Ladies and gentlemen, greetings. Welcome to Gulfport Energy Corporation's Second Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jessica Antal. Please go ahead.

Thank you, and good morning. Welcome to Gulfport Energy Corporation's Second Quarter 2024 earnings conference call. I am Jessica Antle, Vice President of Investor Relations. Speakers on today's call include John Reinhart, President and CEO; Michael Hodges, Executive Vice President and CFO. In addition, we also have Matt Rucker, Senior Vice President of Operation 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 condition, 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 reference non-GAAP measures. Reconciliations to the comparable GAAP 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. During the second quarter, Gulfport's operational, planning and financial teams continued successful execution of our corporate plans to lower operating and capital costs, maximize free cash flow generation, return capital to shareholders and enhance the company's high-quality inventory. Our teams in the field continue driving operational improvements, resulting in capital savings on our full year development program and delivering positive free cash flow during the quarter despite a volatile pricing environment. We continued our commitment to returning capital to our shareholders through common share repurchases, while also reinvesting in our attractive and diverse asset base, through discretionary acreage acquisitions. The company realized another record-setting quarter in the field, while delivering on a prudent 2024 development plan, all of which contributed to strong financial performance and underscores the execution sustainability of the corporate strategy. Looking at our second quarter highlights, the company generated $164 million of adjusted EBITDA and $20 million of adjusted free cash flow. Our average daily production totaled 1.05 billion cubic feet equivalent per day, in line with our first quarter 2024 average and analyst expectations. Considering actuals to date and future planned activity, the company has narrowed 2024 production guidance and forecast full year production to be in the range of 1.055 billion to 1.07 billion cubic feet equivalent per day, with the midpoint remaining unchanged. Operationally, during the second quarter, the company completed drilling on five gross wells, three within Ohio targeting the Utica formation and two in the SCOOP targeting the Woodford. We entered the quarter with two operating drilling rigs running and as planned released the SCOOP drilling rig following the completion of a three well extended lateral pad. We currently have one rig running in Ohio and plan to resume…

Thank you, John, and good morning, everyone. Despite the low commodity prices seen during the first half of 2024, the company generated healthy free cash flow and continued returning value to our shareholders, all driven by the capital efficiency gains and impressive operational improvements, John mentioned earlier in the call. Net cash provided by operating activities before changes in working capital totaled approximately $149 million during the second quarter, more than funding our capital expenditures for the quarter. We beat analyst expectations for incurred capital spend and adjusted free cash flow, driven by our strong operational performance, top tier hedge book and operating cost performance. With less than 40% of our base D&C and maintenance land spending left to occur in 2024 and with an improving commodity price environment expected later in the year, the second half of 2024 should deliver accelerating adjusted free cash flow that will provide a strong tailwind as we enter 2025. Our all in realized price during the second quarter was $2.93 per Mcfe, including the impact of cash settled derivatives. This realized unit price is $1.04 or 55% above the NYMEX Henry Hub Index price, highlighting the benefit of Gulfport's differentiated hedge position, diverse marketing portfolio for natural gas and pricing uplift from our liquids portfolio in both of our asset areas. We've realized a cash hedging gain of approximately $91 million for the quarter, demonstrating the value of our hedge book and its impact to our cash flows. Our natural gas price differential before hedges was negative $0.26 per Mcf compared to the average daily NYMEX settled price during the quarter, and we reaffirm our natural gas differential before hedges to average $0.20 to $0.35 per Mcf below NYMEX for the full year. In our investor presentation posted yesterday evening, we have added…

Thank you. [Operator Instructions] The first question comes from Bert Dons with Truist Securities. Please go ahead.

Good morning, team. Thanks for taking our questions.

Hey, Bert.

On the $25 million of potential savings, it sounds like you remain flexible, could be used balance sheet buybacks or maybe pulling forward some activity. Could you maybe go through what you need to see in the markets to trigger additional E&P activity? Is it just price or is it stability or is it maybe a larger macro theme? And then, is that earmarked for dry gas or liquids or do you already have something set that would fill that gap?

Yes, Bert. Thanks for the question. This is John. I think, first of all, to open, we are very pleased with the execution performance of the teams and to be able to actually continue a second year of capital savings through just pure efficiency gains and these are kind of long-lived gains. To our point, I think, what we wanted to do with this $25 million is take a pause for a few months and monitor. It's really about the general macro environment. There's a lot of volatility out there right now. As you would imagine, it's primarily related to oil pricing is what we are really focused on. Quite frankly, gas is pretty meaningful. But any kind of potential allocation to accelerated activity would be targeting more the oil and the condensate area. Overall, I think just the general outlook from the industry is going to be key, because as you know outside of the accelerated activity, we do have opportunities to apply that $25 million to the balance sheet and in doing so, quite frankly, incremental inventory add as well. So, we will be sharing with the market more over the next few months on how we are going to allocate that. We are very pleased to be in a position to have that $25 million to do so.

That make sense. Then on acreage acquisition, just want to clarify your comments earlier. How that works on a free cash flow allocation versus buybacks? I think the wording you said was excluding discretionary acreage acquisitions. So are these not competing with each other? Are they competing with each other for free cash flow? If you find more or less acquisitions, do we expect fewer or more buybacks? Or, is there maybe some fungibility between the two?

Bert, this is Michael. I think you're making a great point this morning. We look at our options for allocating free cash flow every quarter with our Board of Directors, and those two opportunities consistently rate at the top of the portfolio. Quite frankly, to the extent that we can identify these liquids-rich, high-margin opportunities and get those into the portfolio, those are typically the highest and best use of capital. Our shares obviously move around, and so the value opportunity there can change from time-to-time. But I would think of it as kind of co-number ones in terms of our opportunity to buy either one. Certainly, to be able to add these inventory locations is something that we're always looking to do. We're competing with a number of others in the basin to be able to grab those. So I would think of it in terms of, let's grab as many of those as we can and then see where we sit with the remainder of our free cash flow.

That's great. Thanks team.

Thank you. The next question is from Tim Rezvan with KeyBanc Capital Markets. Please go ahead.

Thanks folks for taking my question. I want to start on sort of this liquids pivot that's underway. Based on your Marcellus success and kind of the condensate focused drilling going on now, how do you see that liquid SKU sort of evolving through 2025? Just from a big picture perspective and then to help us on the modeling side.

Yes. Sure, Tim. Good morning and thanks for the question. It's very pleased to have made this decision here earlier in the year on the pivot. I think it was really geared for us as the company is sitting on a substantial amount of dry gas inventory and we certainly wanted to lean in on bolstering our liquids-rich inventory, the high margin low breakeven. As you think about the pivot and the cadence of turn on line and drilling, second half of this year, you're going to start to meaningfully see a reduction of 1% to 2% with regards to the oil percentage or the liquids cut in our commodity stream be realized. And further looking out into '26, that would certainly go down a few more percentage points and I would probably bracket it in the high 80s. We certainly are -- we have a very large dry gas base. So, I would anticipate that commodity mix meaningfully going below that mid-80s is probably not realistic. But certainly, moving down from the 92% gas into that high 80s over the next year-and-a-half is very reasonable. So hopefully that answers your question.

Yes, that's helpful. Okay, thanks for that. And then just a quickie. Mountain Valley started up in July. Are you seeing it's not too far from you kind of the genesis of that? Are you seeing any basis impact in the region and do you anticipate that being a material positive for you all in Ohio?

Yes, Tim. This is Michael. I think the basis markets have been moving around a little bit, but to your question about material impact, the answer is, generally no. I mean, the areas that we sell our gas in basin into, a couple of the larger indexes, like I said, have varied maybe $0.05 to $0.10 over the last, call it, few months, but have not seen any material change. I think the market largely expected the MVP pipe to come on sometime here in 2024 and priced a lot of that in. So, we're focused on 2025 and beyond and really haven't seen a lot of change from those basis locations.

Appreciate the comments. Thank you.

Thank you. The next question is from Jacob Roberts with Tudor, Pickering, Holt & Company. Please go ahead.

Good morning.

Good morning, Jake.

Just circling back to the $25 million of savings that you've highlighted, is that something that's been accruing through the year or should we be thinking about those as showing up more meaningfully in the Q3 and Q4 capital that we've got planned? And then, John, I think you mentioned kind of an outlook on maintenance. Is it fair to say that, the baseline case for a maintenance program would be $25 million last next year?

Yes, Jake. This is John. Thanks for the question. I think regarding the $25 million in savings and cadence, it is not currently. There's been no accrual to date. But what I can tell you is, as you think about that allocation of capital that we talked about previously, should that be way towards accelerated activity that would basically be included for our public deck in fourth quarter. So you will I will point you to that deck where we do have a hatched amount in Q4 of potential activity, again, should that be allocated towards accelerated activity which would benefit '25. And I reiterate again that, that allocation would be geared towards condensate development for sure, because that is at the current commodity environment, that's the highest return, highest margin where we could plant some capital with the drill bit.

