Gulfport Energy(US:GPOR)2024-02-28 20:00Part I Item 1. Business Gulfport is a natural gas E&P company focused on its Appalachia and Anadarko assets to generate free cash flow Business Overview and Strategy The company focuses on developing its Ohio and Oklahoma assets to generate cash flow and return capital to shareholders - Gulfport is an independent natural gas-weighted exploration and production company with principal properties in the Utica/Marcellus (eastern Ohio) and SCOOP (central Oklahoma) formations58 - The company's strategy is to develop its assets to generate sustainable cash flow, improve margins, and return capital to shareholders62 - Emerged from Chapter 11 bankruptcy on May 17, 2021, and began trading on the NYSE under the symbol "GPOR"61 2024 Outlook The company projects 2024 capital expenditures of $380-$420 million to support production of 1,045-1,080 MMcfe/day 2024 Guidance | Metric | Value | | :--- | :--- | | Capital Expenditures | $380 million - $420 million | | Net Production | 1,045 - 1,080 MMcfe/day | - The company plans to continue shareholder returns through its Repurchase Program, with $250.4 million remaining authorized as of year-end 202365 Operating Areas and Reserves As of year-end 2023, the company held 4.2 Tcfe of proved reserves with a PV-10 value of $2.4 billion Proved Reserves by Area (Dec 31, 2023) | Area | Total Proved (Bcfe) | % of Total | | :--- | :--- | :--- | | Utica & Marcellus | 3,160 | ~75% | | SCOOP | 1,053 | ~25% | | Total | 4,214 | 100% | 2023 Proved Reserves Summary | Metric | Value | | :--- | :--- | | Total Proved Reserves | 4,214 Bcfe | | Proved Developed | 2,203 Bcfe | | Proved Undeveloped (PUD) | 2,011 Bcfe | | Standardized Measure | $2.38 billion | | PV-10 | $2.41 billion | - Changes in 2023 proved reserves included +996 Bcfe from extensions and discoveries, -385 Bcfe from production, and -445 Bcfe from net downward revisions74 - Downward revisions were mainly due to development schedule changes and lower commodity prices, which saw the average Henry Hub price fall from $6.36/MMBtu in 2022 to $2.64/MMBtu in 202376 Acreage, Wells, and Drilling Activity At year-end 2023, Gulfport held approximately 235,000 net acres and 599.3 net productive wells Net Acreage Summary (Dec 31, 2023) | Area | Developed Net Acres | Undeveloped Net Acres | Total Net Acres | | :--- | :--- | :--- | :--- | | Utica & Marcellus | 121,387 | 72,058 | 193,445 | | SCOOP | 35,844 | 6,035 | 41,879 | | Total | 157,231 | 78,093 | 235,324 | - The company had a total of 1,533 gross (599.3 net) productive wells as of year-end 202390 - In 2023, Gulfport drilled 24 gross (21.9 net) operated development wells, all of which were productive93 Production, Prices, and Costs Production increased 7% in 2023, but average realized prices fell 58% due to a sharp decline in natural gas prices Production and Price Comparison (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Production (MMcfe/day) | 1,054 | 983 | | Avg. Price w/o derivatives ($/Mcfe) | $2.73 | $6.49 | | Avg. Price w/ derivatives ($/Mcfe) | $3.13 | $3.55 | | Total Unit Production Costs ($/Mcfe) | $1.17 | $1.34 | - The Utica & Marcellus region accounted for 74% of total production in 2023, while the SCOOP region accounted for 26%6668 Human Capital Management The company employed 226 people at year-end 2023, focusing on talent retention, diversity, and safety - Employee headcount was 226 as of December 31, 2023, a slight increase from 223 in the prior year114 - The company is focused on diversity and inclusion, with diverse candidates representing almost 39% of new hires in 2023 and over 60% of independent directors being gender or ethnically diverse116117 - Safety and environmental performance are emphasized, with key metrics being a component of every employee's annual incentive compensation120 Item 1A. Risk Factors The company faces significant risks from commodity price volatility, operational uncertainties, and extensive government regulation Financial, Liquidity and Commodity Price Risks Financial performance is highly sensitive to volatile commodity prices, hedging outcomes, and interest rate fluctuations - Revenues, cash flows, and profitability are significantly dependent on volatile natural gas, oil, and NGL prices; the Henry Hub spot price ranged from $1.74 to $3.78 per MMBtu in 2023132133 - Commodity hedging may limit benefits from price increases and exposes the company to counterparty default risk136137 - Total principal debt was approximately $668.0 million at year-end 2023; debt covenants and commitments may limit financial and operating flexibility139 - Under the full cost accounting method, declines in commodity prices may trigger non-cash write-downs (impairments) of oil and natural gas properties144145 Industry, Business and Operational Risks Operational risks include inaccurate reserve estimates, geographic concentration, and reliance on third-party infrastructure - Estimates of proved reserves are complex and subject to revision; approximately 48% of total estimated proved reserves were proved undeveloped (PUDs) as