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spk00: Greetings. Welcome to the Gulfport Energy Corp third quarter 2021 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. Please note that this conference is being recorded. I will now turn the conference over to your host, Tommy Renard. You may begin.
spk03: Thank you and good morning. Welcome to Goldport Energy Corporation's third quarter of 2021 earnings conference call. I am Tommy Renard, Senior Analyst of Investor Relations. Speakers on today's call include Tim Cutt, Chief Executive Officer, and Bill Beezy, 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 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 reference non-GAAP measures. Reconciliations to the comparable GAAP measures will be posted on our website. An updated goal for presentation was posted yesterday evening to our website earnings announcement. Please review at your leisure. At this time, I would like to turn the call over to Tim Cutt, CEO.
spk02: Thanks, Tommy, and good morning, and thank you for joining the call. I will begin this morning with a summary of the third quarter highlights, followed by an operational update before turning the call over to Bill to discuss the financial and updates of our full year 2021 guidance. As you saw from our earnings release, we've made steady progress on numerous fronts during the quarter. We put a new credit facility in place that increases our liquidity by $160 million and accelerates our ability to return capital to shareholders as demonstrated by the announced $100 million share repurchase program. The six-well Angelo pad was completed in the Utica, which is currently flowing at a rate of 200 million feet per day. Finally, the company fully resolved its largest post-bankruptcy litigation exposure with TC Energy in and announced a settlement agreement related to its longstanding litigation with Stingray Pressure Pumping in September. I'm pleased to have this litigation behind us so that we can focus on the company's tremendous opportunities moving forward. Moving to our third quarter operational results, production averaged 973 million cubic feet of gas equivalent per day during the quarter, slightly above expectations driven by strong reservoir performance from both the Utica and the Scoop development programs. We anticipate an increase in total production during the fourth quarter, driven by the strong contribution from the Angelo pad. Gulfport invested $81 million of capital in the third quarter. We continue to identify opportunities to lower our total drilling and completion costs, however, remain primarily focused on delivering peer-leading development costs per NCFE produced. Moving forward, we continue to target a maintenance level of capital spend of approximately $300 million per year, despite service cost inflation. This level of spend is expected to result in roughly one BCF equivalent per day of production. Improved well performance and longer flat time periods resulting from our new development spacing and completion designs provide this opportunity, allowing us to deliver more molecules with less capital. Prior to providing formal 2022 guidance, we are exploring ways to improve cost efficiency by potentially moving to a continuous one rig drilling program in both the Utica and Scoop. Turning now to our development program, I am pleased to report that our results in both the Scoop and Utica are outperforming historical development results. On page 13 of the IRDEC, you will find recent results from our 2021 Utica program. The Shannon and Hendershot wells have been online for approximately eight months and remain on plateau. In addition, our Morris and Garrett pads have been online several months, and we are seeing similar promising early-time data. These wells are located in the southern portion of the play in Monroe County, and we are very encouraged with how these wells are performing as compared to historic wells in the same area. And finally, you can see the rapid buildup of the Angola wells to their target production rates ahead of schedule. We expect the Utica 2021 development program production to stay relatively flat through November and start to decline in December as the Shannon-Henishaw wells approach line pressure. We believe that this strong performance is driven by the move to water spacing and optimized frac jobs. On slides 14 through 17, we have highlighted our AngeloPAD development. This is our most substantial test of our new development program approach to date. We have provided a picture of the simul-track operation on page 14 of the IR deck. This operation enables us to complete the wells in 60 days versus 90 days using normal fracking techniques. We completed an average of just over nine stages per day versus our historical six per day and are encouraged by the fact that we achieved multiple days above 12 stages and a record day of 16. We are very pleased to achieve 100% reuse of produced water for fracking operations and plan to utilize dual fuel rigs and frack spreads for future operations, which will lower costs and improve environmental performance. You will see on slide 15 that we utilized two snubbing units to drill out the Angelo wells simultaneously, which accelerated production and startup into a high commodity price environment by 10 days. As shown on slide 16, production was brought online at target rates ahead of schedule and is expected to remain on