidance. Drilling will focus on pads near gathering lines. With 60 mmcf/d of interim processing in place now and 125 mmcf/d of cryogenic processing coming on line this quarter, near-term gathering and processing constraints are fading.
  • Strong Well Results on Restricted Flowback. Gulfport has produced its first two Utica wells (Wagner and Boy Scout) on restricted rates. Based on wellhead production with no processing uplift, the Wagner averaged ~1.1 mboe/d (11% condensate) through the first two months of 2013, and the Boy Scout averaged 1.5 mboe/d (62% condensate) through its first 29 days on production. Assuming full NGL processing and similar shrinkage reported with initial results, Wagner production could increase by 42% and the first Boy Scout could increase by 26%.
  • What Now? We expect additional well results through the spring, including a pair of two-well pads recently drilled. Gulfport's Stout pad in western Harrison County is expected to begin flowing to sales by April 1. No initial results have been provided for those wells, or for the Lyon pad on the Harrison/Tuscarawa county border, which is expected to flow to sales by June 1.
  • Updating PT to $60. Our updated PT is based on a SOTP valuation, supported by multiples-based analysis. We increase our Utica value to $2.88 billion from $2.56 billion (+$4/share impact to NAV), and we revise our estimate for Grizzly to $1.9 billion from $1.75 billion, which has a +$0.50/share impact on NAV. Our PT represents a 5x multiple to 2014E EBITDA of $714 million.
  • Updating Estimates. 2013E EBITDA of $450 million is unchanged. 2014E EBITDA increases to $714 million from $670 million, based on our updated production growth estimates of 210% in 2013 (+5.38 mmboe y/y) and 64% in 2014 (+5.06 mmboe y/y). We cut EPS estimates in '13/'14 from $2.45/$4.85 to $1.60/$3.90 to reflect income tax expense, although virtually all will be deferred.

Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification, Investment Banking, Ratings Definitions, and potential conflicts of interest may be found by clicking on the report link below

Read the full GPOR Not


 

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