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Ohio Utica Shale

Analyst revisits Gulfport Energy with revised production outlook

By Bob Downing Published: October 17, 2013

From analyst Tim Rezvan of New York-based Sterne Agee on Gulfport Energy:

Price: $65.65
Price Target: $86.00

Analysts: Tim Rezvan, CFA / Truman Hobbs
Cutting Estimates Through 2015 as Growth Gets Pushed to the Right Again. Maintain Buy Rating and $86 PT on SOTP Value.

Our Call
Execution issues at the well pad are the latest wrinkle driving deferred production growth. Our revised production outlook calls for "only" 282% production growth in 2014 to 48.2 mboe/d, down from our previous estimate of 69.1 mboe/d, and represents 189% y/y EBITDA growth with a manageable estimated CF outspend of ~$120 million. With the shortfall driven by operational missteps that should be addressed going forward, our $86 SOTP PT remains intact.

• Execution Issues at the Wellbore Drive Lower Production Growth Outlook. The company had drilling mud seep into up-hole formations on five different well pads where intermediate casing string was eliminated. Diagnosing and solving the problem has caused a delay of at least one month in getting the wells hooked to sales. As a result, the company no longer believes it will have 20-24 wells hooked to sales in the fourth quarter. Exit-rate production guidance was reduced ~10 mboe/d to 27-32 mboe/d.

• Revised Production Outlook. With fewer well hook-ups planned by year-end (we assume only 12 well hook-ups in 4Q), we are cutting production estimates. We assume six wells come on line per month in 2013 versus 7-8 before. On top of that, we are also hair-cutting aggregate production from the Utica Shale by 25% to account for unforeseen delays that we struggle to account for otherwise in our models. 4Q13E production declines to 21.5 mboe/d from 31 mboe/d, 2014E production declines to 48.2 mboe/d from 69.1 mboe/d, and 2015E production declines to 88 mboe/d from 101 mboe/d. We are also revising up our natural gas skew in 2014/2015, reflecting stronger returns in the wet gas window, leading the company to move rigs east in the Utica Shale. Assuming ethane rejection indefinitely, we now estimate natural gas will be 66% of 2014E production (up from 63%) and 71% of 2015E production (up from 64%).

• Cutting Estimates. In conjunction with lower production assumptions, we are cutting estimates. EBITDA declines for 4Q13/2014/2015 to $82/$667/$1,073 million from $116/$987/$1,374 million and EPS estimates decline to $0.16/$1.30/$1.34 from $0.22/$2.39/$2.98.

• SOTP Value Remains Intact - No Change to $86 PT. Our PT reflects full development mode value for the company's Utica Shale assets. We believe the latest deferral in growth is not material to the overall value of the resource.



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Ohio Department of Natural Resources' Division of Oil and Gas Resources Management State agency Web site.

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

ODNR Division of Geological Survey.

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Marcellus and Utica Shale Resource Center by Ohio law firm Bricker & Eckler.

Utica Shale, a compilation of Utica shale activities.

Landman Report Card, a site that looks at companies involved in gas and oil leases.FracFocus, a compilation of chemicals used in fracking individual wells as reported voluntarily by some drillers.

Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.

Rig Count Interactive Map by Baker Hughes, an energy services company.

Shale Sheet Fracking, a Youngstown Vindicator blog.

National Geographic's The Great Shale Rush.

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Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.

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