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Gulfport Energy (NYSE:GPOR) is well hedged on natural gas in 2024 and that should allow it to generate a solid amount of free cash flow this year despite weak natural gas strip prices. At $2.50 to $2.55 NYMEX gas in 2024, I estimate that Gulfport can generate $283 million in free cash flow, of which $255 million would come from its hedges. This would be close to $13 per share (including the impact of all its remaining preferred shares being converted into common shares) in free cash flow.
For 2025, Gulfport may be able to generate around $400 million in free cash flow at the current strip of $3.45 NYMEX gas while growing production modestly.
In September 2023, I thought that Gulfport was fairly valued when it was trading at approximately $122 per share. Gulfport has demonstrated strong operational performance though, increasing its 2023 production expectations while trimming its capex budget. As a result, I can now see it being worth around $137 to $152 per share at long-term $3.75 NYMEX gas, assuming that it can maintain this improved capital efficiency.
Gulfport’s Hedges
Gulfport has a significant amount of hedges at favorable prices. Gulfport has approximately 58% of its 2024 natural gas production hedged at an average floor/swap price of approximately $3.77. It also has sold calls at $3.33 affecting another 21% of its 2024 natural gas production. Gulfport has a more limited amount of oil and propane hedges, but it is mostly its natural gas hedges that matter and contribute to an estimated positive $255 million in 2024 hedging value.
It also has hedges that should cover around 25% of its 2025 natural gas production at an average floor/swap price of $3.90.
Potential 2024 Outlook
Gulfport expects to average approximately 1,050 MMcfe per day in production during 2023, and has mentioned low single digit production growth per year going forward. I am thus modeling Gulfport’s 2024 production at approximately 1,060 MMcfe per day, under the assumption that near-term production growth will be relatively limited due to weak natural gas prices.
I have also modeled a production split of 90% natural gas and 10% liquids for 2024. This is fairly similar to what Gulfport’s 2023 production split will likely end up at. Gulfport is expected to shift some capital to its liquids-rich assets due to the weak near-term natural gas pricing expectations, but the increased liquids will be seen more in its 2H 2024 and 2025 production splits.
At current strip prices of approximately $76 to $77 WTI oil and $2.50 to $2.55 NYMEX gas for 2024, Gulfport is projected to generate $1.024 billion in oil and gas revenues before hedges.
As noted above, Gulfport’s 2024 hedges have around $255 million in positive value at current strip prices.
| Type | Units | $/Unit | $ Million |
| Natural Gas [MCF] | 348,210,000 | $2.25 | $783 |
| NGLs (Barrels) | 5,029,700 | $27.50 | $138 |
| Oil (Barrels) | 1,418,633 | $72.50 | $103 |
| Hedge Value | $255 | ||
| Total Revenue | $1,279 |
I have modeled Gulfport’s 2024 capex at $435 million to achieve the 1% modeled production growth this year. This results in a projection that Gulfport can generate $283 million in free cash flow in 2024 at current strip prices before any cash income taxes.
| Expenses | $ Million |
| Transportation, Gathering, Processing and Compression | $356 |
| LOE | $66 |
| Taxes Other Than Income | $38 |
| G&A | $46 |
| Interest and Preferred Dividends | $55 |
| Capex | $435 |
| Total Expenses |
$996 |
Share Repurchases And Share Count
Gulfport will have slightly under 22 million shares outstanding if its remaining preferred shares were converted to common shares. Gulfport has also been actively repurchasing shares, having repurchased 3.9 million shares (up to the end of Q3 2023) since it started its share repurchase program. These shares were repurchased at a weighted average price of $86.08 for a total of $333.7 million. Gulfport currently is authorized to spend up to $650 million on share repurchases.
Notes On Valuation And Potential 2025 Results
At current 2025 strip prices (including $3.45 NYMEX gas), Gulfport should be able to generate over $400 million in free cash flow (after hedges) while continuing to grow production modestly (low single digits growth compared to 2024).
At long-term commodity prices of $75 WTI oil and $3.75 NYMEX gas instead, Gulfport would be able to generate around $450 million to $500 million in unhedged free cash flow (not including any impact from cash income taxes) at expected 2025 production levels. This would support a value of around $137 to $152 per share for Gulfport with a 15% free cash flow yield.
So if Gulfport can continue to grow production modestly with a capex budget of around $450 million per year, it would have decent upside in a long-term $3.75 NYMEX gas environment. At long-term $3.50 NYMEX gas instead, Gulfport’s estimated value would be around $110 to $125 per share.
Conclusion
Gulfport has impressed with its improved capital efficiency, boosting its overall value and pointing to the potential to deliver $450 million to $500 million in free cash flow at $75 WTI oil and $3.75 NYMEX gas. I thus have increased its estimated value to $137 to $152 per share at those long-term commodity prices.
The 2024 natural gas strip is about $1.20 to $1.25 lower than that long-term natural gas price, but Gulfport’s hedges should allow it to weather 2024 in pretty decent shape. I project that Gulfport can generate around $283 million in free cash flow in 2024 at $2.50 to $2.55 NYMEX gas.
