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Edited Transcript of GPOR earnings conference call or presentation 3-May-19 1:00pm GMT

Q1 2019 Gulfport Energy Corp Earnings Call

OKLAHOMA CITY May 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Gulfport Energy Corp earnings conference call or presentation Friday, May 3, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David M. Wood

Gulfport Energy Corporation - President, CEO & Director

* Donnie G. Moore

Gulfport Energy Corporation - COO

* Jessica R. Wills

Gulfport Energy Corporation - Director of IR

* Keri Crowell

Gulfport Energy Corporation - CFO & Secretary

* Paul K. Heerwagen

Gulfport Energy Corporation - SVP of Corporate Development & Strategy

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Conference Call Participants

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* Jason Andrew Wangler

Imperial Capital, LLC, Research Division - MD & Senior Research Analyst

* Jeffrey Leon Campbell

Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services

* John W. Aschenbeck

Seaport Global Securities LLC, Research Division - MD & Senior Analyst

* Kashy Oladipo Harrison

Piper Jaffray Companies, Research Division - Research Analyst

* Leo Paul Mariani

KeyBanc Capital Markets Inc., Research Division - Analyst

* Marshall Hampton Carver

Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research

* Neal David Dingmann

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Rehan Ahmed Rashid

B. Riley FBR, Inc., Research Division - Senior VP & Analyst

* Ronald Eugene Mills

Johnson Rice & Company, L.L.C., Research Division - Analyst

* Timothy A. Rezvan

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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Greetings. Welcome to Gulfport Energy Corporation's Q1 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded. I will now turn the conference over to your host, Jessica Wills, Manager, Investor Relations and Research. Ms. Wills, you may begin.

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Jessica R. Wills, Gulfport Energy Corporation - Director of IR [2]

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Thank you, and good morning. Welcome to Gulfport Energy Corporation's First Quarter of 2019 Earnings Conference Call. I am Jessica Wills, Director of Investor Relations. Speakers on today's call include David Wood, CEO and President; and Keri Crowell, CFO. In addition, with me today for -- and available for the question-and-answer portion for the call are Donnie Moore, Chief Operating Officer; and Paul Heerwagen, Senior Vice President of Corporate Development and Strategy. 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 condition, 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 make reference to other non-GAAP measures. If this occurs, the appropriate reconciliations to the GAAP measures will be posted on our website. Yesterday afternoon, Gulfport reported first quarter 2019 net income of $62.2 million or $0.38 per diluted share. These results contain several noncash items, including an aggregate noncash derivative gain of $4.8 million, and a gain of $4.3 million in connection with Gulfport interest in certain other equity investments. Comparable to analyst estimates, our adjusted net income for the first quarter of 2019, which excludes all the previous mentioned items, was $53.2 million or $0.33 per diluted shares. 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 Dave Wood, CEO of Gulfport Energy.

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [3]

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Thank you, Jessica, and thank you all for joining us on this morning's call. Gulfport is off to a strong start in 2019, beginning the year active in our core asset areas and remaining on track to deliver on our previously announced 2019 capital budget. Operational outlook and commitment to free cash flow generation. For the first quarter of 2019, as announced alongside earnings yesterday evening, we reported approximately $53.2 million of adjusted net income on $315.8 million of adjusted oil and natural gas revenues and generated $206.8 million of adjusted EBITDA. Production averaged 1.26 billion cubic feet of gas equivalent per day for the first quarter coming in as expected, following a muted level of activity during the fourth quarter of 2018 and on a debt-adjusted per share basis, increasing approximately 2% over the fourth quarter of 2018.

As I mentioned, we started the year active on the ground, running on average 3.4 horizontal drilling rigs and 4.4 completion crews in total across our Utica Shale and SCOOP assets during the first quarter of 2019. This robust level of activity capitalized on our existing DUC inventory and will lead to an active turn-in-line schedule in the coming months as we expect to turn-to-sales in excess of 30 wells progressively throughout the second quarter of 2019. We forecast that this activity will result in strong quarter-over-quarter production growth and positioning us well as we continue to execute on our 2019 program and reaffirm our expectation that Gulfport's total net production will average in the range of 1.36 billion to 1.4 billion cubic feet of gas equivalent per day for the full year 2019.

