Gulfport Energy Corp (GPOR) Q2 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the Gulfport Energy Corporation Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jessica Antle. You may begin.

Thank you, and good morning. Welcome to Gulfport Energy Corporation's Second Quarter 2026 Earnings Conference Call. I am Jessica Antle, Vice President of Investor Relations. With me today is Domenic Dell'Osso, Michael Hodges and Matthew Rucker. Nick will give a brief overview of our results, and then we'll open up the teleconference for Q&A. I would like to remind everybody that during this conference call, the participants may make certain forward-looking statements. Actual results and future events 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. Please refer to the most recent earnings release and investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. 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 Nick.

Good morning, and thank you for joining our call, which is my first as CEO of Gulfport. I thought I'd start out with a few comments about why I'm excited to join this company at this time. Gulfport has a great asset base in dynamic regions with rapidly growing gas demand, has a strong balance sheet and a competitive cost structure. Gulfport's team is highly talented and motivated, and the Board is experienced and knowledgeable across multiple disciplines and well suited to guide the company to additional value creation. Like most companies, Gulfport is far from perfect today. But with our assets, team and geographic exposure to growing demand, I believe it is uniquely positioned for significant value creation for shareholders for many years to come. The most important factors to creating value for an E&P company are straightforward and well documented, have a deep inventory of high rate of return drilling opportunities, highly efficient operational execution, low operating costs and low financial leverage. Gulfport has largely been on the path to succeed on all of these fronts with significantly improved operating performance over the last three years and considerable success in inventory expansion through off the ground leasing, new development delineation and proving up the Ohio Marcellus development opportunities in the portfolio. The recent success in the State Lands Auction and our announcement today of $140 million budget for discretionary land purchases in 2026 are two great highlights of high-quality inventory growth. That said, I believe we can continue to improve operational and capital efficiency through tighter drilling and completion execution and improved planning to mitigate risks outside of our direct operational control. At our best, we compete with anyone in the Basin. And I think with the right approach and a focus on data and planning, we can make every point of execution best-in-class. We can also continue to strengthen and deepen our inventory by improving returns on locations we already own with more efficient execution and adding quality leasehold when and where returns are attractive, inclusive of acreage acquisition costs. Our balance sheet is strong today, and we will maintain a conservative mid-cycle leverage ratio. We will support that balance sheet with hedges that seek to protect the capital at risk in our drilling program at all times and remain flexible to hedge more when prices are materially above mid-cycle levels. Delivering better and more consistent results for shareholders will be our #1 priority. So you will hear our team focus on our foundation of safe and environmentally sound operations, execution efficiency, cash flow competitiveness, drilling inventory expansion and downstream market access. Given the macro dynamics of growing in-Basin demand for natural gas and to power AI data centers, we should stay focused on these crucial elements of competitiveness to create levers for future growth as demand materializes. As we look to best position Gulfport in this strong market, we are fortunate to have a business that is generating significant free cash flow and is therefore, ready to fund opportunities to create additional value. Ongoing effective capital allocation represents the most important decision for us as a management team and Board to get right to maximize the value we can create. Capital allocation must be competitive, and we will define the terms of competition around creating the highest financial returns and advancing our strategic goals of improving execution, deepening and strengthening inventory, lowering our breakevens, opening additional or higher-value market access, maintaining a strong balance sheet and returning capital to shareholders. We will look at all of our activity and capital allocation decisions through this lens and optimize outcomes for shareholders as we consider drilling capital spend, investments in operating efficiency, new leaseholder acquisitions and shareholder buybacks. We recognize every dollar of free cash flow has competing uses, and the resulting tension in capital allocation allows us to consistently optimize the opportunities that create the greatest long-term value for shareholders. We firmly believe this capital allocation model, combined with consistent industry-leading execution will drive improved returns and cash flow on a per share basis. In the near term, we have great momentum going into the second half of 2026. Our production is accelerating following our first half of the year capital program. In particular, our liquids volumes will be more than 50% higher than the first half of 2026. Additionally, we are looking forward to executing on our discretionary leasehold budget, which, when combined with the recent acreage purchase from the state land auction, increases our net Appalachia location count by approximately 20%. Before we conclude, I want to recognize and thank Michael Hodges for his support during this transition and for his many contributions to Gulfport. Michael leaves the company in a position of financial strength, and I appreciate the role he has played in helping build the foundation we have today. After many years of service and spending considerable time on the road between Dallas and Oklahoma City, Michael has chosen to devote more time to his family. We all understand and appreciate the need to make this decision. We thank him for his leadership and wish him and his family the very best in the future. This company has all the tools needed to create significant shareholder value and grow our share price. I am very much looking forward to working with all the talented Gulfport employees to prudently and methodically execute on our strategy and position this company for industry-leading returns for many years to come. Operator, we'll now open up the call for questions.

