Greetings and welcome to Gulfport Energy's first quarter 2020 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jessica Antle, Director of Investor Relations.

Thank you and good morning. Welcome to Gulfport Energy Corporation's first quarter 2020 earnings conference call. I am Jessica Antle, the Director of Investor Relations. Speakers on today's call include David Wood, Chief Executive Officer and President and Quentin Hicks, Executive Vice President and Chief Financial Officer. In addition, with me today available for the question-and-answer portion of the call is Donnie Moore, Executive Vice President and Chief Operating Officer. I would like to remind everybody that during this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and business. We caution you that the actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we may make reference to non-GAAP measures. Reconciliations to the comparable GAAP measures will be posted on our website. I would also like to note that the company intends to file a proxy statement and certain additional proxy materials in connection with the solicitation of proxies for a 2020 Annual Meeting. Shareholders are strongly encouraged to read the company's proxy statement and all other documents filed with the SEC carefully when they become available because they will contain important information. We will not comment on matters related to the 2020 Annual Meeting on this call. An updated Gulfport presentation was posted yesterday evening to our website in conjunction with the earnings announcement. Please review at your leisure. At this time, I would like to turn the call over to David Wood, CEO of Gulfport Energy.

Thank you Jessica. Welcome everyone and thank you all for joining us this morning. I hope all of you, your families and your friends are staying safe and healthy during this challenging time. Before I get into our quarterly results, I wanted to touch on the steps we have taken at Gulfport in response to the COVID-19 pandemic to protect the health and safety of our staff and service providers and the continuity of our business. As part of our business continuity plan, all office employees have transitioned to remote work remaining fully committed as they work from home and continue being engaged in our day-to-day business. Our field operations staff have done a terrific job ensuring that our operations have continued without significant disruption while, most importantly, maintaining safe operations. We have formed an internal return to work task force to develop a detailed plan of how and when we will return to work at our physical offices. But no specific date has been set at this time. Our top priority is and always will be the safety and health of our employees, contractors and communities in which we operate. Overall, I am tremendously proud of how we have responded as an organization and I want to recognize and thank all our teams for their focused dedication and perseverance through this extraordinary time. The COVID-19 pandemic is causing a slowdown in both the global and domestic economy, which has resulted in severe demand declines for all fossil fuels, heavily weighted to the oil and natural gas liquids markets. Oil prices have traded at 20 year lows in a dramatic reduction in capital spending from our oil weighted peers has resulted in expectations for associated gas production to decline in the coming months and possibly through 2021. This expected decline…

Thank you Dave and good morning everyone. As Dave indicated, we reaffirm our full year 2020 CapEx and cost guidance and are making every effort to improve our capital performance and per unit operating costs as we move through the year. During the first quarter, Gulfport incurred $127 million in operated D&C capital and $3 million in non-operated D&C capital. In addition, land expenditures incurred totaled approximately $5 million in the first quarter of 2020. We currently expect roughly 75% to 85% of our capital budget to be incurred during the first half of 2020 and as a result are positioned to generate free cash flow during the second half of 2020. During the first quarter, production averaged 1.05 billion cubic feet of gas equivalent per day composed of 90% gas, 7% natural gas liquids and 3% oil. During the first quarter, our realized natural gas price before the effect of hedges and including transportation costs settled at approximately $0.59 per Mcfe below NYMEX prices, better than our guidance range of $0.70 to $0.80 per Mcf. As previously discussed, our 2020 guidance includes expected firm transport fees incurred during periods when our production falls below our firm transportation commitments, primarily in the SCOOP beginning in the second quarter. We continue to work to improve these realizations through midstream optimization efforts that are not reflecting these opportunities in our current guidance. We reaffirm our full year basis differential guidance of $0.70 to $0.80 per Mcf and continue to work hard to drive results toward the low-end of this range. During the first quarter, before the effect of hedges, our realized oil price came in at $2.55 below WTI. In the SCOOP during the first half of 2020, we have a large portion of our oil volumes under more seasonal contracts versus…