I reiterate my comments from our February call that Gulfport remains committed to building an organization that is focused on capital discipline, cash flow generation and a clearly communicated business plan. We remain disciplined to our 2019 capital program and reaffirm our previously announced 2019 capital spend, which will be funded entirely within cash flow and provide free cash flow generation in excess of $100 million. As planned, the 2019 capital program is heavily weighted to the first half of the year and Gulfport invested $255 million in D&C capital and $20 million in land capital during the first quarter of 2019. We estimate the bulk of the capital budget will be invested during the first half of the year with spend decreasing in the third and fourth quarter and as a result, provide meaningful free cash flow generation during that time.

On the strategic front, we continued to simplify the portfolio through certain noncore asset monetizations, and I am pleased to provide further details on a few of those divestitures today. We recently entered into an agreement to monetize a small footprint of Marcellus formation rights overlying a portion of our acreage in the Utica Shale. This transaction included assets like Gulfport, do not have any future capital allocated to, nor do we include them in our long-term development plans for the Utica Shale. We currently expect the transaction to close during the second half of 2019. Inconsistent with our previous comments on our ongoing stock repurchase program and taking into consideration the anticipated proceeds from this transaction, we repurchased approximately $30 million of Gulfport shares in the open market during the first quarter of 2019, reducing shares outstanding by approximately 2%. Separate from this transaction, we are getting ready to launch a process to divest of certain water infrastructure assets Gulfport holds across our SCOOP position, including water handling and water recycling facilities. As a stand-alone entity, these assets would currently generate $10 million to $12 million of EBITDA per year with substantial expected growth. And we believe their meaningful value is not recognized in our stock price today. We plan to provide further details on the monetization process when appropriate.

As we consider the use of proceeds from this transaction, it is important to note that these assets were not identified as a requirement of the noncore assets to fund our ongoing share repurchase program. We currently plan to allocate $50 million of the expected proceeds from this transaction towards debt reduction. Again, I reiterate that this transaction was not identified as a requirement of the noncore assets to fund our ongoing share repurchase program, and we continue to plan to execute on our previously announced $400 million stock repurchase program to be funded through organically generated free cash flow during 2019 and the anticipated monetizations of other noncore assets of which we are actively pursuing today.

Turning to our specific core areas. We started the year strong in the field and remain intently focused on cost discipline and delivering more with every dollar invested. We had a strong quarter, on track with both the operational and capital budget and doing so, while continuing an unwavering commitment to efficient and safe operations. In the Utica, we spud 6 gross wells utilizing roughly 1.5 operated rigs during the quarter. Our 2019 program focuses on maximizing lateral lengths and realizing economies of scale with our per foot metrics, and we experienced the solid quarter of progress at the drill bit. The wells in the first quarter had an average drilled lateral length of 10,600 feet.

And when normalizing to an 8,000-foot lateral, we averaged the spud to rig release of 17.7 days, down 9% over the full year 2018 results and the best quarter Gulfport has experienced to date in the plant. I applaud the team as we have exceeded in many of our previous drilling records during the quarter, drilling our longest lateral to date for Gulfport in the Utica at 16,385 feet and beating our previous vertical peak per-day record. Overall, we had a strong quarter on the drilling front, and we remain focused on continuous improvement and efficient safe operations. Turning to completions in the Utica Shale.

We began the year very active, running 3 completion crews throughout the quarter and completing a heavy portion of the DUC backlog we carried into 2019. As of March 31, we have completed 1,069 stages in total during 2019, which includes 25 wells completed and 6 wells in progress at the end of the quarter, representing 50% of our completion schedule for this year. This robust level of activity weights a heavy number of turn-in-lines for the second and third quarters. And as a result, we expect to see strong production growth out of the Utica during the middle of the year. In the SCOOP, we entered the year with strong momentum from the fourth quarter of 2018 and spud 3 gross Woodford wells and 1 lower Sycamore well utilizing 2 operated rigs during the quarter. The wells released had an average lateral length of 8,000 feet and when normalized to a 7,500-foot lateral, the wells averaged a spud to rig release of 63.2 days during the first quarter, in line with our 2018 program average. When isolating the wells, set to adjust the Woodford formation, the average spud to rig release totaled 47.4 days during the first quarter, and our drill days on the lowest Sycamore well were improved by over 40% when compared to our Serenity well, which we spud in 2017 and also targeted the lower Sycamore formation. These results exemplify our focus on identifying areas of improvements and striving for consistent repeatable results out of the play.