[Operator Instructions] Your first question comes from the line of Neal Dingmann with William Blair.

Nick, great to hear from you again. And Michael, obviously, best of luck. I'm sure we'll talk soon. Nick, my first question is on your inventory. Specifically, as you step in the CEO seat, could you speak to how you view your Gulfport's current inventory duration and quality and maybe what the street seems to be missing.

Yes. Great question. Thanks, Neal. I'd ask you to look at Slide 8 in our deck today. We put in there a chart that Enverus recently published, highlighting that we have one of the best weighted average breakevens of inventory across the gas space. I'm really proud of this for this company. They've worked hard to position the company to have that really high-quality inventory. And sitting at around 15 years of drilling inventory, I think the depth is pretty attractive. Now in terms of overall scale, it's always nice to have more. But I think this company has been and will continue to be judicious about how it thinks about adding scale and ensure that we do so with a focus on value. It's pretty easy to fall in love with the idea of scale and add too much or pay too much for it. We'll be pretty careful about doing that. But overall, I think the duration of the company implied by the scale that we have and the quality of inventory that we have is best-in-class. I do think the industry I do think the investor community might be missing some of the quality applied to the duration that we have when thinking about our position relative to our peers.

Yes, I agree with that just look at the current price. Then second question, just on execution. I know when we spoke with you last night, you all mentioned you'll continue to execute well. But with that, you'll continue to look for ways to improve upon this execution. I'm just wondering, again, being new into the seat, do you see some low-hanging fruit when you work with Matt's team around this? What do you all anticipate the sort of near and further focus will be around this?

Yes, it's a great question as well. So I'm excited about this. I think Matt is excited about this. I think the team is excited about this. As soon as I started, he and I went up to Ohio and out to the field office here in Oklahoma together, spent some good quality time with the teams, talked about the challenges they see every day. As I noted in my introductory comments, when you look at our performance, there are individual wells that we've drilled that are absolutely the best execution that you see across the industry. My goal is to help the team have the resources, the foresight and the planning needed to deliver on that kind of performance with everything that we do. So I think it's very possible to do that. I think we've got to be really engaged with our operating teams, invest in the things that make sense to improve our processes, improve our data quality, improve our planning and give them the tools they need to do the things that they do well.

Your next question comes from the line of Carlos Escalante with Wolfe Research.

I resonate the message before to you, Mike, best of luck. First question, Nick, to you, knowing that you generally have a great feel for the gas macro, I wonder if you can perhaps frame your capital allocation framework into 2027 when you contrast that against an inventory expansion campaign, both organic and organically you've had over the past three years.

Yes. So the inventory expansion campaign that you see taking place over the last couple of years, but then specifically this year in 2026 is a function of a multiyear effort. The company made a decision to focus on leasehold growth a couple of years ago. And some of that took place immediately, but a lot of it takes time to negotiate leases, to develop relationships with landowners and prove to those landowners that we're going to be a quality partner and be the best person, best company to develop their minerals. The team has done an excellent job on that effort over the last couple of years. And so what you see this year is that with a couple of years of really pushing and working all of those relationships, we have seen a wave of opportunities become available this year that we've been able to execute on. So we have really good line of sight on what that $140 million of the 2026 budget goes to and what those leases are and the fact that we should be able to complete that program this year in that size. I would tell you that with that effort over the last couple of years, the majority of those efforts are really coming to fruition in 2026. And based on how that has evolved, I would not expect that we will see the same kind of volume in 2027. So when you think about the $140 million this year, you think about the fact that we also had the opportunity to participate in the State Land Auction this year to the tune of $83 million of successful bids. We've added some fantastic acreage. It really does help to solidify the duration that Neal asked about in the first question and build on it. And so when we think about how we allocate capital going forward, there will still be an active leasing program, and I hope to have as many opportunities to add super high-quality locations at attractive prices every year. But realistically, it probably won't be as big as this year. And so when you think about the free cash flow available to this company, that frees up free cash for other things. We've been buying shares, which is great. But we also have a balance sheet that sits right around 1x levered today. And I think a good conservatively run E&P company will have through cycles, that or less debt. So we'll have the ability to bring that back down so that we can be prepared for anything else that shows up in the future from a capital allocation standpoint. That flexibility is very, very important to us and means you want to have lower leverage when you have the cash flow to bring your leverage down.

