Gulfport Energy Expands its Share Repurchase Program by 63% – Buyback Wednesdays

Gulfport Energy Corporation (GPOR): $113.45

Market Cap: $2.12 billion

EV: $2.83 billion

Key Insights

• Gulfport’s stock more than doubled the performance of the S&P 500 over the last year and shares have rallied 60.47% year to date.
• Gulfport has repurchased 13% of its shares since the inception of the company’s share repurchase program.
• The company’s projected revenue growth is estimated to be slightly over 20%.
• Gulfport has benefitted from its natural gas hedges and the company has also begun layering in hedges for 2025.
• Increased oil prices have only a modest impact on Gulfport’s production, as oil accounts for just 2% of it.

Gulfport Energy Corporation (GPOR) is a natural gas-weighted exploration and production company focused on the exploration, acquisition and production of natural gas, crude oil and natural gas liquids (NGL) in the United States with primary focus in the Appalachia and Anadarko basins. Its principal properties are located in Eastern Ohio targeting the Utica and Marcellus formations and in central Oklahoma targeting the SCOOP Woodford and SCOOP Springer formations. Natural gas constitutes 90% of Gulfport’s production while oil constitutes only a minor portion of the total production.

The oil and gas industry is characterized by significant cyclicality and substantial capital requirements. When initiating new projects, many companies in this industry often accrue substantial debt, which can lead to disastrous outcomes and insolvency if there is an extended period of low energy prices. Gulfport faced a similar situation and filed for bankruptcy in November 2020 because of low natural gas prices during the COVID-19 pandemic. The company emerged from bankruptcy in May 2021.

We added Gulfport to our deals in the works section after it emerged from bankruptcy and began exploring strategic alternatives.

Gulfport has outperformed the S&P 500 over the last year. The company’s stock price has increased by 35.34% against S&P 500’s increase of 17.44%.

On September 20, 2023, the company announced that its board of directors expanded its common stock repurchase authorization by 63% to $650 million through December 31, 2024. This constitutes a $250 million expansion of its initial $400 million share repurchase program announced in January 2019 and represents around 12% of its market cap at announcement.

Source: Gulfport Energy (Investor Presentation)

Valuation

The stock appears inexpensive with a forward P/E of 3.42 and forward EV/EBITDA of 3.8. This low valuation and an expected increase in free cash flow in the second half of the year could have prompted management to expand its share repurchase program.

Leverage

As of June 2023, Gulfport has net debt of $643 million excluding capital leases. It is worth mentioning that there are no significant debt maturities until 2026.

Source: InsideArbitrage

Hedge Position

Hedging a commodity can ensure that the company is not negatively impacted by sudden changes in commodity prices. Gulfport has hedged a portion of its natural gas productions as a safeguard against market fluctuations.

With respect to the current hedge position, Gulfport has downside protection covering approximately 55% of its remaining 2023 natural gas production at an average floor price of $3.48 per Million cubic feet (Mcf) and roughly 480 Mcf per day of downside protection in 2024 at an average floor price of $3.84 per Mcf. Management believes the company’s hedges for the remainder of 2023 will provide ample protection should prices remain at or below current levels. The company has also begun opportunistically layering in hedges for 2025 and currently has natural gas swap and collar contracts totaling approximately 190 million cubic feet per day at an average price of $3.90 per Mcf to the floor.

Natural Gas Price Trend

Natural gas prices have shown great volatility over the last decade, especially in the last 5 years. The chart provided below clearly illustrates a substantial surge in prices during 2022, with values peaking at $9.6/MMBtu (Metric Million British Thermal Units). This increase can be attributed to the conflict between Russia and Ukraine, which resulted in disruptions in the transit pipelines to Europe. The resulting supply shortages drove up demand and, consequently, natural gas prices experienced a notable rise.

Prices started a downward trend towards the end of 2022. They reached a low point of $1.73/MMBtu in April 2023 before beginning a recovery, eventually reaching the present value of $2.87/MMBtu.

This price trend highlights that Gulfport benefitted greatly by hedging natural gas at an average floor price of $2.66 per Mcf for 2022. It achieved a mark-to-market profit in doing so. Considering the current prices, it is also likely to benefit from its hedged price for the rest of the present year as well.

Source: Tradingeconomics.com

Financials

Gulfport had $5.3 million in total cash and short-term investments as of June 2023. After many years of negative free cash flow, the company started generating positive cash flows in 2019, after significantly reducing its capital expenditures. Free cash generated by the company in the trailing twelve months is $205 million. The company expects adjusted free cash flow to accelerate in the second half of the year from $59 million in the first half of 2023. This should provide a tailwind for the company as it enters 2024.

