Hello, and welcome to the Gulfport Energy Corporation’s First Quarter 2023 Earnings Call and Webcast. [Operator Instructions] A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Jessica Antle, Director of Investor Relations. Please go ahead, Jessica.

Thank you, Kevin, and good morning. Welcome to Gulfport Energy Corporation’s first quarter 2023 earnings conference call. I am Jessica Antle, Director of Investor Relations. Speakers on today’s call include John Reinhart, President and Chief Executive Officer; Michael Hodges, Executive Vice President and Chief Financial Officer. In addition, Matthew Rucker, Senior Vice President of Operations will be available for the Q&A portion of today's call. 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 conditions, results of operations, plans, objectives, future performance, and business. We caution you that 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 those GAAP comparable measures will be posted on our website. 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 John Reinhart, President and CEO.

Thank you, Jessica, and thank you to everyone for listening to our call. I'm pleased to provide highlights today on the company's performance in the first quarter, which includes production, adjusted EBITDA and adjusted free cash flow exceeding analyst estimates, capital cost deflation realizations, strong well productivity and operational cycle times outpacing expectations, all of which facilitate high confidence in our 2023 program. To open, I would first like to welcome Michael and Matthew to the Gulfport team. Michael brings over 20 years of experience as a seasoned financial leader with deep expertise in the oil and gas industry, and much of his career is spent with companies operating in the Appalachian and Anadarko basins. Matthew also possesses a substantial knowledge of the Appalachian Basin and holds a decade of experience focused on operational excellence and low-cost leadership, which plays an integral role as we continue our efforts to improve capital efficiencies and enhance margins. I've had the pleasure of working with both Michael and Matthew. And when combined with the many talented operational and support individuals at Gulfport, creates a team that is extremely experienced in both operating basins, holds a proven track record of operational execution and is known for identifying and executing on opportunities for improvement that maximize value. The company will remain focused on actions that facilitate the sustainable development of our quality inventory, enhance margins and optimize efficiencies within our capital programs, all while maintaining an attractive balance sheet and utilizing our top-quartile free cash flow yield to enhance shareholder returns and position the company for success. Returning to our first quarter highlights. The company generated $63.1 million of adjusted free cash flow during the quarter, allowing us to continue returning capital to our shareholders, while improving our already strong financial position as evidenced by…

Thank you, John, and good morning, everyone. During the first quarter, the company continued to achieve strong results in almost every area of the business. Net cash provided by operating activities totaled $304 million during the first quarter, funding capital expenditures, total debt reduction of $145 million and the repurchase of $32.9 million of common stock. We reported adjusted EBITDA of $230 million during the quarter. And as John mentioned, generated adjusted free cash flow of $63 million for the same period, above analyst expectations and up sequentially, despite significantly lower prices quarter-over-quarter. The power of our business to generate EBITDA and free cash flow remains impressive, as we have now generated $763 million and $188 million of adjusted EBITDA and adjusted free cash flow, respectively, over the past 12 months, and we are on track to deliver similar cash results in 2023, despite what is shaping up to be a much softer natural gas price environment. Our all-in realized price during the first quarter was $3.71 per Mcfe, before the impact of cash settled derivatives and firm transportation. While our cash hedging gain for the quarter was minimal, despite the volatility in gas prices, our hedging position for the remainder of 2023 should provide ample downside protection should prices remain at current levels. Our natural gas price differential before hedges was negative $0.11 per Mcfe compared to the average daily NYMEX settled price during the quarter, which was better than analyst expectations and below the low end of our full year guidance range. Driven by seasonality and strip pricing increasing as we progress through the year, we reaffirm our natural gas differential guidance before hedges to average $0.20 to $0.35 per Mcf below NYMEX for the full year. On the capital front, we incurred capital expenditures of $127.2 million…

Good morning, guys. Thanks for the time. My first question, maybe Michael for you, is just on hedges, given the materially improved balance sheet you all have? And then obviously, the potential outlook for the positive gas prices, I think everybody is thinking about for late next year and certainly in 2025. I'm just wondering, can you talk about plans you and John might have to add more hedges in the out years. And is there certain levels, if you see certain price levels where you would come in?