I appreciate that. And then as my follow-up, it's been generally the position of Gulfport to be a late adopter when it comes to new trends thinking about the data center and power trend in Appalachia and the demand pull that, that brings. And I don't think you feel, you don't think dissimilarly to that. So I wonder where you are today on your seat, why do you think the right approach is to be a late adopter and wait for the Basin to prove out in a way what the true magnitude of the demand pull is and play after that instead of participating head on.

Yes. I actually don't think we've been a late adopter at all, Carlos. I think the company has done a good job of positioning itself. We're a smaller cap company than some of the much bigger peers. And so naturally, when you think about the long-term partnerships that some people have been able to focus on for data centers, we're probably not going to be first on the list for that. That said, we sell a lot of gas in Basin, and that comes with pretty attractive transportation costs. We have seen basis tighten over the last couple of months. It's tightening in the face of lower Henry Hub prices, which is not uncommon. But to be tightening at this time of the year, we think, is potentially some green shoots of where that demand is showing up in Basin. So we're really excited about what that local pricing can mean for us. The fact that we have low GP&T with some in-basin sales and a lot of flexibility about who we sell to. We think we're really well positioned for capitalizing on this trend of growing in-basin demand. The one thing I would tell you about whether or not we're late is that these projects take a long time to come together. And they are going to be on an uncertain time line. And for a company of our size, I think there are no to being early with growth volumes in a way that would result in you seeing reduced prices for your product ahead of the demand being there. I think it would be better to allow that demand to show up and there would be a real call on our volumes rather than trying to show up ahead of time.

Your next question comes from the line of Tim Rezvan with KeyBanc Capital Markets Inc.

I want to share congratulations to Mike on the future. I want to start, again, going back to Slide 8, which you referenced earlier. The bar chart on the bottom right is pretty interesting, showing your next five years of development. And I think we recognize it's illustrative and subject to change. But we couldn't help but notice the percent of activity you plan on these sort of ongoing acquisitions. So I'm just curious, how much of that is driven by the HBP versus kind of drilling the best rock you have in-house? And I'm curious on kind of the Marcellus allocation because from other materials, the returns there seem to be slightly below some of the other opportunities you have.

Yes, Tim, this is Matt. I'll comment on that, and Nick can chime in after. You're looking at that the right way. I think the HBP comment is fair. The vast majority of the acreage when we got here in 2023 was HBP. And so obviously, not a huge need to move on that in the intermediate. This discretionary acreage acquisition program over the last three years, we've talked about it being highly economic. We look for opportunities that compete to the far left of our skyline. I think that's what you're seeing here. We're able to execute on it quickly. We're able to mass it of a position where we can put it on the drill schedule in the near term, which juices the returns. Then it's able to compete or overtake some of the existing wells that are still very low breakevens to the Enverus chart on the left, but still widely compete for capital and put us in a position to execute on that very quickly. The Marcellus, we've talked about with that delineation and the attractive economics, that will continue to be a part of our program. It will be a smaller piece likely. The commodity price environment and the capital allocation decisions we make certainly can flex that up or down one way or the other. But we're really excited about it. And so it will continue to be a part of our program. I think what that helps us deliver is a really balanced approach to the commodity and how we think about our long-range planning.

