Gulfport Energy Corporation

Good day, ladies and gentlemen, and welcome to the Gulfport Energy Corporation fourth quarter 2023 earnings call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Jessica Antle. Welcome, Jessica. The floor is yours.

Thank you, Karen, and good morning. Welcome to Gulfport Energy Corporation's fourth quarter and full year 2023 earnings conference call. I am Jessica Antle, Vice President of Investor Relations. Speakers on today's call include John Reinhart, President and CEO, and Michael Hodges, Executive Vice President and CFO. In addition, Matthew Rucker, Senior Vice President of Operations, will be available for the Q&A portion of today's call. 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 conditions, 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 reference non-GAAP measures. Reconciliations to the comparable gap 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 John Reinhart, President and CEO.

Thank you, Jessica, and thank you to everyone for listening to our call. Taking a step back to reflect on the message we provided on our conference call in February of last year, I noted during 2023, we would be focused on actions that facilitate efficient and sustainable development of our quality inventory, enhance margins, optimize efficiencies within our capital programs, all while maintaining an attractive balance sheet and utilizing our free cash flow to position the company for value enhancement. The company delivered on those commitments. I'd like to highlight a few of the accomplishments the team achieved over the course of 2023. The company delivered net production above the high end of the initial guidance range, while staying below the midpoint of our initial capital budget provided in February, despite adding incremental activity in the fourth quarter that was not included in our original capital guidance. We augmented our attractive acreage portfolio by allocating $48 million of our adjusted free cash flow to strategic acquisitions of Utica Liquids Rich Acreage that extended our inventory base by one and a half years and also by delineating two years of liquid-rich Marcellus locations overlying our existing Utica acreage with no incremental land acquisition costs. Our 2023 development program led to meaningful free cash flow generation, totaling approximately $199 million for the year. And after adjusting for cash flow utilized for discretionary acreage acquisitions, we allocated approximately 99% of our adjusted free cash to repurchase our common stock, all of which was achieved while maintaining our strong balance sheet, ample liquidity, and financial leverage below one time. Production for the year averaged 1,054 million cubic feet equivalent per day, roughly 3% above the high end of our initial guidance range provided in early 2023. The outperformance was driven by improved cycle times, accelerating the timing of wells brought online, as well as continued strong well performance from our development program. We remain excited about our shift to a pressure-managed flowback program, which drives longer production plateau periods, shallower declines, and capital efficiencies associated with reduced facility costs. Furthermore, based on flowing pressures as a leading indicator, This program should contribute improved EURs and enhance development economics while improving corporate-based decline and lowering future capital intensity. Operationally, for the full year, the company drilled and turned to sales 24 gross wells, which included two Marcellus, two Scoop, and 20 wells in the Utica. On the drilling side, we achieved meaningful cycle time improvements throughout the year. experiencing over a 60% year-over-year improvement in total footage drilled per day when compared to year-end 2022. The company's fourth-quarter average total footage drilled per day was the highest for the year, providing strong momentum as we commenced drilling on a three-well pad in the Scoop, and look forward to applying our Utica learnings and operational efficiencies realized in 2023 to our 2024 Scoop development program. On the completion side, we also saw a significant efficiency improvement in the frac and drill-out phases of our operations, improving average frac pumping hours per day by 30% in 2023, and average plugs drilled per day by almost 50%. Exiting the year with a quarterly average of 20.8 frac pumping hours per day. Again, our highest quarterly average for the year. Our operating team's high level of efficiency and cost reduction focus resulted in over $35 million in capital savings during 2023, and as previously announced, we elected to reinvest those savings into the development of our high-quality assets by adding incremental drilling and completion operations during the fourth quarter. Even with this acceleration of activity, we continued to deliver within expectations of full-year 2023 capital expenditures, which totaled approximately $443 million, excluding discretionary acreage acquisitions. Specific to our Marcellus development, we drilled and completed the company's first two operated Marcellus wells on our stack pay acreage in Belmont County. When normalized to a 15,000-foot lateral, the wells delivered an average 60-day initial production rate of approximately 860 barrels per day of oil and 5.2 million cubic feet a day of natural gas. As a reminder, these wells are