Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in GPOR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Gulfport Energy Corp. (GPOR) is an oil and gas E & P company with significant lease holdings in the continental U.S., Canada (Alberta oil sands), and Asia (Thailand). GPOR’s stock has been going straight up since it bottomed at $15.91 on June 25, 2012. The stock closed at $41.39 on February 1, 2013. That’s a 160% gain in about 7.5 months.
The trip upward has been largely spurred by GPOR’s fantastic development results in the Utica Shale field. Its first nine wells in the Utica averaged a peak rate of 787 barrels of condensate per day, 10.85 MMcf of natural gas per day and 1,253 barrels of NGLs per day, or 3,849 Boepd per well assuming full ethane recovery. Usually anything over 1,000 Boepd is thought to be a great result. It is easy to see why investors are gaga over GPOR’s results. With its latest acquisitions GPOR has 106,000 net acres in this prolific field.
These results are unquestionably the reason GPOR has allocated approximately $349 million (83%) of its approximately $420 million FY2013 CAPEX program to Utica development. Based strongly on Utica development, GPOR expects to grow production from approximately 7,036 Boepd at 2012E to approximately 21,233 Boepd by 2013E.
With a good part of growth based on the Utica development (83% of CAPEX for FY2013), a serious problem presents itself for GPOR. The company keeps citing its FY2011 production mix of approximately 94% crude oil and liquids. Actually for Q4 2011 that figure was 95% oil and liquids. Of that, 93% was oil, and 2% was NGLs. However, if you look at the averages above for the nine Utica wells, there was little oil produced. On average the percentages were approximately 20.4% condensates, 32.6% NGLs and 47% natural gas. In other words GPOR production from the Utica will be approximately 33% non-oil liquids and 47% natural gas going by the initial results. The 90%-95% oil production figure that GPOR keeps misleadingly emphasizing will drop considerably by 2013E. That percentage may continue to decline in 2014 with even more Utica development, which has been only approximately 20.4% condensates so far. Continue Reading the Article Here.