Maintenance? You want to talk about maintenance capital?

Yes. Sorry about that. Thanks. With regards to maintenance capital, it's a very interesting. It's widely used, but it means a lot of things to a lot of people. What I would tell you is, we are very fortunate in the company to have a very diverse portfolio. We have SCOOP assets. We have Marcellus Liquids, Utica Liquids and Utica Dry Gas. All those come with their unique production profile, cycle times and capital cadence. What I would tell you directly to your question is, on a like-for-like program, moving forward into next year, you would most certainly see a reduction with regards to the capital cost. And as we look at '25 and continue to look at '25, we're going to be focused on that commodity environment and really focus development on the highest margin, highest return, which certainly could skew that mix of where we're drilling versus where we drilled this year. So very simply put, we feel like, this is a very positive thing that the teams continue to drive down cost and improve cycle times. It's going to be meaningful moving forward for many years to come, with our capital program reductions. And I would say, looking forward to '25, it will be certainly reduced or a flat type of profile for a low single-digits or flat production overall profile outlook that we would have. So hopefully that answers your question.

Absolutely. I appreciate that. As a second question, I think you guys do a really good job of taking advantage of the share price and the repurchases. I'm just curious on your thinking as to, if you think, you could close the valuation gap by implementing something a little more permanent or formulaic?

Yes. Jake, this is Michael. I think, again, it's something that we talk to the Board about all the time and we're not formulaic in our approach, although we are pretty consistent with our framework in returning all of our substantially all of our free cash flow. So while we don't have quarter to quarter formulaic return, we do have a framework that we adhere to. I think last year, we have returned about 99% of free cash flow back to shareholders after those acreage repurchases. So, it's something that we look at. I think given our size and certainly our exposure to commodity prices on quarter-to-quarter basis, we like to keep things a little flexible. Quite frankly, we've got a large shareholder that we've been able to step in and repurchase alongside of when some opportunities presented themselves. So, I think we prefer the dynamic option, as opposed to the more formulaic approach, but we do talk about it consistently at the board level.

Great. Appreciate the time, guys.

Thank you. [Operator Instructions] The next question is from Zach Parham with JPMorgan. Please go ahead.

Thanks for taking my question. I guess, just wanted to follow-up on the $25 million in savings and how you allocate that. Does the stock price factor into the decision here, along with the macro environment? I mean, with the recent pullback in the share price, could it make sense to deploy those savings towards buybacks?

Hi, Zach. Appreciate the question. And yes, similar to Jake's question, I think we consistently look at the stock price and we like being dynamic in our ability to deploy capital towards that return. I think it's a factor. I think John mentioned earlier, the macro environment is a factor. We're looking out into next year. Any decisions to redeploy the savings into the development would be conditioned on kind of where we see the commodity prices next year. Certainly, also keeping in mind that, to the extent we can capture these locations that we found out there that we think are tremendously accretive to the NAV of the business, that's a factor as well. To your point, the answer is, yes. I mean, certainly, we keep all share price dictated that particular option being more attractive than the others, then we would certainly lean in there.

Thanks for that color. And just my follow-up, I wanted to ask on the discretionary acreage acquisitions. Can you talk a little bit about how those locations compare to your current inventory? When would you expect to start developing these locations that you are adding now? Just curious kind of where those fit into the portfolio.

Yes, Zach. This is John. It's a great question. I think similar to the program last year, we are targeting these liquids-rich kind of high-margin, low-breakeven areas for this discretionary program. The benefit of that to the company is our Utica position is largely held by production already. So bringing on these high-quality acreage positions that we could bulk up to have one or two pad developments in certain areas, it's very advantageous. So last year's program is an example within about 12 months to 15 months, when we have been able to actually begin the permitting process and we're looking to start drilling. So that's a very short time period and that kind of gives you an idea of where they fall within the allocation of capital and how we're prioritizing it. Quite frankly, the delineated acreage for the Marcellus ranks up there very high, because we're jumping on it and drilling it in early '25. Yes, we're targeting areas that are high margin for us, and with the team's capabilities we're able to quickly convert those resources into producing assets. I would probably look at a year to year-and-a-half post this year of seeing some of these new acreage acquisitions on the schedule.

Thanks, John. Thanks, Michael.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I would now like to hand the conference over to John Reinhart for closing comments.

Thank you for taking the time to join our call today. The team continues to improve business fundamentals, which further positions Gulfport Energy as an attractive investment, with optionality tactically and strategically for continuing value enhancement. Should you have any questions, please do not hesitate to reach out to our Investor Relations team. This concludes our call.

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