Gulfport Energy Corporation Q2 FY2025 earnings call

Strategic Initiatives - Allocated up to $100 million toward discretionary acreage acquisitions in the Utica Shale, aiming to secure future drilling opportunities and strengthen inventory runway. - Increased share repurchase program authorization by 50% to $1.5 billion, with $65 million spent on share repurchases during the quarter and $125 million returned to shareholders in H1 2025. - Announced redemption of all outstanding preferred stock, potentially accelerating share repurchases and simplifying capital structure. ### Operational Performance - Delivered solid second quarter with high single-digit production growth, strong operating cost performance, and consistent execution across 5 development areas. - Midstream challenges like weather-related infrastructure disruptions and processing plant outages were resolved, though cumulative impacts led to full-year production trending toward the low end of guidance. - Kage development showed strong oil performance, with 65% more cumulative oil than the Lake pad. The Northwest Belmont County pad is the first from discretionary acreage acquisitions, with enhanced cash flows from associated liquids production. - Invested ~$17 million on land through June 30, 2025, focusing on near-term drilling programs, and allocated $75 million to $100 million for discretionary acreage acquisitions in H2 2025 and early 2026, expecting to add over 2 years of core drilling inventory.

Gulfport Energy reported an average daily production of 1.006 billion cubic feet equivalent per day in the second quarter, an 8% increase over Q1 2025. This included a quarterly impact of approximately 40 million cubic feet per day from midstream outages and constraints. The company's Kage development in the Utica Shale and the 4-well Utica wet gas pad in Northwest Belmont County were highlighted as performing well, with the latter generating approximately 30% more revenue than top-tier dry gas development assuming $3.50 natural gas and $65 oil.

Forward-Looking Statements - Anticipate adjusted free cash flow to accelerate in the second half of 2025 due to strong hedge book and nearly 3/4 of full-year capital spending complete. - Leverage target of approximately 1x expected to be achieved by late 2025 or 2026. - Preferred stock redemption has the potential to meaningfully accelerate share repurchases and simplify capital structure. - Allocation of $75 million to $100 million for discretionary acreage acquisitions in H2 2025 and early 2026 to add over 2 years of core drilling inventory at current development pace.

Risks - Midstream constraints previously caused production impacts, though mitigated, there could be ongoing or new issues affecting production. - Commodity price volatility could impact realized prices and cash flows. - Uncertainties related to preferred stock redemption mechanics, including holder decisions on conversion or repurchase, and potential impact on liquidity and leverage. - Competition for acreage acquisitions could limit available opportunities or increase costs.

Q: Can you talk about where the $75 million to $100 million in discretionary acreage acquisitions will be geographically and how they fit into the development schedule?

A: John Reinhart said these will be in Belmont County, Ohio and Northern Monroe County, adjacent to current footprint, targeting low breakeven, high-quality acreage, with $7 million spent in Q2 and looking to wrap up commitments for 2-year inventory adds.

Q: How do you view buying back stock in the open market with the upcoming preferred stock redemption?

A: Michael Hodges said the preferred stock redemption is seen as an acceleration of the existing share repurchase program, with the value of equity presenting an exciting opportunity, and the company has flexibility to continue repurchasing depending on redemption results.

Q: Post redemption, how do you think about allocating free cash toward shareholders versus deleveraging?

A: Michael Hodges stated that 1x leverage feels right, and the company will continue to consider high-quality acreage acquisitions and share repurchases, with no change in philosophy, seeing the redemption as an extension of previous strategies.

Q: How do you think about the competitive returns of the Kage pad condensate area and future activity there?

A: Matthew Rucker said the Kage pad has good results, still above 70% IRR threshold, part of the portfolio, and the company will continue to watch commodities and adjust the portfolio balance heading into 2026.

Q: Is there an implication that larger transformative opportunities are unavailable with the $75 million to $100 million discretionary spend?

A: John Reinhart replied that the strategy of protecting balance sheet, increasing efficiencies, and reinvesting in inventory with free cash flow and share repurchases is consistent, and there are still attractive opportunities in the basin for organic acquisitions.