Last Monday we brought you the news that Gulfport Energy, the third-largest driller in the Ohio Utica Shale, had filed for bankruptcy (see Gulfport Energy Files for Pre-arranged Chapter 11 Bankruptcy). Today we bring you the news that Gulfport has asked the bankruptcy judge to force one of the pipelines Gulfport uses to ship natural gas, Midship Pipeline Company (a subsidiary of Cheniere Energy), to give back $75.6 million it took in October.
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On Monday we brought you the news that Gulfport Energy, the third-largest driller in the Ohio Utica Shale, had filed for bankruptcy over the weekend (see Gulfport Energy Files for Pre-arranged Chapter 11 Bankruptcy). The company issued an update yesterday to say federal bankruptcy court has approved its “first day” motions that allow Gulfport to borrow more money, pay certain people, etc.
We have an update (11/19/20) below.
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We hoped it wouldn’t happen, but warned you it might when Gulfport Energy announced several weeks ago it had missed a debt payment and was in “restructuring” talks (see Gulfport Energy Misses Debt Payment, in “Restructuring” Talks). On Saturday, Gulfport, the third-largest driller in the Ohio Utica Shale (by the number of wells drilled), announced it had filed for a “pre-arranged” Chapter 11 bankruptcy.
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When a pipeline company considers whether or not to build a new pipeline, the company conducts an “open season”–a time when drillers (producers) can sign long-term contracts to use capacity along the pipeline. Such contracts guarantee pipeline companies will be able to make back the considerable amount of money they have to spend to build the pipeline. What happens when a driller that signed to a 10- or 20-year contract goes bankrupt? Or what happens if a contract will force a driller into bankruptcy? Can such a contract be canceled?
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While Gulfport Energy (big Ohio Utica driller) hasn’t officially filed for bankruptcy, it’s certainly a possibility (see Gulfport Energy Misses Debt Payment, in “Restructuring” Talks). Rockies Express (REX) pipeline, as a preemptive measure to prevent Gulfport from using Chapter 11 as an excuse to break its contract, asked the Federal Energy Regulatory Commission (FERC) to issue an order that disallows Gulfport from breaking its REX contract should it file for bankruptcy.
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According to paperwork filed by Gulfport Energy last Friday with the Securities and Exchange Commission (SEC), the company skipped making a scheduled interest payment on its 6% senior unsecured notes due 2024. Which means the clock starts ticking (for 30 days) in which the company either must make that payment, or get an agreement in place with creditors (or file for Chapter 11 bankruptcy).
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We spotted a couple of stories, one in Barron’s the other in the Wall Street Journal, about the pickup in the futures price of natural gas over the past week, and how those recent gains have led to impressive gains in the share price for Marcellus/Utica drillers. Yesterday the NYMEX Henry Hub futures price closed up 4.11% to $2.74/Mcf. The rising tide lifts all boats.
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Back in 2012 Gulfport Energy drilled a pair of exceptional Utica wells in Belmont County, Ohio–both on the same pad. The first was the Shugert 1-1H which had an initial production (IP) rate of 20 million cubic feet of natural gas per day (Mmcf/d). It also produced an initial 144 barrels of condensate per day, and 2,002 barrels of natural gas liquids per day (see New ‘King’ of Utica Wells? Gulfport Shugert Well @ 20 Mmcf/d). The second was the Shugert 1-12H well, with an IP rate of 28.5 MMcf/d (see Gulfport’s New Utica Well Produces Mind-blowing 28.5 Mmcf/d!). Somewhere along the way, the Shugert family claimed Gulfport was making post-production royalty deductions it should not have taken.
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Gulfport Energy, the third-largest (by number wells drilled) producer in the Ohio Utica Shale, issued its 2Q20 update yesterday. Back in June, the company said it would shut-in some of its production, delaying production until later this year (see Gulfport Caps Utica Production, Delays Drilling to Late 2020). The company made good on its promise. Gulfport’s 2Q production was 1,027 MMcfe/d (million cubic feet equivalent per day), down from 1,358 MMcfe/d in 2Q19. The company reports a loss of $556 million during 2Q, but most if not all of it comes from impairments and depreciation–in other words, a paper loss. The company generated $43.9 million in free cash flow in 2Q.
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Do you remember the child’s game called “Simon Says”? That’s what we were thinking when we read about a lawsuit in Ohio by landowners against a group of shale drillers. The lawsuit, initiated by several landowners in Belmont County, OH, claims the drillers drilled too deep–into the Point Pleasant rock layer–when the leases signed only mention the Utica rock layer. The lawsuit, which is seeking class action status, claims “unjust enrichment” by the drillers.
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A word you will likely see a lot more of in quarterly updates by oil and gas drillers across the country is the word “impairment.” It’s an accounting term that means the value of an asset (leased acreage or wells) is adjusted, down, to reflect a company’s best guess as to how much revenue that asset can generate. We wrote about impairments back in 2015 (see A Basic Guide to Understanding “Impairments” for Marcellus/Utica). Largely because of impairments, nine of the biggest Marcellus/Utica drillers cumulatively lost $2.6 billion in value (on paper) during the first quarter of this year. However, two of the nine had no impairments. And one of the nine made a profit in 1Q20. Can you guess which one?
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As recently as early March Gulfport Energy, a major driller in the Ohio Utica Shale, and its single largest investor, Firefly Value Partners (owns 13.1% of outstanding shares), were sniping at each other. Firefly was actively trying to pack the board of directors with its own nominees (see Gulfport’s Largest Investor Wants to Pack Board, Force Change). Two days ago Firefly announced a ceasefire. They will no longer attempt to get their own candidates elected to the board at the upcoming annual meeting. What changed?
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Gulfport Energy, the third-largest (by number wells drilled) producer in the Ohio Utica Shale, issued an update yesterday to its previous plans on drilling in the Ohio Utica (and Oklahoma SCOOP), revising down the amount of natural gas it will produce and revising down drilling activity previously planned for 2020. The company says it will delay until later this year/early next year more of its production than previously announced–due to ongoing low prices for natgas.
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Wow! What a difference three months can make. In January Moody’s Investors Service downgraded EQT Corporation’s bonds to “junk” status (see Moody’s Downgrades EQT Debt to Junk Status Following Write-Down). A few weeks later Standard & Poor’s Global Ratings downgraded the credit rating for six of the biggest Marcellus/Utica drillers, including EQT (see S&P Downgrades Credit Rating for Six Big Marcellus/Utica Drillers). Once thought risky and speculative, investors seem to have changed their minds about investing in M-U debt. They’re taking a second look.
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Last Friday Gulfport Energy, the third-largest (by number wells drilled) producer in the Ohio Utica Shale (210,000 acres) which concentrates its drilling in the Ohio Utica and the Oklahoma SCOOP plays, issued its first-quarter 2020 update. On paper, the company lost $517 million due to a one-time impairment charge (writing down of asset value) of $553 million. The company said on Friday it would “shut in a minimal amount production” over the next few months given the virus pandemic.
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Like Chesapeake Energy last week and Williams in late March, the Gulfport Energy board has decided to swallow a poison pill. Some companies call poison pills a “stockholder rights agreement” or a “shareholder rights plan.” In Gulfport’s case, they call it a “tax benefits preservation plan.” It doesn’t matter what you call it, it’s all the same thing. It’s a provision that defends the company against a takeover.
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