Yes. I'll just add to that, Tim. I think you asked specifically, are these locations in our near-term drilling program just because of HBP concerns. And I would just reiterate what Matt said, which is no. What we've highlighted in this chart is that the team has been able to identify and secure acreage in some of the best areas of the play and really high grade the company's inventory to have it be in the position of the chart that we included from Enverus that shows our weighted average breakevens and the competitive nature of the company's inventory. So this to me is one of the most impressive things about this leasehold program over the last couple of years is that the team didn't just go out and buy go pasture on the fringes of the play. Instead, the team bought actionable near-term high-quality acreage that is going to greatly improve the return through the drill bit for this company relative to where we would have been without it.

Okay. Okay. I appreciate the clarity on that. And then, Nick, I couldn't help but notice you mentioned the phrase 'execution efficiency' several times during your prepared comments. Obviously, you bring learnings from a bigger organization in the Gulfport. Is there any more context you can provide on kind of what you mean? And I guess where I'm going is Gulfport has had a history in the last couple of years of having a very front-end loaded capital program, and we've typically seen production troughing in the first quarter as a result. Do you have any views on kind of that schedule and how you're thinking about, is that part of the efficiency initiatives that you have?

Yes, I'm really glad you asked this question. I do have views on that, as you might imagine. I would frankly love to see us get to a place where we can run a more consistent program in the Basin. It's going to take some work. We need to be well planned across all the disciplines and services that need to be brought to bear in order to do that and do it effectively. But it is a goal of mine to get there. I don't know that we will get there fully in 2027. I can't give you a time line just yet. But I do believe that consistent continuous operations will drive our ability to lower our well costs and execute better wells every time that we turn the drill bit. So I think all of that works to our favor if we can get there, but we've got to get there the right way, be well planned and not force an answer too quickly that then results in moving the wrong direction on a cost basis.

Your next question comes from the line of Peyton Dorne with UBS

On the Marcellus, it sounds like the early commentary on the new pads performance was pretty positive. At the 1Q update, you highlighted the drilling efficiency gains on the pad. I wonder if you could just touch on the completion side. And then when you look at that pad's overall well cost, how you see costs trending versus your earlier Marcellus drilling?

Yes. Sure, Peyton. I'll take that one. You noted it, we had a really good first quarter drill on that pad, four wells, 16,000-foot lateral average. We finished that in the second quarter with the same momentum on the completion side. So had a really efficient frac out there over 20 hours pumping a day. We're able to place our stages exactly how we wanted to. That well got, those pads got turned into sales at the end of the quarter and are kind of finished up flowback at this point. We did choke those back a little bit more on the ramp-up in the cleanup phase. We believe there's some opportunity there on the subsurface side to improve recoveries. All that's looking great at the moment. We've turned the pad up to its full IP potential. It's hanging in there strong, relatively flat. What we've seen is better-than-anticipated gas rates and liquids rates, which is very encouraging because on the other side of the fence, the costs have been driven down pretty significantly on a dollar per foot basis. So compared to the shorter laterals that we did last year, it's running about 25% lower on the D&C side on the dollar per foot. So all of that leads to a highly economic project and is reflective of how we're going to develop that asset throughout the life of the play because we've now got the playbook for our interlateral spacing as well as our preferred lateral length that we'll deploy on the rest of the acreage here. So really excited about that project with those wells and where the liquids rates have come in at.

Okay. Great. And then just as a follow-up, Nick, I believe in the commentary, you noted the opportunity there for opening greater market access. And then in Carlos' question, you kind of referenced the in-Basin sales. I wonder if you could just maybe expand upon this, what opportunities are you seeing in the near and medium term for improved market access? Is there just a desire to get more gas to different sales points in Basin or out of Ohio? Just curious if you could kind of provide a bit more detail there.

It's really about working with customers to determine how we can best help them solve their needs and making sure that we're getting gas where it needs to be. Given our overall credit rating, which was just upgraded, by the way, we're really pleased with that. But given our overall credit rating and size, we know we won't be the first choice for 15-year, 20-year contracts. That said, we think we are well positioned to sell gas into some of these projects that are being set up right in our backyard. So we want to make sure that we are getting gas where it is available to these customers that we understand what they need, that we can be flexible in how we deliver it. I think there's lots of opportunity to do that for a company of our size in addition to what you've seen from some of the bigger companies with the really long-term contracts.