On the completion front, we averaged 1.3 completion crews during the quarter and completed 195 stages in total, which include 7 wells completed and 2 wells in progress at the end of the quarter. Similar to the Utica, our activity to date will lead to a heavy number of turn-in-lines weighted to the middle of 2019. In summary, our 2019 program is off to a strong start, and we continue to focus on controlling what is within our control and maximizing results with the core assets we have in the portfolio today. We are committed to disciplined capital allocation, and we'll operate within cash flow as we have discussed shifting the target from top line production growth to leading bottom line debt-adjusted per share growth rates. We strongly believe this strategy is right not only for today but for the future of Gulfport.

With that, I will turn the call over to Keri for her comments.

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Keri Crowell, Gulfport Energy Corporation - CFO & Secretary [4]

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Thank you, Dave, and good morning, all. As announced in the earnings release yesterday evening, we reaffirm our full year 2019 capital budget and forecast to invest $565 million to $600 million across our assets, funded entirely within cash flow and bolstered by our hedged revenue stream. First quarter production averaged 1.26 billion cubic feet of gas equivalent per day, composed of 90% natural gas, 7% natural gas liquids and 3% oil, and we continue to forecast our full year 2019 average daily production to be in the range of 1.36 billion to 1.4 billion cubic feet per day. In addition, as Dave mentioned, we currently forecast to turn-to-sales 30 gross wells progressively throughout the second quarter of 2019 and expect to realize strong single-digit production growth for the quarter.

On the realization front, our first quarter of 2019 realized natural gas price, before the effect of hedges and including transportation cost, settled approximately $0.46 per Mcf below the average NYMEX price, a 15% improvement over the first quarter of 2018 and narrower than the low end of the 2019 guidance range. Based upon our current firm portfolio, including both Utica and SCOOP, and utilizing current strip prices and basis marks for end markets reach, we reiterate our expectations for basis differentials to range from $0.49 to $0.66 per Mcf of NYMEX monthly settled price for natural gas during 2019. Driven by the seasonality of natural gas and the markets we reach, we continue to expect our differential will settle at the wider end of the range during the second and third quarter and narrow into the fourth quarter of 2019.

Before the effect of hedges, our realized oil price came in at $1.80 off WTI, and we reiterate our expectation to realize approximately $3 to 3.50 off WTI for oil. Turning to NGL. Before the effect of hedges, our realized NGL price came in approximately 44% of WTI. And based upon these results and recent strip pricing, we expect pre-hedge NGL pricing to average 40% to 45% of WTI for 2019. As many of our peers have mentioned, there has been a changing dynamic surrounding NGL prices recently. And while our expected realization when compared to the current strip oil price has temporarily weakened, on an absolute basis, our expected price per barrel has remained relatively unchanged. Additionally, our realized prices continue to be supported by our hedge position, and our 2019 natural gas production is fully hedged at $2.83 per MMBtu, providing a high degree of certainty surrounding the cash flow profile for the 2019 program. In addition, during the first quarter of 2019, we took advantage of market conditions and added meaningfully to our 2019 and 2020 oil position, securing a large baseload of our anticipated production at approximately $60 per barrel. Maintaining a strong strategic hedging program is an important element to supporting the long-term development of our assets, and we will continue to opportunistically layer on additional hedges and basis swaps to provide line of sight to our realizations and cash flows.

For the first quarter of 2019, our realized prices and hedge position resulted in adjusted oil and gas revenues of $315.8 million, which is composed of approximately 79% natural gas revenue and 21% liquid, including 11% natural gas liquid and 10% oil. In terms of cash operating expenses, our per unit operating expense, which includes LOE, production tax, midstream gathering and processing and G&A totaled $0.96 per Mcfe during the first quarter of 2019, down 2% from the fourth quarter of 2018.

