Gulfport Energy (NASDAQ:GPOR) looks quite likely to head towards restructuring after entering into the 30-day grace period for its October 15 interest payments. This is typically a precursor to a restructuring support agreement being worked out by mid-November.

This report looks at Gulfport’s potential post-restructuring values using various natural gas prices and multiples, and what impact that has on its common shares and unsecured notes.

EBITDAX At $3.00 Natural Gas

At $3.00 NYMEX gas and 2020 production levels, Gulfport would be able to deliver approximately $912 million in revenues without hedges. This assumes a negative $0.70 natural gas differential and $42 WTI oil.

Type Units $/Unit $ Million
Natural Gas (MCF) 343,917,600 $2.30 $791
NGLs (Barrels) 4,302,133 $14.00 $60
Oil (Barrels) 1,644,933 $37.00 $61
Total Revenue $912

This would result in a projection of $538 million EBITDAX for Gulfport at $3.00 NYMEX natural gas.

Revenues $912
Less: Gathering and Processing $215
Less: LOE $57
Less: Production Taxes $36
Less: G&A $66
EBITDAX $538

EBITDAX At Various Gas Prices

At $2.50 NYMEX gas instead, Gulfport would deliver $372 million EBITDAX, and at $2.75 NYMEX gas, it would deliver $455 million EBITDAX. Basically Gulfport’s EBITDAX would change by approximately $83 million for every $0.25 change in natural gas prices.

NYMEX Gas $2.50 $2.75 $3.00
EBITDAX ($ Million) $372 $455 $538

Gulfport’s exposure to oil prices is relatively low. Every $5 in WTI oil prices would change its EBITDAX by approximately $15 million, including the associated impact on NGL prices.

Notes On Valuation

Here’s a look at how Gulfport would be valued at various gas prices and EV/EBITDAX multiples. At $2.50 NYMEX natural gas and a 3.0x EV/EBITDAX multiple, Gulfport would be valued at $1.116 billion. At $3.00 NYMEX natural gas and a 4.0x EV/EBITDAX multiple, the company would be valued at $2.152 billion.

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EV Multiple/NYMEX Gas $2.50 $2.75 $3.00
3.0x $1,116 $1,365 $1,614
3.5x $1,302 $1,593 $1,883
4.0x $1,488 $1,820 $2,152

I’ve assumed that Gulfport ends up with $220 million in credit facility and construction loan debt at the end of 2020. This assumes that it generates some positive cash flow during the second half of 2020, but also largely pays off its significant working capital deficit.

This would leave $896 million in value for Gulfport’s new equity at $2.50 NYMEX gas and a 3.0x EV/EBITDAX multiple and $1.932 billion in value for its new equity at $3.00 NYMEX gas and a 4.0x EV/EBITDAX multiple.

EV Multiple/NYMEX Gas $2.50 $2.75 $3.00
3.0x $896 $1,145 $1,394
3.5x $1,082 $1,373 $1,663
4.0x $1,268 $1,600 $1,932

I’ve generally used a 3.5x EV/EBITDAX multiple to value Gulfport. This is close to what it was trading at in early-to-mid 2019 before its unsecured notes started becoming highly distressed.

I’ve also assumed that Gulfport doesn’t need to do a rights offering to pay down its credit facility further. Its credit facility debt is projected to end up at a relatively low level ($200 million) even with the reduction of its working capital deficit.

Recovery Levels

Assuming a 3.5x EV/EBITDAX multiple, the unsecured notes would have a recovery of 58% based on $2.50 natural gas if they received 95% of the new equity. This recovery would increase to 93% using $3.00 natural gas and 100% of the new equity.

While the natural gas strip is above $3.00 for 2021 currently, the strip is around $2.50 to $2.75 in the years beyond that, so I’d consider those prices to be better to use for valuation purposes.

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Unsecured % Of New Equity/NYMEX Gas $2.50 $2.75 $3.00
95% 58% 73% 88%
96% 58% 74% 89%
97% 59% 75% 90%
100% 61% 77% 93%

For the common shares, getting 3% of the new equity would result in a value of $0.20 per current share at $2.50 natural gas, while at 5% of new equity, the value would increase to $0.52 per share at $3.00 natural gas.

Common % Of New Equity/NYMEX Gas $2.50 $2.75 $3.00
0% $0.00 $0.00 $0.00
3% $0.20 $0.26 $0.31
4% $0.27 $0.34 $0.42
5% $0.34 $0.43 $0.52

Conclusion

Gulfport appears likely (95+% chance) to restructure now that it has entered into the 30-day grace period on its October 15 interest payment. Based on historical valuation multiples, the unsecured notes appear to be reasonably priced (at close to 60 cents on the dollar) for $2.50 longer-term natural gas prices. The percentage of new equity for the unsecured notes doesn’t have that much effect on recovery levels, at least not compared to the assumed natural gas prices.

The value of the common shares will depend heavily on what percentage of new equity they receive. Currently the shares are priced for 4% of new equity at $2.50 natural gas or 3% of new equity at $2.75 natural gas.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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