Thank you Quentin. In closing, while it is constructive to see the increase in the 2021 natural gas strip, the near term price dynamics in 2020 remain uncertain. Given this, we remain focused on executing a returns-focused business plan with a strategy aimed at reducing costs, operating safely, maintaining liquidity and positioning the company for long term value creation. Our 2020 outlook and financial plan to substantially reduce capital spend and preserve our quality inventory ensures Gulfport is well positioned to manage and enjoy the benefits of a commodity rebound as it occurs, which may be just ahead of us. As we have said before, size and scale matter and the management team continues to explore opportunities to increase scale and bring further efficiencies to maximize returns. We remain committed to our vision of transforming Gulfport into a sizable natural gas weighted producer with a strong balance sheet and leading structure that allows us to generate sustainable returns within our medium term price range of $2.60 to $2.90 per MMBtu. This concludes our prepared remarks. Thank you again for joining us for our call today and we look forward to answering your questions. Operator, please open the phone lines for questions from the participants?

[Operator Instructions]. Our first question today comes from Jason Wangler of Imperial Capital. Please proceed with your question.

Hi. Good morning guys. I wanted to ask, you kind of mentioned it, I think Quentin, on the hedges that you added specifically for 2021. As you think about hopefully building that hedge book up, is there a preference in swaps versus collars? Or perhaps there was a reason there? Just kind of curious what your thoughts are as you build that?

Yes. Jason, good morning. This is Dave. I hope you are doing well, your family is doing well. I hope everybody else that's on the call is managing through this very difficult time that we are in. I think our overall goal in 2021 is to end up with this hedge position as strong as we can, as close to $3 as we can. I think at the time we place those collars in, we were really trying, as Quentin mentioned in his opening remarks, to address the spring redetermination process. I think we have added subsequent collars better than that, still within our price range. So I am pleased with where we are today. It represents about a quarter of our projected production today for 2021 and we hope to be able to build upon that. As far as the specifics of why that particular mechanism, we don't have a particular bias. It's really just trying to accomplish the overall goal which is to build a hedge book as complete as possible and as close to $3 as possible. And I would hope that Quentin will add anything to that.

Yes. The only thing I would add is, we kind of have this expectation of $2.60 to $2.90 price and we wanted -- the banks were using the price deck in the redetermination that had somewhere around the $2.10 or $2.15 on average price for 2021. So adding collars with a floor of $2.46 really added value from the banks perspective and allowed us to get to the $700 million borrowing base and it also allowed us to achieve the midpoint of that to $2.60 to $2.90 range of $2.75 because the collar range again was $2.46 by $2 80 or $2.81. So that was the reason for that. Going forward we will look at collars and swaps targeting probably the higher end of that $2.60 to $2.90 range.

Okay. That's helpful. Thank you. And then as you mentioned, I think you have mentioned in the past, thinking that gas prices are the kind of hopefully do better here as we go throughout the year. There is still some wells, obviously, that you guys are bringing online. Is there a way to bring those on in a pattern that you guys see as fit? Or is schedule kind of fixed based on what you guys have already set up?

Jason, I think that really gets to the key issue that we are trying to manage for this year. Clearly, over the last few weeks, the outlook for natural gas has changed and it's become more positive going forward. And we want to take advantage of that. We see the second half of the year being stronger. We also see 2021 being a better year, which follows on from the comments that Quentin just made regarding wanting to get our hedge book built as best we can for next year. Because the potential is that 2021 could be a very good year for this company because anytime gas prices get close to $3, I think we do pretty well. So what we are looking to do now is through a program of choke management and also delaying some wells coming on and managing how our production profile looks for the rest of the year, has moved some molecules from this low price part of the year into the higher-priced part of the year. And when we set our budget and plan together and published it in February, really our peak production was in 2Q. Clearly not the best time to have peak production. And so what we are doing now is working across our business to move those molecules so that we can maximize the returns. And what I think will happen here is once we get our plan for the remainder of this year and also get our hedge book and our plan in sight for next year, is we will come back out with a published guidance in terms of production for this year with a look in 2021. And I think people will see that that move on top of the way the gas prices has changed actually increases the value to our company. So that's the overall plan, Jason, is what we are trying to accomplish.

