Gulfport Energy Corporation

Welcome to Gulfport Energy's first quarter 2020 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jessica Antle, Director of Investor Relations.

Thank you and good morning. Welcome to Gulfport Energy Corporation's first quarter 2020 earnings conference call. I am Jessica Antle, the Director of Investor Relations. Speakers on today's call include David Wood, Chief Executive Officer and President, and Quentin Hicks, Executive Vice President and Chief Financial Officer. In addition, with me today available for the question and answer portion of the call is Donnie Moore, Executive Vice President and Chief Operating Officer. I would like to remind everybody that during this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance, and business. We caution you that the actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we may make reference to non-GAAP measures. Reconciliations to the comparable GAAP measures will be posted on our website. I would also like to note that the company intends to file a proxy statement and certain additional proxy materials in connection with a solicitation of proxies for its 2020 annual meeting. Shareholders are strongly encouraged to read the company's proxy statement and all other documents filed with the SEC carefully when they become available because they will contain important information. We will not comment on matters related to the 2020 annual meeting on this call. An updated Gulfport presentation was posted yesterday evening to our website in conjunction with the earnings announcement. Please review at your leisure. At this time, I would like to turn the call over to David Wood, CEO of Gulfport Energy.

Thank you, Jessica. Welcome, everyone, and thank you all for joining us this morning. I hope all of you, your families, and your friends are staying safe and healthy during this challenging time. Before I get into our quarterly results, I wanted to touch on the steps we've taken at Gulfport in response to the COVID-19 pandemic to protect the health and safety of our staff and service providers in the continuity of our business. As part of our business continuity plan, all office employees have transitioned to remote work, remaining fully committed as they work from home and continue being engaged in our day-to-day business. Our field operations staff have done a terrific job ensuring that our operations have continued without significant disruption, while most importantly, maintaining safe operations. We have formed an internal return-to-work task force to develop a detailed plan of how and when we will return to work at our physical offices, but no specific date has been set at this time. Our top priority is and always will be the safety and health of our employees, contractors, and communities in which we operate. Overall, I'm tremendously proud of how we've responded as an organization, and I want to recognize and thank all our teams for their focus, dedication, and perseverance through this extraordinary time. The COVID-19 pandemic is causing a slowdown in both the global and domestic economy, which has resulted in severe demand declines for all fossil fuels heavily weighted to the oil and natural gas liquids markets. Oil prices have traded at 20-year lows, and a dramatic reduction in capital spending from our oil-weighted peers has resulted in expectations for associated gas production to decline in the coming months. and possibly through 2021. This expected decline in associated gas from oil-weighted peers in addition to reduced capital spending from the US gas-weighted producers has led to a recent increase in natural gas prices, especially as we look at the strip in late 2020 and 2021. With approximately 90% of our production being natural gas, we are well positioned to benefit from a gas price rally. We expect that U.S. gas production will decline over the next several quarters and believe this decline could lead to a tightening of the gas supply demand balance, especially if the domestic economy returns to a more normalized state in the near term. However, we remain cautious as there are still many unknowns surrounding the short-term and long-term impacts of COVID-19 on domestic demand for gas. We are also cognizant of the potential supply response as prices approach $3. Concerning all of these factors, we continue to believe medium-term natural gas prices will remain range bound and consistent with our previous $2.60 to $2.90 per MMBTU projections. As we reach these levels in the forward strip, we will take advantage by hedging our future production currently targeting the upper end of that range for 2021. And I will let Quinton provide more detail on what we have secured today during the recent uptick in price. During these unprecedented times, we continue to execute on our 2020 capital budget we laid out in February and remain committed to maximizing cash flow generation, reducing costs and ensuring strong liquidity through the remainder of 2020. For the first quarter, we reported approximately $16.6 million of adjusted net income and generated $128.3 million of adjusted EBITDA. Wealthforce operating cash flow before the changes in working capital and inclusive of capitalized expenses totaled $86.7 million, and due to our front-end weighted capital program resulted in an outspend of roughly $50 million for the quarter. As planned in our original 2020 budget, as we reduce activity throughout the year and capital expenditures decline, we expect to begin generating free cash flow during the second half of the year. During the first quarter of 2020, as expected, our average daily production declined following a muted level of activity during the fourth quarter of 2019. Our production was lower than expected by about 5%, primarily because of delays in placing several new Utica wells online during the quarter. These delays were due to a combination of third-party midstream constraints, inclement weather, and our operational schedule shifting. Our incurred capital expenditures for the first quarter came in well below expectations, partially because of the same operational schedule shifting, as well as continued drilling and completion efficiency gains and lower service costs. We reiterate our original budget to invest approximately $285 to $310 million across our asset base during 2020 and currently expect to come in at or below the low end of this range. Due to very low oil and natural gas prices, we plan to shut in a portion of our operated production in the next few months, including a large number of vertical producing wells in the Scoop. We forecast these shut-ins to impact our near-term production by less than 20 million cubic feet of gas equivalent per day, and we'll continue to monitor pricing daily, potentially