Your next question comes from the line of Gabriel Daoud with Truist Securities.

Congrats Nick and Michael, all the best to you moving forward. I was hoping we can maybe get some updated thoughts around the buyback, not only for this year, but maybe even on a longer-term basis, Gulfport last several years has been pretty active from a buyback standpoint. Is there any maybe change in how we should be viewing that moving forward?

I don't think there's a lot of change. I think the company is going to continue to generate a lot of free cash flow. And that's one of the reasons why I dwelled on capital allocation for a few minutes in my prepared comments. We'll be very thoughtful about that capital allocation. We have a handful of strategic goals for the company. And within that, we will always weigh our ability to invest towards achieving those strategic goals against the returns available in buying our shares. Shares have been trading lower for a good part of this year. The company has been buying some stock. We will also always weigh that against where the balance sheet sits. As I noted before, this has been a pretty big spend year for Gulfport because we had some great opportunities to secure really high-quality inventory. I don't think that we will have the volume of transactions next year to consume that much of our free cash flow around inventory growth. If I'm wrong and we do, that will be a great day, but I don't think that's the case. And as a result, I would think that we'll bring some leverage down through the year. But we will also be in a position because of the free cash flow that we generate to continue buying our shares. We'll continue to be active with our buyback program in the second half of this year. We know we have plenty of balance sheet capacity and financial flexibility to maintain an active program, but then also keep an eye on reducing debt. So we will balance all of those things together. I think are in a great place to, we're in a really fortunate place where we have all of these choices from a capital allocation standpoint to have this level of free cash flow, to have the opportunities to invest in the business and then to be also challenging that investment against what it looks like to buy our shares at the same time is really a great decision to be making.

For sure. That's helpful color. And then I guess as a follow-up, you talked about inventory duration and the depth of the company's position, how attractive it is. But I guess as you maybe think about portfolio optimization on a go-forward basis from both the acquisition and divestiture side, like I think folks are curious maybe your views on larger scale M&A. And then maybe as a way to fund that, you divest the SCOOP to become a little bit more of a pure play in Appalachia or Ohio. So curious, how would you respond to that, Nick?

Yes. The way I think about M&A is, there are benefits to scale for sure. But only if you get the right assets at the right price and they truly make your company better and not just bigger. You've heard me talk about stuff like this many times in the past, and my views on it haven't changed. Deals are hard. And it's not a good strategy to say we are going to go out and buy something because if you do that, you become myopically focused on that and you're likely to make a mistake. Instead, I think our strategy needs to be and is to focus on making our business better every day. If we do that, then as opportunities show up to add acreage, to add production to grow our footprint, we will have the confidence to know that we can do it successfully. When assets are for sale, one of the things that I think companies really need to ask themselves is why they're the right buyer of a given asset. Everything that we do is competitive. And if someone is selling their assets, you know that there are others bidding for those same assets. If you're going to win that bid, you better know how you are going to pay more than someone else and make it work. You have to have a strategic advantage. You have to have a view of what you can do with the assets differently than what others would be willing to do, and that's why you're able to win the bid. You have to be in a really strong financial position because maybe not all of your competitors are in a position to pay fair value for a given set of assets. All of those things have to come together. You have to have a seller that is willing and like-minded. You have to have the opportunity to add value to the assets and you have to have a valuation that makes sense. Because all of those things are pretty hard to line up, you don't really go into a strategy saying we are absolutely going to do that. You go into it saying, we're going to position ourselves as the very best company in an area so that when opportunities show up, we will be the most competitive, and we can be very choosy about whether or not we want to own something. As far as you asked about SCOOP, SCOOP is an interesting asset for Gulfport. It's an asset that hasn't seen a lot of investment over the last couple of years but has seen relatively steady production. And the production of SCOOP is in a pretty interesting geographic location. You're going to have a lot of gas come out of the Permian for a while, but we're going to continue to see gas demand around the Gulf Coast grow very rapidly. And at some point, we will need gas from the Mid-Continent to show up. The primary reason I have that view is that you're going to always be bumping up against pipeline capacity out of the Permian. It will stay full. There is available pipeline capacity from the Mid-Continent today that for the right investment at the right time when gas prices are right, you can deliver into these growing markets for a great return. So, I really like the geographic positioning of the Mid-Continent from a macro perspective. I really like our assets. I think we need to do a bit of work on the assets to understand the right way to invest in it and think about our strategy with it. So, I would say more to come on the SCOOP, but we are intrigued by the potential of value in the SCOOP, and we've got work to do to understand that asset better.