I will now turn the call back over to Dave for closing remarks.

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [5]

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Thank you, Keri. In closing, our 2019 plan demonstrates the low capital intensity of our core operations, highlighting the quality of these assets by delivering sustainable production with low capital requirements and all supported by a thoughtful hedging program aimed at underpinning our plan and goals. I will echo my comments from February.

Our focus on capital discipline and cash flow generation goes beyond this calendar year, and we are committed to running Gulfport with a focus on enhancing shareholder returns going forward. This is further heightened by the board's decision to incorporate a free cash flow metric as well as maintain a corporate level return metric, return on average capital employed, all in our 2019 compensation metrics, measuring the value of every dollar we invest, balancing objectives to maximize the 2019 program and demonstrating our commitment to Gulfport shareholders. This concludes our prepared remarks.

Thank you, again, for joining us for our call today. And we look forward to answering your questions. Operator, please open up the phone lines for questions from the participants.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Neal Dingmann of SunTrust.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [2]

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Dave, could you help me little bit. I think, I know talking to you and Paul, you've have gone through this, but I just want to make sure to understand this better. Could you help me better reconcile, how you're going to balance achieving the 1.4 Bcf per day production average this year after hitting the 1.26 in 1Q? And again, I guess, what I'm balancing or where I'm going with that, you basically have about $310 million left to spend the remainder of the year in order to stay within the low side of your CapEx. And so I'm wondering how you balance this while also, maybe, repurchasing up to $370 million worth of your shares? So, I guess, my question would be, maybe try to walk through, I assume it's the DUC count and the proceeds from the noncore that gets you there. I just want to make sure, I understand, how you're thinking about basically achieving that on the production side and the repurchase side for the remainder of the year?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [3]

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Yes, Neal, good morning. So our program for repurchasing was to use free cash flow from this year and also sale of noncore assets. We announced in the call of those noncore assets, done a smaller one and used the proceeds for that to do the first of the buybacks. The intent was to conclude those sales through the 24-month period from the time we announced it. So some of it will take place this year and some will take place next year. The free cash flow generation is really in the second half of this year. So -- it from -- purchases from that will be heavily weighted into the second half. There's nothing in that, that causes me concerned in terms of timing or progress. It's not necessarily the easiest thing to do to monetize some of these things, but they are actively being worked. So I feel good about trajectory and timing of the share repurchase.

In terms of the second one on production, we took a hard look at where we are today for the rest of the year. We feel good about the spend levels and feel good about the overall year targets. So the spend early in the first quarter was faster, but that was me within the teams here to try and get the stuff on as soon as possible. So Donnie and his teams did a great job in beating that schedule. So I feel pretty good about where we are.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [4]

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Okay. And then just one last one, if I could. Just on holding leases in the Utica. Just wondering, I know have, I think, some leases that come due, I think, it's either this year maybe more so next year. Is -- one, have you kind of already been working on holding those? And I'm just wondering, is there much cost in, I don't know -- either been able to hold those, I guess, going forward?

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Paul K. Heerwagen, Gulfport Energy Corporation - SVP of Corporate Development & Strategy [5]

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Neal, so the budget we have this year for land spends is mostly it's -- is almost entirely associated with lease extensions, associated with the exercising five-year kickers on leases coming to -- coming to their primary terms here. As you recall, those were higher spends in prior years and it sort of tapering off now as we have more and more of the acreage held and also as we've paid for extensions over the last several years. So it's $40 million this year, and we would expect it to continue to taper down next year.

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Operator [6]

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The next question comes from Ron Mills of Johnson Rice & Company.

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Ronald Eugene Mills, Johnson Rice & Company, L.L.C., Research Division - Analyst [7]

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Just maybe a follow-up on part of Neal's questions. When we think about kind of completion cadence, Utica versus SCOOP to when we look at the remaining completions and particularly the second quarter when you say 30-plus turn-to-line. How are those split between Utica and the SCOOP? And then the remaining, whatever that would be, call it, 20 completions that are -- that would be left. Are those going to be fairly evenly split during the third and fourth quarter? Or are they going to be more weighted to one particular time?

