From analysts Tim Rezvan and Truman Hobbs of New York-based Sterne, Agee on Gulfport Energy, a ket player in Ohio's Utica shale:
We update our thoughts on the prospectivity of the play's dry gas window, based on recent dialogue with several operators that echo offset operator results and a robust leasing market in eastern Ohio. We anticipate dry gas results by year-end from Gulfport, which could frame the sub-basin's resource potential. Our updated $86 PT reflects an $8,000/acre value for previously risked dry gas acreage and an increase in the value of the delineated wet gas/condensate-rich window.
• The Right Question to Ask: Could Belmont/Monroe County Dry Gas Wells Rival Susquehanna County, PA? We believe the productivity of the dry gas window on the eastern edge of the play remains the single biggest variable that could drive upside for GPOR shares, and until today we assigned it little value in our SOTP PT. The bears are questioning the lack of oil/condensate in Ohio and execution uncertainty, but we believe understanding the quality of the Point Pleasant formation across the entire play is the key question, not execution toward near-term guidance bogies. Recent commentary from several operators on the overpressured dry gas window has been bullish. Those channel checks, coupled with a series of strong results by soon-to-be public operator Antero Resources, lead us to believe returns in the dry gas window could rival/exceed those of the best domestic gas shale plays. In August, Antero announced 24-hour peak IP rates from five wells in western Monroe County, adjacent to Gulfport's southeastern acreage. The wells averaged 7.6 mboe/d (26 mmcfe/d of gas, 3.1 mboe/d NGLs, 137 boe/d condensate).
• New 52-Week Highs + Rising Short Interest = Potential for Sentiment to Improve. GPOR shares have been grinding higher since 2Q earnings, with positive sentiment from continued strong well results proving more impactful than a recent cut to 3Q production guidance. As seen in the table on page 2, short interest has increased this year in conjunction with the stock rally, and we believe this uncertainty in the marketplace suggests divergent thoughts on the company's ability to execute and a potential for sentiment to improve.
Increase PT to $86 from $80 - Despite the Rally, Gulfport Remains the Most Compelling Value in Our Coverage Universe. Our previous $80 PT was based on 70% of Gulfport's 136K net acre leasehold being prospective. We assigned no value to the remaining acreage, which is mostly in the dry gas window. We now believe this is overly punitive to our SOTP value for GPOR shares. We recognize that an $8K/acre value is simple "acreage math," but it is an important first step in acknowledging the potential of the play.
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.
The Ohio Environmental Council, a statewide eco-group based in Columbus.
Earthjustice, a national eco-group.
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.
Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.
Allegheny Front, environmental public radio for Western Pennsylvania.