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Ohio Utica Shale

Delays at Belmont County well hurts Gulfport's guidance

By Bob Downing Published: September 10, 2013

From analysts Tim Rezvan and Truman Hobbs of Sterne Agee:

Utica Shale Growing Pains - Infrastructure Issues Bite 3Q Production. Trimming 3Q Estimates.

Our Call
We trim 3Q production and earnings estimates following this morning's negative pre-announcement. We expect shares to come under pressure today. GPOR shares have rallied 24% in the last month and closed yesterday within $1 of their 52-week high, so a short-term pullback does not concern us. Despite the cut in 3Q production guidance, our long-term thesis on the stock is unchanged.

• Details. Gulfport released updated 3Q production guidance this morning and cut guidance to 12.25-12.75 boe/d, versus prior guidance of 14-15 boe/d and our estimate of 14.7 mboe/d. The company cited permitting and infrastructure delays from Markwest (MWE, $68.36, NR) from the Irons 1-4H well, which was supposed to be on-line in mid-August, as well as downtime from simultaneous operations, which likely refers to shutting in producing wells while completing other wells on the same pad. We have been unable to speak with the company yet this morning for further details.

• Each Well Matters - Irons 1-4H Delay is the Biggest Driver of Reduced Production Guidance. In its early stages of growth in the Utica Shale, each well is of paramount importance, given the strong initial production rates. The Irons well, drilled in Eastern Belmont County, is toward the dry gas window of the play, where we estimate IP rates will average over 6 mmcfe/d (1 mboe/d) over the first year of production. A delay in turning one well to production in the gas window in the third quarter impacts total company production by 1+ mboe/d, 8% of total 3Q13E production. This well was the easternmost well drilled by Gulfport to date, and was most exposed to a delay in infrastructure. Optics appear negative from a ~2 mboe/d reduction in guidance, but the gassier wells in eastern Ohio are simply so strong that shifts in the date when they are turned to sales can have large impacts. We believe the Irons well was likely the biggest driver of downtime, while well shut-ins from nearby completions was another contributing factor.

• Trimming 3Q Estimates, Maintaining 4Q13/2014/2015 For Now. Despite the 3Q shortfall, Gulfport maintained full-year production guidance of ~15 mboe/d, which implies 4Q production of ~32 mboe/d to get to the midpoint of full-year production guidance, or ~27 mboe/d to get the low end of 2013 guidance. While we trim 3Q production to 12.5 mboe/d from 14.7 mboe/d, our current 4Q production estimate of 31 mboe/d is unchanged. 3Q EPS declines by a penny to $0.12 and 3Q EBITDA declines by $7 million to $56 million.

 

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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.