Gulfport Energy Corporation: Q1 2024 Form 10-Q Summary
Business Context and Reporting Period
Gulfport Energy is a natural gas-weighted U.S. exploration and production company with operations primarily in eastern Ohio targeting the Utica and Marcellus formations and in central Oklahoma targeting the SCOOP Woodford and Springer formations. This unaudited Form 10-Q covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenues | $283.2 million | $731.2 million | Down 61% |
| Commodity sales, excluding derivatives | $238.1 million | $353.2 million | Down 33% |
| Net derivative gain | $45.1 million | $378.1 million | Down 88% |
| Income from operations | $81.8 million | $522.6 million | Down 84% |
| Net income | $52.0 million | $523.1 million | Down 90% |
| Net income attributable to common stockholders | $43.4 million | $435.5 million | Down 90% |
| Diluted EPS | $2.34 | $22.90 | Down 90% |
| Operating cash flow | $188.0 million | $304.1 million | Down 38% |
| Capital expenditures paid | $118.1 million | $130.4 million | Down 9% |
Reported operating margin was approximately 28.9%, compared with 71.4% in the prior-year quarter. Net margin was approximately 18.4%, compared with 71.5%. The filing does not provide a separately defined adjusted EBITDA measure.
Production, Pricing and Cost Trends
- Total production averaged 1,053.7 MMcfe per day, broadly comparable with 1,057.4 MMcfe per day in Q1 2023.
- Natural gas production increased 4% to 973.6 MMcf per day, principally from Utica and Marcellus development, while SCOOP production declined.
- Oil and condensate production declined 29% to 3,329 barrels per day, and NGL production declined 29% to 10,031 barrels per day, primarily due to natural declines and limited SCOOP activity.
- Natural gas realized price before derivatives declined to $2.13/Mcf from $3.32/Mcf. Including settled derivatives, the price was $2.88/Mcf versus $3.32/Mcf.
- Total production costs consisting of lease operating, production taxes and midstream costs decreased to $1.16/Mcfe from $1.24/Mcfe.
- Lease operating expense declined 15% to $16.8 million, while transportation, gathering, processing and compression expense declined 1% to $86.6 million.
Liquidity, Debt and Capital Allocation
- March 31 cash and cash equivalents were $8.2 million, compared with $1.9 million at December 31, 2023.
- Total debt was $636.4 million net of issuance costs, consisting of $550.0 million of 8.0% senior notes due May 2026 and $87.0 million drawn under the Credit Facility due 2027.
- The Company repaid $303.0 million and borrowed $272.0 million under the Credit Facility, reducing borrowings by $31.0 million during the quarter. The facility carried a weighted-average interest rate of 8.33%.
- At March 31, $63.8 million of letters of credit were outstanding. Management reported total liquidity of $757.4 million at quarter-end.
- On April 18, 2024, the Credit Facility borrowing base was reaffirmed at $1.1 billion, with elected commitments of $900 million. As of April 25, cash was $3.6 million and Credit Facility borrowings were $43.0 million.
- The Company repurchased 210,075 shares for approximately $29.5 million during the quarter. Since inception of the program, it had repurchased 4.6 million shares for approximately $429.1 million, with approximately $220.9 million remaining authorized at March 31.
- Preferred stock cash dividends were $1.1 million. Outstanding preferred stock had a $44.2 million carrying value and could convert into approximately 3.2 million common shares.
Material Changes Versus the Prior Comparable Period
- Revenue and earnings declined sharply because lower commodity prices reduced physical sales revenue and the prior-year period included a substantially larger derivative gain.
- Q1 2023 benefited from a $17.8 million interim distribution related to a pre-emergence TC Energy claim and included a $1.0 million Rover settlement payment; these items contributed to the prior-year other-income result and did not recur in Q1 2024.
- Q1 2024 included $14.9 million of deferred income tax expense, whereas no income tax expense was recorded in Q1 2023 because of a full valuation allowance against deferred tax assets.
- Interest expense increased 9% to $15.0 million, driven by higher Credit Facility rates and loan-cost amortization.
- No restructuring costs were recorded in Q1 2024, compared with $1.9 million in Q1 2023.
- Capital expenditures incurred were $124.4 million, including $106.4 million for drilling and completion and $18.0 million for maintenance leasehold and land investment.
Guidance, Outlook, Risks and Unusual Items
- Management expects 2024 drilling and completion capital expenditures of $330 million to $360 million and maintenance leasehold and land investment of approximately $50 million to $60 million.
- The 2024 capital program is expected to produce approximately 1,045 to 1,080 MMcfe per day.
- The Company turned five gross operated Utica wells to sales during Q1 and had one operated drilling rig in Ohio and one in the SCOOP as of April 25, 2024.
- Commodity prices remain the principal operating and financial risk. The Company uses swaps, basis swaps, costless collars and sold call options; its net derivative asset was $220.0 million at March 31, 2024.
- A 10% increase in underlying commodity prices would have reduced the derivative asset by approximately $82.7 million, while a 10% decrease would have increased it by approximately $81.1 million, before the offsetting effect on physical sales.
- Future full-cost ceiling-test impairments are possible if trailing commodity prices decline further. No impairment was recorded for Q1 2024.
- Firm transportation and gathering commitments totaled $1.31 billion, including $166.2 million for the remainder of 2024 and $600.0 million thereafter. The Company also had $43.6 million of surety bonds and $19.3 million of remaining 2024 inventory and materials commitments.
- Pending litigation includes claims alleging production beyond the Utica/Marcellus formations. Management believes no pending or threatened matter is likely to have a material adverse effect, although ultimate outcomes could exceed accrued amounts.
- Management states that operating cash flow, borrowing capacity and cash on hand should fund operations, capital expenditures, interest and planned repurchases for the next 12 months; this depends on realized commodity prices, operating results and access to capital.
Investor Verification Items
- Verify the sustainability of cash flow and liquidity as the $550 million senior notes approach their May 2026 maturity.
- Assess exposure to lower natural gas prices, including the effect of hedge settlements, mark-to-market volatility and sold call options.
- Reconcile the planned 2024 capital program with production guidance and the expected decline in SCOOP activity.
- Review the $1.31 billion of firm transportation and gathering commitments relative to expected production and commodity prices.
- Monitor the deferred tax asset valuation allowance, potential future ceiling-test impairments and the conversion or redemption economics of the preferred stock.
- Evaluate whether continued share repurchases are consistent with debt repayment and development-capital requirements.