Your next question comes from the line of John Edelman with Jefferies.

Just one taking a bit of a different angle on gas marketing. It was notable that you guys released 60,000 a day of firm transportation, about 10% of your takeaway, which makes sense given your outlook on M2 and it's something that a lot of your peers are doing in Appalachia right now. Just a few questions sort of like could you frame the free cash flow uplift opportunity there that was underlying that specific decision? And then what is sort of the opportunity to add or relinquish FT going forward? And if there's any real impacts in the near term on your GP&T rate given that offset by liquids growth, higher processing costs as well?

Yes, I'll start here, and Michael may have some stuff to add. That was a relatively small opportunity for us. I think you've got to actively manage an FT portfolio over time if you're going to create value. And when you have somebody else that has a need for a particular piece of transport and is willing to make a trade that works for you, you should do it. So I'm a fan of actively managing these portfolios. I wouldn't read a whole lot into a long-term trend of that other than active management is the trend. So Mike, anything to add.

Yes. And I would just maybe add to that. I think to Nick's point, we're looking at these on a netback basis. So this wasn't an extremely expensive piece of FT, but because we could get to a strong sales point without it, we've got strong flow assurance in the area, we just made the decision that economically, there was an uplift there. But in terms of kind of carry forward into the future. I mean, I think we really like our FT portfolio. I think we've got a good diversity there. Some of the sales points we've been getting to are very valuable to us. So we're always going to be looking for the right opportunity to add value there, but I don't think there's probably a trend that you could extrapolate from that one decision other than we're just going to stay on top of it going forward.

Your next question comes from the line of Chris Baker with Evercore ISI.

A lot of good questions. Just wanted to zero in on some of the sort of the quality aspect of the 40 locations you've talked about adding through the acreage acquisition program. Any help us just in terms of framing that up relative to the legacy inventory base?

So you'll see a handful of slides in the deck that are new this time, we really tried to highlight the quality of the recent purchases of acreage. It doesn't incorporate everything that we're buying this year, obviously, because we don't own it yet. But you can see how we've been going about it and what we've been targeting and the kind of quality we've been able to get. I would expect this year to look similar. So anything to add there, Matt?

Yes, nothing really else to add. It's bolting on to the same general areas that we've been active in, in the last couple of years. To Nick's point earlier, that's been a culmination of the last couple of years of work by the team, and that's where that execution will end up. So kind of split across our asset base areas with our high attractive rates of return, and those bars will change over time.

That's great. And just as a follow-up, I appreciate the comments around '27 acquisition opportunity set likely not being as significant as the step-up we're seeing this year. Just in terms of how to think about buyback in the second half of the year and capacity to do that, just given that step-up in investment spend. Any help in terms of framing up? I think historically, repurchases have been, call it, 80% to, I think, a little over 100% last year in terms of free cash flow. Any comments there just in terms of what we could see in the second half?

I'm going to hold off on giving any specific guidance on a quarter-by-quarter basis of buybacks other than just to note that we do expect to be active, and we're going to continue to think about capital allocation as I laid out.

This now concludes our question-and-answer session. I would like to turn the floor back over to Nick Dell'Osso for closing comments.

All right. Thanks, everybody, for joining this call. I'm really excited about what's in front of us here at Gulfport. We've got a lot of great assets. The Southwest Appalachian Basin in general, Ohio, in particular, is a really interesting place to be doing business right now. I think Gulfport with the inventory position that we have and the operating capabilities that we've showcased over the last couple of years is better positioned than anybody to take advantage of the growth opportunities for value in this Basin. I expect that to show up in our stock price. So really look forward to working with all of you over the next many years to highlight the investment opportunity that is Gulfport. Thanks again for the time this morning, and we will see everybody out on the road.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.