I appreciate the color. Thank you.

The next question is from Welles Fitzpatrick of SunTrust. Please proceed with your question.

Hi. Good morning.

Good morning Welles.

I know it might be difficult to quantify but can you guys talk at all to the expected the impact of non-op shut-ins? And if those happen and accelerate, does it present an opportunity where may be there could be some trading or some blocking up of the position?

Yes. Welles, I think that's a good question. Actually, the vast majority of our production is operated. So really, the non-op component is relatively small. Donnie, I would let you kind of provide extra color around that. But certainly, optimizing our footprint as you aimed that question, Welles, I think is a good thing and is part of what we look at. So I will let Donnie provide some color on that.

Yes. Hi. Good morning, Welles. This Donnie. Yes, I mean I think that is something that we are always continue to try to do. As far as the non-op volumes, they are pretty small, as Dave alluded to, especially here in the SCOOP. We have small interest in a lot of the wells. So really not that impactful that I can see right now. But yes, we will continue to try to work with others and see if we can block this acreage as well as up in Utica, especially.

Perfect. Thank you guys so much.

Thanks Welles.

The next question is from Steven Dechert of KeyBanc. Please proceed with your question.

Hi guys. I just want to get a better sense of the production cadence for 2020. Is 2Q down quite a bit from 1Q 2020 with 3Q and 4Q up a lot? Or is it more like 2Q is just down a little bit? Thanks.

Yes. Steve, good morning. Yes, so the way I would look at it is, we want the second half of the year with higher prices to have more production. So moving the peak in 2Q, as I mentioned, to the right or into the third, particularly in the fourth quarter. So I would look at 1Q, 2Q as being pretty similar, is the way I would model it, with hopefully a better exit rate and high production in 4Q. That's our plan.

Okay. Great, Thanks.

The next question is from Jane Trotsenko of Stifel. Please proceed with your question.

Good morning and thanks for taking my questions. Yes, the first question is regarding potential curtailments in Utica, especially in 2Q. In terms of duration of the potential shut-ins, is there like a certain natural gas price that you would like to see before bringing the volumes back online? Or is it just a matter of getting through 2Q?

Yes. Jane, that's a good question. The production that we have curtailed here is about 20 million cubic feet equivalent. It's about 95 wells. So that tells you that they are very small producers, given that volume. It's about 80% gas. The remainder is liquids. It's the liquids piece on those very low producing vertical strip wells, if you will, that really creates an economic value. And as we have seen the falloff in oil prices, the economics of those wells have changed negatively and I think the appropriate step for us was just to say, hey, let's shut those wells in. As oil prices increase, which is going to be the important driver, we would look to bring those wells on. So as we currently look, let's call it two or three months and then we will hopefully see some price improvement to the point where some of those wells will come back on. But it's not a big volume. But I think it's an appropriate thing for us to do. The one thing that we did spend time looking at is, because those are old vertical wells for the most part, they do hold some of the lease footprint for us and we wanted to make sure that we weren't in any lease jeopardy by shutting those wells. And so that was the thought around all of that.

I see. The second question is on SCOOP. And I saw that you guys are running one rig in SCOOP and obviously completing and bringing wells online. What's the plan for that rig for the remainder of the year?

Yes. I will let Donnie fill in. His operations team has done a great job. So I will let Donnie make the comments on the rig.

Hi. Good morning Jane. Yes, I mean right now, we have actually finished all of our completion work in the SCOOP at plan and budgeted for the year right now. So we will kind of watch that as we go along. The rig should be and it's always been planned to be here all year. So it will continue drilling and we will also have the one rig up in the Utica. So we have one in each asset.

Okay. The last question, if I may. On midstream project, if you could provide some color such as for example how much is flowing on that pipeline and how the volumes are going to ramp over time?