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Donnie G. Moore, Gulfport Energy Corporation - COO [8]

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Ron, this is Donnie. Yes, if you look at that first quarter heavily weighted toward the Utica, over 30 wells completed, roughly 25-plus of those were in the Utica during the first quarter. Second quarter is still pretty heavily weighted toward the Utica. We've got 2 completion crews running there today. And then the rest of the year, it kind of trickles on down and is fairly split between the 2.

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Ronald Eugene Mills, Johnson Rice & Company, L.L.C., Research Division - Analyst [9]

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Okay. And is that also -- that would also imply then that from a turn-in-lines standpoint, really a lot of the growth here, particularly in the second quarter, is it fair to assume will be more gassy? And then you end up adding more of the liquids production in the third quarter and fourth quarter. Just trying to think about our quarterly production cadence.

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Donnie G. Moore, Gulfport Energy Corporation - COO [10]

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Yes, that's absolutely right, Ron. Most of our turn-in-lines at second quarter will be more the dry gas Utica wells. So we're excited about getting those online. A lot of activity in the first quarter that set us up for this.

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Ronald Eugene Mills, Johnson Rice & Company, L.L.C., Research Division - Analyst [11]

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Okay. And from a -- you talked about, I think Keri mentioned strong single-digit sequential growth here in the second quarter. Would you expect something similar to that in the third quarter? Or can it even be a little bit higher in the third quarter as you kind of have a full quarter impact from that completion rush? Or how should we think about that longer outlook of production?

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Donnie G. Moore, Gulfport Energy Corporation - COO [12]

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Yes, I mean, I think that's a good way of looking at it. You grow in the second quarter, being pretty ratable as we bring on these new wells, then you have a full quarter of those for 3Q. So you'll see growth second to third quarter for sure.

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Ronald Eugene Mills, Johnson Rice & Company, L.L.C., Research Division - Analyst [13]

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Okay, great. And then last, the nonproduction question. David, on the water sale, the $10 million to $12 million of EBITDA, I think you said that's current EBITDA run rate. It sounds like it's water handling and recycling, I don't know exactly what kind of leverage those assets have. But when you think about the kind of growth you're going to have here in the second and third quarters, how much leverage do you have on the EBITDA of that -- those assets? And is that all Gulfport? Or are there third-party volumes?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [14]

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It's primarily all Gulfport. They're pretty attractive assets, we think, and will be well received by the market. We were taking a deep dive through our business earlier in the year, identified those as being something that would be highly valued in the market, much more so than they're valued in our business. There is growth, both from us and also potential third parties in that infrastructure. And so, I think that $10 million to $12 million of stand-alone EBITDA could do substantially better being expanded, so, hence the attractiveness, I think, to third parties. So the process is just getting kicked off. It will be this year, a piece of the business, I believe. And I'm happy to say that we're going to use some of the proceeds of that $50 million, which -- overall sale would be a lot more than that, by the way, to address debt reduction. So, real happy about where that sits.

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Operator [15]

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The next question is from Jason Wangler of Imperial Capital.

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Jason Andrew Wangler, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [16]

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I wanted to ask on -- the hedge book, obviously, for 2019 looks very good. As you think about 2020, obviously, it all weighs out. But how do you think about kind of the strategy of building that up as this year goes on? And then kind of where you want to be from a longer-term perspective there?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [17]

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Jason, that's kind of a key question, I think. We've been looking very closely, particularly at oil for this year and next year. And as was mentioned in Keri's comments, we're pretty nicely covered for this year and now next year, at around $60 for oil. I think the belief we have here is that oil is likely to trade back down. And so we wanted to reach into '20 and get ourselves some coverage there. So we can check that box. In terms of natural gas prices, next year, I think we need a little longer look, probably around the third quarter is always been my view before we get a good sense of where 2020 is.