plateau for extended period. The estimated drilling complete costs are consistent with our new development approach at $750 a foot, and when applying lessons learned from the Angelo pad, there is additional opportunity for improvement. Moving to the scoop, development results, we experienced strong production from the asset during the quarter, an increase of 12% from the second quarter, In addition, as you can see from slide 12, the wells are declining at a slower rate than budgeted, resulting in cumulative rates performing much better than historical billport wells. We attribute the improved performance to wider spacing and longer laterals and are pleased with the results to date. We are currently running one rig in the scoop and plan to return to fracking operations in January of 2022. We continue to focus on improving the company's cost efficiencies. As discussed during the last call, costs are expected to decline by $0.43 per MCFE or 23% year-on-year, which significantly improves our margins and is expected to provide substantial and sustainable free cash flow generation moving forward. LOE for the quarter was up slightly primarily due to increased water hauling costs, but the full-year guidance remained consistent at $0.14 per MCFE for 2021. Reducing corporate overhead remains a key initiative for the management team, and we have lowered recurring cash DNA guidance by $3 million compared to the midpoint of our previous guide provided in August. We expect to achieve top quartile DNA costs of $0.12 per MCFE for the full year of 2021 and maintain this run rate into 2022. In closing, as always, we are fully committed to safely executing in the field and improving environmental, social, and governance performance. flatten our corporate structure, reduced overhead, and are focused on optimizing our development program to deliver the highest returns possible for our investors. I'll now turn the call over to Bill to discuss our financial results in 2021 guidance.
spk01: Thank you, Tim, and good morning, everyone. As Tim suggested in his remarks, we had another solid quarter, both operationally and from a financial perspective. I will spend my time this morning providing a brief overview of our third quarter financial results, some details surrounding our recent credit facility amendments, our improved liquidity position, share repurchase authorization, and updates to our 2021 guidance before opening a call-up for Q&A. For the three-month period ending September 30th, 2021, we reported a net loss of $461 million and generated $171 million of adjusted EBITDA. Driving the net loss was a $529 million unrealized loss associated with our commodity derivatives portfolio. Net cash provided by operating activities totaled $126 million during the quarter, and we generated free cash flow of $70 million for the same period. To ensure our ability to fund our capital program and generate free cash flow going forward, we continue to enter into commodity derivative contracts during the quarter. For the remaining three months of 21, we currently hold natural gas swap and collar contracts totaling approximately 800 million cubic feet per day with an average floor price of $2.65 per MCF. We also have natural gas swap and collar contracts totaling approximately 550 million cubic feet per day at an average floor price of $2.66 for 2022, and contracts totaling approximately 65 million cubic feet per day at an average floor price of $3.39 for MCF for 2023. Please see our Form 10-Q for additional details on our derivative portfolio. Turning to our balance sheet, at the end of the third quarter, total assets were approximately $2.1 billion while total gross debt was approximately $750 million, consisting of $35 million outstanding under our revolver, $165 million outstanding under our term loan, and $550 million of outstanding senior notes. We also had $4 million of cash and $115 million of letters of credit outstanding at the end of the quarter. On the liquidity front, we exited the third quarter with approximately $228 million of total liquidity made up of the $4 million of cash and approximately $224 million of borrowing capacity under our facility. On October 14th, we announced a comprehensive amendment and restatement of our credit facility. We believe that the amendment will provide the necessary financial flexibility we need to execute our ongoing business plan. It also accelerated our ability to return capital to shareholders, as evidenced by our recently announced repurchase program. The amendment provides for, among other things, an $850 million borrowing base, a $120 million increase in aggregate elected lender commitments from $580 to $700 million, the repayment of the term loan under the exit facility, the elimination of the $40 million availability blocker, and a maturity extension to October 2025. The amendment reduces the applicable rate for borrowings under the facility by 125 basis points, through the elimination of the 100 basis point LIBOR floor and by decreasing the price grade by 25 basis points at each level of utilization. The new agreement requires the company to maintain, as of the last day of each quarter, a net funded leverage ratio of less than or equal to 3.25 times and a current ratio of greater than or equal to one time. While there are other modifications to the agreement, this should give you a good feel for some of the key items addressed, Overall, we think the amendment