of December 31, 2023, which require significant capital to recover149151 - The company's producing properties are geographically concentrated in eastern Ohio and central Oklahoma, increasing vulnerability to regional risks168 - Operations depend on third-party pipelines, gathering systems, and oilfield services, which are subject to capacity constraints and cost fluctuations170171 - The company has minimum volume commitments with midstream providers, obligating it to pay fees regardless of actual throughput; as of Dec 31, 2023, this long-term obligation was approximately $1.4 billion174 Environmental, Legal and Regulatory Risks Extensive and evolving regulations regarding emissions, hydraulic fracturing, and climate change could increase costs and restrict operations - Operations are subject to extensive federal, state, and local regulations, including new and proposed rules from the EPA and BLM to reduce methane emissions, which could significantly impact costs180 - Regulatory initiatives concerning seismic activity, particularly related to wastewater disposal, could lead to operational delays and increased costs183193 - Climate change policies and increasing attention to ESG matters could increase operating costs, reduce demand for oil and gas, and make securing capital more difficult186188195 Item 1C. Cybersecurity Cybersecurity risk is managed through an ERM program and third-party monitoring, with no material incidents identified to date - Cybersecurity is identified as a key risk within the company's Enterprise Risk Management (ERM) program, which is based on the NIST and CIS frameworks210 - The program is overseen by the Chief Information Officer, with the Audit Committee receiving detailed updates annually and quarterly through the ERM program217218 - The company leverages third-party partners for 24/7 security operations monitoring and annual vulnerability assessments213 - As of year-end 2023, no security incidents or breaches have been identified that are considered material to the company's business strategy, results, or financial condition215 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE as "GPOR" and it repurchased $148.9 million of shares in 2023 - The company's Board of Directors approved an increase to the stock Repurchase Program, bringing the total authorization to $650 million and extending it through December 31, 2024228243 Share Repurchase Activity (2023) | Metric | Value | | :--- | :--- | | Shares Repurchased | 1.5 million | | Total Cost | $148.9 million | | Weighted Avg. Price | $101.53 per share | - Since the program's inception, the company has repurchased 4.4 million shares for $399.6 million at an average price of $91.53 per share228243 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net income rose to $1.5 billion due to derivative gains and a tax benefit, despite lower revenues from weak commodity prices Overview and Recent Developments In 2023, the company appointed new leadership, expanded its credit facility, and increased its share repurchase program - Key leadership changes occurred in 2023, with John Reinhart appointed as President and CEO and Michael Hodges as Executive Vice President and CFO235236 - The credit facility was amended to increase the borrowing base to $1.1 billion, increase commitments to $900 million, and extend the maturity date to May 2027238 - The stock repurchase program was increased from $400 million to $650 million and extended through December 31, 2024243 - 2023 operational highlights include producing 1,054 MMcfe/day, generating $723.2 million in operating cash flow, and returning $148.9 million to shareholders via buybacks247 Results of Operations Net income increased to $1.5 billion in 2023, driven by a large gain on derivatives and a significant income tax benefit Key Financial Results (2023 vs. 2022) | Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total Commodity Sales | $1,051.4 | $2,330.9 | | Net Gain (Loss) on Derivatives | $740.3 | $(999.7) | | Total Revenues | $1,791.7 | $1,331.1 | | Income from Operations | $974.8 | $543.1 | | Income Tax Benefit | $525.2 | $0 | | Net Income | $1,470.9 | $494.7 | - The decrease in commodity sales was driven by a 62% decrease in realized natural gas prices, a 20% decrease in realized oil prices, and a 34% decrease in realized NGL prices254255256 - Total DD&A expense increased 19% to $319.7 million, or $0.83/Mcfe, due to drilling and development activities263 - The company recognized a $525.2 million income tax benefit in 2023 due to the partial release of the valuation allowance against its net deferred tax assets270 Liquidity and Capital Resources The company funded $537.4 million in property additions and $149.2 million in buybacks primarily with operating cash flow Sources and Uses of Cash (FY 2023, in millions) | Category | Amount | | :--- | :--- | | Net cash from operating activities | $723.2 | | Additions to oil & gas properties | $(537.4) | | Repurchases of Common Stock | $(149.2) | | Net debt activity | $(27.0) | | Preferred Stock dividends | $(4.8) | - As of December 31, 2023, the