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Morningstar | Gulfport Targets Natural Gas in the Utica Shale and the Oklahoma SCOOP

Gulfport Energy is a natural gas producer with key assets in the Utica Shale and the South Central Oklahoma Oil Province, or SCOOP. It also holds noncontrolling interests in Mammoth Energy Services and Grizzly Oil Sands (though the latter is assigned no value in our model). Until recently, the firm was outspending to grow the business, but management is now focusing on generating cash flows, which it intends to use to pay down debt and fund its $200 million stock repurchase program.Most of the firm's Utica acreage is located in the play's dry gas window, although about 25% of it is also prospective for natural gas liquids and condensate. Natural gas prices have been persistently weak in the Appalachian Basin, owing to the region's limited takeaway capacity and relentless production growth. Gulfport has attempted to sidestep this by securing firm sales commitments, but must still contend with realized prices well below Nymex until at least 2020 (management expects an average discount of $0.58-$0.72 in 2018).The SCOOP area contains several stacked reservoirs. The Woodford Shale has a high natural gas content where Gulfport is operating, but the overlying Sycamore and Springer intervals contain oil as well. The geology of this play is complex and the reservoir is relatively deep, which means the development cost is much higher than it is in other shale plays. But initial production rates are typically high as well, justifying the additional outlay (to an extent). Drilling economics here aren't quite as juicy as they are in top-tier shale plays like the Permian, but returns are nonetheless robust at current prices. And there's probably more scope for improvement in the SCOOP, which is still being delineated by the industry.