Gulfport Energy Corporation: FY2023 Form 10-K Summary
Business context and reporting period
Gulfport Energy is a natural gas-weighted exploration and production company operating primarily in the Utica/Marcellus formations in eastern Ohio and the SCOOP formations in central Oklahoma. This Form 10-K covers the fiscal year ended December 31, 2023, with comparison to the Successor year ended December 31, 2022. Because Gulfport emerged from Chapter 11 on May 17, 2021 and applied fresh start accounting, post-emergence financial statements are not comparable with Predecessor periods before that date.
Year-end proved reserves were 4.2 Tcfe, including 2.2 Tcfe proved developed and 2.0 Tcfe proved undeveloped reserves. The standardized measure was $2.4 billion and PV-10 was $2.4 billion, based primarily on 2023 SEC pricing assumptions.
Key financial and operating metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total commodity sales, excluding derivatives | $1.051 billion | $2.331 billion | Down 55% |
| Total revenues, including derivative gains/losses | $1.792 billion | $1.331 billion | Up 35% |
| Net income | $1.471 billion | $494.7 million | Up $976.2 million |
| Net income attributable to common stockholders | $1.254 billion | $412.9 million | Up 204% |
| Diluted EPS | $66.46 | $20.32 | Up 227% |
| Operating cash flow | $723.2 million | $739.1 million | Down 2% |
| Production | 1,054 MMcfe/day | 983 MMcfe/day | Up 7% |
| Total production cost per Mcfe | $1.17 | $1.34 | Down 13% |
| Capital expenditures incurred | $491.5 million | Not clearly provided in the filing text | Not stated |
Commodity sales declined sharply because realized prices fell: natural gas sales decreased 58%, oil and condensate sales decreased 32%, and NGL sales decreased 35%. Average realized prices before derivatives were $2.37/Mcf for natural gas, $73.27/Bbl for oil and condensate, and $27.29/Bbl for NGLs.
Derivative activity materially increased reported revenue. Gulfport recorded a $740.3 million net derivative gain in 2023 versus a $999.7 million net derivative loss in 2022. Cash receipts from settled derivatives were $152.2 million in 2023, compared with $1.054 billion of cash settlements paid in 2022.
Operating income was $974.8 million. Operating expenses were $816.9 million, including $319.7 million of depreciation, depletion and amortization, $348.6 million of transportation, gathering, processing and compression expense, and $4.8 million of restructuring costs. No oil and gas property impairment was recorded in 2023 or 2022.
The 2023 income tax benefit was $525.2 million, primarily from releasing a portion of the valuation allowance on deferred tax assets. This non-operating, largely non-cash item materially increased net income. Gulfport reported approximately $1.8 billion of federal net operating loss carryforwards at year-end.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1.9 million at December 31, 2023, compared with $7.3 million at December 31, 2022.
- Net working capital was $52.4 million at year-end 2023, compared with a deficit of $391.1 million in 2022; no debt was due within the next 12 months under the year-end presentation.
- Total funded debt was $668.0 million, down from $695.0 million. This comprised $550 million of 8.0% senior notes due May 2026 and $118 million drawn under the Credit Facility.
- The Credit Facility had a $1.1 billion borrowing base and $900 million of elected commitments after the October 2023 redetermination. Gulfport was in compliance with its debt covenants at year-end.
- Credit Facility borrowings had a weighted average interest rate of 8.15% in 2023, compared with 5.19% in 2022. The Company had no interest-rate hedges.
- Gulfport repurchased 1.5 million common shares for $148.9 million during 2023 at a weighted average price of $101.53. Approximately $250.4 million remained authorized under the $650 million repurchase program at year-end.
- Firm transportation and gathering commitments totaled approximately $1.364 billion, including $219.4 million due in 2024. Letters of credit outstanding were $63.8 million and surety bonds were $43.3 million.
Material changes versus FY2022
- Production increased 7%, driven primarily by Utica/Marcellus development, while SCOOP production declined.
- Commodity prices deteriorated significantly, particularly natural gas. The 12-month average SEC natural gas price fell from $6.36/MMBtu to $2.64/MMBtu; the oil price fell from $94.14/Bbl to $78.21/Bbl; and the NGL price fell from $47.86/Bbl to $31.42/Bbl.
- Despite lower commodity sales, derivative results swung from a $999.7 million loss to a $740.3 million gain.