extending shut-ins should prices warrant. As mentioned earlier, these are unprecedented times, and we continue to evaluate not only our response, but also that of other producers. There is much uncertainty around associated gas volumes and the overall impact of what we might potentially see from shut-ins during 2020 on both our operated assets and those of our non-operated partners. As we sit here with one quarter of the year in the books and a marked improvement in natural gas prices ahead for us for later in 2020 and early 21, we are exploring opportunities to take advantage of this and maximize returns for our business. Notwithstanding the uncertainties that COVID-19 impacts bring, being able to reshape our production ramp towards better pricing can add meaningful value, and we are looking closely at what that means to both the production guidance for the year and the timing of overall capital spend in 2020. Considering all of these factors, Belfort's previously provided production guidance for the full year 2020 should no longer be relied upon. On the cost front, we continue to focus on increasing efficiencies and improving our cost structure. As expected, our individual expense line items settled at the high end of our budgeted range due to the lower production volumes during the quarter. We expect our per unit cost to decline through 2020 as our volumes increase and we realize economies of scale. In addition, we have a number of ongoing initiatives to place to reduce our cost structure across the business and Quinton will provide more details in his comments. Lastly, we improved our balance sheet during the quarter through discounted bond repurchases, and we reduced total long-term debt by approximately $79.6 million as of March 31, 2020, when compared to year-end 2019. Quinton will touch more on our bond repurchases to date, but I'm very pleased with our efforts to improve our balance sheet in this environment. Turning to our operations, we had an exceptional quarter on the efficiency front in the field. First quarter of 2020 marked the best quarter to date in both our core operating areas with respect to drilling days, achieving the lowest average spud to rig release metrics since entering both the Utica shale and the scoop. We were also very active on the completion front, and as of March 31st, we had completed over 70% of our planned frac schedule in the Utica, and all of our planned 2020 frac activity in the Scoop. It is important to note these results are following a muted level of activity during late 2019, with the majority of our equipment and crews restarting both safely and effectively during the quarter. Great credit to Donnie and his operational teams in making this all happen. In the Utica, we spudged seven gross wells during the quarter and currently have one rig drilling ahead in the play. The wells released had an average drill lateral length of 10,200 feet, and when normalizing to an 8,000-foot lateral, we averaged a spud-to-rig release of just 17.7 days, down 10.6% over full-year 2019 results. Our 2020 program is focused on maximizing lateral lengths to allow us to deliver more with less, and I am proud of the team for this record quarter at the drill bit. Turning to completions in the Utica Shale, we began the year active and completed 15 wells during the quarter, with three additional wells in progress at the end of March. The wells completed had an average stimulated lateral length of 11,500 feet, which includes four of the longest laterals completed to date by Gulfport in the play, ranging from 16,000 to nearly 18,000 feet. Incorporating both the drilling and completion activities during the first quarter of 2020, We estimate that Gulfport's Utica well costs average $980 per foot of lateral, approximately 10% below our budget of $1,100 per foot, and $830 per foot of lateral when including D and C only. This improvement in our well cost is significant for our future development and highlights our drive to deliver a leading cost structure in the Basin. Switching over to the scoop, during the first quarter we spud five gross wells and currently have one rig drilling in the play. The wells released had an average lateral length of 9,500 feet, and when normalized to a 7,500 foot lateral, the wells averaged a spud to rig release of 37.4 days during the first quarter, a decrease of 32% when compared to our 2019 program average, and as I mentioned, the best quarter to date since entering the play. When comparing first quarter results to past activity, Gulfport delivered one well with a spud to rig release of less than 40 days during 2019 and zero in 2018 and 17. To date, three of the four wells drilled have been sub-40 days. These improvements were achieved while we were adding a new rig, increasing measured depths, and increasing lateral lengths. Our first quarter performance exemplifies our focus on identifying areas of improvements, and we look to carry forward this momentum throughout the year. We established two Gulfport records during the first quarter, releasing a well with a spud-to-rig release of 39.8 days, then subsequently breaking this with a new record of just 32.5 days, both occurring in the same quarter. On the completion front during the first quarter, we completed and turned to sales four gross wells with an average simulated lateral length of 6,500 feet. Due to efficiencies on the pad and the current service cost environment in the basin, this activity came in roughly 30% below our forecasted 2020 scoop completion budget. Our activity in the first quarter completes our planned frac and turn in line program for the scoop during 2020. Incorporating both the drilling and completion activities During the first quarter of 2020, we estimate that Gulfport's scoop well cost averaged approximately $1,080 per foot of lateral, approximately 30% below our budget of $1,500 per foot, and $1,065 per foot of lateral when including D and C only. We are determined to deliver consistent, repeated results in the scoop, and our first quarter progress highlights our continued emphasis on identifying, implementing, and realizing efficiencies in this play. In summary, while the macro environment was extremely volatile and uncertain, our continued focus on increasing efficiencies and reducing costs led to solid progress during the first quarter of 2020. We have a highly talented team at Gulfport who continue to aggressively manage costs to enhance margins and increase free cash flow. We continue to execute on our 2020 capital budget provided in February and remain committed to exercising capital discipline, maintaining strong liquidity, and evaluating all opportunities to enhance value for our stakeholders. With that, I will turn the call over to Quinton for his comments.