Quarterly / Earnings Reports | Second Quarter (2Q) Update

Gulfport Talks Q2 Results, SCOOP / Utica Ops

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Gulfport Energy Corp. reported financial and operational results for the three-months and six-months ended June 30, 2019 and provided an update on its 2019 activities.

Highlights:

• Net production averaged 1,359.0 MMcfe per day during the second quarter of 2019.
• Net income of $235.0 million, or $1.47 per diluted share, for the second quarter of 2019.
• Adjusted net income (as defined and reconciled below) of $33.3 million, or $0.21 per diluted share, for the second quarter of 2019.
• Adjusted EBITDA (as defined and reconciled below) of $194.5 million for the second quarter of 2019.
• Reaffirmed 2019 total capital expenditures to be in the range of $565 to $600 million and funded entirely within cash flow.
• Reiterated 2019 full year net production to average 1,360 MMcfe to 1,400 MMcfe per day.
• Maintained large hedge position of approximately 1,380 BBtu per day of natural gas fixed price swaps at an average fixed price of $2.81 per MMBtu and approximately 5,500 barrels per day of oil fixed price swaps at an average fixed price of $60.81 per barrel for the remainder of 2019.
• Completed certain non-core asset divestitures.
• Repurchased $105 million principal amount of the Company's senior notes outstanding for a total cash spend of $80 million in July 2019.

Chief Executive Officer and President, David M. Wood, commented, "This was a successful quarter for Gulfport as we delivered results in line with expectations, highlighted by another active three months in both our Utica Shale and SCOOP asset areas and high single digit production growth over the first quarter of 2019. We remain on track to deliver on our 2019 production guidance, while adhering to our previously provided capital budget, and expect to begin significant free cash flow generation during the third quarter of 2019.

"In addition, Gulfport continued to make progress on our strategic goals set at the beginning of the year, today announcing several non-core asset divestitures not contemplated within our current development plan. Furthermore, the monetization process of certain water infrastructure assets Gulfport holds across our SCOOP position is ongoing. As expected, this process has been very competitive and we are comfortable with a minimum value of what we expect to realize on the transaction. Taking this into consideration, we took advantage of an attractive opportunity to retire senior debt at a meaningful discount and we recently repurchased and retired a portion of our senior notes outstanding. As we look towards the remainder of 2019 and beyond, we will remain disciplined in our allocation of capital, focusing both on maintaining a strong balance sheet and enhancing shareholder value."

2019 Capital Expenditures

For the six-month period ended June 30, 2019, Gulfport's operated drilling and completion ("D&C") capital expenditures totaled $367.7 million and non-operated D&C activities totaled $68.3 million. In addition, land capital expenditures totaled $23.2 million for the six-month period ended June 30, 2019.

Gulfport's operated capital expenditures for the six-month period ended June 30, 2019 are on budget with the Company's previously provided 2019 budget. Capital expenditures incurred on non-operated activity in the Utica Shale have resulted in larger-than-anticipated spend for the six-month period ended June 30, 2019 and Gulfport intends to recover a portion of these costs through trades or the monetization of certain non-operated interests during the second half of 2019. The Company reaffirmed its previously provided expectation that 2019 total capital expenditures will be in the range of $565 million to $600 million.

Operational Update

The table below summarizes Gulfport's activity for the six-month period ended June 30, 2019 and the number of net wells expected to be drilled and turned-to-sales for the remainder of 2019:

Utica Shale
In the Utica Shale, during the second quarter of 2019, Gulfport spud five gross (3.8 net) operated wells and turned-to-sales 25 gross and net operated wells.

During the second quarter of 2019, net production from Gulfport's Utica acreage averaged approximately 1,050.7 MMcfe per day.

For the six-month period ended June 30, 2019, Gulfport spud 11 gross (9.4 net) operated wells. The wells drilled during this period had an average lateral length of approximately 10,900 feet. Normalizing to an 8,000 foot lateral length, Gulfport's average drilling days from spud to rig release totaled approximately 17.9 days, a decrease of 8% over full year 2018. In addition, Gulfport turned-to-sales 31 gross and net operated wells with an average stimulated lateral length of approximately 8,800 feet during the six-month period ended June 30, 2019.

At present, Gulfport has one operated horizontal drilling rig running in the play.

SCOOP
In the SCOOP, during the second quarter of 2019, Gulfport spud three gross (2.6 net) operated wells and turned-to-sales six gross (5.9 net) operated wells.

During the second quarter of 2019, net production from Gulfport's SCOOP acreage averaged approximately 298.3 MMcfe per day.

For the six-month period ended June 30, 2019, Gulfport spud seven gross (5.7 net) operated wells. The wells drilled during this period had an average lateral length of approximately 9,300 feet. Normalizing to a 7,500 foot lateral length, Gulfport's average drilling days from spud to rig release totaled approximately 52.1 days, a decrease of 17% over full year 2018. In addition, Gulfport turned-to-sales nine gross (8.7 net) operated wells with an average stimulated lateral length of approximately 7,100 feet during the six-month period ended June 30, 2019.

At present, Gulfport has one operated horizontal drilling rig running in the play.

2019 Capital Budget and Production Guidance
Gulfport reaffirms its expectation that its 2019 total capital expenditures will be in the range of $565 million to $600 million, which will be funded entirely within cash flow at current strip pricing. With this level of capital spend, Gulfport continues to forecast its 2019 average daily net production will be in the range of 1,360 MMcfe to 1,400 MMcfe per day.

