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Ohio Utica Shale

Analyst says Gulfport grows production, disappoints investors

By Bob Downing Published: February 27, 2014

From analyst Tim Rezvan of New York-based Sterne Agee today on Gulfport Resources financial, operations report:


Price: $59.93
Price Target: $84.00

Our Call
We expect a mixed reaction to earnings that highlight Gulfport's unique ability to simultaneously grow production 28% q/q and disappoint investors. 4Q earnings offered fodder for bulls and bears: earnings missed on expenses (-), full-year production/spending/expense guidance is unchanged (+), a March production spike is needed to hit 1Q14 guidance (-), a search firm was hired for the CEO search (+) and for Board expansion (+), and a large bolt-on acquisition was announced at a full price.

• 4Q Earnings Come in Light. 4Q adjusted EBITDA of $53 million lagged us at $60 million and consensus of $62 million. 4Q adjusted EPS of $0.05 lagged us at $0.16 and consensus of $0.18. Higher than estimated interest expense and cash/non-cash G&A led to the shortfall to our estimates.

• No Change to Full-Year Production Guidance, But 1Q14 Production Guidance Depends on a Big March Spike. Full-year production guidance is unchanged. The company reported January production of 21.7 mboe/d and February production of 25.8 mboe/d. This implies March production of 35.6 mboe/d is needed to hit 1Q14 production guidance of ~27.8 mboe/d. With seven rigs running, the ramp seems feasible, but it represents a large hurdle when we don't expect much contribution from prolific dry gas wells until 2H14.

• Expense and Spending Guidance Unchanged, and 4Q Results Show Strong Traction on Expense Reduction. Cash unit costs decreased 37% y/y to $18.22/boe and LOE continued to trend down, averaging $5.45/boe for the quarter, 46% below the year-ago level. With seven rigs drilling a pad-focused development program, we expect further efficiencies and believe full-year cash unit costs of less than $10/boe is reasonable.

• Announcement on CEO Search and Board Additions is Important Positive Catalyst. The company hired a search firm to help with the CEO search and to find seasoned executives to expand the Board. The small, relatively unseasoned Gulfport Board has been a real issue for investors for several years, a large enough one to keep some long-only money on the sidelines. We are supportive of initiatives to bring in strong independent voices that can address the perceived Board deficiency.

• Large Bolt-on Acquisition Announced. The company announced a deal to acquire 8.2K net acres from Rhino Resources LP for $185 million. The position has 1 mboe/d of net production. The acreage is essentially working interests in existing Gulfport-operated properties, so the acquisition is an easy bolt-on, albeit at a full price. Wexford Capital owns 39.8% of the LP units in Rhino and its founder Charles Davidson owns 2.9% of the LP units. While the acquisition makes sense, the timing/price (a year after Gulfport took out Wexford working interests in its wells at $10K/acre) raises questions about the Wexford-Gulfport relationship.




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Utica and Marcellus shale web sites

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.

Ohio Environmental Protection Agency.

Ohio State University Extension.

Ohio Farm Bureau.

Ohio Oil and Gas Association, a Granville-based group that represents 1,500 Ohio energy-related companies.

Ohio Oil & Gas Energy Education Program.

Energy In Depth, a trade group.

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.

The Ohio Environmental Council, a statewide eco-group based in Columbus.

Buckeye Forest Council.

Earthjustice, a national eco-group.

Stop Fracking Ohio.

People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.

Concerned Citizens of Medina County, a grass-roots group.

No Frack Ohio, a Columbus-based grass-roots group.

Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.

Penn State Marcellus Center.

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

Allegheny Front, environmental public radio for Western Pennsylvania.