company had $1.9 million in cash, a net working capital of $52.4 million, and total principal debt of $668.0 million275 - Total incurred capital expenditures for 2023 were $491.5 million, including $388.6 million for drilling and completion293 - The 2024 capital expenditure budget is estimated to be $330-$360 million for drilling and completion, plus $50-$60 million for leasehold/land investment294 Critical Accounting Policies and Estimates Significant estimates include oil and gas reserves under the full cost method, which impacts impairment tests and depletion - The company uses the full cost method of accounting, capitalizing all costs related to oil and gas property acquisition, exploration, and development308 - A quarterly ceiling test is performed to assess for impairment of oil and gas properties; key factors are reserve estimates and the 12-month average commodity price, and no impairment was recorded in 2023 or 2022310311 - Estimates of oil and natural gas reserves are the most significant estimates, affecting depletion, depreciation, amortization, and impairment calculations312 - Accounting for income taxes requires significant judgment, especially in assessing the realizability of deferred tax assets and the need for a valuation allowance313 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are commodity price volatility, managed via derivatives, and interest rate risk - The company uses derivative instruments (swaps, collars, options) to manage commodity price risk for its forecasted production318320 - As of December 31, 2023, the company had a net asset derivative position of $240.2 million; a 10% decrease in commodity prices would increase this asset value by approximately $86.5 million326 - The company is exposed to interest rate risk on its Credit Facility; based on the $118.0 million outstanding at year-end 2023, a 1% increase in interest rates would increase annual interest expense by approximately $1.2 million328 Item 8. Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements, notes, and supplementary oil and gas data Consolidated Financial Statements The financial statements show total assets of $3.27 billion, net income of $1.47 billion, and operating cash flow of $723.2 million for 2023 Consolidated Balance Sheet Highlights (Dec 31, 2023) | Metric (in thousands) | Value | | :--- | :--- | | Total Current Assets | $396,806 | | Total Property and Equipment, net | $2,252,299 | | Total Assets | $3,267,613 | | Total Current Liabilities | $344,454 | | Total Long-Term Debt | $667,382 | | Total Liabilities | $1,061,719 | | Total Stockholders' Equity | $2,161,680 | Consolidated Statement of Operations Highlights (FY 2023) | Metric (in thousands) | Value | | :--- | :--- | | Total Revenues | $1,791,702 | | Total Operating Expenses | $816,855 | | Income Before Income Taxes | $945,760 | | Income Tax Benefit | $(525,156) | | Net Income | $1,470,916 | Consolidated Statement of Cash Flows Highlights (FY 2023) | Metric (in thousands) | Value | | :--- | :--- | | Net Cash from Operating Activities | $723,181 | | Net Cash used in Investing Activities | $(537,227) | | Net Cash used in Financing Activities | $(191,284) | Notes to Consolidated Financial Statements The notes detail accounting policies, fresh start accounting, debt facilities, derivative positions, and supplemental reserve data - The company emerged from Chapter 11 on May 17, 2021, and applied fresh start accounting, which materially reset the carrying values of assets and liabilities, making post-emergence financial statements not comparable to pre-emergence periods (Note 2 & 3)366402403 - Long-term debt as of Dec 31, 2023, consisted of $550 million in 8.0% senior notes due 2026 and $118 million drawn on its credit facility; the credit facility has a $1.1 billion borrowing base and $900 million in commitments (Note 5)434439440 - The company had significant derivative positions at year-end 2023, including natural gas swaps covering 325,000 MMBtu/d for 2024 at an average price of $4.05/MMBtu (Note 13)518520 - Supplemental data shows total proved reserves of 4,214 Bcfe at year-end 2023, with a standardized measure of discounted future net cash flows of $2.38 billion (Note 20)566573 Item 9A. Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal controls were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023578 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework582 - The independent registered public accounting firm, Grant Thornton LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023583587 Part III Items 10-14. Directors, Executive Compensation, Security Ownership, and Related Party Transactions Details on directors, compensation, and security ownership are incorporated by reference from the 2024 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's forthcoming 2024 Proxy Statement598599600601602 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K - This section provides an index of all exhibits filed with the Form 10-K, including corporate governance documents, debt agreements, and management compensation plans605606