Yes. I will let Donnie again touch on that

Yes. Jane, as I think we have mentioned before, it's just getting started up this week. So starting to move some volumes through it as that thing gets commissioned out. And we will continue to ramp up over the next coming weeks really.

Awesome. Thank you.

Thanks Jane.

Our last question comes from Dun McIntosh of Johnson Rice & Company. Please proceed with your question.

Good morning David.

Good morning Dun.

I just had a quick question on capital gains over remainder of the year. I know that previously you may have mentioned in your prepared remarks and I must have missed it. But the point is still for kind of 85% of CapEx in the first half of the year and then I guess the thought is that you go ahead and complete those wells and then just wait to turn them in line in the back half of the year. And then taking that a step further, with CapEx being so low in the second half and volumes ramping and hopefully into a higher price, you should be in a position to throw up some pretty good cash in the second half of the year. So how do you think of allocating that towards the revolver versus additional repurchases of your bonds?

Yes. Dun, I think that gets to really some of the key things that we are trying to accomplish. So I think that's a very good question. Quentin, in his prepared remarks, said that we spend between 75% and 85% our planned capital in the first half of the year. With this, we look at how we want the production to shape for the remainder of the year. I think we can generate, as you said, better returns and more free cash than we thought originally we were going to generate. We need to get that all planned out. I think having the wells, both behind choked and ready to come on production, actually derisks that production profile. It's a lot easier given COVID-19 issues, et cetera, et cetera to actually have things behind a choke to just bring them on when you need. So really, I see that as being one of the benefits. As we hope the year is going to materialize and we do see that generation of free cash above where we had originally thought, then we can start to look at what 2021 looks like. And as I mentioned in one of the earlier questions, I really think 2021 can be a very good year for this company. It takes a couple of things for us to do that. It takes being able to hedge at somewhere closer to $3 which I think we have made a good start. And I think the strip is going to allow us to accomplish some of that. And then also it means getting ready in the second half of the year to have wells ready to come on. And so when we republish our guidance for the year in a few months or whenever we get it done, I think everybody will get a much closer view of what the second half activity would look like. And I am not opposed to being a little bit more active, if all of the good things will happen and that 2021 looks as promising as it is. So that's another reason for us taking little pause here and taking a look at the business. So we could see some growth next year, if gas is at $3. I am hopeful for that. And I think we want ourselves to be planed that way.

All right. Great. Thanks. And then maybe just got kind of a more of a macro question, basin specific. In Appalachia, I mean, at what point do you think that people will start to kind of add rigs back and pick up activity, maybe not Gulfport specifically but some of your peers? And do you think that there is a little bit of a risk baked in there with just the pressure that's been on this space and kind of you are getting some relief with falloff in associated gas production and more volumes get shut-in? But on the other side of that, obviously there is a lot of people that are going to be looking to take advantage of a higher price. So how do you kind of weigh the risk or think about the gas market as it gets to a point where people start putting rigs back to work and the durability of price under a scenario like that?

Yes. Dun, I think that gets to the real core issues as we look at gas game. And as we mentioned in our remarks, I think $2.60, $2.90 has been our, what I call, midterm price view. It was that way last year. It is that way now. So I don't see any reason to change that. I think the dynamics as to why that range make sense of change, certainly in light of the oversupply in oil and COVID-19, I think that when we start to see gas prices at the $3 range, I think that's going to be close to where it's going to get to. I see some people saying it's going to be $3.50 or $3.80 or $4. I think if it does do that, it will be very, very brief. And so I think more towards the $3 game. I think the big question for this year is going to be where storage ends up and where demand falls. I think there is the opportunity in 2021, which is why I think 2021 has a chance to be a better year kind of a $3 type price range is because with reduced supply and potentially a winter that's not quite as full for storage in the end of 2021, which is where it is now, we could see some support around that. But people are going to drill into it as you quite rightly say or open up wells that are oil producers that have associated gas into that. So all of those factors suggest to me that this $2.90, $3 range is probably the upper part, in general, with occasional spikes above that. And we just need to be in a position to take advantage of it, which we are.

All right. Thank you.

Dun, thank you. I appreciate it.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.