Profitability

The company has a high gross margin of 77.62% along with a net margin that is nearly on par with its gross margin. The equally high net income margin can be attributed to the fact that the company earned a significant profit by hedging its natural gas in 2022 and H1 2023.

Share Repurchases

Gulfport has been announcing back-to-back share repurchase programs and has been following through with decent amount of share repurchases.

John Reinhart, President and CEO, commented, “Since initiating the program, we have reduced our outstanding common shares by over 13%. For the remainder of the year, we plan to continue allocating substantially all of our adjusted free cash flow to common share repurchases after accounting for discretionary acreage acquisitions. We are actively pursuing these acquisition opportunities and intend to allocate approximately $40 million from our robust 2023 adjusted free cash flow to this acreage in the form of discretionary acreage acquisitions that extend our high-quality inventory by approximately 1.5 years and provide optionality for near term development.”

Gulfport completed a secondary equity offering in June 2023 with the selling stockholders reducing their ownership by approximately 1.5 million shares and increasing Gulfport’s public equity float by roughly 18%. Furthermore, in connection with the transaction, the company executed a $25 million concurrent buyback of Gulfport shares and in total repurchased approximately 442,000 common shares at an average price of $93.67 during the second quarter.

Source: InsideArbitrage

As of July 27, 2023, approximately 3.9 million shares had been repurchased at an average share price of approximately $85.51, lowering the share account by 13% since the inception of the repurchase program. Currently, approximately $70 million remains under the $400 million share repurchase program.

Q2 2023 Results

• Average daily production totaled 1.039 billion cubic feet equivalent per day ahead of analyst expectations and was driven by the accelerated timing of wells brought online in the quarter.
• On the completion side, the company completed and brought online 13 gross wells during the quarter, 11 in the Utica and two in the SCOOP.
• Drilling performance continued to improve with a 6% quarter-over-quarter improvement in footage drill per day.
• Average frac pumping hours per day increased by 4% in the second quarter with many days reaching 19 and 20 plus pumping hours per day.
• Gulfport realized a cash hedging gain of approximately $53 million for the quarter as commodity pricing softened and its hedge books strengthened the cash flow.
•  Net income of $93.7 million and adjusted EBITDA of $144.5 million were reported during the quarter.

Updated 2023 Outlook

• Raise full year 2023 net production guidance to 1.035 – 1.055 billion cubic feet equivalent per day, an increase of 1% to 3% based upon the company’s previously issued guidance range.
• Reduce per unit operating costs to $1.16 – $1.24 per thousand cubic feet, an improvement of approximately 4% based on the company’s previously issued guidance range
• Reaffirm guidance for total base capital expenditures of $425 million – $475 million, consisting of drilling and completion expenditures of $375 million – $400 million and maintenance leasehold and land investment of $50 million – $75 million
• Reiterate plans to allocate substantially all 2023 adjusted free cash flow towards common share repurchases after allocating $40 million for discretionary acreage acquisitions.

Bottom Line

A healthy balance sheet, low valuation, improved operational efficiency, robust hedge position, regular share repurchases and strong cash flow make Gulfport an attractive investment.

Welcome to edition 78 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week. The companies in the list below are the ones that announced the most significant buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies could be low-volume small-cap or micro-cap stocks with a market cap below $2 billion.

The level of buyback announcement activity was subdued last week, with just nine companies announcing buybacks, the same number as the previous week.

Top 5 Stock Buyback Announcements 

1. Anterix Inc. (ATEX): $31.94

On September 22, 2023, the Board of Directors of this wireless communications company authorized a new $250 million share repurchase program, equal to around 39.5% of its market cap at announcement.

2. Bitcoin Depot Inc. (BTM): $2.26

 On September 21, 2023, the Board of Directors of this cryptocurrency kiosks operator authorised a new $10 million share repurchase program, equal to around 34.5% of its market cap at announcement.

3. 17 Education & Technology Group Inc. (YQ): $0.76

On September 21, 2023, the Board of Directors of this education technology company approved a new $10 million share repurchase program, equal to around 28.5% of its market cap at announcement.

4. Gulfport Energy Corporation  (GPOR): $113.45

 On  September 20, 2023, the Board of Directors of this exploration and production company authorized an additional $250 million share repurchase program, equal to around 12% of its market cap at announcement.

5. Mondee Holdings, Inc. (MOND): $3.54

 On September 15, 2023, the Board of Directors of this travel technology company authorised a new $30 million share repurchase program, equal to around 10% of its market cap at announcement.

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