was an extremely positive outcome for the company. Proforma for the credit facility amendment, our liquidity at September 30th increased by $160 million to approximately $388 million, comprised of the $4.5 million of cash and $384 million of available borrowing capacity under the new credit facility. As announced in yesterday's release, the board authorized the repurchase of up to $100 million of the company's outstanding shares of common stock. The authorization is valid through December 31st, 2022. The timing and amount of any share repurchases will be subject to available liquidity, market conditions, credit agreement restrictions, applicable legal requirements, and other factors. We intend to utilize the repurchase program opportunistically using available funds while maintaining sufficient liquidity to execute our capital development program and to pay down debt. We believe the share repurchase program, which if executed at today's share price, would represent over 5% of our outstanding common shares, is a meaningful first step in our commitment to return capital to shareholders. The company will continue to evaluate all options, including potentially increasing the size of the share repurchase program and instituting a common share dividend program in future quarters. Any additional initiatives will be market and liquidity driven and largely governed by our new credit facility covenant. Moving on to guidance, we narrowed our 2021 total production guidance to 980 to 1,000 million cubic feet equivalent per day. Our 2021 guidance for LOE and GP&T expense remained unchanged at 13 to 15 cents per MCFE and 92 to 96 for MCFE, respectively. Our 2021 guidance for recurring G&A expense was lowered to a range of 42 to $44 million, the midpoint of which is 17% lower compared to 2020, and is in line with top quartile performance at 12 cents per MCFE. Excluding acquisition and divestiture activity, our 2021 Guidance for Capital Investment remained unchanged at $290 to $310 million, with approximately $20 million of capital associated with land and leasehold activities. A little over two-thirds of the 2021 capital budget will be allocated to the UTECA. Finally, we increased our full-year 2021 free cash flow guidance by $55 million at the midpoint to a range of $345 to $365 million at current strip pricing. Please see our earnings release for a few additional details on our 2021 guidance. In summary, we believe that our efficient asset base continues to support a low investment rate and the potential for strong return of capital to shareholders. Our 2021 free cash flow yield remains the best in our peer group and we believe that our ability to generate significant free cash flow going forward is still largely underappreciated. Our business plan remains committed to developing our assets in a disciplined manner, investing approximately $300 million of capital to deliver roughly 1 billion cubic feet per day of equivalent production, while targeting annual free cash flow of more than $350 million at a $3.50 natural gas price. Finally, while liquidity has improved, largely due to the amended credit facility, we expect it to get even better as we execute our business plan. As stated last quarter, we believe that our ability to deliver peer-leading free cash flows provides a unique opportunity for investors. While we still plan to prioritize debt repayment in the near term, we are excited by our recently announced share repurchase program, and we are eager to share our plans for returning additional capital to shareholders in future quarters. With that, we will now open the call up for questions.
spk00: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Neil Dingman with Truist. You may proceed with your question.
spk05: Good morning, all. Tim, Bill, I appreciate all the early comments. I guess mine is kind of a blended question. When you think about both your growth and more particularly maybe the shareholder return, I guess that's more important these days for most investors. You know, when you think about optically, you know, maybe the most efficient way to run you know, both when you think about the Utica and, of course, over in the MidCon, by, you know, is the plan to run one rig in each, or I'm just wondering, I guess my question would be, how do you balance maybe running the most efficient plan, you know, again, activity-wise with that, which is the most efficient, you know, sort of shareholder return-wise?
spk02: Yeah, Neil, that's a perfect question. I touched on it during my prepared comments You know, right now we have a program that was designed at a very low gas price, and it was designed to maximize cash flow and ultimately return to the shareholders. With price improvement, I think it opens up opportunities to look at a more efficient development program. For instance, in both the Utica and the Scoop, we do stop drilling for periods of time, start drilling, start and stop fracking, And that can be quite inefficient. And when you're in a market like we're in today where supply costs are going up, services are hard to acquire, you build risk by doing that. So we're looking at what's the opportunity to potentially run a more consistent program. That's part of the reason we didn't put the formal guidance out. We're going to talk about that at the board. But obviously from an operating standpoint, our preference is to be more consistent. So I think that's a great question.
