Gulfport Energy's (NYSE:GPOR) Q1 2024 results were pretty solid, with production exceeding its expectations by a couple percent. Due to weak near-term natural gas prices, Gulfport has deferred some Q2 2024 activity into the second half of the year, but this is not expected to have much impact on its 2024 production.
Natural gas prices for 2024 have improved by around 15 cents since I looked at Gulfport a few months ago, and I now expect it to generate around $300 million in free cash flow for 2024. This is primarily helped by hedges.
Gulfport's 2025 free cash flow may be around $400 million before hedges and $440 million after hedges based on current strip prices, with the 2025 strip close to $1 above 2024 levels.
I estimate Gulfport's value at around $154 to $171 now, up a couple of dollars based on its positive Q1 2024 results plus slightly better near-term strip prices.
Q1 2024 Results
Gulfport mentioned that its Q1 2024 production of 1.054 Bcfe per day was in-line with analyst consensus expectations. This was also a couple percent better than its planned production for the quarter (as it breaks out expected production by quarter in its presentations), while it spent slightly below its budgeted capex.
Gulfport realized negative $0.11 to NYMEX for its natural gas in Q1 2024. This was better than expected, although Gulfport's natural gas differential is expected to widen later in 2024 due to seasonality and higher NYMEX gas prices. It reaffirmed its guidance for a negative $0.20 to negative $0.35 differential for the full year, but I am now modeling its full-year differential at negative $0.25, marginally better than the guidance midpoint.
The combination of slightly better than expected production, narrower differentials and slightly lower capex helped Gulfport deliver approximately $39 million in adjusted free cash flow during Q1 2024. This was with the benefit of $65 million in realized hedging gains.
Gulfport's free cash flow should be higher in the second half of 2024 due to its capex being weighted to the first half of the year, with 65% of its D&C capex expected to come in the first half.
Hedging Position
Gulfport added 20,000 MMBTU per day in 2025 natural gas swaps at an average price of approximately $3.40 and 50,000 MMBTU per day in 2025 natural gas collars with an average floor of approximately $3.03 and an average ceiling of approximately $4.07.
Gulfport now has around 38% of its 2025 natural gas production (assuming low-single digits growth) hedged with swaps or collars, with an average floor/swap price of $3.68.
It is currently more exposed to natural gas prices in 2025 than in 2024, as it has roughly 60% of its 2024 natural gas production hedged. With NYMEX gas prices nearly $1 higher in 2025 compared to 2024 though, Gulfport shouldn't need to rely on its hedges to drive significantly positive free cash flow in 2025.
At current 2025 strip prices, Gulfport should be able to generate approximately $400 million in free cash flow before hedges, while its hedges would bump this up to around $440 million.
Updated 2024 Outlook
Gulfport reaffirmed its full-year guidance for 2024, but noted that it was deferring some D&C activity until 2H 2024 due to low near-term natural gas prices. This results in around $20 million in capex being moved from Q2 2024 into 2H 2024, but the impact on Gulfport's full-year production is expected to be negligible.
Gulfport's Q1 2024 production was slightly ahead of earlier expectations, so I still expect its full-year production to be around its guidance midpoint despite the modest amount of deferred activity.
The current strip for 2024 involves $79 to $80 WTI oil, along with $2.55 NYMEX gas. This results in a projection of $1.037 billion in oil and gas revenue (including the impact of the slightly narrower natural gas differentials that I mentioned above).
Gulfport's 2024 hedges are estimated to have around $226 million in value.
Type Units $/Unit $ Million Natural Gas [MCF] 356,057,500 $2.30 $819 NGLs (Barrels) 4,015,000 $30.75 $123 Oil (Barrels) 1,277,500 $74.50 $95 Hedge Value $226 Total Revenue $1,263
This leads to a projection that Gulfport can generate $298 million in free cash flow in 2024. Most of that will be weighted to the second half of the year.
$965
Expenses $ Million Transportation, Gathering, Processing and Compression $357 LOE $70 Taxes Other Than Income $36 G&A $47 Interest and Preferred Dividends $55 Capex $400 Total Expenses
Notes On Valuation And Share Repurchases
I now estimate Gulfport's value (for the end of 2024) at approximately $154 to $171 per share at long-term $75 WTI oil and $3.75 NYMEX gas. This is a couple of dollars higher than my previous estimate, reflecting slightly improved free cash flow projections for 2024 and some continued favorable signs for capital efficiency. While Gulfport did not change its 2024 guidance, its Q1 2024 production came in a couple percent higher than its earlier estimates, with capex under budget.
Around 80% of Gulfport's D&C capex goes towards its Utica assets, and it has demonstrated excellent well productivity there. Gulfport's SCOOP wells have also performed well, but those have less impact on its overall results.
Gulfport continues to repurchase shares, repurchasing around 0.21 million shares in Q1 2024 at an average price of $140.39 per share. It spent $29.5 million in share repurchases during the quarter, which was around 76% of its adjusted free cash flow for the quarter.
Gulfport had around $221 million in remaining capacity at the end of Q1 2024 with its $650 million share repurchase program. Repurchasing shares at its current share price of $153 would be a slight positive to me.
Conclusion
Gulfport is now expected to generate approximately $300 million in free cash flow in 2024, based on current strip prices. Around three quarters of that free cash flow comes from its hedges.
With 2025 strip close to $1 better than 2024 though, Gulfport appears able to generate around $400 million in free cash flow next year before hedges, while its hedges could add close to $40 million in value on top of that.
Gulfport's improvements in capital efficiency have increased its estimated value to $154 to $171 per share. Gulfport is currently trading slightly below this range, although not far enough below to get upgraded to a buy rating yet.
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