Gulfport Energy Corporation

Greetings, and welcome to Gulfport's second 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 Antel.

Thank you and good morning. Welcome to Gulfport Energy Corporation's second quarter 2020 earnings conference call. I am Jessica Ingersoll, 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. 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. 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. As we close a very difficult quarter for our industry, I want to thank the employees of Gulfport for their focus, dedication, and perseverance during these unique times. The global pandemic and the resulting collapse in demand have upended many businesses. As economies around the world emerge from lockdowns, the path forward remains uncertain. The safety of our employee and contractors remains a top priority, and we continue to take the appropriate measures to provide a safe working environment for everyone. Our field staff continues to do a terrific job ensuring that our operations carry on without significant disruption while most importantly, maintaining safe practices. Overall, I am proud of our team's ability to stay focused during this extraordinary time while continuing to execute on the key strategic initiatives we laid out for 2020. Although many lockdowns have been easing, the situation remains fluid and visibility on the world's economic outlook remains extremely limited. Given the unpredictability regarding the pace of recovery for the global economy, and specifically energy manned, oil and gas producer activity in the second half of the year is uncertain. And we see this continue to weigh across all energy markets. On the supply side, we witnessed a dramatic reduction in capital spending from our oil-weighted peers early in the year. However, with oil now having just crossed near $40 a barrel, we have started to see some activity return, and with it, the associated gas production come back to market. At the same time, we are experiencing 25-year pricing lows on natural gas. Several gas producers, including Gulfport, have curtailed or deferred near-term production and made interpreting the current natural gas supply and production declines extremely difficult. Lastly, the ever-evolving political environment continues to command headlines within the energy space for elevated risks in the future. Conserving all of these uncertainties together, we remain cautious near-term on natural gas pricing, which impacts our financial position going forward. Quinton will address this in more detail during his prepared remarks. Turning to second quarter performance, we reported approximately $47.1 million of adjusted net income and generated $145 million of adjusted EBITDA. Gulf Force operating cash flow before the changes in working capital and inclusive of capitalized expenses sold $97.8 million, and we reported free cash flow of $43.8 million during the second quarter of 2020. As a result of the commodity price environment, during the second quarter, we made the strategic decision to defer near-term production to later periods in the year and early 2021, when natural gas prices are expected to be higher. In addition, due to very low NGL and oil pricing, we chose to shut in a portion of our operated low margin liquids weighted production during the second quarter, largely consisting of legacy vertical production in the scoop. We also experienced shut-ins across both the scoop and Utica from our non-operated partners. These factors, as expected, led average daily production to decline slightly from the first quarter of 2020. As of mid-July, nearly all liquids weighted volumes on both our operated assets and those of our non-operated partners had returned to production. Based on current natural gas pricing, we plan to continue executing on our curtailment strategy, shaping our production profile to peak during the colder months of the year. This is in line with our updated guidance provided in June, and we reaffirm our expectation for full-year 2020 production to average 1.0 to 1.075 billion cubic feet equivalent per day. Our incurred capital expenditures came in well below forecast for the quarter, highlighted by continued efficiency gains and lower service costs. On the drilling front, we continue to achieve some of the lowest average spud to rig release metrics since entering both Utica Shale and the Scoop. In fact, the second quarter marked the third consecutive quarterly record for the Scoop drilling day. These performance gains allow the teams to high-grid our rig fleet and release equipment ahead of budget while remaining on target for our planned well spread for 2020. In addition, our frac efficiency continues to trend upward, and we are a basin leader in water reuse and recycling during frac operations, which has ultimately reduced total well costs and highlights our commitment to environmental stewardship. All of these efforts combined led to substantial savings during the first six months of 2020, and have provided the opportunity for us to better position Gulfport into 2021. We now plan to complete an incremental seven gross wells during 2020 in the Utica Shale. This additional activity provides incremental production late this year, and we expect it will have minimal impact to full year 2020 production levels. Efficient operations and continued improvements in drilling and completion costs allow us to add incremental activity and still be within our previously provided CapEx guidance range. Great credit to Donnie and his teams in making this all happen. Turning to specifics in the Utica, in the first six months of 2020, we spud 12 gross wells utilizing roughly 1.2 rigs and currently have one rig drilling ahead in the play. The wells released had an average drill lateral length of 9,500 feet, And when normalizing to an 8,000-foot lateral, we averaged a spud to rig release of 18.5 days, down 6% over full year 2019 results. We are a leader in the dry gas window of the play, and I'm pleased to say our Utica drilling program is in manufacturing mode. While there is little low-hanging fruit remaining, the team continues to gain efficiencies through the drill bit and deliver on expectations quarter after quarter. Turning to completions in the Utica shale, we began the year active and completed 22 wells during the first six months of 2020. Our frack efficiency continues to trend upward, averaging over seven stages per day today, and market pricing for completion crews has trended well below the original budget. Incorporating both the drilling and completion activities during the first six months of 2020, we estimate that Gulfport's Utica well cost averaged $915 per foot of lateral, approximately 17% below our budget of 1,100 foot, and $760 per foot of lateral when including B 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 six months of 2020, we spud six gross wells and currently have one rig drilling into play. The wells released had an average lateral length of 9,400 feet, and when normalized to a 7,500-foot lateral, the wells averaged the spud to rig release of 37 days during the first six months of the year, a decrease of 32% when compared to our 2019 program average. As I mentioned, the second quarter marked a new record since entering the play, and when comparing 2020 results to past activity, Belfort delivered one well with a spud to rig release of less than 40 days during 2019, and zero in 2018 and 2017. Today, five of the six wells drilled during 2020 have been sub 40 days. As we highlighted last quarter, All of these improvements were achieved while we were adding a new rig, increasing measure depth, and increasing lateral length. We completed our planned frac and turn-in-line program for the scoop during the first quarter and have no further completion activity planned for 2020. Incorporating both the drilling and completion activities during the first six months of 2020, We estimate that Gulfport's scoop well cost averaged approximately $1,065 per foot of lateral, approximately 29% below our budget of $1,500 per foot, and $995 per foot of lateral when including D and C only. We are determined to deliver consistent, repeatable results in the scoop, and our continued progress highlights our emphasis on identifying, implementing, and realizing efficiencies in the plant. In summary, our results continue to demonstrate value-enhancing progress toward improvements in efficiency gains, cost reductions, and shortened cycle times. We are continuing our curtailment strategy deferring production from mid-year 2020 when prices are low to late 2020 and into 2021 when prices are expected to be higher in the winter season. We believe these efforts will better position the company as we enter 2021 allowing for higher production in a better forward commodity price environment to maximize returns and cash flow. With that, I will turn the call over to Quinton for his comments.