spk05: And then, just really, you're going right where I wanted to go, just on the follow-up, you know, now with the shareholder repurchase authorization, I mean, how do you sort of blend that in, thinking about that, you know, maybe questioning for Bill, I mean, how do you think about that versus the dividend?
spk02: Yeah, I think, you know, I'll take it first. I mean, the good news is, you know, going to a more consistent program does not cost a lot. It's probably a 20% to 25% increase in the program rate. And so, you know, in the Utica, for instance, it's probably three months. You fill that in, you stay on the same fracking schedule, you frack another pad. It's not like you're doubling up at all. So I think you can increase and still generate, you know, substantial cash flow. And if you think about right now, you know, kind of $350 million is the 350 price. That number, obviously, if prices stay higher, will go higher. you still have a lot of headroom for dividend, shareholder buyback, and paying down debt, which is extremely important to take us down to at least one times leverage. So I think there's room for all of that. We just want to make sure we're very measured in our decision-making and we don't move to that too quickly. But I do think it's something, it could be, you know, a positive thing. And also by doing that, although we wouldn't see much of an increase in 2022 on production, we could see a more substantial increase in production in 23 if prices sustain. So I think there's plenty of room to consider this without worrying about, you know, do we have to do one or the other? Anything to add, Bill?
spk01: Yeah, no, I think that's exactly right. I mean, we're going to take a measured approach, and there's room. These aren't mutually exclusive. We can certainly, you know, again, we just did this credit facility amendment two weeks ago, basically it closed. So, you know, the board and management have been in active discussions about capital return and We'll continue to have those discussions, Neil, and we can certainly do more than one thing, and we plan on it in the future.
spk05: I love the optionality. Thanks, guys, so much.
spk01: All right.
spk02: Thank you.
spk00: Our next question comes from the line of Zach Parham with J.P. Morgan. You may proceed with your question.
spk07: Hey, guys. Thanks for taking my question. I guess, first off, on the Angelo pad, your well cost came in a bit below the Utica target. Could you talk a little bit about how you see well-cost trending in 2022, given both cost inflation pressures, but also positive trends on the op side, including simulfrac and doing things more efficiently?
spk02: Yeah, I think right now they're kind of offsetting each other. We're seeing, obviously, everybody has different numbers they're talking about for inflation, but on any particular service or commodity, you're seeing zero to 40% change. So, On a blended basis, it may be 10% to 15% pressure. So we're trying to basically hold our own and offset. I do think there are opportunities below the 750, but those things could get offset by inflationary effects. We don't have a big water disposal system, for instance, in the Utica. So if we have big pads and we're not fracking next door to use that water, those costs go up. So it can be a little bit lumpy, and that's why we're considering going to more consistent programs. So we are... fracking more while we're producing these new pads to try and have a better place for disposal of water through the fracking operation. So I don't want to get ahead of our skis here as far as predicting where we'll be next year, but I do think the range around 300 if we stay with the same program is good because we are going to be able to offset some of those inflationary folks, but I wouldn't be prepared yet to kind of quote what we're thinking we'll see on a dollar per foot basis yet.
spk07: Thanks for that, Culler. Just one follow-up from me. One of your natural gas-focused peers recently announced restructuring some of their hedge book. Is this something Gulfport could potentially look at, something to do on some of your longer-dated hedges that were put in place in a very different gas price market? And maybe if you could talk about, if so, what that potentially could look like.
spk01: Yeah, Bill will take that. Yeah. So, yeah, definitely, you know, Zach. You know, that was another reason we did the credit facility. We needed to, you know, get some more counterparties to allow us to work on some of that. It's still a bit early to tell you exactly how that's going to play out, but it's something we're focused on, specifically the calls in 23. And, again, next quarter we should have a better update on that. But it's definitely something we are focused on. And that, again, part of the reason for the credit facility amendment was to allow us to address some of that.
spk07: Thanks, guys. That's all for me. All right. Thank you.