Based on actual results during the six-month period ended June 30, 2019, and utilizing current strip pricing at the various regional pricing points at which the Company sells its natural gas, Gulfport reiterates its natural gas differential guidance and forecasts that its realized natural gas price, before the effect of hedges and inclusive of the Company's firm transportation expense, will average in the range of $0.49 to $0.66 per Mcf below NYMEX settlement prices in 2019. Gulfport reiterates its guidance with respect to its expected 2019 realized NGL price and oil price, and forecasts that its 2019 realized NGL price, before the effect of hedges and including transportation expense, will be approximately 40% to 45% of WTI and its 2019 realized oil price will be in the range of $3.00 to $3.50 per barrel below WTI.

The table below summarizes the Company's full year 2019 guidance:

Non-Core Asset Divestitures

Gulfport recently closed the sale of its Southern Louisiana assets to a third party for a total consideration of approximately $54.1 million. Gulfport received approximately $9.2 million in cash and retained overriding royalty interests worth up to approximately $7.7 million based on current strip pricing. In addition, Gulfport could also receive contingent payments of up to $6.8 million based on commodity prices exceeding certain thresholds over the next two years. The buyer agreed to assume all plugging and abandonment liabilities associated with these assets, which totaled approximately $29.0 million and Gulfport will receive approximately $1.4 million in insurance premium reimbursement due to the sale of these assets. Net production from the assets averaged 1.5 MBoe per day during the six-months ended June 30, 2019, less than 1% of the Company's production during that period. The effective date of the transaction is August 15, 2018 and the transaction closed on July 3, 2019.

In addition, Gulfport closed the sale of its remaining interest in Tatex Thailand II to a third party for approximately $1.9 million in cash. No production is included in this transaction and the transaction closed during the second quarter of 2019.

Balance Sheet and Liquidity

As of June 30, 2019, Gulfport had cash on hand of approximately $20.8 million. As of June 30, 2019, Gulfport's $1.4 billion revolving credit facility, under which Gulfport has an elected commitment of $1.0 billion, had outstanding borrowings of $155.0 million and outstanding letters of credit totaling $251.5 million. The Company's total liquidity as of June 30, 2019 was approximately $614.3 million, which included cash on hand and borrowing capacity of approximately $593.5 million under the Company's revolving credit facility.

In July 2019, Gulfport repurchased and retired approximately $105 million principal amount of its senior notes for a total cash spend of approximately $80 million.

Stock Repurchase Program

In January 2019, Gulfport's board of directors authorized the Company to acquire a portion of its outstanding common stock within a 24-month period. As of August 1, 2019, the Company had repurchased 3.8 million shares totaling approximately $30 million during 2019.

Second Quarter of 2019 Financial Results

For the second quarter of 2019, Gulfport reported net income of $235.0 million, or $1.47 per diluted share, on revenues of $459.0 million. For the second quarter of 2019, EBITDA (as defined and reconciled below for each period presented) was $216.8 million, cash provided by operating activity was $123.9 million and cash flow from operating activities before changes in operating assets and liabilities (as defined and reconciled below for each period presented) was $164.2 million. Gulfport's GAAP net income for the second quarter of 2019 includes the following items:

• Aggregate non-cash derivative gain of $147.8 million.
• Aggregate gain of $0.1 million attributable to net insurance proceeds in connection with legacy environmental litigation settlement.
• Aggregate loss of $125.6 million in connection with Gulfport's equity interests in certain equity investments.

Excluding the effect of these items, Gulfport's financial results for the second quarter of 2019 would have been as follows:

• Adjusted oil and gas revenues of $311.2 million.
• Adjusted net income of $33.3 million, or $0.21 per diluted share.
• Adjusted EBITDA of $194.5 million.

Six-Months Ended June 30, 2019 Financial Results

For the six-month period ended June 30, 2019, Gulfport reported net income of $297.2 million or $1.84 per diluted share, on revenues of $779.6 million. For the six-month period ended June 30, 2019, EBITDA (as defined and reconciled below for each period presented) was $432.7 million, cash provided by operating activity was $309.0 million and cash flow from operating activities before changes in operating assets and liabilities (as defined and reconciled below for each period presented) was $341.5 million. Gulfport's GAAP net income for the six-month period ended June 30, 2019 includes the following items:

• Aggregate non-cash derivative gain of $152.6 million.
• Aggregate gain of $0.1 million attributable to net insurance proceeds in connection with legacy environmental litigation settlement.
• Aggregate loss of $121.3 million in connection with Gulfport's equity interests in certain equity investments.

Excluding the effect of these items, Gulfport's financial results for the second quarter of 2019 would have been as follows:

• Adjusted oil and gas revenues of $627.0 million.
• Adjusted net income of $86.5 million, or $0.54 per diluted share.
• Adjusted EBITDA of $401.3 million.

Production and Realized Prices

Gulfport's net daily production for the second quarter of 2019 averaged approximately 1,359.0 MMcfe per day. For the second quarter of 2019, Gulfport's net daily production mix was comprised of approximately 90% natural gas, 7% natural gas liquids ("NGL") and 3% oil.

Gulfport's realized prices for the second quarter of 2019 were $3.38 per Mcf of natural gas, $75.14 per barrel of oil and $0.57 per gallon of NGL, resulting in a total equivalent price of $3.71 per Mcfe. Gulfport's realized prices for the second quarter of 2019 include an aggregate non-cash derivative gain of $147.8 million. Before the impact of derivatives, realized prices for the second quarter of 2019, including transportation costs, were $2.02 per Mcf of natural gas, $56.85 per barrel of oil and $0.45 per gallon of NGL, for a total equivalent price of $2.33 per Mcfe.

The table below summarizes Gulfport's second quarter of 2019 production by asset area: