Multi-basin independent Gulfport Energy Corp., whose Lower 48 portfolio is 92% weighted to natural gas, is holding production flat to wait for stronger prices into 2025.
CEO John Reinhart discussed second quarter performance and expectations for the year during a conference call. He was joined by CFO Michael Hodges. The Oklahoma City-based producer works in the Marcellus and Utica shales of Appalachia. It also develops oil and gas in the South Central Oklahoma Oil Province, aka the SCOOP.
The company today is navigating “a volatile and ever-changing commodity price environment,” Reinhart said. To that end, the key is to retain “flexibility” until commodity prices improve.
Between April and June, Gulfport produced about 1.05 Bcfe/d combined of natural gas, natural gas liquids (NGL) and oil, about the same as a year ago. The production mix was 92% weighted to natural gas, 6% to NGLs and 2% to oil and condensate.
Still, gas production overall was higher at 973 MMcf/d from 946 MMcf/d. Output from the gassy Marcellus and Utica increased to 817 MMcf from 751 MMcf. Gas production in Oklahoma decreased to 156 MMcf/d from 195 MMcf/d.
Including hedges, realized natural gas prices averaged $2.66/Mcf from $2.42 in 2Q2023. The gas price differential – before hedges – was minus-26 cents/Mcf compared to the average settled daily price at the New York Mercantile Exchange (Nymex), Hodges said. The gas differential before hedges is expected to average “20 cents to 35 cents/Mcf below Nymex for the full year.”
NGI’s Forward Look shows Henry Hub prices averaging around $2.564 for the rest of the year as of Thursday (Aug. 8). The benchmark is seen averaging around $3.247 in 2025.
LNG Opportunities
Gulfport is keeping its options open as it already moves a lot of gas volumes to the Gulf Coast. There, the gas can be used for the massive industrial complex that runs from Louisiana to Texas. Or it can be piped to Mexico – or more likely, used for overseas exports.
Up to 15% of the Gulfport’s natural gas “has firm delivery to the Gulf Coast,” Hodges said. He noted that the gas is transported via Tennessee Gas Pipeline Co.’s TGP 500 Leg pool and Transcontinental Gas Pipe Line Co.’s Transco Zone 5. The systems provide “direct exposure to the growing LNG corridor and industrial demand centers, and significant premiums of 30-40 cents above Henry Hub in future periods.”
Gulf Coast liquefied natural gas exports are projected to expand in 2025 as more capacity comes online.
“To be clear, we believe gas prices should improve in 2025 and have carefully chosen to maintain significant upside in natural gas prices in 2025 and 2026 by utilizing collar structures for nearly half of our 2025 downside hedges that allow us to participate in prices well above $4.00,” Hodges noted.
For now, the near-term plan is to achieve “pure efficiency gains,” which lead to “long-lived gains,” Reinhart added.
Executives were asked whether Mountain Valley Pipeline (MVP), which moves Appalachian gas volumes to Southeast markets, had impacted operations. The natural gas system ramped up in June.
“The basis markets have been moving around a little bit,” Hodges said. However, the impacts are minor. Where Gulfport gas is sold, basis has “varied maybe 5 to 10 cents” since the first quarter.
“I think the market largely expected the MVP pipe to come on sometime in 2024,” so the price was baked in. “We really haven’t seen a lot of change from those basis locations.”
Capturing More NGLs
To assuage concerns about low gas prices, Gulfport began pivoting some activity earlier this year from dry gas to more liquids-rich areas of Appalachia.
Activity is “really about the general macro environment,” the CEO said. “There's a lot of volatility out there right now…
“Quite frankly, gas is pretty meaningful, but any kind of potential allocation to accelerate activity would be targeting more the oil and the condensate area. Overall, I think the general outlook from the industry is going to be key.”
The move to liquids-rich acreage “was really geared for us, as the company is sitting on a substantial amount of dry gas inventory,” Reinhart said. “We certainly wanted to lean in on bolstering our liquids-rich inventory, the high margin, low breakeven…”
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Going forward, expect NGL weighting to tick higher.
“We have a very large dry gas base,” Reinhart noted. Trying to reduce gas weighting from 92% to anywhere near 85% “is probably not realistic. But certainly moving down from the 92% gas into that high 80s over the next year and a half is very reasonable.”
The switch to capture more liquids ties into “opportunistic” acreage purchases this year, Reinhart said. Gulfport during 2Q2024 spent around $19 million to pick up liquids-rich acreage. Up to $45 million total is planned to acquire more NGL-heavy opportunities, particularly in the Utica.
“The benefit of that to the company is that our Utica position is largely held by production already,” Reinhart said. “So bringing on these high quality acreage positions…with one- or two-pad developments in certain areas is very advantageous.”
Net losses were $26 million (minus $1.51/share) in 2Q2204, compared with year-ago profits of $78 million ($4.43). Total natural gas sales increased to $333 million from year-ago sales of $442 million.