spk00: Our next question comes from the line of Tarek Hamid with JP Morgan. You may proceed with your question.
spk04: Good morning, and thanks for taking my question. You've effectively kept guidance on volume and capital, sort of flats that go forward plan at that one BCS and $300 million of capital since emergence. I guess, you know, and this sort of falls on Neil and Zach's questions, but given the productivity of the Angelapad and just the broader drilling program so far this year, do you think there's upside to volumes in 22? I guess, how do you think about your productivity assumptions on a go-forward basis?
spk02: Yeah, I think, you know, we've looked, obviously, very closely at that, and I think the one BCF is probably still a good number. You know, we... you know, we had planned for these kind of rates. Everything we did in this year is performing about like it was expected to. Our base decline is, you know, doing about what we expected to do. So, you know, we're not, we don't have much ability to accelerate things. The permitting process is a pretty extended process. And so we don't have a lot of flexibility to bring much forward. I do think we could, you know, bring a pad earlier in the year, but that production, again, comes on late in the year. So I don't think you should expect Much upside, I think the lever we have is kind of how we build towards 2023. I think we have much more flexibility on how we set the stage for that. But I think most of the plans we look to stay plus or minus around that BCF.
spk04: I appreciate it. And just one follow-up from me, just on the timing on the execution of the share repurchase program, how quick do you expect to just start to execute on the program? I think, as you point out, pretty quick. successfully in the slide deck, you're going to generate a ton of cash in 22, and you could be out of prepayable debt, period, in just a quarter or two. So I guess, how do you think about timing to start chipping away on that share of purchases?
spk01: Yeah, that's a good question. I mean, that's obviously not in our advantage to share exactly what will be on the market, but it's something we'll be doing opportunistically. We believe our shares are undervalued, so it's a good investment to do so, but we're not going to tip our hand necessarily, but it's something that we're definitely looking at and And we're excited about it.
spk04: Got it. Well, thanks for taking my questions.
spk00: All right. Thanks. Our next question comes from the line of Stephen Descher with KeyBank. You may proceed with your question.
spk06: Hey, guys. Just one for me. Just wanted to see if you guys have given any consideration to raising gas production this winter with the high prices right now. Thanks.
spk02: Yeah, you know, we don't have a lot of opportunity to do that. If you look in the slide deck carefully and you look at the Shannon-Hendershot wells, those are the wells that have been on plateau for about eight months. About a month ago, we did turn those wells up and ran them for a while. Some of them, I think, stayed up. A few of them we dialed back. We're just trying to test what we can do without bringing, you know, basically frac sand out of formation, creating operational issues for us. And so... We think we're producing news. Our target rates on the Angelo paths are 235. We're pushing that a bit right now. We're at 250. Obviously, with some downtime, the 235 target is what we'd stick with. So I don't think you'll see a lot of that. What we have done, and you see it in that base decline, in the decline of our new wells in the scoop, we've been doing compression projects. We're doing a whole lot of projects on the base to get that decline flatter. We did move as fast as we possibly could to get the Angelo pad on. It came on a bit early. But I wouldn't expect that we have unlimited ability to kind of turn things up. I mean, we're going to do what we can do within kind of confines of the wells we have and making sure we continue to produce those safely. You know, it's great having big wells. You don't want to lose one of those. So we want to be a bit cautious on that. But, again, we're trying to push that as hard as we can. and take advantage of the prices. And we understand the question completely. But I think, you know, the kind of guidance range we gave in the deck there is about what you should expect coming out of the fourth quarter. Got it. Okay. Great. Thanks.
spk00: At this time, we have reached the end of the question and answer session. Now I'll turn the call over to Tim Cutt for closing remarks.
spk02: All right, thank you very much, and thanks for calling in and asking the questions and also calling in to listen. We appreciate that. I mainly want to say once again thanks to our organization, to our employees, our contractors. We've actually done a lot since the beginning of this year, and you've delivered against that well, and we do appreciate that a lot. Again, appreciate your time today to join in, and if you have any additional questions, don't hesitate to call Tommy and reach out to our investor relations team. But with that, that concludes the call. Thank you.
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