- Total production costs per Mcfe improved from $1.34 to $1.17, mainly from lower taxes and transportation, gathering, processing and compression costs.
- Debt declined by $27 million, while share repurchases decreased from approximately $250.5 million to $149.2 million of cash outflow.
- Proved reserves increased from 4.048 Tcfe to 4.214 Tcfe. Additions of approximately 996 Bcfe from extensions and discoveries exceeded production, but were partly offset by 445 Bcfe of downward revisions.
- Downward reserve revisions included 555 Bcfe from development schedule changes and 160 Bcfe from commodity price changes. Certain PUD locations were moved beyond the SEC five-year development window but remain in Gulfport’s internal development plan.
- Leadership changed materially: John Reinhart became CEO in January 2023, Michael Hodges became CFO in April 2023, and Matthew Rucker became Senior Vice President of Operations.
Guidance, outlook and management commentary
Gulfport expects 2024 capital expenditures of $380 million to $420 million, including approximately $330 million to $360 million for drilling and completion, $50 million to $60 million for maintenance leasehold and land investment, and approximately $40 million for discretionary acreage acquisitions. Management expects to fund the program primarily with operating cash flow and Credit Facility borrowings.
The 2024 plan targets approximately 1,045 to 1,080 MMcfe/day of production. Gulfport plans to complete approximately 17 gross Utica wells and five gross SCOOP wells, commence sales on approximately 16 gross Utica wells and three gross SCOOP wells, and undertake no new Marcellus-directed activity under the budget.
Approximately 54% of expected 2024 production was hedged at an average floor price of $3.70/Mcf according to management. Subsequent to year-end, the Company added additional 2024 and 2025 gas basis swaps and collars and 2025 NGL swaps.
Management’s priorities are reducing cycle times and operating costs, improving margins, generating free cash flow, maintaining capital discipline, strengthening the balance sheet, and continuing shareholder returns.
Key risks, contingencies and unusual items
- Gulfport remains highly exposed to volatile natural gas, oil and NGL prices. Lower prices could reduce cash flow, borrowing capacity, reserves and the value of oil and gas properties.
- Approximately 48% of proved reserves were classified as PUDs, requiring substantial capital and successful development. Future development schedules, commodity prices and costs could cause additional reserve revisions.
- Derivative contracts reduce price volatility but can limit upside, create counterparty exposure and produce substantial period-to-period fair-value volatility.
- The Company has significant fixed midstream commitments, including minimum-volume and demand-charge obligations, regardless of actual throughput.
- The $550 million senior notes mature in 2026, while the Credit Facility generally matures in 2027 but may mature earlier in relation to the 2026 notes if they are not refinanced or repaid as required.
- Operations are concentrated in eastern Ohio and central Oklahoma and are exposed to infrastructure constraints, severe weather, water availability, induced seismicity, permitting delays, hydraulic-fracturing regulation and environmental requirements.
- The Company is involved in ordinary-course litigation and regulatory matters, including post-emergence claims alleging production beyond leased formations. Management believes no pending matter is likely to have a material adverse effect, but ultimate outcomes could exceed accrued amounts.
- 2023 net income benefited from a $525.2 million deferred tax benefit and a $740.3 million derivative gain; these items are not indicative of recurring operating performance.
- Gulfport recorded $4.8 million of restructuring costs related to leadership and organizational changes; $1.3 million was non-cash accelerated stock compensation.
- The Company reported no material cybersecurity incidents or breaches during the year or the preceding four years and received an unqualified audit opinion on its financial statements and internal controls.
Important facts for investors to verify
- Reconcile operating performance excluding the $740.3 million derivative gain and the $525.2 million deferred tax benefit.
- Review 2024 hedge volumes, floor and ceiling prices, basis differentials, and counterparty exposure.
- Assess liquidity after the planned $380 million to $420 million capital program, share repurchases, preferred dividends and required midstream payments.
- Examine the maturity and refinancing risk associated with the $550 million of 2026 Senior Notes and Credit Facility covenants.
- Evaluate the sustainability of 2024 production guidance against drilling schedules, service availability, takeaway capacity and commodity prices.
- Review reserve revisions, the 48% PUD component, and the economic sensitivity of PV-10 to commodity prices.
- Monitor the $1.364 billion of firm transportation and gathering commitments and any minimum-volume shortfall payments.
- Confirm the realizability of deferred tax assets and the potential impact of future valuation-allowance changes.