As I look back at the beginning of this year, and where the general sentiment was for 2020, it was pretty negative. I think today, irregardless of kind of where the strip has started to play, there's a little bit more green sheets of enthusiasm. I'm very curious to see if that's going to materialize. So in the third quarter, we'll get a pretty good look, I think, in 2020. And then just like we did this year, we'll end up in a pretty full hedge position. But we're a quarter away from getting comfortable on that.

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Jason Andrew Wangler, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [18]

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Okay, that's helpful. I look forward to that. And then, obviously, the $30 million sale, and then it looks like you repurchased a good amount of that in the first quarter. Is that just a timing situation where the money will be showing up a little bit later, but the $30 million was basically repurchased in the first quarter? Is that the way to think about that?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [19]

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Yes, Jason, that's exactly right. We actually use cash on hand to do it. These things, you never actually time them right, nor probably should time them where you wait for the proceeds before you act. But we felt pretty good about the sale, and we got cash on hand, so that's what we did. And I wanted to try and do something every quarter and that's the goal anyway that's where we set out to do this somewhat ratably. It's a very difficult thing to do it that way, but that was the intent. So we're off to a good start, and we will be doing more at the year goes on.

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Operator [20]

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The next question is from Tim Rezvan of Oppenheimer.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [21]

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I'd like to follow-up on Jason's question on hedges that was something we were asking about. The strip is at $2.70. So I'm just -- if 3Q sort of -- when David, you kind of feel like you need to pull the trigger on something? Like would you feel comfortable if you think the strip is not there as kind of going unhedged into 4Q period?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [22]

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Yes, Tim, I can do a few things, but predicting gas prices, I'm not that great at, I would tell you. I really want to get a look to see some of the impacts of the shoulder season going into winter. I think $2.60 is a soft bottom, in general, $3 is a hard cap, I kind of have that view. Where the year settles out, I think a lot of it will face on where storage is, et cetera, et cetera. I think next year, it will look somewhat similar to this year. So I'm thinking not a $2.70 number, I'm thinking better than that, $2.80 number. That's kind of my thought today. But I reserve the fact that I could be wrong, and we'll take a look later in the year. But I think directionally that's about where we're at.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [23]

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Okay. Okay. And then would you ever consider using any asset sale proceeds to get little -- get the higher swaps than what the strip has given you?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [24]

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That's a great intellectual thought. But today, it is on table for us now.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [25]

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Okay. Okay, that's fair. And then just one more on the asset sales side. It sounds like the closing for the water system, maybe around year-end. Just curious, why did you feel the need or want to publicly disclose it now? Was it sort of to show the depth of the assets that you can monetize? Or had the discussions reach a certain point? Or was information starting to get out in the public domain? Just kind of curious why you sort of rolling out this information like this?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [26]

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Well, I guess, the simple thing is you got to roll it out some time. We actually were taking a deep dive, as I mentioned earlier, in all of our assets. We're very keen on streamlining this business and getting us down to the core properties. This was one of the things that popped out. I took a look at it. I'm very familiar with how these assets value in the market. The market today seems to be pretty attractive for these assets. And so it made a lot of sense to us to take something that's valued at our multiple and put into the market of something that's substantially higher multiples. So it just made sense.

I think I am cognizant of where we are debt wise. I think we're in a nice fairway here. But you know, like in everything, it's a moving state. So taking some of these proceeds here and helping our debt position, I thought it was pretty smart thing to do. So that's kind of the game. It wasn't any, "Gee, I need to make an announcement,” it's just we recognize the quality of this, we recognize the market today and recognize the value uptick. So that was really the decision process there.

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Operator [27]

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The next question is from John Aschenbeck of Seaport Global Securities.

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John W. Aschenbeck, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [28]

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So I wanted to follow-up on the water assets. And I apologize if I missed this. But you mentioned the $10 million to $12 million a year of EBITDA with substantial growth. So what do you think a good EBITDA run rate for those assets could be, say, at the end of the year when you're planning to wrap up the monetization?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [29]

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John, great question. I think, I would defer that because I know we're going to have a lot of people in the data room looking at that and have their own opinions on it. And I really would not like to color that. The way I look at it, this is a great add to somebody's system or position and it -- or a great starter position for somebody. We're clearly going to be active using this system, other people are as well. So I think $10 million to $12 million is what I call a baseline. And I think there's opportunity for a pretty nice growth and to the comment by the end of the year, the data room here will be lightened up pretty quick. I expect that the process will become concluded well within this year.