Yes. I think that's a great question, Neal. I think we've just started on our 2025 program, as I mentioned. In general, I think as we get closer to that time period, we want to grow that hedge book to something in the 30% to 50% range as we look out a couple of years. So like I mentioned on the call here, we're just about approaching 10% of 2025 right now. And I think we feel good about something with a four handle in front of it. So we've used different structures to date, some collars and some swaps. We'll probably look to include some colors in our blend just so that we retain some of that upside. But I think as long as we're feeling pretty good about where the price is, and again, I think so far, that's been $4-ish and above, then I think you'll see us continue to add so that by the time we get a little bit closer to that time period, we went inside of the range that I gave that 30% to 50%.

Great point, okay. And then, just secondly, my question maybe for John, just on future Appalachian pad development. I'm just wondering, could you speak to any plans for I think when we spoke last, you talked about, I think, a two or three-well pad size. I'm just wondering could you talk about maybe plans for change in the pad size at all for -- to maybe help more -- get more efficiencies? And then secondly, I think in the slides you talked about stack Marcellus opportunities. I'm just wondering when you look at these pads, is that -- do you intend to incorporate that on any of these upcoming pads? So I guess my two questions is just on pad size and if you would incorporate Marcellus and any of these upcoming pads?

Yes. I appreciate it. Thanks for the question. With regards to pad sizes, we do have a pretty holistic approach and review when it comes to our development plans and operations and cycle time is certainly a big part of that. As we look forward for this year, it's a blend of some four wells, three wells and two-well pads. But I would say, as we look at the returns with regards to capital employed and the return on a pad level perspective, that midpoint of about three wells per pad initially and incoming back in subsequent years to round out the unit is a size that we're very familiar with. But keep in mind, too, there's always exceptions to that just depending on the land situation. So we may add the four, or may go down to two just depending on how much running room we have in the area. With regards to the Marcellus, we're pretty excited about this overall in the company. We're just now I think the beginning of Q3 is when we're looking to spud this first two-well pad, and it is on a current existing Utica pad. So as we look at our development moving forward in current PDP locations and pad locations, throughout that area that we feel like is potentially prospective to Marcellus, we absolutely will take advantage of the current existing pads and any future pads in that eastern area of Belmont in Northern Monroe that's close to the river there where we feel like it's -- we're pretty bullish on Marcellus. So we certainly consider those whenever we consider Marcellus and Utica development. And the cadence and pace of which one, we would drill first certainly depends on the delineation efforts of the Marcellus this year. So we're looking forward to getting those results in at the end of the year and assessing them. So I appreciate the question.

Look forward to activity. Thanks guys.

Thanks.

Thank you. Next question today is coming from Tim Rezvan from KeyBanc Capital Markets. Your line is now live.

Good morning, everybody. Thank you for taking my questions. I'm not sure if I counted accurately, but I thought I heard the word opportunistic three times in regards to leasing opportunities. It looks like you spent $20 million in the first quarter, you have a budget for, I believe, $50 million to $75 million. And just curious, with the balance sheet where it is, how do you manage – what's the governor, I guess, on those acquisitions, because we don't expect much EBITDA with that. Do you think about leverage at one-time an upper bound, or would you go over it for the right package? Just trying to understand what's out there. It sounds like you have a real appetite, and just trying to understand as we can think about the uplift to inventory?