located on an existing Utica pad, allowing significant midstream flexibility in our ability to blend the rich gas from the Marcellus wells with existing Utica dry gas production. We remain very encouraged as we continue to gain more production data and produce the wells under pressure-managed flow, currently experiencing less than six PSI pressure drop per day following 60-plus days of production. We believe the hindershot development, along with existing industry offset development in Ohio and West Virginia, has significantly de-risked our Marcellus position and now estimate we have delineated approximately 50 to 60 gross wells. Assuming a Marcellus development cadence of roughly 25 wells per year, this equates to approximately two years of liquids-rich inventory. When considering these strong results and the attractive rates of return that compete for capital across our premier asset portfolio, we anticipate additional Marcellus development beginning in early 2025. On the discretionary acreage acquisition front, the company expanded our acreage position by investing 48 million in 2023 towards targeted Utica liquids-rich acreage within our Belmont County development footprint. With our current drilling pace, approximately 1.5 years of core liquids-rich locations were added at an average cost of approximately 1.7 million per net location. When coupled with the de-risking of our Marcellus acreage, The additional inventory provides durable fundamental value to the company, as well as expanding optionality in our go-forward development plans. The company is prioritizing development of the recently acquired Utica acreage and plans to begin pad construction in the area in late 2024 with plans to commence drilling in early 2025. The discretionary acreage acquisition spending in 2023 allowed us to organically extend our high-quality inventory base at extremely attractive returns. We will continue to monitor opportunities to meaningfully increase our leasehold footprint to enhance resource depth and believe these opportunities rank very high as we continuously assess and evaluate uses of free cash flow in 2024. As we move into 2024, The current volatile natural gas environment reinforces the importance of developing our assets in an efficient and sustainable manner. Building on the momentum from 2023, we plan to remain focused on further optimizing our margins, development program cycle times, and operating costs. The company forecasts delivering relatively flat production year-over-year on 10% less capital invested. The total capital spending for the year is projected to be in the range of $380 to $420 million, with more focus on liquids-rich development in both the Utica and Scoop than prior programs. Our total capital spend includes $50 to $60 million of maintenance land and leasehold investment, focused on bolstering our near-term drilling program with increases of working interest and lateral footage in units we plan to drill near-term. The company's 2024 Utica turn in line operated working interest is anticipated to be 97%, an increase of 5% over 2023's program, with the average lateral length of the planned activity up nearly 30% over 2023, increasing our exposure to our high return operated development program. Simply put, our significant operational efficiencies and reinvestment in our asset base through our land maintenance program allows us to deliver a 2024 program in line with 2023 production results on less well activity and capital invested. It is worth highlighting that our 2024 program also includes roughly 30 to 35 million of capital allocated towards building strategic ducts beyond our normal operating cadence, enhancing future capital program optionality and further highlighting our significant year-over-year efficiencies and our ability to deliver similar production in 24 on meaningfully lower capital. We currently forecast approximately 70% of our drilling and completion capital will be allocated in the first half of 2024 and trend lower in both the third and fourth quarters of the year. Turning to production, we anticipate this level of spend will deliver 1.045 to 1.08 billion cubic feet equivalent per day in 2024, relatively flat over our full year 2023 average. We are remaining flexible in light of the commodity backdrop and possess the ability to moderately defer or accelerate completions should commodity prices and rates of return warrant. In our investment deck on slide 11, we included a more detailed outlook of our expected 2024 capital and production cadence. We currently forecast our 2024 production to total 92% natural gas, which will be higher in the first half of 2024 as a result of our natural gas directed activity late last year and move slightly towards a higher liquids weighting towards the back half of 2024 and into 2025 as we bring online our more liquids-rich development. In closing, despite a challenging commodity backdrop, we project Gulfport will continue to generate meaningful adjusted free cash flow in 2024 and currently forecast a top decile free cash flow yield relative to our natural gas peers. We plan to continue to focus on the return of capital to our shareholders and excluding acquisitions, expect to allocate substantially all of our full year 2024 adjusted free cash flow towards common share of our purchases. Now, I will turn the call over to Michael to discuss our financial results.