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John W. Aschenbeck, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [30]

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Okay, great. Completely understand that. So going for my second one, I was wondering, how do you plan to allocate proceeds for future asset sales? You mentioned how you're planning to do that around the water assets which was helpful. But just thinking about the strategy going forward between share repurchases, but also making sure that the balance sheet stays in check. I'm just wondering if there is a specific leverage metric you'd like to maintain. And then have additional proceeds, good repurchases or perhaps you're just looking at it at a different way.

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [31]

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Yes, so, John, we're, I think, nicely on track with our program was laid out at the beginning of the year, which was a $400 million share repurchase, which includes 2019 free cash, and also the sale of certain noncore assets one of which was the Marcellus, which we've already mentioned. We have a number of others that are all being worked that I hope to be able to announce as the year moves on. So I think that program is all working. This water asset that we've talked about was identified after we'd come up with that $400 million number in program. And so really the use of those funds, I thought, was kind of appropriate to start targeting something like debt reduction. And so that's the game plan with that.

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Operator [32]

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The next question is from Leo Mariani of KeyBanc.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [33]

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Just wanted to follow-up a little bit on the sale of the SCOOP water assets here. Would you folks do see post the deal close here, assuming it gets done later this year to see some increase in your LOE out there in SCOOP as a result? Just trying to get a sense that $10 million to $12 million of EBITDA and that's what it becomes, I guess, added to company, some of that may resulted a little higher LOE?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [34]

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Yes, Leo, the way we've had it in-house here is kind of charging ourselves market rates. So that's where the deal will be struck. So I wouldn't expect us to cut a deal that kind of hurts us. I'd be very disappointed in myself if we did that. So the simple answer is, no. I think we'd have market rates for this deal. And I think there's pretty keen interest in it, so we'll see what kind of price we get.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [35]

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Okay. I guess with respect to the DUC there and Utica, you, obviously, described a pretty aggressive sort of completion schedule you've had there of late. Just trying to get a sense of how many DUCs in the Utica, you guys plan to reduce the total by in 2019? And how many you think you'll have by the end of the year? Just trying to get a sense if you kind of deplete that whole DUC backlog this year?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [36]

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Yes, usually an ongoing business will kind of -- like ours will have some DUCs at the end of the year. And for me, it's kind of, call it, low 20s. And so we have about 40 DUC to take care of this year and that's the game plan. So that's how we'll look at the end of the year, I think, something in the low 20s.

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Operator [37]

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The next question is from Marshall Carver of Heikkinen Energy Advisors.

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Marshall Hampton Carver, Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research [38]

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Yes, just a question on the EBITDA, the $10 million, $12 million of EBITDA impact. Is that all flowing through your LOE line item? Or does some if it show up another line item?

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Paul K. Heerwagen, Gulfport Energy Corporation - SVP of Corporate Development & Strategy [39]

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Marshall, this is Paul. So the system itself is a water reuse and recycling and distribution system. So there are 2 components to that: one is the produced water aggregation system; the other is a flow back in frac sourcing system. And so some of that will go to capital and some of that will go to LOE.

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Marshall Hampton Carver, Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research [40]

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Do you have a ballpark split?

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Paul K. Heerwagen, Gulfport Energy Corporation - SVP of Corporate Development & Strategy [41]

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I don't off the top of my head here.

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Operator [42]

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The next question comes from Jeffrey Campbell of Tuohy Brothers.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [43]

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First question was I just wondered if there is any activity in South Louisiana during the quarter.

