This low-priced stock is on schedule to add to its natural gas coffers. It is currently trading at a discount to its growth model.
Gulfport Energy Corp. (GPOR)
From Canaccord Genuity Research
Gulfport Energy Corp. (GPOR) is the most levered company to the core of the Utica Shale in eastern Ohio with ~213K net acres. Its high-quality asset base has been driving significant production growth, with double-digit growth likely in 2016, 2017 and 2018. A strong financial position helps underpin the growth outlook.
GPOR has entered into a definitive agreement with Vitruvian II Woodford, LLC, a portfolio company of Quantum Energy Partners, to acquire ~85,000 net effective acres, which includes rights to 46,400 Woodford acres and 38,600 Springer acres, in Grady, Stephens and Garvin Counties, Oklahoma in the core of the SCOOP play. The acquisition is expected to close in February 2017 (we are assuming end of month). Total consideration is ~$1.85B, consisting of $1.35B in cash and ~23.9M shares of GPOR common stock privately placed to the sellers, which was adjusted up from 18.8M at the time the deal was announced. To fund the cash portion of the
acquisition, GPOR sold $600M of 6.375% Senior Notes due 2025 and 33.35M shares of its common stock (29M shares plus our assumption of the full exercise by the underwriters of their option to purchase 4.35M shares to cover over-allotments). The offering price of the stock was $21.50 per share, with net proceeds of ~$700M.
The company has identified ~1,750 gross drilling locations on the Vitruvian acreage, composed of only the Woodford (~1,180) and Springer ~570) intervals. There is significant upside potential through downspacing and additional prospective zones (Sycamore and Caney) present on the acreage. Vitruvian gives GPOR both basin and commodity diversification, with its SCOOP assets being ~1/3rd liquids.
Vitruvian wells make up ~half of the top wells in SCOOP to date, led by the Anita Fowler 1-27X26H, with a normalized 30-day IP of 3,166 Mcfe/d/1,000 ft of lateral. This was Vitruvian’s first Gen 4B completion, and with 86% more proppant/ft. than a Gen 1B completion, is showing a 54% improvement in the normalized 30-day rate with an additional 500 psi of flowing casing pressure. GPOR will seek to apply its Utica completions design expertise to the SCOOP to further drive performance uplift. GPOR has identified ~775 well locations with IRRs of ~75% at $3.50 gas/$58 oil.
Given the high equity component to finance the acquisition, the balance sheet remains in solid shape. We are modeling a YE17 net debt/EBITDA of 2.0X and liquidity of ~$1.0B. Our $33 price target represents a 10% discount to a ~$37 NAV.
The pending acquisition of Vitruvian would give GPOR a premier position in a second prolific high quality natural gas asset in the SCOOP. At a pro forma 2017E EV/EBITDA multiple of 7.3x taking the pending Vitruvian acquisition into account, GPOR trades at a discount to other high quality gassy names like Cabot, EQT, Range, and Antero, which trade at +/-9x. We feel this is unwarranted given GPOR’s strong growth and financial profile.
Stephen Berman, CFA, Canaccord Genuity Research, www.canaccordgenuity.com, 617-371-3711, December 20, 2016