Yeah. No, I appreciate the question, Tim. First of all, I'll start out by saying that we're really pleased with the asset base of the company, whether it's the condensate window in the SCOOP, or the condensate window in Ohio, dry gas in Ohio and now the Marcellus, all these areas provide a flow of toggles and optionality in the future. So as we look at adding the quantity of inventory, this is a very good use of cash for us. And certainly, any accretive acquisitions that we would be picking up, we wouldn't be putting it at the back of the line with regards to the queue in drilling, it would be more front loaded just because of the quality and the tier of acreage that we'd be buying. As we move forward throughout this year, those efforts are already starting to be underway. We do certainly like the word opportunistic I suppose. I didn't catch that, but thanks for pointing it out. But it is a very important tenet as we go through this year with regards to bolstering our inventory position in high-quality areas. So as we get more spend with regards to the land and more definitive actionable closed acreage, probably midyear, we'll be talked a little bit of more about bifurcating that free cash flow use for some of these acquisitions versus the blocking and tackling of the $50 million to $75 million that we're currently undergoing. We are actually pursuing both the blocking and tackling, filling in units, extending lateral links for near-term opportunities, as well as these accretive opportunities and look forward to kind of discussing, again, that free cash flow use in particular and how much of that and quantifying it as we move into the second quarter call. So that answers your question. Mike, if you have any more comments.

Yeah, Tim, this is Michael. I just -- I might add to that, you mentioned the balance sheet. I mean, I think this is really kind of when we talk about flexibility that we have. I think this is where it's kind of exciting, right? So the leverage, as you mentioned, is in a good place. I think we're in the right zip code for leverage. That could move up or down a little bit depending on what happens to the strip and EBITDA and the denominator of that calculation. But I think we look at all the various opportunities internally, whether it's bolt-on acreage, whether it's returning cash to our shareholders or a number of other ways that we can use our free cash flow, and it's a consistent discussion with our Board to identify the highest and best uses of our excess cash flow. So right now, that's the accretive acquisitions of leasehold that John talked about and some -- and share repurchases. But certainly, as we go forward, we'll continue to assess that. But as you mentioned, I think the balance sheet is really what gives us the flexibility to kind of play in different areas, and we'll continue to be kind of dynamic in the way that we think about that.

Okay. Okay. Yeah. That makes sense. And I guess we'll have to stay tuned next quarter. And as my follow-up, I just wanted to dig in a little more. You talked about really strong early results from that three-well pad in Monroe County and how it's possibly early stage is outperforming that 2022 kind of average in terms of 2.1 Bcf of EUR per 1,000 feet. Can you just refresh my memory, like what wells or how many wells are in that 2022 data set? And are those kind of directly around that Monroe pad or do you still like that's like an ideal kind of apples-to-apples comparison, this pad versus 2022 vintage?

Yeah, sure. This is Matt. I appreciate the question. We do have approximately, I think, it's six wells in the area, the more scary pads, nearby in that Central Monroe area, strong results from last year kind of trailing into this year. That's kind of the 2.1 Bcf per 1,000-foot benchmark. And so as John mentioned, these three wells that we just turned in line, very strong results, high initial pressures, very low drawdowns. We're very excited about the productivity of these wells still very early on, but initial indications look to be slightly better than what those wells were. So I think for us, it's just getting those wells online and then looking forward to those results that does bolster our inventory set in that area, which is quite expensive and probably hasn't had as much attention in the market as we believe it should have. And so we're pretty excited about those results and look forward to sharing more as we get more data throughout the year.

Okay. Thanks. I appreciate the comments, everybody.

Thank you.

Thank you. We reach the end of our question-and-answer session. I'd like to turn the floor back over to John for any further or closing comments.

Yeah, I'd like to close out by just reiterating the company is positioned well for value. As we look out in for the gas fundamentals and the macro improvement over the next 18 months is a very positive thing. Our strong balance sheet is something we're leaning in on low debt, the quality of our assets and quite frankly, the ability for the company to generate sustainable free cash flow at a variety of commodity prices. This cash flow that is targeted to the value of the company and enhancing that with regards to shareholder returns and quality adds for inventory. So we appreciate everybody's participation on the call. We're excited about the quarter and the year-to-date results, and we look forward to our next call to update you on substantial amount of turn a line that we have planned. Thank you very much.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.