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [44]

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God, I hope so. We still own that asset, so that should be active. But we're -- it's one of the assets, noncore that we're moving forward with. So hopefully, we'll be able to announce something here along with other things later.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [45]

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Yes, well, that's a nice color. You mentioned that $50 million of water sale was going to go to debt reduction. And you also said that you think it's going to fetch far in excess of $50 million. So I was just wondering, do we assume whatever windfall above $50 million is going to go to the buyback? Or do you want to keep some cash on the balance sheet? I was kind of wondering what you want to do there?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [46]

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Yes, no, as I hopefully was clear in my comments, none of the proceeds of the sale of the water asset is for the announced buyback program. The $50 million was just to say, "Hey! That's what we are going to use that $50 million for." But we haven't made any decision on the proceeds above that, and once we get to know what that number is, then we'll kind of make a judgment call as to where that money should go. But you've hit on one of the options for sure.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [47]

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Okay, great. I appreciate that. If I could just sneak one last one, and I just wonder, what was the mix of the wells drilled and completed in the Utica. It really -- I'm just asking, did -- were there any wet wells drilled or completed? Or is it all dry gas?

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Donnie G. Moore, Gulfport Energy Corporation - COO [48]

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Yes, Jeff, this is Donnie. Yes, we drilled 2 wet wells in Utica, the rest are dry gas.

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Operator [49]

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The next question comes from Rehan Rashid of B. Riley FBR.

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Rehan Ahmed Rashid, B. Riley FBR, Inc., Research Division - Senior VP & Analyst [50]

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Two quick ones. One, how much acreage was associated with that Marcellus rights sale? And then second, just on a framework or 2020 capital allocation standpoint, operationally speaking, is the -- any early ideas on what kind of focus would be on the Utica? And what kind of focus would be on your SCOOP assets?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [51]

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Rehan, it's not a very big footprint of Marcellus right. So a little bit bigger than my range, but not that big. And then the second question, can you repeat the second question, please?

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Rehan Ahmed Rashid, B. Riley FBR, Inc., Research Division - Senior VP & Analyst [52]

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It's -- maybe an early take on kind of capital allocation for 2020? Have you seen, maybe, a better way to access it, I mean, from your operational results so far? Any kind of changes or thoughts around what kind of capital allocation would be for 2020 between the 2 assets?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [53]

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Yes, so, I think that's -- yes, that's a very fair question. We've been moving capital more towards the more liquids part of our portfolio, which is kind of in the SCOOP. So just in broad sense, I think that about 60% of our capital will go into SCOOP next year. But we'll get a sense of what actually that is, when we get a little bit tighter handle on prices next year. But that's directionally the ratio about 50-50 this year.

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Operator [54]

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The next question comes from Kashy Harrison of Simmons Piper Jaffray.

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Kashy Oladipo Harrison, Piper Jaffray Companies, Research Division - Research Analyst [55]

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Since it hasn't come up yet and it does seem to be the topic of the season. I was just wondering if you could share your views on just M&A and what role you see yourself playing over the next several years? Just any color would be helpful?

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [56]

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Yes, so it is very topical. And we don't comment as a policy on M&A and what we're doing. I think, on a broad sense, basin consolidation and M&A is probably going to happen more in the future as we are at the bottom of the market. And so our role and what we play in that, I think, is yet to be determined that will be the way I would answer that.

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Kashy Oladipo Harrison, Piper Jaffray Companies, Research Division - Research Analyst [57]

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Okay, fair enough. And then if I recall correctly, there were some Springer wells brought online last year. I was just wondering if you all could provide an update on just how the Springer is performing relative to your internal expectations? And that's it for me.

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Donnie G. Moore, Gulfport Energy Corporation - COO [58]

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Yes, this is Donnie. We -- last year, we brought some Sycamore well on, but not Springer wells back in '17. But as far as the Springer goes, we're in a lot of nonoperated wells. On Springer continue to like what we're seeing there. Really like the Woodford performance we'd see in our own acreage as well. So we'll continue to watch that and see where it goes.

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [59]

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Yes, I think priority wise, Woodford then lower Sycamore, it's kind of where we're focusing.

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Operator [60]

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This concludes the Q&A period. I'll now turn the call over to David Wood for closing remarks.

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David M. Wood, Gulfport Energy Corporation - President, CEO & Director [61]

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Thank you, operator. We appreciate everyone's time and interest in Gulfport today. And should you have any further questions, please do not hesitate to reach out to our Investor Relations team. This concludes our call. Thank you.

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Operator [62]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.