Gulfport Energy: Gushing with good news
A gusher of positive news has sent shares of Gulfport Energy Corp. (Nasdaq: GPOR) sharply higher in recent weeks. Just as motorists have found that pump prices have remained well above $2.50 a gallon since spring, Gulfport’s stock price is showing no signs of dropping back into its former trading range.
In fact, Gulfport’s share price is sending its market capitalization right out of the small-cap arena. Still, there could be some buying opportunities if there’s a market pullback – or, more likely, profit-taking by the patient investors who stuck with it.
Gulfport Energy is an independent oil and natural gas exploration and production company based in Oklahoma City. The company, founded in 1997, has its principal producing properties located along the Louisiana Gulf Coast, along with some exploration activity in the Canadian oil sands and a smattering of activity in Thailand. As of Dec. 31, 2006, the company had 23.2 million barrels of oil equivalent of proved reserves.
Until the Gulf Coast was ripped apart by hurricanes Katrina and Rita in 2005, Gulfport Energy was truly a small-cap stock, trading in the $2-$5 range. Then it began taking off, riding the wave of a production fall-off and soaring oil demand.
The global demand for commodities, especially petroleum products, has helped push Gulfport Energy out of its stock trading rut, seemingly for good. In May, the company was listed among the top 100 growth companies compiled by BusinessWeek. Just as the big boys in the oilfields have seen their profits soar along with oil prices, Gulfport Energy’s profit has increased 308%, on average, over the past three years, BusinessWeek noted.
While much was made of the disruptions of the flow of oil from the Gulf Coast region by the big producers following the 2005 hurricanes, Gulfport did not escape unscathed. Its production was greatly impacted as well, and it took a hit that lasted well into 2006. In an April 2006 Securities and Exchange Commission filing, the company blamed an 11 percent decline in oil production in 2005 on the hurricane’s fallout.
For the fourth quarter of last year, the company earned $5.4 million, or $0.16 a share, compared with a loss of $90,000, or $0.00, in the final quarter of 2005. Revenue increased to $17.6 million from $1.3 million. Production in the quarter rose to 291,051 barrels of oil equivalent, compared with just 37,500 barrels of oil equivalent in late 2005, when Rita forced a production shutdown. Rita’s tidal surge kept its production offline until February 2006.
A barge accident in October 2006 also disrupted the company’s West Cote production for nearly two months, which cost the company an estimated 75,000 barrels of oil equivalent for the fourth quarter.
For all of 2006, however, the company said total production reached a record 996,000 barrels of oil equivalent, about 62% better than in 2005, and that 25 of 28 drilled wells were productive. Full-year earnings more than doubled to $27.8 million, or $0.82 per share, from $10.9 million, or $0.34 per share during 2005. Revenue increased to $60.4 million from $27.6 million.
Gulfport 's forecast production for 2007 is in the range of 1.7 million to 1.9 million barrels of oil equivalent.
Until this spring, Gulfport Energy shares were locked in a trading range of $10-$14 for about the past year. Then, investors began hearing more than a trickle of news about the progress of its latest exploration ventures. And since May, the stock has surged, hitting a 52-week high of $22.35 last week.
The most recent spurt stems from June 25, when the company discussed its progress in two projects, in the East Hackberry field in southwestern Louisiana, and in pulling crude from oil sands near Alberta in Canada. When crude oil was going for $20-$30 a barrel, the Canadian oil sands exploration and production was a risky and expensive proposition; but with oil solidly trading above $60, sands exploration is much more economically feasible. Production is expected to begin in early 2008 at Grizzly Sands, of which Gulfport is a minority partner.
More important, the company announced that it had completed the infrastructure at its Hackberry field in southwestern Louisiana. The company did not release production estimates from five wells drilled in the region this year, both from land positions and on site in Calcasieu Lake.
But Pritchard Capital analysts said in a report to investors that the East Hackberry wells have the potential to “substantially increase” its proven reserves. Pritchard has had an investment banking relationship with Gulfport.
Also in mid-May, the company raised $24 million through an offering of 1.5 million shares priced at $16. That followed the sale of 1.1 million shares in early February priced at $11.92. Proceeds of both were to be used to pay down debt and expand drilling operations.
On May 14, the company reported solid first-quarter results. Net income grew 158% to $7.3 million, or $0.21 per diluted share, on revenue of $20.4 million, when compared with the first quarter of 2006.
Recent gains in its share price have bounced Gulfport past the median estimate of $14.50 from analysts surveyed by Thomson Financial. Thomson’s estimates call for earnings per share for all of 2007 to reach $1.18, surpassing last year’s $0.75, and EPS of $1.76 in 2008.
In speaking with investors on a May conference call, Chief Executive Officer Jim Palm placed most of the emphasis on the Hackberry site, but noted that “our Canadian project continues to provide considerable upside potential for Gulfport.”
Gulfport had invested $12 million into Grizzly for the acreage and core wells, Palm said, adding “I think these assets are considerably underappreciated in our portfolio.”
Still, it is Hackberry that has most excited investors. The East Hackberry patch has been producing oil since 1926, but Gulfport sees continued production potential by applying the latest in exploration technology. The company also has increased its lease holdings by better than 20% to 7,500 acres.
“We have found great wells,” Palm gushed about some of the findings. “Not only have we had great test results, but we have many additional zones … that look as good or better on electric logs as those already tested.”
The company also said that it would double its capital expenditure budget for 2007, to about $120 million to $130 million, from the March estimate of $60 million to $65 million. That also appears to have excited investors.
Hurricanes could pose a threat to the company’s operations, and weather forecasters have called for an active 2007 storm season that continues until the fall. So far, it’s been eerily quiet, but that could change quickly.
It’s possible that Gulfport Energy has risen beyond the realm of small-caps, for good. Still, with oil prices showing little sign of pulling back, it might not be too late to latch onto this rising star.
